10-Q 1 j1367601e10vq.txt MYMETICS CORPORATION 10-Q/QUARTER END 3-31-05 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 MARCH 31, 2005 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.) European Executive Office 14, rue de la Colombiere 1260 Nyon (Switzerland) (Address of principal executive offices) 011 41 22 363 13 10 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
Class Outstanding at June 10, 2005 ----- ---------------------------- Common Stock, $0.01 170'707'864 par value
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS OF EUROS)
March 31, 2005 December 31, 2004 -------------- ----------------- ASSETS Current Assets Cash E 8 E - Receivables 110 110 Prepaid expenses 2 2 ------------ ------------ Total current assets 120 112 Patents 65 80 ------------ ------------ E 185 E 192 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable E 1,675 E 1,491 Taxes and social costs payable 40 40 Current portion of notes payable 538 500 Other 116 116 ------------ ------------ Total current liabilities 2,369 2,147 Payable to Shareholders 242 242 Note Payable, less current portion 3,065 2,868 ------------ ------------ Total liabilities 5,676 5,257 Shareholders' Equity (Deficit) Common stock, U.S. $.01 par value; 495,000,000 shares authorized; issued and outstanding 170'647'864 at March 31, 2005 and 68,447,864 at December 31, 2004 736 720 Preferred stock, U.S. $.01 par value; 5,000,000 shares authorized; none issued or outstanding - - Additional paid-in capital 5,885 5,522 Deficit accumulated during the development stage (12,933) (12,148) Accumulated other comprehensive income 821 841 ------------ ------------ (5,491) (5,065) ------------ ------------ E 185 E 192 ============ ============
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 MARCH 31, 2005 MARCH 31, 2004 DEVELOPMENT STAGE -------------- -------------- ----------------- Revenue Sales E - E - E 224 Interest - - 34 ------------- ------------- ---------------- - - 258 ------------- ------------- ---------------- Expenses Research and development 245 86 4,842 General and administrative 472 264 5,734 Bank fee - - 935 Interest 53 49 795 Goodwill impairment - - 209 Amortization 15 15 396 Directors' fees - - 274 ------------- ------------- ---------------- 785 414 13,185 ------------- ------------- ---------------- Loss before income tax provision (785) (414) (12,927) Income tax provision - - 6 ------------- ------------- ---------------- Net loss (785) (414) (12,933) Other comprehensive income Foreign currency translation adjustment (20) (19) 821 ------------- ------------- ---------------- Comprehensive loss E (805) E (433) E (12,112) ============= ============= ================ Basic and diluted loss per share E (0.01) E (0.01) ============= =============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF EUROS)
FOR THE THREE FOR THE THREE TOTAL ACCUMULATED MONTHS ENDED MONTHS ENDED DURING THE MARCH 31, 2005 MARCH 31, 2004 DEVELOPMENT STAGE -------------- -------------- ----------------- Cash flow from operating activities Net Loss E (785) E (414) E (12,933) Adjustments to reconcile net loss to net cash used in operating activities Amortization 15 15 396 Goodwill impairment - - 209 Fees paid in warrants - 102 223 Services and fee paid in common stock 379 27 1,841 Amortization of debt discount - - 210 Changes in current assets and liabilities, net of effects from reverse purchase Decrease(increase) in receivable - (5) (72) Increase(decrease) in accounts payable 184 (142) 1,377 Increase(decrease) in taxes and - (21) 40 social costs payable Other - 5 162 ------------ ------------ -------------- Net cash used in operating activities (207) (433) (8,547) ------------ ------------ -------------- Cash flows from investing activities Patents and other - (3) (341) Cash acquired in reverse purchase - - 13 ------------ ------------ -------------- Net cash used in investing activities - (3) (328) ------------ ------------ -------------- Cash flows from financing activities Proceeds from issuance of common stock - 374 3,663 Borrowing from shareholders - - 242 Increase in note payable and other short-term advances 235 49 4,287 Loan fees - - (130) ------------ ------------ -------------- Net cash provided by financing activities 235 423 8,062 ------------ ------------ -------------- Effect on foreign exchange rate on cash (20) (19) 821 ------------ ------------ -------------- Net change in cash 8 (32) 8 Cash, beginning of period - 125 - ------------ ------------ -------------- Cash, end of period E 8 E 93 E 8 ============ ============ ==============
The accompanying notes are an integral part of these financial statements. MYMETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 (UNAUDITED) Note 1. The Company and Summary of Significant Accounting Policies 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, 2004. 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 month period ended March 31, 2004 were of a normal and recurring nature. The amounts presented for the three month period ended March 31, 2004, are not necessarily indicative of the results of operations for a full year. 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 March 31, 2005, the Company had not performed any clinical testing and a commercially viable product is not expected for several more years. As such, the Company has not generated significant revenues. Revenues reported by the Company consist of incidental serum by-products of the Company's research and development activities and interest income. For the purpose of these financial statements, the development stage started May 2, 1990. These financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced significant losses since inception resulting in a deficit in shareholders' equity (deficit) of E5,491 at March 31, 2005. Deficits in operating cash flows since inception have been financed through debt and equity funding sources. In order to remain a going concern and continue the Company's research and development activities, management intends to seek additional funding. Further, the Company's current liabilities exceed its current assets by E2,249 as of March 31, 2005, and there is no assurance that cash will become available to pay current liabilities in the near term. Management is seeking additional financing but there can be no assurance that management will be successful in any of those efforts. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. Foreign Currency Translation The Company translates non-Euro assets and liabilities of its subsidiaries at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the year. Unrealized gains or losses from these translations are reported as a separate component of comprehensive income. Transaction gains or losses are included in general and administrative expenses in the consolidated statements of operations. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations. The Company's reporting currency is the Euro because substantially all of the Company's activities are conducted in Europe. 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 March 31, 2005, and December 31, 2004 are sufficient. The Company charges off receivables to the allowance when management determines that a receivable is not collectible. The Company may retain a security interest in the products sold. Goodwill and Other Intangibles As required, the Company adopted Statement of Financial Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," beginning January 1, 2002. Under this standard, goodwill of a reporting unit and intangible assets that have indefinite useful lives are not amortized but are tested annually for impairment. Intangible assets with a finite life are amortized over their estimated useful lives. Research and Development Research and development costs are expensed as incurred. Taxes on Income The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates. Earnings per Share Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. The weighted average number of shares was 68'907'864 for the three months ended March 31, 2005, 57'658'740 for the three months ended March 31, 2004. 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. 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 three For the three months ended months ended March 31, March 31, 2004 2003 ------------- ------------- Net Loss As reported E (785) E (414) Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of any related tax effects - - --------- -------- Pro forma E (785) E (414) ========= ======== Basic and Diluted Loss Per Share As reported E (0.01) E (0.01) Pro forma E (0.01) E (0.01)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of the results of operations and financial condition of Mymetics Corporation for the periods ended March 31, 2005 and 2004 should be read in conjunction with the Corporation's audited consolidated financial statements and related notes and the description of the Company's business and properties included elsewhere herein. This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report are not purely historical, but are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Words such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue", "probably" or similar words are intended to identify forward looking statements, although not all forward looking statements contain these words. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date hereof to conform such statements to actual results or to changes in our expectations. Readers are urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation disclosures made under the captions "Management Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" included in our annual report on Form 10-K for the year ended December 31, 2004 and, to the extent included therein, our quarterly reports on Form 10-Q filed during fiscal year 2004. THREE MONTHS ENDED MARCH 31, 2005 AND 2004 RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004 Revenues for the three months ended March 31, 2005 and 2004 were nil. Costs and expenses increased to E785,000 for the three months ended March 31, 2005 from E414,000 (89.6%) for the three months ended March 31, 2004. Research and development expenses increased to E245,000 in the current period from E86,000 (184.9%) in the comparative period of 2004 in an effort to secure scientific results despite our difficult financial condition, as more fully disclosed in our Form 10-K for the year ended December 31, 2004. General and administrative expenses increased to E472,000 in the three months ended March 31, 2005 from E264,000 in the comparative period of 2004 (78.8%) due mostly to fees paid in shares. The Corporation reported a net loss of E785,000, or E0.01 per share, for the three months ended March 31, 2005, compared to E414,000, or E0.01, for the three months ended March 31, 2004. LIQUIDITY AND CAPITAL RESOURCES The Corporation had cash of E8,000 at March 31, 2005 compared to none at December 31, 2004. As we are a development stage company, we have not generated any material revenues since we commenced our current line of business in 2001, and we do not anticipate generating any material revenues on a sustained basis unless and until a licensing agreement or other commercial arrangement is entered into with respect to our technology. Increases in borrowing pursuant to a non-revolving term facility and other short term advances provided cash of E235,000 in current period and E49,000 in the comparative period last year. The non-revolving term facility is in the principal amount of up to E3.7 million and matures on December 31, 2006, with partial repayments of E200,000 on June 30, 2005, E300,000 on December 31, 2005 and E400,000 on June 30, 2006. In addition, any amount repaid under this facility can be converted at the lender's option into "rule 144" restricted common shares of Mymetics Corporation at $0.30 per share. At March 31, 2005, Mymetics had borrowed an aggregate of E3,603,000 pursuant to this non-revolving term facility. As of March 31, 2005, we had an accumulated deficit of approximately E12.9 million and we incurred losses of E785,000 in the three-month period ending March 31, 2005. These losses are principally associated with the research and development of our HIV vaccine technologies, research into potential animal AIDS treatments, and other related research activity. We expect to continue to incur expenses in the future for research, development and activities related to the future licensing of our technologies. Accounts payable of E1,675,000 at March 31, 2005, include E343,000 due to our officers as unpaid salaries, fees and out-of-pocket expenses. Payable to Shareholders of E242,000 at March 31, 2005, represents various amounts advanced by our founder, Dr. P.-F. Serres, to Hippocampe S.A. (now Mymetics S.A., our French affiliate) between 1990 and 1999. These advances are reimbursable subject to the French legal concept of "retour a meilleure fortune" or "return to better times". This ambiguous concept has been contractually defined in November 1998 between Dr. Serres and Aralis Participations S.A., then a major shareholder of Hippocampe S.A., as essentially a positive working capital ratio of 1.2 during four consecutive quarters, said ratio to be computed exclusively on the basis of commercial revenues for Hippocampe S.A., i.e. to the exclusion of subsidies, whether from related or unrelated parties. Considering the present status of Mymetics S.A., it is impossible to predict when such amounts will be reimbursed to Dr. Serres. Consequently, they are classified as long term debts. Net cash used by operating activities was E207,000 for the period ended March 31, 2005, compared to E433,000 for the period ended March 31, 2004. The major factor were services paid in fees and warrants, which provided cash of E379,000 and E102,000 for the periods ended March 31, 2005 and 2004 respectively. Investing activities provided immaterial cash for the periods ended March 31, 2005 and 2004. Financing activities provided cash of E235,000 for the period ended March 31, 2005 compared to E423,000 in the same period last year. Proceeds from issuance of common stock provided no cash during the period ended March 31, 2005 compared to E374,000 in the same period in 2004. Our budgeted monthly cash outflow, or cash burn rate, for 2005 is approximately E240,000 per month for fixed and normal recurring expenses, as follows, assuming we will be able to obtain the necessary financing:
Current budget Monthly 12 Months ------- --------- Management salaries, social costs and fees E 50,000 600,000 Traveling expenses 20,000 240,000 Property leases and operating expenses 2,000 24,000 Administration (accounting and 1 secretary) 13,000 156,000 Professional fees 20,000 240,000 Interest expenses 14,000 168,000 ----------- --------- Total General and Administrative expenses E 119,000 1,428,000 ----------- --------- Internal R&D (salaries and Laboratory reagents) 18,000 216,000 Pre-clinical trials 35,000 420,000 External collaborators 68,000 816,000 ----------- --------- Total Research and Development expenses 121,000 1,452,000 ----------- --------- Total E 240,000 2,880,000 =========== =========
We expect that the monthly cash outflow may increase significantly as the Company increases its research and development activities, and prepares for additional research and compliance duties associated with the signing of a partnership agreement with a major pharmaceutical company. "Salaries and related payroll costs" represents fees for all of our directors other than our employee directors, gross salaries for two of our executive officers, and payments under consulting contracts with two of our officers. We do not pay our non-employee directors, and we credit our two salaried executive officers a combined amount of E16,000 per month (E20,000 in 2005). Since January 1, 2004, payments of $CHF 9,000 (approx. E6,000) per month for Sylvain Fleury's services as our Chief Scientific Officer have been made pursuant to a three-way consulting agreement with Centre Hospitalier Universitaire Vaudois (CHUV), a Swiss University Hospital located in Lausanne, where Dr. Fleury is employed to allow him to supervise a research project funded by the Swiss FNRS (Swiss National Research Foundation) which he had initiated before joining Mymetics. Since January 1, 2004, payments of E4,000 per month for Marc Girard's services as our Head of Vaccines Development have been made pursuant to a consulting agreement with the World Health Organization. For further information regarding these consulting agreements, see "Executive Compensation - Employment and Consulting Contracts" appearing elsewhere in this report Monthly fixed and recurring expenses for "Property leases" of E2,000 represents the represents the monthly lease and maintenance payments to unaffiliated third parties for our executive offices located at 14, rue de la Colombiere in Nyon (Switzerland) (600 square feet), and at 52, avenue du Chanoine Cartellier in Saint Genis Laval (France) (500 square feet). The lease of our Swiss office can be cancelled on one month notice. Despite the fact that the lease of our French facility expired in January 2006, we have been able to cancel it at no additional cost as of April 30, 2005 on account of the fact that Dr. Serres, who was alone in using this facility, has not contributed any useful work since August 2003. We do not lease any research facilities, Dr. Fleury's facilities being provided free of charge by CHUV as part of his FNRS project. We will eventually have to lease our own minimal laboratory facilities to conduct quality checks and to verify scientific results once Dr. Fleury's FNRS project comes to an end, which is not scheduled to occur before the end of 2005. We are planning to lease in due time readily available facilities on the campus of the Swiss Federal Institute of Technology (EPFL) in Lausanne (Switzerland), located 15 miles from our Nyon office. Included in professional fees are estimated recurring legal fees paid to outside corporate counsel and ongoing litigation expenses, audit and review fees paid to our independent accountants, and fees paid for investor relations. "Interest expense" represents interest paid to MFC Merchant Bank S.A. for a note payable. This note payable in the maximum amount of E3.7 million carries an interest rate of Libor + 4% which is accrued on a quarterly basis. As of March 17, 2005, we had two full-time salaried executives, exclusive of our contracts for the consulting services of our Chief Scientific Officer and our Head of Vaccines Development. Certain secretarial work for our CEO is outsourced to self-employed secretaries who accept being partially paid in common restricted shares of Mymetics at the current market price of our common stock. We anticipate hiring an administrative assistant to our CFO as well as a part-time laboratory technician and a scientific assistant to our CSO in the first half of 2005, and may need to hire additional personnel in order to meet the needs and demands of any future workload. We intend to continue to incur additional expenditures during the next 12 months for additional research and development of our HIV vaccines. These expenditures will relate to the continued gp41 testing and are included in the monthly cash outflow described above. Additional funding requirements during the next 12 months may arise upon the commencement of a phase I clinical trial. We expect that funding for the cost of any clinical trials would be available either from current cash reserves or from potential pharmaceutical partners before we commence the human trials. In the past we have financed our research and development activities primarily through debt and equity financings from various parties. The Corporation anticipates its operations will require approximately E2.8 million in the year ending December 31, 2005. The Corporation will seek to raise the required capital from lenders, equity or debt issuances, donors and/or potential partnerships with major international pharmaceutical and biotechnology firms. However, there can be no assurance that the Corporation will be able to raise additional capital on terms satisfactory to the Corporation, or at all, to finance its operations. In the event that the Corporation is not able to obtain such additional capital, it would be required to further restrict or even halt its operations. RECENT FINANCING ACTIVITIES We anticipate using our current funds and those we receive in the future both to meet our working capital needs and for funding the ongoing research costs associated with our gp41 testing. We expect to begin phase I clinical trials in 2006. We will subcontract this research work to best of class research teams. We do not anticipate that our existing capital resources will be sufficient to fund our cash requirements through the next month. We do not have enough cash presently on hand, based upon our current levels of expenditures and anticipated needs during this period, and we will need additional proceeds from the exercise of warrants and options and other sources such as private placements under Regulation D and Regulation S under the Securities Act of 1933. Additional working capital will be required to meet our requirements by July 2005. The extent and timing of our future capital requirements will depend primarily upon the rate of our progress in the research and development of our technologies, our ability to enter into a partnership agreement with a major pharmaceutical company, and the results of future clinical trials. To date we have generated no material revenues from our business operations. We are unable to predict when or if we will be able to generate revenues from licensing our technology or the amounts expected from such activities. These revenue streams may be generated by us or in conjunction with collaborative partners or third party licensing arrangements, and may include provisions for one-time, lump sum payments in addition to ongoing royalty payments or other revenue sharing arrangements. However, we presently have no commitments for any such payments. Sources of additional capital include the exercise of additional options and warrants currently held by investors and funding through future collaborative arrangements, licensing arrangements, and debt and equity financings. We do not know whether additional financing will be available on commercially acceptable terms when needed. If we cannot raise funds on acceptable terms when needed, we may not be able to successfully commercialize our technologies, take advantage of future opportunities, or respond to unanticipated requirements. If we are unable to secure such additional financing when needed, we will have to curtail or suspend all or a portion of our business activities and we could be required to cease operations entirely. Further, if we issue equity securities, our shareholders may experience severe dilution of their ownership percentage. OFF-BALANCE SHEET ARRANGMENTS The Corporation does not have any off-balance sheet arrangements. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD (THOUSANDS OF EUROS) CONTRACTUAL OBLIGATION TOTAL LESS MORE THAN 1 - 3 3 - 5 THAN 1 YEAR YEARS YEARS 5 YEARS Long-term debt E3,368 E500 E2,868 E0 E0 Capital Lease Obligations E0 E0 E0 E0 E0 Operating Lease Obligations E6 (2) E6 E0 E0 E0 Purchase Obligations E180 (1,3) E120 E30 E30 E0 Other Long-Term Liabilities Reflected on E242 (4) E0 E242 E0 E0 Mymetics Balance Sheet under GAAP TOTAL E428 E126 E272 E30 E0
------------------ (1) Includes E62,000 with our supplier of gp41 proteins and E10,000 for neutralizing antibodies tests currently under way. (2) Office lease rent in France. (3) French auditors ("Commissaire aux Comptes") are elected for 6 years and cannot be terminated. Our French auditor has been reelected in 2003. Based on current budget and cost estimates, we posted E20,000 for the 2004 audit and E15,000 per year for the audits 2005 until 2009. (4) Due to Dr. P.-F. Serres, one of our directors, repayable only after our French subsidiary's financial situation has been stable and its equity reconstituted. We hope to achieve this condition within 3 years. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates which could affect our financial condition and results of operations. We have not entered into derivative contracts for our own account to hedge against such risk. INTEREST RATE RISK Fluctuations in interest rates may affect the fair value of financial instruments. An increase in market interest rates may increase interest payments and a decrease in market interest rates may decrease interest payments of such financial instruments. We have debt obligations which are sensitive to interest rate fluctuations. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. As of the end of the registrant's fiscal year ended December 31, 2004, an evaluation of the effectiveness of the registrant's "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried out by the registrant's principal executive officer and principal financial officer. Based upon that evaluation, the registrant's principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, the registrant's disclosure controls and procedures are effective to ensure that information required to be disclosed by the registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. It should be noted that while the registrant's principal executive officer and principal financial officer believe that the registrant's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the registrant's disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to routine litigation incident to our business. Our policy is to defend vigorously only the suits with material amounts being sought in damages and after considering the potential legal costs involved. We do not currently maintain any insurance but are planning to conclude one as soon as our financial resources will allow it. The Company is subject to a judgment against a subsidiary Mymetics S.A. issued in July 2004 by a court ("Tribunal de Prud'hommes") in Nantes (France). A former employee received a temporary judgment against the Company for E4 for alleged wrongful termination by the former management of Mymetics S.A. The Company intends to appeal the judgment. The Company was party to a second case in which a creditor claims that the Company owes it approximately E30. The claim was filed before a court in Lyon ("Tribunal de Grande Instance") on June 29, 2004. A judgment in favor of our creditor was rendered on April 29, 2005 for a total of E38, including the plaintiff's legal costs. Lack of funds has precluded us from appealing the judgment on time and it is now likely that the plaintiff will press for payment which represents a serious threat to our French subsidiary's future under our present financial conditions. The Company is subject to a proceeding brought by Dr. Serres, a current director and former officer, for alleged wrongful termination of Dr. Serres by the Company's previous management. Dr. Serres was reinstated as Chief Scientific Officer by the new Board of Directors retroactively from May 5, 2003 until November 3, 2003, when he was promoted as Head of Exploratory Research, his current position with the Company. In exchange for being reinstated retroactively, Dr. Serres agreed to forfeit all legal and punitive compensation for having been terminated without cause. The French Industrial Tribunal granted Dr. Serres E46 in an emergency injunction on October 14, 2003. The final amount which Dr. Serres has claimed in terms of legal and punitive compensation if the case had been allowed to run its full course is in excess of E175. Our French legal counsel believes however that this claim is without merit as under French law, salaried company directors and officers are only eligible for severance pay and other compensation if certain, very stringent, conditions are met which, in the Company's counsel's opinion, is evidently not the case for Dr. Serres. The agreement between Dr. Serres and the Company has yet to be finalized. On account of the fact that the management disagrees with Dr. Serres over the quality and the usefulness of the work he has provided since August 2003, it is doubtful that it ever will be. We intend to let the case run its course through the courts and have ceased to accrue for Dr. Serres salary, considering that the present accrued amount (E117,000) more than adequately covers the risk associated with the case. While we expect to prevail in all of these cases, our management believes that adverse results in one or more of these cases could have a material adverse effect on our results of operations in future periods. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION On June 6, 2005, Professor Stanley A. Plotkin resigned as a member of our Board of Directors, citing the continued absence of D&O liability coverage. Professor Plotkin however pledged his continued scientific support to the Company. On June 10, 2005, Dr Robert Zimmer resigned as a member of our Board of Directors, citing work overload resulting from his other position as head of a UK company about to go public on the UK Alternative Investment Market. Dr Zimmer pledged his continued scientific or other support to the Company. On June 10, 2005, the Board of directors decided to issue 100 million free shares to the Bill and Melinda Gates Foundation in an effort to attract Mr. Gates' personal attention and support for our AIDS vaccine project, the very existence of which is threatened by our present shortage of working capital. On June 13, Dr Pierre-Francois Serres resigned as a member of our Board of Directors. There were no disagreements with the former board member with respect to management matters or accounting issues. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
(b) REPORTS ON FORM 8-K On January 27, February 23, March 16 and April 15, 2005 respectively, reports on Forms 8-K were filed to disclose the: - The election of Dr. Stanley A, Plotkin to the Board of directors of Mymetics. - The agreement with MFC Merchant Bank SA regarding the restructuring of our outstanding credit facility. - The agreement signed with Pevion AG. - The fact that our previous filings should not be relied upon anymore. No financial statements were filed in connection with these reports 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: June 10, 2005 MYMETICS CORPORATION By: /s/ Christian Rochet ------------------------------------- President and Chief Executive Officer