10-K 1 j0499901e10vk.txt MYMETICS CORPORATION 10-K ================================================================================ 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, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _____ ------------- COMMISSION FILE NUMBER 000-25132 MYMETICS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 25-1741849 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) European Executive Office 14, rue de la Colombiere CH-1260 Nyon (Switzerland) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011 41 22 363 13 10 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE (Title of Class) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The aggregate market value of the voting common stock held by non-affiliates of the Registrant (assuming officers and directors are affiliates) was approximately U.S. $2,371,982.80 as of December 31, 2003, 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 18, 2004, there were 59,394,454 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 18, 2004, 1 Euro was convertible into 1.22354 United States Dollars. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements, which are identified by the words "believe," "expect," "anticipate," "intend," "plan" and similar expressions. The statements contained herein which are not based on historical facts are forward-looking statements that involve known and unknown risks and uncertainties that could significantly affect our actual results, performance or achievements in the future and, accordingly, such actual results, performance or achievements may materially differ from those expressed or implied in any forward-looking statements made by or on our behalf. These risks and uncertainties include, but are not limited to, risks associated with our ability to successfully develop and protect our intellectual property, our ability to raise additional capital to fund future operations and compliance with applicable laws and changes in such laws and the administration of such laws. These risks are described below and in "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" included in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statements were made. RISK FACTORS You should carefully consider the risks described below together with all of the other information included in this report on Form 10-K. An investment in our common stock is very risky. If any of the following risks materialize, our business, financial condition or results of operations could be adversely affected. In such an event, the trading price of our common stock could decline, and you may lose part or all of your investment. We are a company engaged exclusively in research and development activities, focusing primarily on human and veterinary biology and medicine. When used in these risk factors, the terms "we" or "our" refer to Mymetics Corporation and its subsidiaries. 2 WE HAVE A NOTE PAYABLE AMOUNTING TO E3,127 WHICH IS DUE JUNE 30, 2004, WHERE THERE IS NO ASSURANCE THAT THE NOTE MAY BE PAID, EXTENDED, RESTRUCTURED OR REFINANCED. THESE CONDITIONS RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. As more fully disclosed under Item 13 of this Form 10-K, we have no reasonable hope to be able to reimburse the credit facility due to MFC Bank on or before its present due date of June 30, 2004, and despite our efforts and recent achievements, we have no assurance that MFC Bank will accept to renegotiate it on terms acceptable to us. WE NEED TO RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS TO FUND OUR RESEARCH EFFORTS AND TO FULLY DEVELOP COMMERCIALLY VIABLE PRODUCTS. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS WHEN NEEDED OR THAT SUCH CAPITAL OR GRANTS WILL BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL. OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE CANNOT RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS WHEN NEEDED. The costs for us to continue our research and to develop our intellectual property will be substantial. We expect that our existing capital resources will satisfy our capital requirements through approximately June 2004. However, given the fact that we do not have any current sources of revenue, substantial additional capital or grants will likely be needed to continue the development and commercialization of our intellectual property. Currently there are no firm commitments for any additional financing. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants and there can be no assurance that additional financing will be available. While the amount of capital required cannot be estimated with precision, we estimate it will require approximately 2 million Euros just to move our business forward into a position of being prepared to initiate clinical trials. The availability of and the need for future capital will depend on many factors, including: - continued scientific progress in our research and development program; - results of pre-clinical tests; - results of any clinical trials; - the time and cost involved in obtaining regulatory approvals; - future collaborative relationships; and - the cost of manufacturing. If adequate funds are not available, we may be required to curtail or cease operations. 3 WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO GENERATE OPERATING LOSSES FOR THE FORESEEABLE FUTURE. We currently are engaged in research and development activities, and do not have any commercially marketed 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 SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR RESEARCH AND INTELLECTUAL PROPERTY, WE MAY NEVER GENERATE SIGNIFICANT REVENUES OR ACHIEVE PROFITABILITY. Our current objective is to develop vaccine and therapeutic compounds and specific therapies for certain retroviral diseases or diseases with a viral autoimmune content. All of our potential products and production technologies are in the research or pre-development stages and no revenues have been generated from product sales. The first products and applications target human immunodeficiency virus, or HIV, and feline immunodeficiency virus, or FIV, the precursors to human and feline acquired immunodeficiency syndrome, or AIDS. We will not become profitable, if ever, unless we develop our intellectual property to a point where it can be licensed to third parties on financially favorable terms or applied in the creation and development of one or more products that can generate revenues. Although our due diligence has indicated that our research and discovery regarding "mimicry" may lead to important discoveries in the scientific community regarding the HIV infection process, other discoveries may be necessary to develop an effective vaccine, and we may never be able to develop our research and intellectual property into a commercially profitable product. Our success will depend on our ability to: - effectively commercialize the research through collaborative relationships with third parties; - prepare acceptable protocols necessary to obtain regulatory approvals; - effectively conclude clinical trials; - effectively establish commercial viability; and - effectively establish marketing and manufacturing relationships. If we are unable to commercialize the current research, we do not have other products from which to derive revenue. 4 WE MUST OVERCOME SIGNIFICANT OBSTACLES TO SUCCESSFULLY DEVELOP OR MARKET PRODUCT CANDIDATES. The development of product candidates is subject to significant risks of failure, which are inherent in the development of new medical products and products based on new technologies. These risks include: - delays in pre-clinical testing, product development, clinical testing or manufacturing; - unplanned expenditures for product development, clinical testing or manufacturing; - failure of the technologies and products being developed to have the desired effect or an acceptable safety profile; - failure to receive regulatory approvals; - emergence of equivalent or superior products; - inability to manufacture (directly or through third parties) product candidates on a commercial scale; - inability to market products due to third party proprietary rights; - inability to find collaborative partners to pursue product development; and - failure by future collaborative partners to successfully develop products. If these risks materialize, our research and development efforts may not result in any commercially viable products. COMMERCIALIZATION OF OUR INTELLECTUAL PROPERTY AND CREATION OF VIABLE PRODUCTS DEPEND ON COLLABORATIONS WITH OTHERS. IF WE ARE UNABLE TO FIND COLLABORATORS IN THE FUTURE, WE MAY NOT BE ABLE TO DEVELOP PROFITABLE PRODUCTS. Our strategy for the research, development and commercialization of products requires us to enter into contractual arrangements with corporate collaborators, licensors, licensees and others. We do not have the funds to develop products on our own, and intend to depend on collaborators to develop products on our behalf. If collaborative relationships cannot be found, we may not be able to continue our development programs. Moreover, we could become involved in disputes with collaborative partners, which could lead to delays or termination of development programs and time-consuming, expensive and distracting litigation or arbitration. Even if we fulfill our obligations under a collaborative agreement, a partner may terminate the agreement. If any collaborative partner terminates or breaches an agreement with us, or otherwise fails to complete its obligations in a timely manner, our ability to successfully commercialize our intellectual property will be adversely affected. 5 IF WE ARE NOT ABLE TO DEMONSTRATE THE RESULTS OF OUR RESEARCH IN CLINICAL TRIALS, OR IF CLINICAL TRIALS ARE DELAYED, WE MAY NOT BE ABLE TO OBTAIN REGULATORY CLEARANCE TO MARKET OUR PRODUCTS IN THE UNITED STATES OR IN FOREIGN COUNTRIES ON A TIMELY BASIS, OR AT ALL. Assuming we are able to successfully develop our research into potential products, such products will require regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of the products under development, pre-clinical studies and clinical trials must demonstrate that the product is safe and effective for use in each target indication. If any of the products fail in clinical trials, the approval of the United States Food and Drug Administration (the "FDA") and similar agencies operating in foreign countries will not be obtained for such products, and we will not be able to generate revenues from such products. Clinical testing is a long, expensive and uncertain process. One cannot be certain that the data collected from the clinical trials will be sufficient to support approval by the FDA or any foreign regulatory authorities, that the clinical trials will be completed on schedule or, even if the clinical trials are successfully completed and on schedule, that the FDA or any foreign regulatory authorities will ultimately approve the product for commercial use. Clinical trials could be delayed for a variety of reasons, including: - delays in enrolling volunteers; - lower than anticipated retention rate of volunteers in the trials; and - serious adverse events related to the products being developed. Our research is presently focused on developing vaccines and therapeutics to prevent and treat HIV. Trials will be conducted on animals prior to humans. Results of animal trials, even if successful, may not be relevant for determining the preventive or therapeutic effect of any potential product designed to prevent or treat HIV infection in humans. In addition, results from early clinical trials are not necessarily indicative of future results. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in late stage clinical trials even after promising results in early stage development. Furthermore, pre-clinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approvals. Negative or inconclusive results or interpretations could cause the trials to be unacceptable for submission to regulatory authorities. IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, WE WILL BE UNABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS. We are dependent on the principal members of our management and scientific staff. In order to successfully complete our research and development activities and our commercialization plans, we will need to hire personnel with experience in clinical testing, drug discovery, government regulation, manufacturing, marketing and finance. We may not be able to attract and retain personnel on acceptable terms given the intense competition for such personnel among high technology enterprises, including biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. 6 IF WE FAIL TO ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD PARTIES, WE WILL NOT BE ABLE TO COMMERCIALIZE PRODUCTS. We do not currently have any sales or marketing infrastructure, and we do not have significant experience in marketing, sales and distribution. Future profitability will depend in part on plans to enter into successful marketing arrangements with third parties. To the extent that we enter into marketing and sales arrangements with other companies, revenues will depend on the efforts of others. These efforts may not be successful. If we are unable to enter into successful third-party arrangements, we may not be able to commercialize our products. IF WE DO NOT SUCCESSFULLY COMPETE IN THE DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS AND KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, WE WILL BE UNABLE TO CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION. The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware of several companies that are actively engaged in research and development in areas related to our research focus. Many of these companies are addressing the same diseases and disease indications that we are addressing. As a result of this intense competition, any products that we develop may become obsolete before we are able to recover the expenses incurred in their development. Moreover, many of these companies, either alone or together with their collaborative partners, have substantially greater financial resources and larger research and development staffs. These competitors, either alone or together with their collaborative partners, also have significantly greater experience in: - developing products; - undertaking pre-clinical testing and human clinical trials; - obtaining FDA and other regulatory approvals of products; and - manufacturing and marketing products. IF OUR INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT PRODUCT CANDIDATES, WE COULD ENCOUNTER MORE DIRECT COMPETITION, WHICH COULD ADVERSELY IMPACT REVENUES. Our success depends, in part, on our ability to: - obtain and maintain patents or rights to patents; - protect trade secrets; - operate without infringing upon the proprietary rights of others; and - prevent others from infringing on our proprietary rights. We will be able to protect proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of biotechnology companies involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that are owned or licensed from third parties may not provide 7 adequate protection against competitors. Pending patent applications, those applications that we may file in the future, or those applications that may be licensed from third parties, may not result in patents being issued. Also, patent rights may not provide adequate proprietary protection or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. In addition to patents, we rely on trade secrets and proprietary know-how. Protection of trade secrets and know-how is sought, in part, through confidentiality and proprietary information agreements and customary principles of "work-for-hire." These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information. Failure to protect proprietary rights could seriously impair our competitive position. IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE COULD BECOME SUBJECT TO SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM MARKETING OUR PRODUCTS. The areas in which we have focused our research and development have a number of competitors. This has resulted in a number of issued patents and still-pending patent applications. Patent applications in the United States are, in most cases, maintained in secrecy until the patents issue. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. In the event of such infringement, we may be prevented from pursuing certain product development or commercialization and may be required to obtain a license for the use of the proprietary rights or patents. We may also be required to pay damages for past infringement. The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property lawsuits, U.S. Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and in foreign countries involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue and their outcome is uncertain. Litigation may be necessary in the future to: - enforce patents that we own or license; - protect trade secrets or know-how that we own or license; or - determine the enforceability, scope and validity of the proprietary rights of others. We believe that our technology has been independently developed and does not infringe upon the proprietary or intellectual property rights of others. We cannot, however, guarantee that our technology does not, and will not in the future, infringe upon the rights of third parties. We may be a party to legal proceedings and claims relating to the proprietary information of others from time to time in the ordinary course of our business. If we become involved in any litigation, interference or other administrative proceedings, we will 8 incur substantial expense and the efforts of technical and management personnel will be significantly diverted. An adverse determination may subject us to loss of proprietary position or to significant liabilities, or require licenses that may not be available from third parties. We may be restricted or prevented from manufacturing and selling products, if any, in the event of an adverse determination in a judicial or administrative proceeding or if we fail to obtain necessary licenses. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms, if at all. WE CAN NOT BE SURE THAT ANY FUTURE OR CURRENTLY PENDING PATENT APPLICATIONS RELATING TO OUR PRODUCTS WILL ISSUE ON A TIMELY BASIS, IF EVER. Since patent applications in the United States are maintained in secrecy until 18 months from the priority date, and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be certain that we were the first to develop the inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. Even if patents are issued, the degree of protection afforded by such patents will depend upon the: - scope of the patent claims; - validity and enforceability of the claims obtained in such patents; and - our willingness and financial ability to enforce and/or defend them. EVEN IF WE OBTAIN REGULATORY APPROVAL TO MARKET AND SELL OUR PRODUCTS, WE WILL BE SUBJECT TO ONGOING REGULATORY REVIEW, WHICH WILL BE EXPENSIVE AND MAY AFFECT OUR ABILITY TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS. Even if regulatory approval for a product is secured, such approval may be subject to limitations on the indicated uses for which the product may be marketed. Such limitations may restrict the size of the available market for the product or contain requirements for costly post-marketing surveillance studies. Manufacturers of medical products are subject to continued review and periodic inspections by the FDA and other regulatory authorities. The subsequent discovery of previously unknown problems with the product, clinical trial subjects, or with the manufacturer or its manufacturing facility may result in the imposition of restrictions on the product or manufacturer, including withdrawal of the product from the market. If we or any of our collaborative partners fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. 9 IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, WE ARE NOT LIKELY TO GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE. Even if we are able to successfully develop a viable product and obtain regulatory approval of such product, such product may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any medical product depends on a number of factors, including: - demonstration of clinical efficacy and safety; - cost-effectiveness; - potential advantages over alternative therapies; - reimbursement policies of government and third party payors; - effectiveness of marketing and distribution capabilities; and - the success of physician education programs. Physicians will not recommend therapies using products until clinical data or other factors demonstrate their safety and efficacy as compared to other drugs or treatments. Even if the clinical safety and efficacy of therapies using the products is established, physicians may elect not to recommend the therapies for other reasons, including whether the mode of administration of products is effective for certain indications. WE ARE A PARTY TO LITIGATION WHICH HAS BEEN DETERMINED ADVERSELY TO US AND WE ARE UNABLE TO PAY THE PLAINTIFF WITH THE FUNDS NOW AVAILABLE TO US. We and our French subsidiary were party to several lawsuits seeking damages from our company and our subsidiary, as described under "Item 3. Legal Proceedings.". All except one case were immaterial and have been settled, either in court or out of court, with all amounts previously accounted for in our financial statements. One material case was lost and although the full amount had been provided for in our financial statements, we do not have sufficient funds to meet our obligations should the plaintiff demand immediate payment of the amount we now owe him, unless we are able to raise a sufficient amount of additional capital. Our inability to meet such obligations would have a material adverse effect on our liquidity and could threaten our business. OUR STOCK PRICE MAY EXPERIENCE SIGNIFICANT VOLATILITY, WHICH COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT. The market price of our common stock, like that of the common stock of many other development stage biotechnology companies, may be highly volatile. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many biotechnology and pharmaceutical companies for reasons frequently unrelated to, or disproportionate to, the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. 10 THE MARKET FOR OUR COMMON STOCK IS VERY LIMITED Our common stock is currently traded only on the OTC Bulletin Board. Accordingly, we cannot provide assurances as to the future liquidity of our common stock or the price at which you would be able to sell your shares in any available market. THE ISSUANCE OF ADDITIONAL EQUITY SECURITIES MAY DILUTE YOUR INVESTMENT. We currently have 59,394,454 shares of common stock outstanding, 1 share of Special Voting Preferred Stock, options to purchase an aggregate of 606,250 shares of common stock and warrants to purchase an aggregate of 6,080,166 shares of common stock. We are authorized to issue up to 80 million shares of common stock and 5 million shares of preferred stock without additional stockholder approval. The issuance of additional common stock or preferred stock will dilute our stockholders' percentage ownership, and, depending on the offering price of such stock, may also serve to dilute the value of such ownership interest. WE CURRENTLY DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR SHARES. We have never declared or paid any cash dividends on our common stock, nor do we intend on doing so in the foreseeable future. The payment of dividends, if any, in the future is within the discretion of our board of directors and will depend upon our earnings, capital requirements and financial condition as well as other relevant factors. We currently intend to retain all earnings, if any, to finance our continued growth and the development of our business. Furthermore, our ability to declare or pay dividends may be limited in the future by the terms of any then-existing credit facilities, which may contain covenants that restrict the payment of cash dividends. POLITICAL OR SOCIAL FACTORS MAY ADVERSELY IMPACT REVENUES BY DELAYING OR IMPAIRING THE CORPORATION'S ABILITY TO MARKET ITS PRODUCTS. We are focused on developing vaccines and products for the treatment and prevention of HIV. Products developed to address the HIV/AIDS epidemic have been, and may continue to be, subject to competing and changing political and social pressures. The political and social response to the HIV/AIDS epidemic has been emotionally charged and unpredictable. Such political and social forces may serve to delay or prevent introduction of our products into the marketplace or to place restrictions upon the pricing, availability and marketing of such products. 11 TABLE OF CONTENTS PART I ITEM 1. BUSINESS............................................. 13 ITEM 2. PROPERTIES .......................................... 26 ITEM 3. LEGAL PROCEEDINGS ................................... 26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................. 28 ITEM 6. SELECTED FINANCIAL DATA ............................. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 31 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................... 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......... 34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................. 34 ITEM 9A. CONTROLS AND PROCEDURES.............................. 34 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .. 35 ITEM 11. EXECUTIVE COMPENSATION .............................. 38 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS....... 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 43 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............... 49 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.......................................... 51 SIGNATURES............................................................. 71 12 PART I ITEM 1. BUSINESS THE CORPORATION We are a holding company conducting business through our subsidiaries 6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg ("LuxCo"), and Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France ("Mymetics S.A."). We were incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name "PDG Remediation, Inc." In November 1996, we reincorporated under the laws of the State of Delaware and changed our name to "ICHOR Corporation." In July 2001, we changed our name to "Mymetics Corporation." We own all of the outstanding voting stock of LuxCo and Mymetics S.A. is a wholly-owned subsidiary of LuxCo. In this document, unless the context otherwise requires, "Mymetics" and the "Corporation" refer to Mymetics Corporation and its subsidiaries. We currently do not make, market or sell any products or services, and thus, we have no revenues. We believe that our research and development activities, and the resulting intellectual property, will lead to the creation of commercially viable products, which can generate revenues for us in the future. If financially favorable terms are available, we may license or sell our intellectual property to third parties. If we fail to develop our intellectual property, we are unlikely to generate significant revenues. DEVELOPMENT OF THE CORPORATION From our inception in 1994 to December 1997, we operated in the environmental services industry, focusing on thermal treatment (in Florida), remediation services (in Florida and Pennsylvania) and waste oil recycling (in Illinois). In February 1995, we completed an initial public offering. In 1998 and 1999, after disposing of our thermal treatment, remediation services and waste oil recycling businesses, we provided consulting services to an industrial customer in Europe. In June 1999, we acquired a majority interest in Nazca Holdings Ltd., whose business involved the exploration for and development of groundwater resources in Chile. Following the disposal of our interest in Nazca in July 2000, we did not have an operating business. In March 2001, we acquired 99.9% of the outstanding shares of Mymetics S.A. in consideration for shares of our common stock and shares of Class B Exchangeable Preferential Non-Voting Stock of LuxCo, or Preferential Shares, which are convertible into shares of our common stock. In 2002, we acquired the remaining 0.1% of the outstanding common stock of Mymetics S.A. pursuant to share exchanges with the remaining stockholders of Mymetics S.A. The terms of these recent share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. Mymetics S.A. was, and continues to be, a biotechnology research and development company. On June 30, 2001, we closed on a private offering of 1,333,333 shares of our common stock, at E1.77 (U.S. $1.50) per share, for an aggregate price of E2,355,600 (U.S. $2,000,000). This private placement was exempt from registration pursuant to Regulation S of the Securities Act of 1933, and the shares were sold to foreign investors meeting the requirements of Regulation S. 13 In August, 2002 the Company formed Mymetics Deutschland GmbH for the purpose of applying for German government support of research activities to be conducted in Germany. This company never became active and was finally sold to MFC Securities (Deutschland) GmbH, an affiliate of our lender, MFC Merchant Bank S.A. MYMETICS CORPORATION Prior to 2002, our activities were primarily conducted in Europe. During the second quarter of 2002, through our operations in the United States, we launched programs in the United States in an attempt to reinforce our intellectual property portfolio and to accelerate the commercialization of our technology. This was done, in part, by attempting to target products and business development in the United States. Again, prior to this time, activities such as design of the prototype molecules, synthesis, and in vitro testing had been conducted exclusively in Europe. We believed that expanding our operating activities in the United States offered numerous advantages, including greater access to expertise, grants, subsidies, intellectual property and public and private research teams. Due to financial constraints, we were forced to limit these activities in January 2003. MYMETICS S.A. Our subsidiary, Mymetics S.A., is a biotechnology research and development company devoted to fundamental and applied research in the area of human and veterinary biology and medicine. Mymetics S.A.'s primary objective is to develop therapies to treat certain retroviruses, including the human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of Mymetics S.A.'s research include potential treatments and/or vaccines for animal AIDS, human and animal oncoviral leukemias, multiple sclerosis and organ transplantation. To date, Mymetics S.A. has conducted its fundamental research in Europe. Mymetics S.A.'s research strategy is to structure and manage a network of public and private best-in-class research teams, each with a clearly delineated focus. Mymetics S.A. has segmented its primary research into modules, which are then out-sourced, under its direct supervision, to high-level, specialized and complementary public and private research teams. Mymetics S.A. retains all intellectual property rights in the combined research and applies for domestic and international patents whenever justified. As agreed and coordinated by Mymetics S.A., the research teams are authorized to co-publish their results. MYMETICS GMBH Mymetics Deutschland GmbH was formed in 2002 for the purpose of applying for German government support of research activities to be conducted in Germany. The German government offers subsidy programs as a means of attracting business investment into parts of eastern Germany. In particular, Mymetics Deutschland GmbH was organized to take advantage of (i) an investment matching program offered by the German government, whereby the German government matches the amount of certain investments made by companies in eastern Germany and (ii) a broader program, whereby the German government offers significant amounts of grant money to companies in eastern Germany that satisfy certain conditions. Mymetics Deutschland GmbH solicited interest from existing research teams in eastern Germany, formulated four distinct research programs and applied for German government grants. In December 2002, Mymetics Deutschland GmbH was 14 informed that two of its programs would be eligible for matching grants. However, the broader program described above, which may have served as a source of substantial working capital, was suspended by the German government for biotechnology companies. Consequently, the former Board of Directors elected to suspend its planned expansion of research activities into Germany and sold the German company to MFC Securities (Deutschland) GmbH, an affiliate of our lender, MFC Merchant Bank S.A., in July 2003. RECENT INDUSTRY DEVELOPMENTS During the first quarter of 2003, one of our major competitors received approval from the United States Food and Drug Administration of its fusion inhibitor candidate drug. This development, combined with advances in our research activities, served to validate our basic technology in the area of fusion inhibitors and, in particular, the efficacy of gp41-derived peptide product. Given this validation, as well as (i) advances in the our research and development efforts, (ii) poor worldwide capital market conditions and (iii) lack of sufficient long term working capital, we have decided to re-direct our business development strategy: rather than independently funding the completion of research and development programs prior to the sale or licensing of our technology to a major international pharmaceutical or biotechnology firm, we have opted to accelerate the exploration of potential partnerships with major international pharmaceutical and biotechnology firms. We have also accelerated the development of our patent portfolio. SCIENCE OVERVIEW Virus. A virus is a non-cellular organism consisting of deoxyribonucleic acid ("DNA") or ribonucleic acid ("RNA") and a protein coat. During the free and infectious stage of their life cycle, viruses do not perform the usual functions of living cells, such as respiration and growth. Rather, when viruses enter a living plant, animal or bacterial cell, they utilize the host cell's chemical energy and synthesizing ability to replicate. After the replication of the viral components by the infected host cell, virus particles are released and the host cell is often destroyed. The approximately 2,450 viral species identified to date are divided into about 75 groups. HIV belongs to the group of retroviruses, so called because they contain the reverse transcriptase enzyme that copies viral RNA back into DNA (the reverse of what usually occurs: DNA is copied into RNA). Retroviruses include three main groups: spumaviruses, oncoviruses that are often associated with cancers and lentiviruses that cause slow evolving pathologies, e.g. AIDS-associated lentiviruses. HIV. The human immunodeficiency virus (HIV) is a lentivirus that belongs to Retroviridae family that has RNA as genetic material. Once inside the target cells (mostly T cells, monocytes/macrophages and dendritic cells), HIV uses it's own reverse transcriptase enzyme in combination with the cell's machinery to copy it's RNA into DNA. Afterward, the HIV DNA can be integrated into the host chromosomes. If integration happened, it means that after each cell division, the HIV genome is transmitted to the daughter cell with the host chromosomes. In other words, HIV can be spread to the next cell generation forever. HIV infection is characterized by the inability of the host immune system to mount an efficient immune response capable of neutralizing the HIV. Therefore, HIV is still replicating and spreading in the infected host, affecting and killing numerous cells of the immune system, leading to the life-threatening late stage of the disease called AIDS (Acquired Immuno Deficiency Syndrome). 15 The global HIV epidemic is composed of multiple subtypes (clades)and inter-subtypes recombinant forms, each with a distinct geographic distribution. Two strains of HIV capable of causing AIDS have been identified, HIV-1 and HIV-2. The genetic material of these two strains is approximately 60% identical. HIV-1 is world-wide spread (pandemic), while HIV-2 seems to be more limited to certain areas of Africa (epidemic). Each strain contains a number of subtypes, which are slight genetic variations of the virus. These variations result from the high mutation rate of HIV's genetic material. HIV uses these mutations as a mechanism to evade the immune system. Indeed, mutations in HIV genome may decrease or abolish the recognition of viral proteins by the host antibodies or cellular immune response toward HIV. Most variations occur in the gene encoding the GP120 protein, and these mutations can alter the protein's structure and consequently, the recognition by the host immune system. AIDS. AIDS is a fatal epidemic disease caused by an infection by HIV (HIV-1 or HIV-2). In most cases, HIV invades the host and slowly attacks and destroys the immune system, the body's defense against disease, leaving the infected individual vulnerable to malignancies and infections that eventually cause death. The immune system's response (antibodies and cellular immune response) is usually sufficient to temporarily arrest progress of the infection and reduce levels of the virus in the blood. Virus replication continues, however, and gradually destroys the immune system by infecting and destroying critical white blood cells known as CD4 cells. The main cellular target of HIV is a special subtype of white blood cells critical to the immune system, known as helper T lymphocytes, or T4 helper cells. These cells play a central role in the orchestration of the immune responses by stimulating or activating virtually all of the other cells involved in immune protection. These cells include B lymphocytes that produce antibodies needed to fight infection; cytotoxic T lymphocytes, which destroy cells infected with virus; and macrophages and other effector cells, which attack invading pathogens. Furthermore, helper T cells are the main producer of a small molecule named IL-2 cytokine. This IL-2 acts as a key messenger between helper T cells and other effector cells of the immune system. Once HIV has entered into the helper T cell, it can impair the functioning of or destroy the cell. Therefore, it will contribute to lower this IL-2 messenger concentration present in the HIV-infected host and consequently, leading to a major defect in cell communication. A hallmark of the onset of AIDS is a drastic reduction in the number of helper T cells in the body of HIV-infected subjects. HIV can also infect other cells, including certain monocytes and macrophages, dendritic cells as well as brain cells. All these cells express a common protein at their cell surface called CD4. This CD4 protein serves usually as primary receptor for the HIV surface envelope glycoprotein called gp160, which explain why HIV preferred target cells expressing the CD4 molecule. Destruction of CD4+ lymphocytes is the major cause of the immunodeficiency observed in AIDS, and decreasing CD4+ lymphocyte levels appear to be the best indicator of morbidity in these patients. As the infection progresses, the immune system's control of HIV levels weakens, the number of viruses in the blood rises and the level of critical T cells declines to a fraction of their normal level. Viral Envelope of HIV. The viral envelope of HIV is covered with mushroom-shaped spikes called gp160 that enable the virus to attach itself to the target cell. The cap of each "mushroom" is comprised of gp120 molecules and its stem is comprised of gp41 molecules that is anchored into the viral envelope(gp120+gp41=gp160). Gp120 is a glycoprotein that protrudes from the surface of HIV and binds to the CD4 receptor of the CD4+ T-cells. In a two-step process that allows HIV to breach the membrane of T-cells, the gp120-CD4 complex 16 refolds to reveal a second structure that binds to CCR5 or CXCR4, one of several chemokine co-receptors used by the virus to gain entry into T cells. Gp41 is a glycoprotein embedded in the outer envelope of HIV and plays a key role in HIV's infection of cells by carrying out the fusion of the viral and cell membranes. Immune System. The immune system functions to protect the body against infection and foreign substances, including viruses and bacteria. This defensive function is performed by certain body's white blood cells (T cells that belong to leukocytes) capable of recognizing foreign substances presented by a number of accessory cells like dentritic cells. When an immunocompetent T cell recognizes foreign material or a biological invader presented by dendritic cells or macrophages, it normally induces an immune response. For example, B lymphocytes may be stimulated to produce and secrete antibodies capable of binding and neutralizing the pathogene, while cytotoxic T lymphocytes might be activated to destroy cells infected with viruses. This recognition function relies on the immune system's ability to recognize specific foreign molecular configurations, generically referred to as antigens. After specific recognition by T4 helper T cells, the most central cell of the immune system, interleukine-2 ("IL-2") is produced by these same T4 helper T cells. IL-2 is a central interleukine that can activate most of the cells of the immune system, including B cells, NK cells, CD4+ helper and cytotoxic T lymphocytes. BUSINESS STRATEGY Our current objective is to develop a platform of both therapeutic compounds and vaccines. We have made a series of discoveries about how the body's immune system responds to retroviruses, specifically HIV. The foundation of our platform technology and product pipeline is our discovery of a subtle mimicry between the virus and the host cells. By understanding the precise dynamics of the virus's GP41 and the host-cell's IL-2, we strongly believe we have the potential to design and develop specific therapeutic molecules and antibodies to disrupt or even prevent the disease. In addition to targeting HIV and AIDS, we plan to apply these findings to the potential treatment or even prevention of a range of additional diseases, including certain echoviruses causing leukemia. Some biotechnology companies are focusing on slowing or impeding the progress of the virus once it has infected the body's host cells. Other biotechnology firms are attempting to develop therapies that prevent the virus from fusing with host cells. If the virus cannot fuse, it cannot reproduce, and the body's immune system then succeeds in arresting the invasion. Our approach is also based on the concept of preventing viral fusion. Our scientific strategy is unique in that its design is based on a series of discoveries involving mimicry, more specifically between the HIV envelope glycoprotein GP41 and the host's IL-2, one of the most central cytokine of the immune system. By exploiting this mimicry, HIV has found a new mechanism to evade the immune response. Indeed, the body's immune system responds to HIV invasion, but fails to differentiate properly between the viral GP41 and the host's IL-2 cytokine. As a result, we believe that the immune system attacks both of them with equal vigor. The unfortunate consequence is that the body, in turning on itself, undercuts its own defenses overtime. By better understanding these precise dynamics, we believe we will be able to design vaccines and to develop specific therapeutic molecules to prevent HIV from entering the host cells and the body's immune system to recognize HIV. Our current scientific strategy is based on the gp41-IL-2 mimicry to create therapeutic peptides to prevent HIV fusion and vaccines capable of inducing neutralizing antibodies that recognize strictly the GP41 as a separate and distinct entity from IL-2. If this can be accomplished, 17 the body's immune system should be able to identify and attack the virus instead of inducing an autoimmune disease directed toward the IL-2 and affecting the quality of the immune system. The Discovered Molecular Mimicry Between Trimeric GP41 AND IL-2. We have discovered a molecular mimicry between the trimeric ectodomain of the transmembrane protein of immunosuppressive lentiviruses (HIV-SIV-FIV) and the IL-2 of the infected host species. Our initial results were published with the French Academy of Sciences in November 2000. Autoimmune Consequences for HIV Infected Subjects. We have found some of the expected autoimmune consequences of the described virus-host molecular mimicry in HIV infected subjects. As expected, HIV positive sera recognize human IL-2. The tests included 2,352 HIV+ and HIV-sera, and the results demonstrated that 100% of HIV+ patients (stages II, III and IV) were positive for the presence of anti IL-2 antibodies. Later, antibody cross-reactivities were found between the structurally and physically antigenic analogous sites of GP41 (HIV-1) and human IL-2. The first results were presented in the Journal of Autoimmunity in 2001 and were also presented in a poster session at the Cold Springs Harbor, New York meeting on infectious disease in December 2001. VACCINAL USE OF THE MIMICRY DISCOVERY Our current research modules focus on the following three fields: - FUNDAMENTAL RESEARCH. We believe that our insight into the GP41/IL-2 mimicry can help to explain, in large part, the main AIDS-associated disorders: drop of peripheral IL-2, decrease of non-infected T helper lymphocytes, apoptosis of non-infected cells, lymphoproliferation disorders and (alpha)2 microglobulin increase and hypergammaglobulinemia. Some of the possible effects of the tridimensional GP41 (HIV-1)/human IL-2 molecular mimicry on the AIDS-associated disorders are being evaluated by our research teams. These teams are also studying molecular mimicry in FIV, between the viral envelope protein gp36 and feline IL-2. - THERAPEUTIC MOLECULES. Based on insights into mimicry, we have developed a series of synthetic peptides that might inhibit the fusion between HIV or FIV and its target cell in an infected host. For the in vitro work, these synthetic peptides have been effective for blocking both HIV and FIV infections, while in vivo experiments with FIV peptides is under investigation to validate our HIV model. These therapeutic molecules would prevent the virus entry into the target cell, inhibiting its attempts to reproduce. Having demonstrated that the transmission of HIV depends on the viral load, and that no transmission has been observed below 1500 viral copies/ml., treatment with therapeutic agents may provide a strategy to control AIDS epidemicity. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs. In a series of independent in vitro experiments, our rationally designed peptide compounds were proven to effectively block viral fusion. These compounds also showed a potency that is equivalent to the gp41 compound recently approved by the United States Food and Drug 18 Administration (FDA). The relative potency of our compounds were presented in a poster presentation given at Interscience Conference on Antimicrobal Agents and Chemotherapy in San Diego CA in September 2002. An additional poster presentation at the International Feline Retrovirus Research Symposium conference in December 2002 showed the potency of a series of our FIV gp36-derived peptides, and in particular highlighted the surprising potency of a short compound (consisting of 8 amino acids only). Results were also recently published in the Journal of Virology (March 2003) in an article entitled "Antiviral Activity and Conformational Features of an Octapeptide Derived from the membrane-Proximal Ectodomain of the Feline Immunodeficiency Virus Transmembrane Glycoprotein." An additional poster presentation at the annual International Conference on Retroviruses and Opportunistic Infection in Boston in February 2003 communicated the results of a series of benchmarking in vitro assays, highlighting the potency of our HIV gp41 "IL-2 like"-derived peptide compounds across a wide array of clades or strains of the virus. These data appear to validate our strategy of creating compounds from well-conserved, IL-2-homologous regions, for the greatest possible application for patients worldwide. Based on the success of in vitro compounds, we launched our first in vivo tests in the feline model, collaborating with well-known research partners at the Retroviral Center at the University of Pisa, Italy. These tests are expected to provide valuable insight into the actual efficacy of the potential peptides, in particular the shorter peptides, which would offer a number of practical advantages in terms of commercialization, including less complexity, lower cost to manufacture, less immunogenicity, and potential greater bio-availability. - PREVENTIVE VACCINES. We believe that our discovery of the host-virus IL-2 mimicry opens the door to novel therapeutic and preventive vaccine strategies for both humans and animals. We believe that properly mutated trimeric gp41 and gp36 represent excellent candidate vaccines because they are devoid of the "IL-2" like structure and its harmful associated side effects. Furthermore, these engineered gp41 and gp36 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 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 and gp36, which has accelerated the preliminary vaccine program. A first round of rabbit immunizations with various protocols testing different adjuvants, protein doses and route of administration is already under investigation. A second round of immunizations is planned for June 2004. Results are expected in November 2004. 19 We currently have compound prototypes potentially capable of commercialization, including: - Therapeutic molecules (pharmacological agents) - administered to infected subjects to prevent cell infection by HIV and FIV. - Preventive vaccines - administered to healthy subjects to prevent infection by HIV or FIV. The Company is exploring both HIV and FIV in parallel, and gaining insight into product design through the synergies between these two programs. KEY STAFF Our Board of Directors and management team have changed over the past few months. As disclosed in our form 10-Q for the quarter ended September 30, 2003, Michael K. Allio, John M. Musacchio and Rober Demers have been replaced as Directors by Christian J.-F. Rochet, Ernst Luebke and Robert Zimmer. As regards officers, Michael K. Allio has been replaced as Interim Chief Executive Officer by Christian J.-F. Rochet, President and Chief Executive Officer, while John M. Musacchio has been replaced as Chief Financial Officer and Treasurer by Ernst Luebke. Research and Development activities have been spearheaded since November 3, 2003 by our new Chief Scientific Officer, Dr. Sylvain Fleury, Ph.D., in replacement of Dr. Pierre-Francois Serres, who was appointed on that same day Head of Exploratory Research. Dr. Fleury is an experienced research and development scientist in the fields of biology, virology, immunology and AIDS. RESEARCH AND DEVELOPMENT EXPENSES For the year ended December 31, 2003, we focused on research and development and, as a result, did not generate any revenues or engage in any marketing activities. For the years ended December 31, 2003, December 31, 2002 and December 31, 2001, we spent E 1,263,000, E 1,878,000 and E 482,000 respectively, on research and development activities. INTELLECTUAL PROPERTY We are the exclusive owner of intellectual property relating to our core business which is focused on the development of novel HIV and FIV therapeutics and vaccines. Particularly, we own two issued French patents FR99 06528 and FR01 15424 and one US issued patent US 6,455,265 and its corresponding national filings and divisional filings in various countries including US, Japan, Canada, EP and Israel. We also filed two Patent Cooperation Treaty, or PCT, applications, WO 03/048187 and WO 03/104262, with national phases in US and EP. We have additionally filed four United States provisional applications related to the field. 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 20 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 either use such intellectual property to produce one or more products capable of generating significant revenues or 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 and veterinary biology and medicine all of which could be considered competitors. While many of these individuals and entities have greater financial, manufacturing, technical, human resource, marketing and distribution capabilities, and greater experience in conducting pre-clinical and clinical trials and in obtaining regulatory and FDA approvals, we believe that our technologies nonetheless provide us with a competitive advantage. Further, we may face significant competition in the design and development of some of our therapeutic compounds and preventive vaccines. Therapeutic Molecules (pharmacological agents). The biopharmaceutical industry is intensely competitive, especially in the field of HIV. If we are successful in developing and proving our therapeutic agents, we will compete with existing developed and approved therapies. The FDA has approved 16 antiviral drugs to treat HIV and AIDS, which fall into two categories depending on whether they target one or two viral enzymes: either HIV protease or reverse transcriptase ("RT"). RT drugs aim to block reverse transcriptases and prevent transcription of the virus' generic material from RNA to DNA. There are two classes of RT drugs: nucleoside analogues inhibitors and non-nucleoside inhibitors. The approved nucleoside analogues inhibitors include drugs such as Retrovir (ziduvodine; AZT), Videx (didanosine; ddl), Hivid (zalcitabine; ddc), Zerit (stavudine; d4T), Epivir (larnivudine; 3TC), Combivir (ziduvodine + lamivudine), Ziagen (abacavir; ABC). These drugs are manufactured by companies such as GlaxoSmithKline Plc, Bristol-Myers Squibb Company, Roche Holding AG and BioChem Pharma Inc. The approved non-nucleoside inhibitors include drugs such as Viramuno (nevlrapine), Rescriptor (delavirdine), Sustiva (efavirenz; EFV) which are produced by Boehringer Ingelhelm Gmbh, Pharmacia & Upjohn Inc. and E. I. Du Pont de Nemours and Company. The objective of approved protease inhibitor drugs is to prevent the assembly of new virus particles. The approved protease inhibitors include drugs such as Invirase (saquinavir), Fortovase (saquinavir), Norvir (ritonavir), Crixivan (indinavir), Viracept (nellinavir) and Agenerase (amprenavir), which are manufactured by companies including Roche Holding AG, Abbot Laboratories, Merck & Co. Inc., Agouron Pharmaceuticals Inc., Vertex Pharmaceuticals Incorporated and Glaxo Wellcome Plc. Both HIV protease and RT drugs have demonstrated their efficacy in terms of HIV blood concentration and HIV-positive period and are used to slow the progression of the disease. Furthermore, efficacy has been higher with drug combinations. None of these drugs are, however, a cure, and mutations of HIV's envelope produce viral strains resistant to both classes of drugs. These drugs also produce toxic side effects on the peripheral nervous system and gastrointestinal tract. Non-compliance on combination therapies and 21 interruptions in dosing could have an effect on, and trigger, accelerated viral replication. If successful in developing and validating our therapeutic molecules, we believe that there are significant existing and future markets for the treatment of HIV and AIDS. There can be no assurance that currently approved drugs or products developed in the future for the treatment of HIV/AIDS by our competitors (which may include Roche Holding AG, Abbot Laboratories, Merck & Co. Inc., Agouron Pharmaceuticals Inc., Vertex Pharmaceuticals Incorporated, Glaxo Wellcome Plc, Bristol-Myers Squibb Company, Trimeris, Inc., Progenics, Inc., and BioChem Pharma Inc.) will not be effectively marketed and sold. We believe, however, that our unique approach and fundamental understanding of molecular mimicry will provide an advantage over existing and future competitors. The progress of Trimeris Inc. in securing FDA approval for its fusion inhibitor product, "Fuzeon", a gp41-derived peptide comprised of 36 amino acids, represents excellent proof-of-concept for us by demonstrating, through human trials, that such a compound is safe and effective in lowering viral load. Industry experts estimate that the annual revenue generated from this drug may reach U.S. $500,000,000 - U.S. $750,000,000, which confirms the significant demand for fusion inhibitor drugs. The media has also, however, published that Trimeris and its partner Roche face significant challenges and limitations, including prohibitive cost of goods, a complex manufacturing process involving 106 separate steps in chemical synthesis, an elevated retail price (recent estimates exceed $20,000 per patient per annum, more than double the cost of current therapies), significant supply shortages and difficult delivery of the drug (requiring subcutaneous injection twice/day of 90 mg. of the drug). These challenges suggest that a drug that can be made less expensively, and delivered more easily, will have significant competitive advantages. Preventive Vaccines. We are conducting research aimed at developing a preventive vaccine for the HIV-1 virus, which vaccine will provide protection against a broad array of viral strains. In the field of HIV vaccines, the recent failure 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. In the field of FIV vaccines, Ft. Dodge, a division of Wyeth Pharmaceuticals, launched the industry's first FIV preventive vaccine in late 2002. We consider this development as further validation of the demand and viability of this product category. Press releases issued by Ft. Dodge cite a significant potential market for this drug. Like the Trimeris product, the Ft. Dodge feline vaccine appears to suffer from a range of drawbacks, so we consider the competitive threat of Ft. Dodge's FIV preventive vaccine to be moderate. The worldwide vaccine market is dominated by four large multinational companies: Merck & Co., SmithKline Beecham Plc, Wyeth Lederle Vaccines & Pediatrics (a division of American Home Products Corporation), and Aventis Pasteur S.A. Companies such as The Immune Response Corporation, VaxGen Inc., Trimeris, Inc., and Progenics Pharmaceuticals, Inc. are also developing preventive vaccines. 22 We believe that while these companies have greater financial, manufacturing, technical, human resource, marketing and distribution capabilities, and greater experience in conducting pre-clinical and clinical trials and in obtaining regulatory and FDA approvals, our technologies, nonetheless, provide us with a competitive advantage. Our innovative approach to vaccine development is based on the observed immunological cross-reactivity (or mimicry) between the well preserved, antigenic and immunodominant domain of GP41 and IL-2, and relies on the observation of expected autoimmune consequences in HIV infected subjects. We believe that our approach is most promising in comparison with the approaches that have been pursued so far, including: - Sub-unit vaccine: a technology addressing a piece of the outer surface of HIV, such as GP160 or GP120, produced by genetic engineering. - Live vector vaccine: a live bacterium or virus such as vaccinia (used in the smallpox vaccine) modified so it cannot cause disease, but can transport into the body one or more genes that makes one or more HIV proteins. - Vaccine combination: an example includes a "prime-boost strategy", use of a recombinant vector vaccine to induce cellular immune responses followed by booster shots of a sub-unit vaccine to stimulate antibody production. - Peptide vaccine: chemically synthesized pieces of HIV proteins (peptides) known to stimulate HIV-specific immunity. - Virus-like particle vaccine (pseudovirion vaccine): a non-infectious HIV look-alike that has one or more, but not all, HIV proteins. - DNA vaccine: direct injection of genes coding for HIV proteins. - Whole-killed virus vaccine: HIV that has been inactivated by chemicals, irradiation or other means rendering it non-infectious. - Live-attenuated virus vaccine: live HIV from which one or more apparent disease-promoting genes of the virus have been deleted. GOVERNMENTAL REGULATION 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 and in our ongoing research and product development activities. Any products that we develop will require regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical studies and clinical 23 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. The success of our business will depend on our 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. 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 metabolism 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. 24 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. We 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 our product candidates 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 us or our collaborators. A failure to obtain or maintain the necessary regulatory approvals will have an materially adverse effect on our business. EMPLOYEES As of December 31, 2003, neither Mymetics S.A. nor Mymetics Corporation had any full-time employees. Indeed, all formerly reported employment agreements were either i) of a predetermined duration and not renewed, ii) resigned by their respective holders or iii) terminated by the former management, as disclosed in our form 10-Q for the quarter ended September 30, 2003. WWW.MYMETICS.COM News and information about Mymetics Corporation and its subsidiaries were available on our web site, www.mymetics.com, until August 2003, after which the site was temporarily shut off, as some of its contents had to be substantially updated. We intend to provide again, free of charge and as soon as practically feasible, news and other information about the Corporation, including access to our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after we file or furnish them electronically with the United States Securities and Exchange Commission. 25 ITEM 2. PROPERTIES Until February 2004, Mymetics S.A. leased approximately 170 square meters of office space in Saint-Genis Laval (Near Lyon, France), in which the Corporation's European administrative activities had been conducted until July 31, 2003. The all inclusive rent for such facilities was approximately E 1,641 per month, with a lease expiring on January 31, 2006. From March 2004, this space has been reduced to approximately 45 square meters at an approximate all inclusive rent of E 500 per month. This office space is now used exclusively by Dr. P.-F. Serres, our Head of Exploratory Research. This amended lease still expires on January 31, 2006. Up until January 31, 2003, we leased approximately 250 square feet of space in Annapolis, Maryland. The rent under our Annapolis lease was $1,000 per month prior to its termination. From February 2003 until July 2003, the former management of the Company used a small amount of space at the office of our former Chairman, Michael K. Allio, as its principal executive office. This space was being provided by Mr. Allio at no charge, keeping however in mind that between January 1, 2003 and July 31, 2003, charged Mymetics USD 217,750 for services rendered, USD 8,500 as director's fee and USD 32,528.69 for travel and other expenses, i.e. a total of USD 250,278.69 or USD 35,754.10 per month. Following the July 31, 2003 changes in the Company's management, our executive office was transferred to Nyon (Near Geneva, Switzerland), initially at our CEO and CFO's respective offices. On February 1, 2004, our European Executive Office was moved to a new leased office of approximately 60 square meter in Nyon, at an approximate all inclusive cost of E 1,000 per month. All of the furniture and office equipment being provided free of charge by our CEO and CFO. As regards our research activities. these are conducted at the properties of third parties with whom the Corporation contracts to perform research projects. ITEM 3. LEGAL PROCEEDINGS On December 19, 2000, the Swiss Law firm which had been retained by the Directors of our French subsidiary Mymetics S.A. (formerly Hippocampe S.A.) to advise them during their loan and reverse merger negotiations with MFC Merchant Bank S.A. filed a claim in the Court of Geneva (Switzerland) against Mymetics S.A. following the latter's decision to refuse to pay more than 13.3% of the firm's invoice for legal services. Following initial hearings, the Court ordered an amount of CHF 89,188, accruing interest at 5% p.a., to be put in receivership by MFC Merchant Bank S.A. on that day. The sum claimed in principal, interests and expenses amounts to approx. CHF 120'000 (E80,000). On December 18, 2003, our French subsidiary Mymetics S.A. was formally notified of the December 2nd, 2003 judgement rendered by the court of Geneva (Switzerland) in this matter, by which Mymetics S.A. was condemned to pay the full amount claimed by the plaintiff (CHF 89,188), plus interest at 5% p.a. from November 24, 2000 and CHF 10,000 as a participation to the plaintiff's legal costs. Although the full amount had been provided for in our financial statements, we do not have sufficient funds to meet our obligations should the plaintiff demand immediate payment of the amount we now owe him, unless we are able to raise a sufficient amount of additional capital. Our inability to meet such obligations would have a material adverse effect on our liquidity and could threaten our business. On April 21, 2003 our former Vice President of Development, Joseph D. Mosca,filed a claim against us in the Circuit Court of Maryland for Howard County. Mr. Mosca claims that we breached the employment agreement between him and us and that we violated the Maryland wage payment and collection law by not paying him all the amounts he is owed. He was demanding $375,000 in damages as a result of such claims. On May 22, 2003, this case was moved to the U.S. District Court in Maryland. Following settlement discussions, we reached an agreement with Mr. Mosca in October 2003 whereby Mymetics will pay Mr. Joseph D. Mosca, no later than November 1, 2004, a final settlement of $10,000, in exchange of which Mr. Mosca is waiving all further charges and claims against the Company. This amount had previously been provided for in our financial statements. 26 In late June 2003, Dr. Pierre-Francois Serres, our former chief scientific officer and a current member of our board, filed a claim against our French subsidiary, Mymetics S.A., claiming he is entitled to benefits arising out of his termination from employment. In a judgment passed on October 14, 2003, the court ruled in favor of Dr. Pierre-Francois Serres and consequently, allowed him a total compensatory amount of E46,735. In a further agreement with the current Board of Directors, Dr. Serres pledged not to claim payment of this amount following the Board's decision to reinstate him as Chief Scientific Officer of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. The Corporation's common stock is quoted on the OTC Bulletin Board under the trading symbol "MYMX". The Corporation's trading symbol changed from ICHR to MYMX in July 2001, pursuant to a corporate name change from ICHOR Corporation to Mymetics Corporation. The following table sets forth the quarterly high and low sale price per share of the Corporation's common stock for the periods indicated. The prices represent inter-dealer quotations, which do not include retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
FISCAL QUARTER ENDED HIGH LOW 2002 March 31......................................... $ 3.85 $ 2.15 June 30.......................................... 3.70 2.70 September 30..................................... 3.45 0.06 December 31...................................... 0.36 0.09 2003 March 31......................................... $ 0.22 $ 0.09 June 30.......................................... 0.14 0.09 September 30..................................... 0.12 0.07 December 31...................................... 0.14 0.04
(b) Stockholders. At March 18, 2004, the Corporation had approximately 640 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, 2003.
---------------------------------------------------------------------------------------------------------------------- Number of Securities remaining available for Number of Securities to be Weighted Average Exercise issuance under equity issued upon exercise of Price of Outstanding compensation plans Outstanding Options, Options, Warrants and (excluding securities Warrants and Rights Rights reflected in column (a)) Plan Category (a) (b) (c) ---------------------------------------------------------------------------------------------------------------------- Equity Compensation Plans Approved by Security Holders (1) 606,250 (2) U.S. $0.92 4,557,500 ---------------------------------------------------------------------------------------------------------------------- Equity Compensation Plans not 1,500,000 (4) U.S. $0.10 Approved by Security Holders 80,166 (3) U.S. $1.725 N/A ---------------------------------------------------------------------------------------------------------------------- Total 2,186,416 U.S. $0.39 4,557,500 ----------------------------------------------------------------------------------------------------------------------
28 (1) Equity compensation plans approved by our security holders include (i) our 1994 Amended and Restated Stock Option Plan, (ii) our 1995 Qualified Incentive Stock Option Plan and (iii) our 2001 Stock Option Plan. Our 1994 Amended and Restated Stock Option Plan and our 1995 Qualified Incentive Stock Option Plan were both terminated in March 2001, but some options granted under these plans prior to such termination remain outstanding and are included in this table. (2) Includes (i) 442,500 shares of common stock underlying options granted under our 2001 Stock Option Plan, (ii) 100,000 shares of common stock underlying options granted under our 1995 Qualified Incentive Stock Option Plan and (iii) 63,750 shares of common stock underlying options granted under our 1994 Amended and Restated Stock Option Plan. (3) From time to time we have granted our lender, MFC Merchant Bank S.A., warrants to purchase shares of our common stock. These warrants are granted in connection with certain credit facilities provided to us by MFC Merchant Bank S.A., and placement services provided by MFC Merchant Bank S.A. in connection with a private placement of our securities in June 2001. These warrants were not granted pursuant to any formal equity compensation plan approved by our board of directors, but rather, each grant was an individual equity compensation arrangement, authorized by our board of directors and granted as compensation for services provided. All of the outstanding warrants were granted pursuant to similar forms of warrants, and each has an exercise price of U.S. $1.725. (4) 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, 2003 and ending on January 31, 2004. These issuances were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as transactions by an issuer not involving any public offering. The present Board of directors believes that until such time as the Company has fully recovered from its present difficult situation, it should be managed exclusively by major shareholders to ensure that stakeholders' long term interests would prevail over short term mercenary considerations. The present Board of directors further believes that the Company needs to have rapid access to the inner circle of world opinion leaders in matters of HIV-AIDS if it wants to have its ideas, work and results peer recognized and accepted to qualify for grants and other donations. With this in mind, we have been able to attract world class personalities such as Mr. Jacques-Francois Martin, former CEO of Laboratoires Merieux, member of the Board of the IAVI and CEO of the vaccine Fund chaired by Mr. Nelson Mandela, and Professor Marc Girard, DVM, D. Sc., former Head of the Laboratory of Molecular Virology at the Pasteur Institute in Paris (France), former Director, European Research Center 29 for Virology and Immunology (CERVI) in Lyon (France), former Head of the HIV Task Force at the French National Agency for AIDS Research (ANRS), Paris, former Director General of the Merieux Foundation in Lyon (France), former Chairman of the European Consortium for an HIV Vaccine (EuroVac), Brussels. But one doesn't attract bees with vinegar, thus: - In September 2003, we issued Dr. Robert Zimmer, our only director which was not also a major shareholder of the Company, 400,000 common shares as a one-off remuneration as outside director and in recognition of the fact that he had accepted to serve the Company despite the absence of D&O insurance coverage. - In November 2003, we issued Dr. Sylvain Fleury, Ph. D., 500,000 common shares of Mymetics Corporation in recognition of his support of the Company since 1997 (he was instrumental in having Aralis Participations S.A., still a major shareholder of Mymetics Corporation, support Hippocampe S.A. - now Mymetics S.A. - between 1997 and 2000) and in compensation for his modest remuneration as CSO of Mymetics. - In November 2003, we issued Mr. Jacques-Francois Martin 1,000,000 common shares of Mymetics Corporation in recognition of his support of the Company and more specifically, for his early introduction to the inner circle of world class experts and opinion makers in matter of HIV-AIDS. - In November 2003, we agreed to issue Mr. Jacques-Francois Martin an additional 2,000,000 common shares of Mymetics Corporation, contingent upon his accepting to be elected Chairman of Mymetics Corporation. - In December 2003, we issued two investors 1,500,000 common shares of Mymetics Corporation for E124,800, or approximately $.10 per share. - In December 2003, we issued the same two investors warrants to acquire, before July 31, 2004, an additional 1,500,000 common shares of Mymetics Corporation at $.10 per share. - In January 2004, we issued two investors 2,000,000 common shares of Mymetics Corporation for E166,400, or approximately $.10 per share. - In January 2004, we issued the same two investors warrants to acquire, before July 31, 2004, an additional 2,000,000 common shares of Mymetics Corporation at $.10 per share. - In January 2004, we issued Professor Marc Girard, DVM, D. Sc., 500,000 common shares of Mymetics Corporation in recognition of his support of the Company and in compensation for his modest remuneration as Head of our Vaccines Development. - In February 2004, we issued one investors 2,500,000 common shares of Mymetics Corporation for $250,000, or $.10 per share. - In February 2004, we issued the same investor a warrant to acquire, before July 31, 2004, an additional 2,500,000 common shares of Mymetics Corporation at $.10 per share. 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. In addition, the Board has offered 2,000,000 common shares to Mr. J.-F. Martin upon acceptance of an offer as board chairman. The fair value of these shares was approximately E33 at December 31, 2003. These shares have not been considered issued for purposes of these financial statements. 30 ITEM 6. SELECTED FINANCIAL DATA The following table reflects selected consolidated financial data for the Corporation for the fiscal years ended December 31, 2003, 2002, 2001, 2000, and 1999, respectively.
For THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31 DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (EUROS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATING DATA Operating revenues ..................... 0 8 26 13 47 Research & Development Expenses ........ 1,263 1,878 482 101 94 General & Administrative Expenses ...... 1,090 1,293 1,034 351 37 Loss from continuing operations ........ 2,786 (3,622) (15,701) (1,314) (99) COMMON SHARE DATA(1) Loss from continuing operations per common share ........................ (0.05) (0.07) (0.37) (0.04) (0.00) Weighted average common shares outstanding (in thousands) .......... 51,285 50,046 42,460 33,311 33,311 BALANCE SHEET DATA Working capital ........................ (4,294) (2,306) 565 (652) (24) Total assets ........................... 367 477 1,692 625 146 Long-term obligations .................. 242 242 242 242 242 Total stockholders' equity ............. (4,400) (2,349) 693 (765) (257)
---------------- (1) Basic and diluted common share data is the same. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition of Mymetics Corporation for the years ended December 31, 2002, 2001 and 2000 should be read in conjunction with the Corporation's audited consolidated financial statements and related notes included elsewhere herein. RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001 Revenues of the year ended December 31, 2003 were nil compared to E8,000 for the year ended December 31, 2002 and E26,000 for the year ended December 31, 2001. Costs and expenses decreased to E2,786,000 for the year ended December 31, 2003 from E3,630,000 for year ended December 31, 2002 (-23.3%) and E15,727,000 for the year ended December 31, 2001, in this particular case as a result of a decrease in bank fees to E63,000 for the year ended December 31, 2002 from E14,063,000 in the comparative period in 2001 (-99.6%). 31 Research and development expenses decreased to E1,263,000 in the current year from E1,878,000 in the comparative period of 2002 (-32.7%) as a result of our current cash shortfall, this after having increased from E482,000 during the year ended December 31, 2001 to E1,878,000 (+290%) during the year ended December 31, 2002 as a result of our increase in research activities. General and administrative expenses decreased to E1,090,000 in the year ended December 31, 2003 from E1,293,000 in the comparative period of 2002 (-15.7%) as a result of cuts initiated by the new management since July 31, 2003, mostly in management salaries and/or fees and travel expenses. General and administrative expenses had previously increased to E1, 293,000 in the year ended December 31, 2002 from E1,034,000 in the comparative period of 2001 (+25.0%), mostly due to increases in said management salaries, fees and travel expenses. The Corporation reported a net loss of 2,786,000 or E0.05 per share, for the year ended December 31, 2003, compared to E3,622,000 or E0.07, for the year ended December 31, 2002 and E15,701,000 for the year ended December 31, 2001. LIQUIDITY AND CAPITAL RESOURCES The Corporation had cash E125,000 at December 31, 2003, compared to E183,000 at December 31, 2002 and E888,000 at December 31, 2001. Net cash used by operating activities was E1,773,000 for the year ended December 31, 2003, compared to E3,235,000 for the year ended December 31, 2002 and E2,000,000 for the year ended December 31, 2001. The major factor was successive increases in accounts payable, which provided cash of E780,000 and E16,000 for the years ended December 31, 2003 and 2002 respectively, compared to a decrease of accounts payable of E508,000 for the year ended December 31, 2001. Investing activities provided no/immaterial cash for the year ended December 31, 2003 compared to E252,000 for the year ended December 31, 2002 and used cash of E237,000 for 2001. Financing activities provided cash of E1,263,000 for the year ended December 31, 2003 compared to E2,181,000 in the same period last year. Proceeds from issuance of common stock provided cash of E125,000 for the year ended December 31, 2003 compared to E8,000 in the same period in 2002 and E2,724,000 during the year 2001. Increases in borrowing pursuant to a non-revolving term facility and other short term advances provided cash of E1,138,000 in current year, E2,173,000 in the comparative period last year and E116,000 in 2001. The non-revolving term facility is in the principal amount of up to E3.150 million and matures on June 30, 2004. At December 31, 2003, Mymetics had borrowed an aggregate of E3,127,000 pursuant to this non-revolving term facility. The Corporation expects that it will require substantial additional capital to continue its research and development, clinical studies and regulatory activities necessary to bring its potential products to market and to establish production, marketing and sales capabilities. The Corporation anticipates its operations will require approximately E1.5 million in the year ending December 31, 2004. The Corporation will seek to raise the required capital from lenders, equity or debt issuances, donors and/or potential partnerships with major international pharmaceutical and biotechnology firms. However, there can be no 32 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. OFF-BALANCE SHEET ARRANGEMENTS The Corporation does not have any off-balance sheet arrangements. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
------------------------------------------------------------------------------------------------------------------ Payment due by period ------------------------------------------------------------------------------------------------------------------ Less than 1 1-3 Years 3-5 Years More than 5 Contractual Obligations Total Year years ------------------------------------------------------------------------------------------------------------------ Long-term Debt Obligations - - - - - ------------------------------------------------------------------------------------------------------------------ Capital (Finance) Lease Obligations - - - - - ------------------------------------------------------------------------------------------------------------------ Operating Lease Obligations E12,500 E6,000 (2) E6,500 (2) - - ------------------------------------------------------------------------------------------------------------------ Purchase Obligations E162,000 E72,000 (1) E45,000 (3) E45,000(3) - ------------------------------------------------------------------------------------------------------------------ Other Long-term Liabilities Reflected on E242,000 - - E242,000(4) - the Registrant's Balance Sheet under U.S. GAAP ------------------------------------------------------------------------------------------------------------------ Total E416,500 E78,000 E51,500 E287,000 - ------------------------------------------------------------------------------------------------------------------
(1) Includes E62,000 with our supplier of gp41 proteins and E10,000 for neutralizing antibodies tests currently under way. (2) Office lease rent in France. (3) French auditors ("Commissaire aux Comptes") are elected for 6 years and cannot be terminated. Our French auditor has just been reelected. Based on current cost estimates, we posted E15,000 per year from 2004 until 2009. (4) Due to a shareholder, repayable only after our French subsidiary's financial situation has been stable and its equity reconstituted. We hope to achieve this condition within 3 years. 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. 33 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, 2003 and 2002 and expected cash flows from these debt obligations. EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31, 2003 (IN THOUSANDS) -------------- CARRYING FAIR VALUE VALUE 2004 2005 2006 2007 2008 THEREAFTER ----- ----- ---- ---- ---- ---- ---- ---------- Debt obligations...... E3,127 E3,127 E3,221 E-- E-- E-- E-- E--
YEAR ENDING DECEMBER 31, 2002 (IN THOUSANDS) -------------- CARRYING FAIR VALUE VALUE 2003 2004 2005 2006 2007 THEREAFTER ----- ----- ---- ---- ---- ---- ---- ---------- Debt obligations...... E1,989 E1,989 E2,082 E-- E-- E-- E-- E--
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, 2003, 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, 2003, 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. 34 PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The number of directors of the Company is established at six. Our six person board is divided into three classes, designated as Class I, Class II and Class III. The term of the Class I directors will expire at our 2004 annual meeting of stockholders, the term of the Class II directors will expire at our 2005 annual meeting of stockholders, and the term of the Class III directors will expire at our 2003 annual meeting of stockholders. A plurality of the votes of the shares of our common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors are required to elect the directors. There currently are two vacancies on the Board caused by the resignation of Peter P. McCann, Ph.D., who was a Class III director whose term would have expired at our 2003 annual meeting of stockholders, and Patrice Pactol, who was a Class II director, whose term would have expired at our 2005 annual meeting of stockholders. We intend to have Dr. Sylvain Fleury, Ph. D., our current Chief Scientific Officer, elected to fill the vacancy caused by the resignation of Mr. Patrice Pactol. The position left vacant by the resignation of Dr. Peter McCann will be reserved for a potential candidate related to the securing of a strategic partner. 35 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 ---- --------------------------------- --- --------------- Pierre-Francois Serres Head of Exploratory Research, Founder 54 2003 (Class III) and Director (appointed November 3, 2003) Christian Rochet Chief Executive Officer, President 55 2005 (Class II) And Director (appointed July 31, 2003) Ernst Lubke Chief Financial Officer, Treasurer 58 2004 (Class I) And Secretary (appointed July 31, 2003) Robert Zimmer Director (appointed July 31, 2003) 57 2005 (Class II) Sylvain Fleury, Ph. D. Chief Scientific Officer 41 n/a (appointed November 3, 2003)
Dr. Pierre-Francois Serres first became our Chief Scientific Officer on February 7, 2002 and has been a Director since March 28, 2001. On May 2, 2003, Dr. Serres' position as Chief Scientific Officer was terminated by the former Board of Directors. As a result of the changes in the Company's Board of July 31, 2003, Dr. Serres was reinstated in his former office of Chief Scientific Officer. He was then promoted as Head of our Exploratory Research efforts on November 3, 2003, and replaced as Chief Scientific Officer by Dr. Sylvain Fleury, Ph. D. Dr. Serres previously served as the Company's Chief Executive Officer and President and was the founder, Chief Executive Officer and President of our subsidiary, Mymetics S.A. (formerly, Hippocampe S.A.), a French human and veterinary research and development company. Christian Jean-Francois Rochet is an independent business consultant on development and diversification strategies. 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 Mymetics shareholder, 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 Lubke is an independent international business consultant and the founder of several companies active in the medical and biotech sectors. Along with Christian J.-F. Rochet, he became a major shareholder of Hippocampe S.A. (now our subsidiary Mymetics S.A.) in 1997, and was a director of that company between 1999 and 2001. On July 31, 2003, Mr. Lubke, 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. Lubke was further appointed Secretary of the Company on August 29, 2003. 36 Robert Zimmer is a graduate of the prestigious Ecole Centrale de Paris, M.D., Sc.D., a former: (i) assistant-professor at the Faculty of Medicine of Strasbourg (France), (ii) department head at the Foundation for hormonology research in Paris, (iii) responsible for the coordination of the Clinical Pharmacology department at Hoffmann La Roche in Basle (Switzerland), (iv) Senior Executive President and CSO of Jago Pharma AG, a drug delivery specialist later acquired by Skyepharma. Dr. Zimmer is currently Managing Director of Bio Delivery Systems S.A. (BDS), a French company specializing in drug delivery technologies, and Chairman of Zimmer & Associates, a Swiss consulting firm specialized in strategic development of pharmaceutical products. On July 30, 2003, Dr. Zimmer was elected as Director, and appointed as Vice President, Head of Business development of Mymetics Corporation. Owing however to unexpected but positive developments at BDS which interfered with his capacity to effectively discharge his duties as an officer of Mymetics, Dr. Zimmer resigned his officer position on September 1, 2003, while accepting to remain as an outside director of the Company. Dr. Sylvain Fleury, Ph. D., obtained his B. Sc. in microbiology, his M. Sc. In Virology and his Ph. D. in immunology from various prestigious institutions in Canada between 1982 and 1992. A recipient of several awards and prizes, Dr. Fleury completed his post graduate studies on HIV-AIDS at the NIAID, National Institutes of Health (NIH), in Bethesda, Maryland, USA, before moving in 1997 to Lausanne (Switzerland), first as Assistant to Professor Giuseppe Pantaleo, a leading expert on AIDS at the Centre Hospitalier Universitaire Vaudois (CHUV) until 2000, then as Project Leader at said CHUV's Division of cardiology and, currently, at its Department of Experimental Surgery. Dr. Fleury was the first expert Christian Rochet and Ernst Lubke consulted before they decided to invest in Hippocampe S.A. in 1997. Dr. Fleury was also consulted by the former management of Mymetics. He was appointed as our New Chief Scientific Officer on November 3, 2003, in replacement of Dr. Serres, then promoted as Head of Exploratory Research. Dr. Fleury has been sharing his time between CHUV and Mymetics since that date. We intend to elect Dr. Fleury as a Director of the Company within the next foreseeable future. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has not determined that we have an "audit committee financial expert" sitting on the board. Given the recent turmoil our company has faced, our directors and management believe that their time and our resources would be better spent focusing on our operations than on searching for an audit committee financial expert. CODE OF ETHICS We have not adopted a "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 code of ethics is not necessary at this time, and that their time and our resources would be better spent focusing on our operations. 37 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, 2003, all of our executive officers, directors and 10% stockholders filed all required reports under Section 16(a) in a timely manner, except as follows: the Company, on behalf of Mr. Allio, Mr. Demers, Dr. McCann, Mr. Musacchio, Mr. Pactol, Professor Girard, Dr. Fleury, Dr. Serres and Dr. Zimmer individually, did not timely report grants of stock options or stock such persons received in 2002 and 2003. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth for the last three fiscal years information on the annual compensation earned by Dr. Peter P. McCann, who served as our President and Chief Executive Officer from February 7, 2002 until January 31, 2003, and Dr. Pierre-Francois Serres, who served as our President and Chief Executive Officer from March 28, 2001 until February 7, 2002. No named executive officer received an aggregate annual consideration (salary and bonus) from the Company in excess of $100,000 during the fiscal year ended December 31, 2003.
Annual Compensation Long Term Compensation Awards Payouts Securities All Underlying Other Name and Principal Position Year Salary Bonus Options/SARs Compensation --------------------------- ---- ------ ----- ------------ ------------ Peter P. McCann, Ph.D. (1) 2003 $ 16,164 -- 75,000 -- 2002 $ 144,667 -- 11,250 -- 2001 -- -- -- -- Pierre-Francois Serres (2) 2003 Euro 82,317 (3) -- -- -- 2002 Euro 91,464 (4) -- 1,250 -- 2001 Euro 86,181 (4) -- 10,000 Euro 1,630 (5) Michael K. Allio (6) 2003 -- (7) -- -- $ 8,500 (8) 2002 -- (7) -- 101,250 $ 26,000 (8) 2001 -- (7) -- 60,000 $ 5,750 (8) Christian J.-F. Rochet (9) 2003 Euro 40'000 (11) -- -- -- 2002 -- -- -- -- 2001 -- -- -- -- Ernst Lubke (10) 2003 Euro 40'000 (11) -- -- -- 2002 -- -- -- -- 2001 -- -- -- -- Robert Zimmer, M.D. (12) 2003 0 (13) -- -- -- 2002 -- -- -- -- 2001 -- -- -- -- Sylvain Fleury, Ph. D. (14) 2003 0 (15) -- -- -- 2002 -- -- -- -- 2001 -- -- -- --
---------- (1) Dr. McCann was our President and Chief Executive Officer from February 7, 2002 to January 31, 2003. (2) Dr. Serres was our President and Chief Executive Officer from March 28, 2001 until February 7, 2002. He was our Chief Scientific Officer from March 28, 2001 until terminated by the former Board of directors on May 5, 2003. Dr. Serres was reinstated as Chief Scientific Officer by the new Board of directors retroactively from May 5, 2003 until November 3, 2003, when he was promoted as Head of Exploratory Research, his current position with the Company. In exchange for being reinstated retroactively, Dr Serres accepted to forfeit all legal and punitive compensation for having been terminated without cause. The French Industrial Tribunal ("Prud'hommes") has indeed granted Dr. Serres Euro 45,735 to that effect in its emergency injunction of October 14, 2003. The final amount which Mymetics would most probably be ordered to pay Dr. Serres in terms of legal and punitive compensation if the case had been allowed to run its full course would have been in excess of Euro 91,000. This agreement between Dr. Serres and the Company has yet to be finalized in writing by our respective lawyers. (3) This amount includes Euro 46,317 credited as compensation to Dr. Serres under his former status by our subsidiary Mymetics S.A. from January 1, 2003 until August 15, 2003 and Euro 36,000 (i.e. Euro 8,000 per month) credited to Dr. Serres since August 16, 2003 as compensation for his reinstated positions, as disclosed under (2) above. No payments in relation to this amount have actually been made in 2003 to Dr. Serres who, in accordance with the temporary policy set by the new Board, has accepted that the actual of any compensation due to him be deferred, either totally or partially, until the Company's financial position would allow such payments to be made without jeopardizing the Company's prospects. (4) These represent amounts paid to Dr. Serres by our subsidiary, Mymetics S.A. (5) Dr. Serres received Euro 1,630 for his participation on the Board of Directors of our subsidiary, Mymetics S.A. (6) Mr. Allio was our Interim Chief Executive Officer from January 1, 2003 until July 30, 2003. (7) Mr. Allio received $ 73,176 in 2001, $ 260,302 in 2002 and $ 217,500 in 2003 under the consulting agreement referred to below. We believe that in the context of a small start up company like ours, the services Mr. Allio was to provide us under his consulting agreement make him a de facto executive of the Company. (8) Mr. Allio received $ 5,750 in 2001, $ 26,000 in 2002 and $ 8,500 in 2003 for his participation on the Board of Directors of Mymetics Corporation. (9) Mr. Rochet has been our President and Chief Executive Officer since July 31, 2003. (10) Mr. Lubke has been our Chief Financial Officer and Treasurer since July 31, 2003 and our Secretary since August 29, 2003. 38 (11) As explained under (3) above, the temporary policy set by the new Board, states that the actual payment of any compensation due to directors and officers of Mymetics be deferred, either totally or partially, until the Company's financial position would allow such payments to be made without jeopardizing the Company's prospects. As a result, these amounts have remained unpaid at December 31, 2003. In addition, the Company owed Mr. Rochet and Mr. Lubke at year end respectively Euro 21,325 and Euro 12,046 as reimbursement of actual travel and other expenses disbursed by them on account of Mymetics. (12) Dr. Zimmer has been our VP, Business Development from July 31, 2003 until September 1, 2003. (13) Dr. Zimmer has given up any direct compensation for his short tenure as VP, Business Development. As outside director since September 1, 2003, Dr Zimmer receives no compensation other than the 400,000 common shares of Mymetics the Board has decided to issue him, as disclosed elsewhere in this Form 10-K. (14) Dr. Fleury has been appointed as our Chief Scientific Officer on November 3, 2003. (15) Dr. Fleury has given up any direct compensation for the interim period between his formal appointment as our Chief Scientific Officer on November 3, 2003 and January 1, 2004, the reference date of the Consulting Agreement signed by Dr. Fleury, Mymetics and the Centre Hospitalier Universitaire Vaudois (CHUV), with which Dr. Fleury shares his time. The Board has decided to issue Dr. Fleury 500,000 common shares of Mymetics in appreciation of his past services and as partial compensation for the sacrifices Dr. Fleury has accepted in terms of compensation and career when he accepted to join the Company. OPTION GRANTS IN LAST FISCAL YEAR On January 31, 2003, Dr. McCann resigned from our Board and as our Chief Executive Officer and President. In connection with Dr. McCann's resignation, the former Board granted him options to purchase 75,000 shares of our common stock at an exercise price of $0.14 per share. On May 1, 2003, the former Board granted one of the members of our scientific advisory board, Prabhavathi B. Fernandes, Ph.D., stock options to purchase 150,000 shares of our common stock at an exercise price of U.S. $0.12 per share. COMPENSATION OF DIRECTORS Employee directors are not compensated for their role as directors. Until July 30, 2003, our outside directors received an annual fee of $7,500, a fee of $750 for each meeting they attended and a fee of $250 for each committee meeting they attended. This policy has been temporarily suspended by the new Board, all of the new members, as well as Dr. Serres, having accepted to serve without receiving any direct remuneration until the Company's financial position allows it to resume past practice. As all meetings are now either held by telephone or whenever the directors meet on other business matters, no reimbursement for expenses incurred in attending such meetings are necessary any more. 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, 2003, 225,000 stock options were granted by the former board to directors under our 2001 Stock Option Plan. We do not expect to grant any such options in the near future. As disclosed elsewhere in this Form 39 10-K, we have instead issued common shares to certain persons, the involvement of which we consider as crucial to save the Company from its present difficult financial situation. CONSULTING AGREEMENT WITH MICHAEL ALLIO In August, 2001, the former Board entered into a Consulting Agreement with Michael Allio, one of the Company's Directors. Pursuant to this agreement, which was amended by the First Amendment to Consulting Agreement dated August 21, 2002, and the Second Amendment to Consulting Agreement dated April 14, 2003, Mr. Allio agreed to provide Mymetics with strategic management consulting services. Mr. Allio's engagement under this agreement included, without limitation, (i) developing the scope of the business, (ii) establishing a European-North American operations team, (iii) directing and coordinating initial corporate identity and branding efforts, (iv) crafting a coherent business plan, (v) assisting the Company in establishing a viable U.S. identity and (vi) exploring strategic partnerships in the U.S., Europe and possibly elsewhere. In consideration for those services, Mr. Allio was to receive $25,000 per month, plus reimbursement of reasonable business expenses. In addition and pursuant to the Consulting Agreement, as amended, Mr. Allio was granted options to purchase (i) 50,000 shares of our common stock at an exercise price of $2.50 per share (granted as of August 31, 2001) and (ii) 100,000 shares of our common stock at an exercise price of $0.55 per share (granted as of August 21, 2002), all of which are currently vested. The Consulting Agreement could be terminated by either party on 15 days' prior written notice. One of the first decisions made by the new Board of directors was to terminate this Agreement in August 2003. SERVICES AGREEMENT WITH MFC MERCHANT BANK, S.A. In May 2001, the former Board entered into a Services Agreement with MFC Merchant Bank, S.A. ("MFC Bank"), which previously beneficially owned more than 5% of our outstanding common stock. Pursuant to the Services Agreement, MFC Bank agreed to provide Mymetics with the services of Mr. Musacchio, the Company's Secretary, Chief Operating Officer, Chief Financial Officer and a Director. In consideration for such services, MFC Bank was paid Euro 5,000 per month until Mr. Musacchio resigned on July 30, 2003. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER 31, 2003 None of our named former executive officers exercised any stock options during 2003. The following table provides information concerning the number and value of unexercised options held by our named executive officer(s) at December 31, 2003. 40
Name Shares Value Number of Securities Value of Acquired Realized Underlying Unexercised Options Unexercised on Exercise at December 31, 2003 In-the-Money Options at December 31, 2003(3) Exercisable Unexercisable Exercisable Unexercisable Dr. Pierre- - - - - 10,000(1) - - - -(4) - -(4) Francois Serres - - - - 1,250(2) - - - -(4) - -(4)
---------- (1) These options are fully vested and exercisable at $3.15 per share. (2) These options are fully vested and exercisable at $3.50 per share. (3) The value of unexercised in-the-money options held at December 31, 2003 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, 2003, and is determined by multiplying the number of shares of common stock underlying the options by the difference between an assumed fair market value per share and the per share option exercise price. An option is in-the-money if the exercise price per share of the option is below the assumed fair market value per share. (4) The fair market value of the stock underlying these options was $0.05 per share on December 31, 2003, 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, 2003. Accordingly, these options were not in-the-money on December 31, 2003. EMPLOYMENT AGREEMENTS On May 3, 2001, Mymetics entered into an employment agreement with Dr. Serres pursuant to which he received a monthly salary of Euro 7,622 (paid by our subsidiary Mymetics S.A.) and normal benefits. In addition, Dr. Serres was permitted to participate in our 2001 Stock Option Plan, as well as receive discretionary bonuses as approved by the Board. On May 5, 2003, Dr. Serres' employment agreement was terminated by the former Board. On July 31, 2003, Dr. Serres was reinstated by the new Board, however on different terms as explained below. On March 18, 2002, Mymetics entered into an employment agreement with Dr. McCann, pursuant to which he received an annual salary of one hundred seventy thousand U.S. Dollars ($170,000) and normal benefits. In addition, Dr. McCann was permitted to participate in our 2001 Stock Option Plan, as well as receive discretionary bonuses as approved by the Board. Effective January 31, 2003, Dr. McCann resigned from our Board and as our Chief Executive Officer and President. In connection with Dr. McCann's resignation, the former Board granted him options to purchase 75,000 shares of our common stock at an exercise price of $0.14 per share. 41 The new directors and officers elected and/or appointed since July 31, 2003 have agreed to work without the benefit of a written agreement, relying only on general terms agreed by the Board of directors in the matter of compensation, which was set at nil for directors, and at E8,000 per month on a full time basis for officers, plus reimbursement of reasonable travel and other expenses. The actual payment of such amounts shall be deferred until the Company's financial position has been stabilized. The directors and officers have further agreed to work without the benefit of D&O insurance coverage, no insurance company having accepted so far to cover such risks. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All executive officer compensation decisions are made by the Compensation Committee of the Board. The Compensation Committee reviews and recommends the compensation arrangements for officers and other senior level employees, and takes such other action as may be required in connection with the Company's compensation and incentive plans. From January 1, 2003 until July 30, 2003, the members of the Compensation Committee were Mr. Allio, Mr. Demers and Dr. 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. Lubke, Dr. Serres and Dr. Zimmer. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information about the beneficial ownership of our common stock as of March 18, 2004, by: (a) each of our named executive officers; (b) each of our directors; (c) each person known to us to be the beneficial owner of more than 5% of our outstanding voting securities; and (d) all of our current executive officers and directors as a group. The following is based solely on statements and reports filed with the Securities and Exchange Commission or other information we believe to be reliable. There were 59,394,454 shares of our common stock outstanding on March 18, 2003. 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 29, 2004, 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. 42
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS ---------------- -------------- -------------------- ---------------- Martine Reindle Common 10,819,874 (2) 7.42% CP 18 CH - 1295 Mies, Switzerland Ernst Lubke (1) Common 5,881,638 (2) 4.03% Chief Financial Officer, Secretary and Director Christian Rochet (1) Common 377,138 (3) 0.25% Chief Executive Officer, President and Director Dr. Sylvain Fleury (1) Common 500,000 (4) 0.34% Chief Scientific Officer Prof. Marc Girard (1) Common 400,000 (4) 0.27% Head of Vaccine Development and member of the SAB Dr. Robert Zimmer (1) Common 400,000 (4) 0.27% Dr. Pierre-Francois Serres (1) Common 6,585,618 (5) 4.51% Head of Exploratory Research and Director All current executive officers and Common 14,144,394 9.70% directors as a group (3 persons)
---------- (1) Address is Mymetics Corporation, European Executive Office, 14, rue de la Colombiere, CH-1260 Nyon (Switzerland). (2) Includes 1,797,221 shares of our common stock owned by Aralis Participations S.A. Martine Reindle is the Chairperson, a substantial equity holder and a member of the Board of Directors of Aralis Participations S.A. Ernest Lubke is an officer, a substantial equity holder and a member of the Board of Directors of Aralis Participations S.A. Accordingly, Ms. Reindle and Mr. Lubke may be deemed to have or share voting and/or investment power over the shares of our common stock owned by Aralis Participations S.A. (3) Acquired prior to being elected as director and appointed as officer. (4) Granted for services. (5) Includes 11,250 shares of common stock which Dr. Serres presently has the right to acquire pursuant to vested stock options granted under our 2001 Stock Option Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS During 2003, there were no transactions (or series of similar transactions), and there are currently no proposed transactions (or series of similar transactions), to which we were, are or will be a party in which the amount involved exceeds $60,000 and in which any of our directors, executive officers or holders of more than 5% of our common stock, or an immediate family member of any of the foregoing, had or will have a direct or indirect interest, other than the transactions described below. 43 With the exception noted hereafter (already reported on our Form 10-Q for the quarter ended September 30, 2003), we believe that all of the transactions set forth below were executed on terms no less favorable to us than we could have obtained from unaffiliated third parties. 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 AND RELATIONSHIP WITH MFC MERCHANT BANK S.A. MFC Merchant Bank S.A. ("MFC Bank") is a wholly-owned Swiss banking subsidiary of MFC Bancorp Ltd., a Canadian company currently listed on the NASDAQ. MFC Bank has been instrumental in arranging in December 2000: (i) the acquisition of a French biotech company, Hippocampe S.A. (later renamed Mymetics S.A.), and (ii) a credit facility in the amount of Euro 1.3 million. As compensation for its decisive role in this material transaction, MFC Bank received various fees and warrants which allowed it, during 2001 and 2002, to acquire substantially in excess of 5% of the outstanding shares of our common stock. MFC Bank and its parent company MFC Bancorp Ltd., have effectively controlled Mymetics from December 2000 until July 2003. During this period, Mr. Musacchio, the second highest paid officer of MFC Bancorp Ltd. according to that company's filings with the Securities and Exchange Commission, was Mymetics' chief operating officer, chief financial officer, secretary and a member of its Board of directors. During that same period, key Company functions such as budgeting, authorization of vendor agreements and/or payments, accounting and reporting, were either conducted by service companies close to, or by officers provided on a temporary basis by MFC Bancorp Ltd. This state of affairs was completely modified in July 2003, when a group of 9 shareholders took control of the Company and replaced all of its directors and officers (with the exception of Dr. Pierre-Francois Serres, the founder of Hippocampe S.A.) with shareholders of the Company. Owing to the materiality of this change, we quote hereafter certain material facts and events that were previously disclosed in our Form 10-Q for the quarter ended September 30, 2003 to the Securities and Exchange Commission, indicating in square brackets and full capitals any material subsequent events or results. Quote ------------ On July 20, 2003, Messrs. Christian Rochet and Ernst Lubke (now President and Chief Executive Officer and Chief Financial Officer of the Company) then representing a group of 9 Swiss and French shareholders (including the Founder of Mymetics, Dr. Pierre-Francois Serres) holding at that time over 55% of the Company's share capital, met with Mr. John M. Musacchio, then Chief Operating Officer and Chief Financial Officer of the Company, to inform him of the decision of said group of shareholders to request the resignation of all the Directors and Officers of the Company (except Dr. Serres) and their intent to have some of the Company's major shareholders appointed as new Directors and officers. Mr. Musacchio acknowledged this decision and pledged an orderly transfer of responsibilities. The reasons for this group of shareholders' decision were the alarming Company disclosures (or absence of disclosures), and in particular: 44 > the continuously high ratio of general and administrative expenses compared to R&D expenses, > the scarcity of significant, published scientific results, > the refusal of the Board of Directors to acknowledge and act on nominations to the Board of Mymetics of prestigious and well connected personalities, made in August 2001 by Messrs. Rochet and Lubke, > the apparent inability of the Company to attract new capital following the significant decline of the Company's share price in August 2002, > the resignation of key executives (the CEO and the VP of development)in February 2003, > and finally, the unfriendly removal of Dr. Serres, the Company's Founder and Chief Scientific Officer in May 2003. The aforementioned shareholders intend to redress the situation by severely limiting G&A expenses, in particular salaries, consulting fees and travel expenses, and to devote a higher proportion of funds to the Company's core business, i.e. R&D related to AIDS and other autoimmune related pathologies. [THE NEW DIRECTORS AND OFFICERS HAVE ACCEPTED COMPENSATIONS WHICH REPRESENT APPROXIMATELY ONE THIRD OF WHAT OUR FORMER DIRECTOR AND INTERIM CEO HAD RECEIVED AS FEES UP UNTIL HIS LAST DAY IN OFFICE. THEY HAVE ALSO ACCEPTED THE DEFERRAL OF ACTUAL PAYMENT OF THEIR COMPENSATION UNTIL THE COMPANY CAN SAFELY PAY THEM AND FURTHER ACCEPTED TO WORK WITHOUT THE BENEFIT OF D&O INSURANCE. TRAVEL EXPENSES HAVE BEEN REDUCED TO THE BAREST MINIMUM, IN PARTICULAR AS REGARDS TRANSATLANTIC TRAVEL. ALL BOARD MEETINGS ARE NOW HELD BY TELEPHONE. OFFICE EXPENSES HAVE BEEN DRATICALLY REDUCED. RECOURSE TO OUTSIDE SERVICE PROVIDERS HAS BEEN LIMITED TO THE BARE MINIMUM, WITH MORE WORK DONE IN-HOUSE RATHER THAN BEING OUTSOURCED TO EXPENSIVE SERVICE PROVIDERS. WE EXPECT TO OPERATE IN THIS MODE UNTIL THE COMPANY HAS FULLY RECOVERED, AND MAINTAIN A MODEST WAY OF LIFE BEYOND THAT, IN RESPECT OF OUR STAKEHOLDERS]. To achieve this goal, we can rely on the backing of some prominent personalities in matters of AIDS, such as Mr. Jacques Martin, former CEO of Laboratoires Merieux, member of the Board of the IAVI and CEO of the vaccine Fund chaired by Mr. Nelson Mandela, and Professor Marc Girard, former CSO of Laboratoires Merieux, present CEO of the Merieux Foundation, a most respected expert on vaccines. [MR. MARTIN HAS BEEN INSTRUMENTAL IN OUR ABILITY TO GAIN ACCESS TO KEY PLAYERS IN THE WORLD OF HIV-AIDS. THE APPOINTMENT OF PROFESSOR MARC GIRARD AS HEAD OF OUR VACCINE DEVELOPMENT AND MEMBER OF OUR SCIENTIFIC BOARD AS BEEN REPORTED IN OUR FORM 8-K DATED FEBRUARY 20, 2004] On July 24, 2003, a letter formally requesting the resignation of the Company Directors and Officers (except Dr. Serres) was sent by said group of shareholders to the Company Counsel, following which new Directors were elected and new Officers appointed on July 30 and 31, 2003. A management audit of the Company's position, procedures, operations and material transactions since July 20, 2003 was immediately performed. Critical findings and subsequent, related events since our takeover are listed hereafter. 45 > On July 28, 2003, Messrs. Michael K. Allio (Director, interim President and CEO) and John M. Musacchio (Director, COO, CFO and Secretary of the Mymetics) closed all the "Non MFC" bank accounts of Mymetics Corporation and transferred their remaining cash balances to the Company's account with MFC Merchant Bank SA. It is worth noting that according to various filings of MFC Bancorp, a US publicly traded Canadian company and the dominant shareholder of MFC Merchant Bank SA, Mr. John M. Musacchio, is also a Vice president of MFC Bancorp Ltd., in fact its second highest paid officer as of December 31, 2002. > On July 30, Messrs. Michael K. Allio and John M. Musacchio executed on behalf of the Company (the Borrower) a second amendment to the existing credit facility agreement with MFC Merchant Bank SA (the Lender) and MFC Bancorp Ltd. (Guarantor). Purpose of this amendment was essentially to: (i) increase the principal amount from E3,000,000 to E3,150,000, (ii) convert the credit facility from "Term Credit" to "On Demand Credit" and (iii) reaffirm and strengthen the bank's lien on substantially all of the Company's Intellectual Property. We believe that this so-called second amendment to the credit facility agreement, which considerably increases the domination of the MFC group over the Company, could not have been negotiated and executed on such short notice if Mr. John M. Musacchio had not been a party to both sides of the amendment, or in other words, we do not consider this amendment as having been negotiated and concluded at arm's length by the former management of Mymetics Corporation. > On September 19, 2003, MFC Merchant Bank SA formally cancelled its 3.2 ME credit facility. > On October 8, 2003, Messrs. Christian Rochet and Ernst Lubke met with the management of MFC Merchant Bank SA to discuss the latest developments and in particular, to draw the bank's attention to the fact that the Company was in immediate danger of losing its key Intellectual Property as a result of its inability to pay certain creditors following the bank's decision to cancel its recently amended credit facility. Indeed, The Intellectual Property counsel was denying any further services to the Company, which faced the risk of losing certain key US patent applications. In addition, former unpaid staff members of our French subsidiary had initiated legal action against their former employer, who could be put into forced receivership as a result of its inability to pay what was legally due to them. Such a development would represent a real threat to the Company's ability to continue as a going concern because Mymetics SA, our French subsidiary, is the legal owner of certain key Mymetics patents. Despite these pressing facts, Messrs. Rochet and Libke were informed that the banks' decision to cancel the credit facility was final. However, after a personal plea by Mr. Jacques-Francois Martin, the bank agreed that repayment of the cancelled loan would not be requested before June 30, 2004. [ALL IMMEDIATE THREATS TO THE FRENCH SUBSIDIARY'S SURVIVAL HAVE BEEN REMOVED]. > On November 4, 2003, MFC Merchant Bank SA confirmed its decision not to request repayment of the outstanding cancelled credit facility amount before June 30, 2004. 46 > On November 13, 2003, MFC Merchant Bank SA also accepted our analysis that our IP portfolio was being jeopardized due to our inability to make payments of patent registration and/or renewal fees as well as our inability to meet the expenses of prosecution of critical outstanding patent application. As a result, MFC Merchant Bank SA, which holds a lien on substantially all our IP portfolio as explained above, has instructed our IP counsel to prepare a docket of actions needed to maintain our portfolio and confirmed that it would make all payments required to that effect, such sums to be added to the balance of the cancelled credit line previously mentioned. The bank however refused to consider any rescue plan for our French subsidiary, claiming it did not own any significant assets any more and could therefore be left to become bankrupt. We took issue with this analysis and pleaded in vain that the bank reconsiders its position on this account, but to no avail. On December 8, 2003, we learned from our IP counsel that on June 25, 2003, a key US patent owned by our French subsidiary had been sold and assigned to Mymetics Corporation "for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged". It appears so far that this transfer was only authorized by the former CEO of our French subsidiary, without authority being granted to her by the company Board ("Conseil de Surveillance"), as required by French law. As regards adequate consideration, no traces of either a reasonable contract nor any other evidence have been found so far in the records of either companies. The auditor of our French subsidiary ("Commissaires aux Comptes"), who enjoys a wide and compelling role of whistle blower under French Law, believes that such patent transfer is likely to be interpreted by French tax authorities as criminal misuse of Company property and tax evasion. In a formal letter dated December 9, 2003 and addressed to the French company's management, he demands that all details of this transaction be made available to him no later than December 31, 2003, failing which he would be compelled to submit the case to the Attorney General ("Procureur General de la Republique"). We intend of course to heed to that request and to cooperate fully with any investigation that might follow. [WE HAVE MEANWHILE COMPLIED WITH OUR FRENCH AUDITOR'S DEMANDS]. > Last but not least, the late filing of this Form 10-Q was due to the difficulties we faced in assembling all the required data under the hardship described above, but also to the fact that critical service firms needed to do so in accordance with US regulations were denying us their services until their outstanding invoices were settled. [NORMAL RELATIONS WITH OUR KEY SERVICE PROVIDERS HAVE SINCE BEEN RESUMED] Now, despite all of the above and the fact that several key scientific partners of the Company have not been paid, some of them since early 2003, Mymetics has been able to show significant results based on Dr. Pierre-Francois Serres hypothesis, and most notably: > A "world's first" in the pursuit of a universal vaccine against AIDS: the successful synthesis, in an economically sustainable and scalable fashion, of a stable trimeric form of gp41, the HIV's membrane protein now regarded by several key scientists as having the highest potential as a base for a successful AIDS vaccine. 47 > The successful synthesis of short and economically feasible therapeutic anti-HIV peptides, having the potential to become serious competitors to some of today's most successful, but problems beset, antiviral drugs. [WE HAVE INITIATED DISCUSSIONS WITH A MAJOR LEADER IN SUCH ANTIVIRAL THERAPY WHO IS CURRENTLY FACING SERIOUS PROBLEMS WITH SAID PRODUCT]. Since taking office on July 31, 2003, the new Directors and Officers of the Company have achieved some significant results despite the absence of cash and/or credit facilities, and in particular: > Presentation during the "AIDS Vaccine 2003" venue in New York of our scientific results to several key scientists of the US National Institute of Health (NIH) and other public and private AIDS research institutes. As a result of such presentations, we have been offered to cooperate with certain key institutes such as SCRIPPS and been invited to apply for initial NIH AIDS related grants. [WE HAVE SINCE SIGNED AN INITIAL AGREEMENT WITH SCRIPPS AND APPLIED FOR A FIRST NIAID GRANT AIMED AT OBTAINING DECISIVE SCIENTIFIC PROOFS OF CONCEPT WITHIN A LIMITED TIME FRAME]. > Successful discussions with several outstanding and high profile scientists and managers who accepted to join the Company as soon as its current cash crisis is resolved. [THE APPOINTMENT OF PROFESSOR MARC GIRARD AS HEAD OF OUR VACCINE DEVELOPMENT AND MEMBER OF OUR SCIENTIFIC BOARD AS BEEN REPORTED IN OUR FORM 8-K DATED FEBRUARY 20, 2004] > Initiation of partnership discussion with pharmaceutical companies, all world leaders in the respective human or veterinary vaccine related (AIDS) fields. [DISCUSSIONS WITH THREE SUCH POTENTIAL PARTNERS WILL BE CONDITIONNED BY THE INITIAL RESULTS FROM OUR RECENTLY INITIATED SCIENTIFIC TRIALS, SOME OF WHICH COULD HAVE BEEN COMPLETED LONG BEFORE JULY 31, 2003] > Initiation of discussions with three potential new investors willing in principle to acquire from the Company 1 million shares at USD 0.10 per share. Such discussions are nevertheless hampered by the fact that only publicly available data such as past Company filings, published scientific papers and patents, could be produced and used to convince said potential investors. In addition, critical partners needed to execute such transactions such as legal counsel, were unwilling to provide the services needed to perform such transactions in accordance with US regulations. We are nevertheless hopeful that such discussions will proceed and be successful after this 10-Q filing has been made. [FOUR NEW INVESTORS HAVE SINCE ACQUIRED 6 MILLION COMMON SHARES OF THE COMPANY AT APPROXIMATELY $.10 PER SHARE, PLUS WARRANTS FOR THE SAME NUMBER OF SHARES AT THE SAME PRICE TO BE EXERCIZED BEFORE JULY 31, 2004, AS REPORTED IN OUR FORMS 8-K DATED FEBRUARY 20 AND MARCH 22, 2004] --------- Unquote 48 Despite limited means and impressive hurdles to overcome, we have been able since July 31, 2003 to graduate from an assured crash to a (still) bumpy ride. In more practical terms, we have been able to (i) attract four new investors, (ii) remove all immediate threats of bankruptcy or forced liquidation, (iii) normalize our relations with our critical suppliers of scientific or corporate services, (iv) launch critical scientific tests aimed at reinforcing our position in the discussions we have initiated with certain pharmaceutical companies, (v) gain reasonable assurance that results will be encouraging, never forgetting however that biology remains a complex and largely unpredictable science, and (vi) applied for grants from public and private donors. We intend to devote in the future more time and efforts to grant applications (which are very time consuming), as such sources of funds are non dilutive by essence. We believe that our chances of obtaining such funds in a reasonable time span are high enough to continue justifying our directors' and officers' efforts and personal sacrifices. Despite our efforts and achievements, we have no reasonable hope to be able to reimburse the Euro 3.2 million credit facility due to MFC Bank on or before its present due date of June 30, 2004, and have no assurance that MFC Bank will accept to renegotiate it on terms acceptable to us. COMPENSATION AND SERVICES AGREEMENTS In May 2001, Mymetics entered into a services agreement with MFC Merchant Bank S.A. pursuant to which MFC Merchant Bank S.A. agreed to provide the Company with the services of Mr. Musacchio to act as Chief Operating Officer, Chief Financial Officer, Secretary and a member of our board of directors. As explained above, Mr. Musacchio resigned all his positions with the Company and its affiliates on July 30, 2003, effectively terminating the service agreement between Mymetics and MFC Merchant Bank S.A. 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 2003 and 2002:
2003 2002 -------- -------- Audit Fees $ 30,461 $ 34,030 Audit-Related Fees - - Tax Fees $ 20,547 22,572 All Other Fees - - -------- -------- Total $ 51,008 $ 56,602 ======== ========
49 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 2003 and 2002, 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 2003 and 2002, 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. Our Board of Directors pre-approves all services to be provided by Sullivan Peterson PLLC. 50 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) 51 10.1 Services Agreement dated May 31, 2001, between the Corporation and MFC Merchant Bank, S.A.(7) 10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois Serres and the Corporation (7) 10.3 Indemnification Agreement dated March 28, 2001, between the Corporation and MFC Bancorp Ltd. (7) 10.4 Agreement dated for reference May 15, 2000, between the Corporation and Maarten Reidel (7) 10.5 Preferred Stock Redemption and Conversion Agreement dated for reference December 21, 2000, between the Corporation and Sutton Park International Ltd. (10) 10.6 Preferred Stock Conversion Agreement dated for reference December 21, 2000, between the Corporation and Med Net International Ltd. (11) 10.7 Preferred Stock Conversion Agreement dated December 21, 2000, between the Corporation and Dresden Papier GmbH (11) 10.8 Assignment Agreement dated December 29, 2000, among the Corporation, Mymetics S.A. and MFC Merchant Bank S.A. (1) 10.9 Credit Facility Agreement dated July 27, 2000, between MFC Merchant Bank, S.A. and the Corporation (1) 10.10 Amended Credit Facility Agreement dated for reference August 13, 2001, between MFC Merchant Bank, S.A. and the Corporation (16) 10.11 Second Amended Credit Facility Agreement dated for reference February 27, 2002, between MFC Merchant Bank, S.A. and the Corporation (16) 10.12 Amended and Restated Credit Facility Agreement dated for reference February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd., and the Corporation (16) 10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd. to MFC Merchant Bank S.A. (16) 10.14 Shareholder Agreement dated March 28, 2001, among the Corporation, the Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8) 10.15 Support Agreement dated March 28, 2001, between the Corporation 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) 52 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) 53 10.38 Patent Pledge Agreement dated November __, 2002 among Mymetics S.A., Mymetics Deutschland GmbH, the Corporation and MFC Merchant Bank S.A. (16) 11.1 Statement Regarding Calculation of Per Share Earnings. 21.1 List of Subsidiaries 24.1 Powers of Attorney (included on the signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer ---------------- (1) Incorporated by reference to the Corporation's Schedule 14C filed with the Securities and Exchange Commission on April 26, 2001. (2) Incorporated by reference to the Corporation's report on Form 8-K filed with the Securities and Exchange Commission on October 22, 1998. (3) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on April 15, 1999. (4) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 13, 1999. (5) Incorporated by reference to the Corporation's Amendment No. 1 to Form S-1 filed with the Securities and Exchange Commission on August 8, 2002. (6) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (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. 54 (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, 2001, 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, 2002, and filed with the Securities and Exchange Commission on March 27, 2003. (b) Reports on Form 8-K None. 55 PETERSON SULLIVAN PLLC 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT 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, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity, and cash flows for the years ended December 31, 2003, 2002 and 2001, and for the period from May 2, 1990 (inception) to December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the 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. 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, 2003 and 2002, and the results of their operations and their cash flows for the years ended December 31, 2003, 2002 and 2001, and for the period from May 2, 1990 (inception) to December 31, 2003, in conformity with accounting principles generally accepted in the United States. The accompanying 2003 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 resulted in significant losses being incurred. Further, the Company has a note payable amounting to E3,127 which is due June 30, 2004, where there is no assurance that the note may be paid, extended, restructured or refinanced. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ Peterson Sullivan PLLC Peterson Sullivan PLLC Seattle, Washington March 18, 2004 56 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002 (In Thousands of Euros)
ASSETS 2003 2002 --------- --------- Current Assets Cash E 125 E 183 Receivables 100 59 Prepaid expenses 6 36 --------- --------- Total current assets 231 278 Patents 136 199 --------- --------- E 367 E 477 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable E 1,232 E 452 Taxes and social costs payable 53 119 Note payable 3,127 1,989 Other 113 24 --------- --------- Total current liabilities 4,525 2,584 Payable to Shareholders 242 242 --------- --------- Total liabilities 4,767 2,826 Shareholders' Equity Common stock, U.S. $.01 par value; 80,000,000 shares authorized; issued and outstanding 54,344,454 at December 31, 2003 and 50,944,505 at December 31, 2002 607 579 Additional paid-in capital 18,142 17,888 Deficit accumulated during the development stage (23,799) (21,013) Accumulated other comprehensive income 650 197 --------- --------- (4,400) (2,349) --------- --------- E 367 E 477 ========= =========
The accompanying notes are an integral part of these financial statements. 57 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2003, 2002 and 2001, and the Period from May 2, 1990 (Inception) to December 31, 2003 (In Thousands of Euros, Except Per Share Data)
Total Accumulated During Development Stage (May 2, 1990 to December 31, 2003 2002 2001 2003) --------- --------- --------- ---------- Revenues Sales E - E - E - E 224 Interest - 8 26 34 --------- --------- --------- ---------- - 8 26 258 Expenses Research and development 1,263 1,878 482 3,985 General and administrative 1,090 1,293 1,034 3,998 Bank fee - 63 14,063 14,932 Interest 176 60 79 331 Goodwill impairment - 209 - 209 Amortization 64 64 51 322 Directors' fees 193 63 18 274 --------- --------- --------- ---------- 2,786 3,630 15,727 24,051 --------- --------- --------- ---------- Loss before income tax provision (2,786) (3,622) (15,701) (23,793) Income tax provision - - - 6 --------- --------- --------- ---------- Net loss (2,786) (3,622) (15,701) (23,799) Other comprehensive income Foreign currency translation adjustment 453 97 100 650 --------- --------- --------- ---------- Comprehensive loss E (2,333) E (3,525) E (15,601) E (23,149) ========= ========= ========= ========== Basic and diluted loss per share E (0.05) E (0.07) E (0.37) E (0.65) ========= ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 58 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Period from May 2, 1990 (Inception) to December 31, 2003 (In Thousands of Euros)
Date of Number of Transaction Shares Par Value ------------- ------------ ---------- Balance at May 2, 1990 E - Shares issued for cash June 1990 33,311,361 119 Net losses to December 31, 1999 - - ------------ ------- Balance at December 31, 1999 33,311,361 119 Bank fee - - Net loss for the year - - ------------ ------- Balance at December 31, 2000 33,311,361 119 Effect on capital structure resulting from a business combination March 2001 8,165,830 354 Issuance of stock purchase warrants for bank fee March 2001 - - Issuance of shares for bank fee March 2001 1,800,000 21 Issuance of shares for bank fee June 2001 225,144 3 Issuance of shares for cash June 2001 1,333,333 15 Exercise of stock purchase warrants in repayment of debt June 2001 1,176,294 13 Exercise of stock purchase warrants for cash December 2001 3,250,000 37 Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2001 49,261,962 562 Exercise of stock options March 2002 10,000 - Issuance of stock purchase warrants for bank fee June 2002 - - Exercise of stock purchase warrants in repayment of debt and for cash July 2002 1,625,567 16 Issuance of remaining shares from 2001 business combination August 2002 46,976 1 Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2002 50,944,505 579 Issuance of shares for services September 2003 400,000 4 Shares retired October 2003 (51) - Issuance of shares for services November 2003 1,500,000 12 Issuance of shares for cash December 2003 1,500,000 12 Issuance of stock purchase warrants for financing fee December 2003 - - Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2003 54,344,454 E 607 ============ =======
59
Accumulated Other Deficit Comprehensive Accumulated Income - Foreign Additional During the Currency Paid-in Development Translation Capital Stage Adjustment ----------- --------------- ---------------- Balance at May 2, 1990 E - E - E - Shares issued for cash - - - Net losses to December 31, 1999 - (376) - ----------- ------------ ------- Balance at December 31, 1999 - (376) - Bank fee 806 - - Net loss for the year - (1,314) - ----------- ------------ ------- Balance at December 31, 2000 806 (1,690) - Effect on capital structure resulting from a business combination (354) - - Issuance of stock purchase warrants for bank fee 14,063 - - Issuance of shares for bank fee (21) - - Issuance of shares for bank fee (3) - - Issuance of shares for cash 2,109 - - Exercise of stock purchase warrants in repayment of debt 259 - - Exercise of stock purchase warrants for cash 563 - - Net loss for the year - (15,701) - Translation adjustment - - 100 ----------- ------------ ------- Balance at December 31, 2001 17,422 (17,391) 100 Exercise of stock options 8 - - Issuance of stock purchase warrants for bank fee 63 - - Exercise of stock purchase warrants in repayment of debt 396 - - Issuance of remaining shares from 2001 business combination (1) - - Net loss for the year - (3,622) - Translation adjustment - - 97 ----------- ------------ ------- Balance at December 31, 2002 17,888 (21,013) 197 Issuance of shares for services 29 - - Shares retired - - - Issuance of shares for services 100 - - Issuance of shares for cash 113 - - Issuance of stock purchase warrants for financing fee 12 - - Net loss for the year - (2,786) - Translation adjustment - - 453 ----------- ------------ ------- Balance at December 31, 2003 E 18,142 E (23,799) E 650 =========== ============ =======
60
Total ------------ Balance at May 2, 1990 E - Shares issued for cash 119 Net losses to December 31, 1999 (376) ------------ Balance at December 31, 1999 (257) Bank fee 806 Net loss for the year (1,314) ------------ Balance at December 31, 2000 (765) Effect on capital structure resulting from a business combination - Issuance of stock purchase warrants for bank fee 14,063 Issuance of shares for bank fee - Issuance of shares for bank fee - Issuance of shares for cash 2,124 Exercise of stock purchase warrants in repayment of debt 272 Exercise of stock purchase warrants for cash 600 Net loss for the year (15,701) Translation adjustment 100 ------------ Balance at December 31, 2001 693 Exercise of stock options 8 Issuance of stock purchase warrants for bank fee 63 Exercise of stock purchase warrants in repayment of debt 412 Issuance of remaining shares from 2001 business combination - Net loss for the year (3,622) Translation adjustment 97 ------------ Balance at December 31, 2002 (2,349) Issuance of shares for services 33 Shares retired - Issuance of shares for services 112 Issuance of shares for cash 125 Issuance of stock purchase warrants for financing fee 12 Net loss for the year (2,786) Translation adjustment 453 ------------- Balance at December 31, 2003 E (4,400) ============
The accompanying notes are an integral part of these financial statements. 61 MYMETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2003, 2002 and 2001 and the Period from May 2, 1990 (Inception) to December 31, 2003 (In Thousands of Euros)
Total Accumulated During Development Stage (May 2, 1990 to December 31, 2003 2002 2001 2003) ---------- ---------- ---------- --------------- Cash Flows from Operating Activities Net loss E (2,786) E (3,622) E (15,701) E (23,799) Adjustments to reconcile net loss to net cash used in operating activities Amortization 64 64 51 322 Goodwill impairment - 209 - 209 Fees paid in warrants 12 63 14,063 14,138 Services and fees paid in common stock 145 - - 951 Changes in current assets and liabilities net of effects from reverse purchase Receivables (41) (10) 53 (62) Accounts payable 780 16 (508) 934 Taxes and social costs payable (66) 36 (26) 53 Other 119 9 68 155 ---------- ---------- ---------- --------- Net cash used in operating activities (1,773) (3,235) (2,000) (7,099) Cash Flows from Investing Activities Patents and other (1) (102) (45) (338) Short-term investments - 354 (205) - Cash acquired in reverse purchase - - 13 13 ---------- ---------- ---------- --------- Net cash provided by (used in) investing activities (1) 252 (237) (325) Cash Flows from Financing Activities Proceeds from the issuance of common stock 125 8 2,724 2,976 Borrowings from shareholders - - - 242 Increase in note payable and other short-term advances 1,138 2,173 116 3,811 Loan fees - - - (130) ---------- ---------- ---------- --------- Net cash provided by financing activities 1,263 2,181 2,840 6,899 Effect of exchange rate changes on cash 453 97 100 650 ---------- ---------- ---------- --------- Net increase (decrease) in cash (58) (705) 703 125 Cash, beginning of period 183 888 185 - ---------- ---------- ---------- --------- Cash, end of period E 125 E 183 E 888 E 125 ========== ========== ========== =========
The accompanying notes are an integral part of these financial statements. 62 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, 2003, 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 of E4,400 at December 31, 2003. 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 has a note payable amounting to E3,127 which is due June 30, 2004, where there is no current source of cash to pay it when due. Management is planning to negociate a further extension of the due date, restructure the note terms or refinance it. But there can be no assurance that management will be successful in any of these 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 a substantial portion of the Company's activities have been conducted in Europe. 63 Cash Cash deposits are occasionally in excess of insured amounts. Interest paid was E176 in 2003, E60 in 2002 and E42 in 2001. The Company has paid no income tax since its inception. Revenue Recognition The Company records the sale of products when the products are delivered and the Company has only a security interest in the products should a customer default on payment. 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, 2003 and 2002, are sufficient. The Company charges off receivables to the allowance when management determines that a receivable is not collectible. 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 51,285,044 for the year ended December 31, 2003, 50,045,658 for the year ended December 31, 2002, and 42,459,784 for the year ended December 31, 2001. The weighted average number of shares for the period May 2, 1990 through December 31, 2003, was 36,520,581. 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. 64 Stock-Based Compensation The Company has a stock-based employee compensation plan, which is described more fully in Note 6. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Compensation cost for stock options and warrants to purchase stock granted to non-employees is measured using the Black-Scholes valuation model at the date of grant multiplied by the number of options granted, amortized over the estimated life of the option or warrant. This compensation cost is recognized ratably over the vesting period. In accordance with APB No. 25, the Company records compensation costs only for stock options issued to non-employees. 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 2003 2002 2001 to December 31, 2003) ---------- ---------- ---------- --------------------- Net Income (Loss) ----------------- As reported E (2,786) E (3,622) E (15,701) E (23,799) Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of any related tax effects (27) (72) (221) (320) ---------- ---------- ---------- ------------- Pro forma E (2,813) (3,694) E (15,922) E (24,119) ========== ========== ========== ============= Basic and Diluted Earnings (Loss) Per Share ------------------------------------------- As reported E (.05) E (.07) E (.37) E (.65) Pro forma E (.05) E (.07) E (.38) E (.66)
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). The assumptions used in calculating fair value are as follows:
2003 2002 2001 --------------- ---------------- ---------------- Risk-free interest rate 4.00% 4.75% 4.5% Expected life of the options 7 years 7 years 8 years Expected volatility 164.02%-206.16% 71.10% - 243.12% 63.91% - 160.97% Expected dividend yield 0% 0% 0%
The issuance of common shares for services is recorded at the quoted price of the shares on the date the services are rendered. The Company has offered 2,000,000 common shares to an individual upon acceptance of an offer as board chairman. The fair value of these shares was approximately E33 at December 31, 2003. These shares have not been considered issued for purposes of these financial statements. 65 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. Reclassifications Certain reclassifications have been made to the 2002 financial statement amounts in order for them to conform to current year presentation. New Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 147 gives guidance on accounting for the acquisition of financial institutions (effective for acquisitions on or after October 1, 2002). SFAS No. 148 clarifies treatment of stock-based compensation (effective for fiscal years ending after December 15, 2002). SFAS No. 149 amends existing standards on derivatives (effective for derivatives entered into or modified after June 30, 2003). SFAS No. 150 gives guidance on the accounting for certain financial instruments with characteristics of both liabilities and equity (effective for financial instruments entered into after May 31, 2003). Financial Accounting Standards Board Interpretation No. 46 requires consolidation of certain variable interest entities (effective for fiscal years ending after December 15, 2003). These new standards do not have an effect on the Company's consolidated financial statements. Note 2. Receivables
2003 2002 --------- ---------- Trade receivables (including E23 from a shareholder in 2003 and 2002) E 37 E 37 Value added tax 72 41 Other 20 15 -------- ---------- 129 93 Allowance for doubtful accounts (including E23 from a shareholder in 2003 and 2002) (29) (34) -------- ---------- E 100 E 59 ======== ==========
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. Goodwill was acquired during 2001 at a cost of E247 and amortization amounted to E38 for the year ended December 31, 2001. Had goodwill not been amortized in 2001, net loss would have amounted to E(15,663) and basic and diluted loss per share would not have changed. No additional acquisitions have occurred. Based on a review of the fair value of the Company's only reporting unit at December 31, 2002, management has determined that the goodwill is fully impaired. Accordingly, an impairment loss was recorded in the 2002 statement of operations. Other intangible assets consist of patents which are stated at cost of the fees paid to the French patent office. At December 31, 2003 and 2002, the carrying amount of patents was E136 and E199 net of accumulated amortization of E189 and E125, respectively. Amortization expense relating to patents was E64, E64 and E13 for 2003, 2002 and 2001, respectively. Amortization expense is expected to amount to E64 during each of the next two years and E8 during 2006, which will completely amortize this asset. 66 Note 4. Transactions With Affiliates During 2000, the Company agreed to pay a fee in common stock to MFC Merchant Bank SA ("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 E3,150 at LIBOR plus 4% (approximately 6.1 % at December 31, 2003) repayable on June 30, 2004, as extended, collateralized by all of the Company's assets plus any future patents. The Company owed E3,127 and E1,989 under this facility as of December 31, 2003 and 2002, respectively. The fair value of this note approximates carrying value because the note is short-term and has a market rate of interest. The Company incurred fees of E37 and E155 to MFC Bank in 2003 and 2002, respectively, related to management 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 are exercisable within a three-year period beginning August 2000 at approximately E.2319 per common share. The fair value of the beneficial conversion feature amounting to E14,063 (which may not be indicative of the value of the Company as a whole) was calculated on March 28, 2001, the grant date, using the Black-Scholes model. This amount was recorded as paid-in capital of E14,063 and allocated to bank fee expense in 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. The amounts payable to shareholders bear no interest, have no collateral, and are repayable upon the Company becoming profitable. Since the timing of the Company becoming profitable cannot be determined, the fair value of the amounts payable to shareholders cannot be determined. The Company is not expected to become profitable in the near-term, therefore, the amounts payable to shareholders have been classified as long-term. During 2003 and 2002, the Company incurred fees to its Chairman of E239 and E275 for consulting from a company owned by him, and E27 in 2001 from a company owned by the former Chief Financial Officer of the Company. Accounts payable at December 31, 2002, includes E23 of these fees. 67 Note 5. Income Taxes The reconciliation of income tax on income computed at the federal statutory rates to income tax expense is as follows:
2003 2002 2001 --------- ---------- ---------- U.S. Federal statutory rates on loss from operations E (947) E (1,231) E (5,338) Nondeductible fee paid in warrants and common stock 50 21 4,781 Effect of exchange rate changes on U.S. net operating loss carryforward 242 101 - Change in valuation allowance 582 1,114 514 Other 73 (5) 43 --------- ---------- ---------- Income tax expense E - E - E - ========= ========== ==========
Deferred tax asset is composed of the following:
2003 2002 ----------- ---------- Difference in book and tax basis of amounts payable to shareholder E 82 E 82 Net operating loss carryforwards United States 1,373 1,063 France 787 515 ----------- ---------- 2,242 1,660 Less valuation allowance for deferred tax asset (2,242) (1,660) ----------- ---------- Net deferred tax asset E - E - =========== ==========
The Company's provision for income taxes was derived from U.S. and French operations. At December 31, 2003, the Company had estimated net operating loss carryforwards which expire as follows: United States France ------------- ----------- 2004 E - E - 2005 - 94 2006 - 381 2007 - 1,039 2008 - 801 2021-2023 4,038 - --------- ---------- E 4,038 E 2,315 ========== ========== 68 Note 6. 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 Average Number of Shares Exercise Price ---------------- ---------------- Outstanding and exercisable at December 31, 2001 73,750 U.S. $ .82 ====== Exercised in 2002 (10,000) -------- Outstanding and exercisable at December 31, 2003 and 2002 63,750 U.S. $ .83 ======== ======= Reserved for future grants at December 31, 2003 - ========
1995 Qualified Incentive Stock Option Plan The Company's board of directors approved a stock option plan on August 15, 1996 which provided for the issuance of up to 150,000 shares of the Company's common stock to key employees. The plan was terminated during 2002. The following table summarizes information with respect to this plan:
Weighted Average Number of Shares Exercise Price ---------------- ---------------- Outstanding and exercisable at December 31, 2003, 2002 and 2001 100,000 U.S. $ .75 ======== ======= Reserved for future grants at December 31, 2003 - ========
69 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. The weighted average fair value of these options at the grant dates were E.12, E.62 and E2.24 per option in 2003, 2002 and 2001, respectively. The following table summarizes information with respect to this plan:
Weighted Average Number of Shares Exercise Price ----------------- ---------------- Granted in 2001 100,000 U.S. $ 2.86 ---------- Outstanding and exercisable at December 31, 2001 100,000 U.S. $ 2.86 ======== Granted in 2002 117,500 U.S. $ .99 ---------- Outstanding and exercisable at December 31, 2002 217,500 U.S. $ 1.83 ========== ======== Granted in 2003 225,000 U.S. $ .14 ---------- Outstanding and exercisable at December 31, 2003 442,500 U.S. $ .97 Reserved for future grants at December 31, 2003 4,557,500 ==========
Almost all options have an expiration date ten and a half years after issuance. Note 7. Commitments and Contingencies The Company leases property under noncancelable operating leases through January 2006. Future minimum lease payments under noncancelable operating leases are as follows: 2004 E 7 2005 7 2006 1 ------ E 15 ======
Total rent expense per year was E24 for 2003, E30 for 2002 and E7 for 2001. The Company is involved in various matters of litigation arising in the ordinary course of business. In the opinion of management, the estimated outcome of such issues will not have a material effect on the Company's financial statements. Note 8. Subsequent events In January 2004, the Company issued a total of 2,000,000 common shares to two investors for cash of E166. In February 2004, the Company issued 2,500,000 common shares to an investor for cash of E208. As part of this new financing, the Company also issued warrants entitling the investors to acquire an additional 4,500,000 common shares at a price of $.10 per share. The total fair value of these warrants at the grant dates was E102. All warrants expire July 31, 2004. 70 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 March 30, 2004. Mymetics Corporation By: /s/ Christian J. F. Rochet ------------------------------- Name: Christian J. F. Rochet Title: Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below constitutes and appoints Ernst Luebke as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on From 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on March 29, 2004. Signature Title --------- ----- /s/ Christian J.F. Rochet Chief Executive Officer and --------------------------- Director (Principal Executive Christian J.F. Rochet Officer) /s/ Ernst Luebke Chief Financial Officer and --------------------------- Director (Principal Financial and Ernst Luebke Accounting Officer) /s/ Pierre-Francois Serres Director --------------------------- Pierre-Francois Serres /s/ Robert Zimmer Director --------------------------- Robert Zimmer 71 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 2.1 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.2 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.3 Purchase Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (2) 2.4 Amendment to the Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (3) 2.5 Revised Purchase Agreement dated July 28, 1999 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (4) 2.6 Share Exchange Agreement dated July 30, 2002 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (5) 3(i) Articles of Incorporation of the Corporation (as amended through May 10, 2002) (6) 3(ii) Bylaws (7) 4.1 Form of Specimen Stock Certificate (8) 4.2 Form of letter regarding Warrant 4.3 Form of Share Exchange Agreement 9.1 Voting and Exchange Trust Agreement dated March 28, 2001, among the Corporation, 6543 Luxembourg S.A. and MFC Merchant Bank S.A. (8) 10.1 Services Agreement dated May 31, 2001, between the Corporation and MFC Merchant Bank, S.A.(7) 10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois Serres and the Corporation (7) 10.3 Indemnification Agreement dated March 28, 2001, between the Corporation and MFC Bancorp Ltd. (7) 10.4 Agreement dated for reference May 15, 2000, between the Corporation and Maarten Reidel (7) 72 10.5 Preferred Stock Redemption and Conversion Agreement dated for reference December 21, 2000, between the Corporation and Sutton Park International Ltd. (10) 10.6 Preferred Stock Conversion Agreement dated for reference December 21, 2000, between the Corporation and Med Net International Ltd. (11) 10.7 Preferred Stock Conversion Agreement dated December 21, 2000, between the Corporation and Dresden Papier GmbH (11) 10.8 Assignment Agreement dated December 29, 2000, among the Corporation, Mymetics S.A. and MFC Merchant Bank S.A. (1) 10.9 Credit Facility Agreement dated July 27, 2000, between MFC Merchant Bank, S.A. and the Corporation (1) 10.10 Amended Credit Facility Agreement dated for reference August 13, 2001, between MFC Merchant Bank, S.A. and the Corporation (16) 10.11 Second Amended Credit Facility Agreement dated for reference February 27, 2002, between MFC Merchant Bank, S.A. and the Corporation (16) 10.12 Amended and Restated Credit Facility Agreement dated for reference February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd., and the Corporation (16) 10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd. to MFC Merchant Bank S.A. (16) 10.14 Shareholder Agreement dated March 28, 2001, among the Corporation, the Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8) 10.15 Support Agreement dated March 28, 2001, between the Corporation 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) 73 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) 11.1 Statement Regarding Calculation of Per Share Earnings. 21.1 List of Subsidiaries 74 24.1 Powers of Attorney (included on the signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer --------------- (1) Incorporated by reference to the Corporation's Schedule 14C filed with the Securities and Exchange Commission on April 26, 2001. (2) Incorporated by reference to the Corporation's report on Form 8-K filed with the Securities and Exchange Commission on October 22, 1998. (3) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on April 15, 1999. (4) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 13, 1999. (5) Incorporated by reference to the Corporation's Amendment No. 1 to Form S-1 filed with the Securities and Exchange Commission on August 8, 2002. (6) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (7) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001. (8) Incorporated by reference to the Corporations Registration Statement on Form S-1, File No. 333-88782, filed with the Securities and Exchange Commission on May 22, 2002. (9) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 9, 2000. (10) Incorporated by reference to Schedule 13D/A filed by MFC Bancorp Ltd. with the Securities and Exchange Commission on dated January 2, 2001. (11) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 14, 2001. (12) Incorporate by reference to the Corporation's Registration Statement on Form S-8, File No. 333-15831, filed with the Securities and Exchange Commission on November 8, 1996. (13) Incorporated by reference to the Corporation's Registration Statement on Form S-8, File No. 333-15829, filed with the Securities and Exchange Commission on November 8, 1996. 75 (14) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2001, 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, 2002, filed with the Securities and Exchange Commission on March 27, 2003. 76