Note 3. Acquisition-Related Contingent Consideration

On April 1, 2009, Mymetics and Norwood Immunology Limited (“NIL”) closed the acquisition of Bestewil Holding B.V. (“Bestewil”) from its parent, NIL, under a Share Purchase Agreement pursuant to which Mymetics agreed to purchase all issued and outstanding shares of capital stock (the “Bestewil Shares”) of Bestewil from its parent, NIL, and all issued and outstanding shares of capital stock of Virosome Biologicals B.V. which were held by Bestewil.

Remaining contingent consideration to be paid under the Share Purchase Agreement includes:

A payment of up to E3,000 in cash should a third party commence a Phase III clinical trial by April 1, 2013 for Mymetics' Intranasal Influenza Vaccine licensed from Bestewil;

A payment of 50% of Mymetics' net royalties received from a Respiratory Syncytial Virus license (RSV license), payable in cash, maximum amount unlimited; and

A payment in cash, maximum amount unlimited, of 25% of any net amounts received by Mymetics from a third party Herpes Simplex Virus license (HSV license) based upon Bestewil intellectual property.

The fair value of the contractual obligations to pay the contingent consideration is determined based on a risk-adjusted, discounted cash flow approach. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The resultant cash flows are discounted using a discount rate of 25%, which the Company believes is appropriate and is representative of a market participant assumption.

The fair value of the contingent consideration due to NIL according to the achievement of certain milestones and royalties on the vaccines RSV, HSV and Influenza is estimated at E6,227 as of June 30, 2011.

The following table presents changes to the Company's acquisition-related contingent consideration for the period ending June 30, 2011:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Acquisition-related Contingent Consideration

As recorded on

December 31, 2010

Measurement

Adjustment

As adjusted on

June 30, 2011

Royalties for RSV

329

2,854

3,183

Royalties for HSV

1,923

656

2,579

Royalties for Influenza Vaccines

960

(495)

465

Total Contingent Consideration

3,212

E 3,015

6,227

During the three and six month period ending June 30, 2011, the fair value of the acquisition-related contingent consideration increased by E3,015.

The fair value recorded as of December 31, 2010 was determined based on a projection period ending in 2023, which corresponds to the lifetime of the underlying patents. This projection period has been extended to 2030 based on management's revised assessment of the Company's ability to generate new patents from its research, in the fair value calculation performed as of June 30, 2011. This results in an adjustment of approximately E1,800 to the fair value calculation. The RSV vaccine was planned to be out-licensed after the pre-clinical phase with potential royalties of 2%. As of the date of this report, no out-licensing agreement has been made. Management's new plan is to bring the RSV vaccine through a Phase I and II, which adds considerable value and changes expected royalties to 10% and therefore increases the liability due to NIL. This change had an additional impact of approximately E1,200 in the fair value calculation.