10-Q 1 j0237501e10vq.txt MYMETICS CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO _________ COMMISSION FILE NUMBER: 000-25132 MYMETICS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 25-1741849 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 CHESTNUT STREET PROVIDENCE, RHODE ISLAND 02903 (Address of principal executive offices) 401-861-7604 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Class Outstanding at July 29, 2003 ----- ---------------------------- Common Stock, $0.01 50,944,505 (1) par value (1) This number assumes the conversion of 15,372 shares of Class B Exchangeable Preferential Non-Voting Stock of our subsidiary, 6543 Luxembourg S.A., into 16,393,316 shares of our common stock. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS OF EUROS)
JUNE 30, 2003 DECEMBER 31, 2002 ------------- ----------------- ASSETS Current Assets Cash e 81 e 183 Receivables 51 59 Prepaid expenses 19 36 ----------- ------------- Total current assets 151 278 Patents and Other 166 199 ----------- ------------- e 317 e 477 =========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable e 414 e 452 Taxes and social costs payable 118 119 Note payable 2,865 1,989 Other 11 24 ----------- ------------- Total current 3,408 2,584 liabilities Payable to shareholders 242 242 Shareholders' Equity Common stock 579 579 Paid-in capital 17,888 17,888 Deficit accumulated during the (22,153) (21,013) development stage Cumulative translation adjustment 353 197 ----------- ------------- (3,333) (2,349) ----------- ------------- e 317 e 477 =========== =============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (IN THOUSANDS OF EUROS, EXCEPT FOR PER SHARE AMOUNTS)
FOR THE SIX FOR THE SIX TOTAL ACCUMULATED MONTHS ENDED MONTHS ENDED DURING THE JUNE 30, 2003 JUNE 30, 2002 DEVELOPMENT STAGE ------------- ------------- ----------------- Revenue Sales e - e - e 224 Interest - 8 34 ------------- -------------- --------------- - 8 258 ------------- -------------- --------------- Expenses Research and development 516 384 3,238 General and administrative 511 709 3,419 Bank fee - - 14,932 Interest 80 15 235 Goodwill impairment - - 209 Amortization 33 3 291 Other - 79 81 ------------- -------------- --------------- 1,140 1,190 22,405 ------------- -------------- --------------- Loss before income tax provision (1,140) (1,182) (22,147) Income tax provision - - 6 ------------- -------------- --------------- Net loss (1,140) (1,182) (22,153) Other comprehensive income Foreign currency translation adjustment 156 (7) 353 ------------- -------------- --------------- Comprehensive loss e (984) e (1,189) e (21,800) ============= ============== =============== Basic and diluted loss per share e (0.02) e (0.02) e (0.62) ============= ============== ===============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (IN THOUSANDS OF EUROS, EXCEPT FOR PER SHARE AMOUNTS)
FOR THE THREE FOR THE THREE TOTAL ACCUMULATED MONTHS ENDED MONTHS ENDED DURING THE JUNE 30, 2003 JUNE 30, 2002 DEVELOPMENT STAGE ------------- ------------- ----------------- Revenue Sales e - e - e 224 Interest - 3 34 ----------- ------------ -------------- - 3 258 ----------- ------------ -------------- Expenses Research and development 126 152 3,238 General and administrative 265 459 3,419 Bank fee - - 14,932 Interest 43 6 235 Goodwill impairment - - 209 Amortization 16 2 291 Other - 10 81 ----------- ------------ -------------- 450 629 22,405 ----------- ------------ -------------- Loss before income tax provision (450) (626) (22,147) Income tax provision - - 6 ----------- ------------ -------------- Net loss (450) (626) (22,153) Other comprehensive income Foreign currency translation adjustment 98 (24) 353 ----------- ------------ -------------- Comprehensive loss e (352) e (650) e (21,800) =========== ============ ============== Basic and diluted loss per share e (0.01) e (0.01) e (0.62) =========== ============ ==============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF EUROS)
FOR THE SIX FOR THE SIX TOTAL ACCUMULATED MONTHS ENDED MONTHS ENDED DURING THE JUNE 30, 2003 JUNE 30, 2002 DEVELOPMENT STAGE ------------- ------------- ----------------- Cash flow from operating activities Net Loss e (1,140) e (1,182) e (22,153) Adjustments to reconcile net loss to net cash used in operating activities Amortization 33 3 291 Goodwill impairment - - 209 Fees paid in warrants - - 14,126 Fee paid in common stock - - 806 Changes in current assets and liabilities, net of effects from reverse purchase Decrease(increase) in receivable 8 (39) (13) Increase(decrease) in accounts payable (38) (63) 116 Increase(decrease) in taxes and (1) 30 118 social costs payable Other 4 9 40 ----------- ------------- ------------- (1,134) (1,242) (6,460) ----------- ------------- ------------- Cash flows from investing activities Patents and other - (68) (337) Short-term investments - 334 - Cash acquired in reverse purchase - - 13 ----------- ------------- ------------- - 266 (324) ----------- ------------- ------------- Cash flows from financing activities Proceeds from issuance of common stock - 8 2,851 Borrowing from shareholders 242 Increase in note payable and other short-term advances 876 209 3,549 Loan fees - - (130) ----------- ------------- ------------- 876 217 6,512 ----------- ------------- ------------- Effect on foreign exchange rate on cash 156 (7) 353 ----------- ------------- ------------- Net change in cash (102) (766) 81 Cash, beginning of peiord 183 888 - ----------- ------------- ------------- Cash, end of period e 81 e 122 e 81 =========== ============= =============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2003 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying interim period consolidated financial statements of Mymetics Corporation (the "Company") set forth herein have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period consolidated financial statements should be read together with the audited financial statements and the accompanying notes included in the Company's latest annual report on Form 10-K for the fiscal year ended December 31, 2002. The accompanying financial statements of the Company are unaudited. However, in the opinion of the Company, the unaudited consolidated financial statements contained herein contain all adjustments necessary to present a fair statement of the results of the interim periods presented. All adjustments made during the three and six month periods ended March 31, 2003 and June 30, 2003, respectively, were of a normal and recurring nature. The amounts presented for the three and six month periods ended March 31, 2003 and June 30, 2003, are not necessarily indicative of the results of operations for a full year. NOTE 2. EARNINGS (LOSS) PER SHARE In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (SAB) No. 98, basic net income (loss) per common share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Under SFAS No. 128, diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. The weighted average number of shares outstanding for the purposes of calculating basic and diluted earnings per share for the three month periods ended June 30, 2003 and June 30, 2002 were 50,944,505 and 49,271,962, respectively. The weighted average number of shares outstanding for the purposes of calculating basic and diluted earnings per share for the six month periods ended June 30, 2003 and June 30, 2002 were 50,944,505 and 49,267,266, respectively. The weighted average number of shares outstanding for the purpose of calculating basic and diluted earnings per share for the development stage period is 35,942,250. Common equivalent shares, such as stock options and warrants, were excluded from the calculations of diluted earnings per share for the three and six month periods ended June 30, 2003 and 2002 as their effect would be antidilutive. NOTE 3. STOCK-BASED COMPENSATION The Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25. "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the six For the six months ended months ended June 30, June 30, 2003 2002 ------ ------ Net Loss As reported E (1,140) E (1,182) Deduct: Total stock-based employee compensation Expense determined under fair value based methods for all awards, net of any related tax effects (26) - ------------ ----------- Pro forma E (1,166) E (1,182) =========== ========== Basic and Diluted Loss Per Share As reported E (0.02) E (0.02) Pro form E (0.02) E (0.02)
NOTE 4. REPORTING CURRENCY Consistent with the location of its activities, beginning January 1, 1999, the Company adopted the euro (E) as its corporate currency. Accordingly, the Company prepared its 2003 and 2002 financial statements in euros. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report are not purely historical, but are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Words such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or similar words are intended to identify forward looking statements, although not all forward looking statements contain these words. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date hereof to conform such statements to actual results or to changes in our expectations. Readers are urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation disclosures made under the captions "Management Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" included in our annual report on Form 10-K for the year ended December 31, 2002 and, to the extent included therein, our quarterly reports on Form 10-Q filed during fiscal year 2003. OVERVIEW In March 2001, we acquired substantially all of the shares of Mymetics S.A. (formerly Hippocampe S.A.) as our primary operating business. Mymetics S.A. is a biotechnology research and development company devoted to fundamental and applied research in the areas of human and veterinary biology and medicine. The Company's primary objective is to develop therapies to treat certain retroviruses including human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of our research include potential treatments and/or vaccines for animal AIDS, human and animal oncoviral leukemias, multiple sclerosis and organ transplantation. Since the acquisition of Mymetics S.A., our financial statements have been prepared treating us as a development stage company. We currently do not make, market or sell any products or services. As of June 30, 2003, we had not performed any clinical testing and a commercially viable product is not expected for several more years. As such, we have not generated any significant revenues. Revenues reported by us consist of incidental serum by-products of our research and development activities and interest income. For the purpose of our financial reporting, the development stage started on May 2, 1990, which is the date that Mymetics S.A. was originally organized in France. As of June 30, 2003, we have an accumulated deficit of approximately E 22.2 million. Our losses have resulted primarily from research and development activities, related general and administrative expenses and bank fees incurred in connection with the acquisition of Mymetics S.A. To date, our principal sources of funding have been private equity financings and bank financings. We expect to continue to incur substantial operating losses for the foreseeable future as we continue our research and development activities. The following discussion and analysis of our results of operations and financial condition for the six and three months ended June 30, 2003 should be read in conjunction with our consolidated financial statements and related notes included in this report on Form 10-Q. SIX MONTHS ENDED JUNE 30, 2003 AND 2002 RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002 Revenues for the six months ended June 30, 2003 was nil compared to E8,000 for the six months ended June 30, 2002. Costs and expenses decreased to E1,140,000 for the six months ended June 30, 2003 from E1,190,000 for the six months ended June 30, 2002. Research and development expenses increased to E516,000 in the current period from E384,000 in the comparative period of 2002 as a result of an increase in research activities. General and administrative expenses decreased to E511,000 in the six months ended June 30, 2003 from E709,000 in the comparative period of 2002 due to decreases in staffing levels.. The Corporation reported a net loss of E1,140,000, or E0.02 per share, for the six months ended June 30, 2003, compared to E1,182,000, or E0.02, for the six months ended June 30, 2002. THREE MONTHS ENDED JUNE 30, 2003 AND 2002 RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002 Revenue was nil for the three months ended June 30, 2003 and E3,000 for the three months ended June 30, 2002. Costs and expenses decreased to E450,000 for the three months ended June 30, 2003 from E629,000 for the three months ended June 30, 2002. Research and development expenses decreased to E126,000 in the current period from E152,000 in the comparative period of 2002 due to decreases in staffing levels. General and administrative expenses decreased to E265,000 in the three months ended June 30, 2003 from E459,000 in the comparative period of 2002 due to decreases in staffing levels. We reported a net loss of E450,000, or E0.01 per share, for the three months ended June 30, 2003, compared to E626,000, or E0.01, for the three months ended June 30, 2002. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2003, we had approximately E81,000 in cash compared to E183,000 at December 31, 2002. Net cash used by operating activities was E1,134,000 for the six months ended June 30, 2003, compared to E1,242,000 for the six months ended June 30, 2002. A decrease in accounts payable used cash of E38,000 for the six months ended June 30, 2003 compared to E63,000 for the six months ended June 30, 2002. Investing activities provided cash of nil for the six months ended June 30, 2003 compared to E266,000 for the same period last year. Short term investment provided cash of nil for the six months ended June 30, 2003 compared to E334,000 for the six months ended June 30, 2002. Financing activities provided cash of E876,000 for the six months ended June 30, 2003 compared to E217,000 in the same period last year. We have a non-revolving term facility in the principal amount of up to E3.0 million, which matures on December 31, 2003. Mymetics had borrowed an aggregate of E2.9 million pursuant to this non-revolving term facility. These financial statements have been prepared assuming we will continue as a going concern. We have experienced significant losses since inception resulting in a deficit in shareholders' equity of E3.3 million as of June 30, 2003, which raises doubts about our ability to remain as a going concern. Deficits in operating cash flows since inception have been financed through debt and equity sources. In order to remain a going concern, we intend to seek additional capital to continue our research and development, pre-clinical and clinical studies and regulatory activities necessary to bring our potential products to market and to establish production, marketing and sales capabilities. The timing and amount of spending of such capital resources cannot be accurately predicted and will depend on several factors, including the progress of our research and development efforts and pre-clinical and clinical activities, competing technological and market developments, the time and costs of obtaining regulatory approvals, the time and costs involved in filing, prosecuting and enforcing patent claims, the progress and cost of commercialization of products currently under development, market acceptance and demand for our products and other factors beyond our control. We will seek to raise the required capital from lenders and/or equity or debt issuance and/or potential partnership with major international pharmaceutical and biotechnology firms. However, there can be no assurance that we will be able to raise additional capital on terms satisfactory to us, or at all. In the event that we are not able to obtain such additional capital, we would be required to restrict or even halt our operations. If adequate funds are not available, we could be required to delay development or commercialization of our products or technologies that we would otherwise seek to commercialize for ourselves, or reduce the marketing, customer support or other resources devoted to our products, any of which could have a material adverse effect on our business, financial condition and result of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates which could affect our financial condition and results of operations. We have not entered into derivative contracts for our own account to hedge against such risk. INTEREST RATE RISK Fluctuations in interest rates may affect the fair value of financial instruments sensitive to interest rates. An increase in interest rates may decrease the fair value and a decrease in interest rates may increase the fair value of such financial instruments. We have debt obligations which are sensitive to interest rate fluctuations. The following tables provide information about our exposure to interest rate fluctuations for the carrying amount of such debt obligations as of June 30, 2003 and 2002 and expected cash flows from these debt obligations: AS AT JUNE 30, 2003 (IN THOUSANDS)
EXPECTED FUTURE CASH FLOW YEAR ENDING DECEMBER 31, CARRYING FAIR --------------------------------------------------- VALUE VALUE 2003 2004 2005 2006 2007 THEREAFTER ----- ----- ---- ---- ---- ---- ---- ---------- ---------------------------------------------------------------------------------------------------------------- Debt obligations E2,865 E2,865 E2,865 E - E - E - E - E - ----------------------------------------------------------------------------------------------------------------
AS AT JUNE 30, 2002 (IN THOUSANDS)
EXPECTED FUTURE CASH FLOW YEAR ENDING DECEMBER 31, CARRYING FAIR --------------------------------------------------- VALUE VALUE 2002 2003 2004 2005 2006 THEREAFTER ----- ----- ---- ---- ---- ---- ---- ---------- ---------------------------------------------------------------------------------------------------------------- Debt obligations E437 E437 E437 E - E - E - E - E - ----------------------------------------------------------------------------------------------------------------
ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. Within 90 days prior to the filing date of this report, our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness and design of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) and have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us, including our consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared. Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 is 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. The litigation is proceeding, but the parties are also entertaining settlement discussions. 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 subsidiary, Mymetics, S.A., claiming he is entitled to benefits arising out of his termination from employment. We intend to defend the claim on, among other things, the grounds that Dr. Serres entered into an employment contract with, and was employed by, Mymetics Corporation and not Mymetics, S.A. Accordingly, Dr. Serres has no claim against Mymetics S.A. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 1, 2003, we 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Agreement dated May 20, 2003 between Prabhavathi B. Fernandes, Ph.D., and Mymetics Corporation 10.2 Director and Non-Employee Stock Option Agreement dated May 1, 2003, between Mymetics Corporation and Prabhavathi B. Fernandes 31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32 Section 906 Certification of Chief Executive Officer and Chief Financial Officer (b) REPORTS ON FORM 8-K On May 8, 2003 we filed a report on Form 8-K disclosing that we terminated the employment of Dr. Pierre-Francois Serres, our former chief scientific officer, effective as of May 5, 2003. No financial statements were filed in connection with this report on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 27, 2003 MYMETICS CORPORATION By: /s/ Michael K. Allio --------------------------------- Interim Chief Executive Officer