NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
Note 1. The Company and Summary of Significant Accounting
Policies
BASIS OF PRESENTATION AND GOING CONCERN
The
amounts in the notes are shown in thousands of EURO, unless
otherwise noted, and rounded to the nearest thousand except for
share and per share amounts.
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, 2016.
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 nine-month
period ending September 30, 2017 were of a normal and recurring
nature.
The Company was created for the purpose of engaging in
vaccine research and development. Its main research efforts in the
beginning have been concentrated in the prevention and treatment of
the AIDS virus and malaria. The Company has established a network
which enables it to work with education centers, research centers,
pharmaceutical laboratories and biotechnology companies. Besides
the HIV and malaria vaccine candidates under development, the
Company additionally has the following vaccines in its pipeline.
(i) Herpes Simplex which is at the preclinical stage and currently
on hold, (ii) an intra nasal influenza vaccine which has finished a
clinical trial Phase I, (iii) Respiratory Syncytial Virus (RSV)
which is at the preclinical stage and currently on hold and (iv)
Chikungunya virus at the discovery stage.
As of September 30, 2017, the Company is in the
preclinical testing of some of its vaccine candidates and a
commercially viable product is not expected for several more years.
However, the Company generated some revenue through a small
research project with Sanofi for influenza vaccines and from
collaboration and grant agreements for R&D services. Management
believes that the Company’s research and development
activities will result in valuable intellectual property that can
generate significant revenues in the future such as by licensing.
Vaccines are one of the fastest growing markets in the
pharmaceutical industry.
These
consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has
experienced negative cash flows from operations and significant
losses since inception resulting in an accumulated deficit of
E79,422 at September 30, 2017. Further, the Company’s current
liabilities exceed its current assets by E48,541 as of September
30, 2017, 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. These conditions raise
substantial doubt about the Company’s ability to continue as
a going concern.
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 period. Unrealized gains or losses from
these translations are reported as a separate component of
comprehensive loss. Transaction gains or losses are included in
operating expenses in the consolidated statements of comprehensive
loss. The translation adjustments do not recognize the effect of
income tax because the Company expects to reinvest the amounts
indefinitely in operations. The Company's reporting currency is the
Euro because substantially all of the Company's activities are
conducted in Europe.
CASH
We consider all highly liquid investments purchased
with maturities of three months or less to be cash equivalents.
Cash deposits are occasionally in excess of insured
amounts.
REVENUE RECOGNITION
Exclusive Licenses
The deliverables under an exclusive license agreement
generally include the exclusive license to the Company’s
technology, and may also include deliverables related to research
activities to be performed on behalf of the collaborative
collaborator and the manufacture of preclinical or clinical
materials for the collaborative collaborator.
Generally, exclusive license and or collaboration
agreements contain nonrefundable terms for payments and, depending
on the terms of the agreement, provide that the Company will (i)
provide research services which are reimbursed at a contractually
determined rate which includes margin for the Company, (ii)
participate in a joint steering committee to monitor the progress
of the research and development which will be reimbursed at a
contractually determined rate which includes margin for the
Company, (iii) earn payments upon the achievement of certain
milestones and (iv) earn royalty payments at the time of
commercialization until the later of expiration of the last to
expire valid patent rights expire or 10 years after the first
commercial sale. The Company may provide technical assistance and
share any technology improvements with its collaborators during the
term of the collaboration agreements. The Company does not directly
control when any collaborator will request research or
manufacturing services, achieve milestones or become liable for
royalty payments. As a result, the Company cannot predict when it
will recognize revenues in connection with any of the
foregoing.
The Company follows the provisions of the Financial
Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 605-25, "Revenue Recognition—Multiple Element
Arrangements," and ASC Topic 605-28, "Revenue
Recognition—Milestone Method," in accounting for these
agreements. In order to account for these agreements, the Company
must identify the deliverables included within the agreement and
evaluate which deliverables represent separate units of accounting
based on if certain criteria are met, including whether the
delivered element has standalone value to the collaborator. The
consideration received is allocated among the separate units of
accounting, and the applicable revenue recognition criteria are
applied to each of the separate units. Factors considered in this
determination include the research and manufacturing capabilities
of the collaborator and the availability of technology research
expertise in the general marketplace.
Fixed price contracts and research and collaboration
agreements
When the performance under a fixed price contract can
be reasonably estimated, revenue for such a contract is recognized
under the proportional performance method and earned in proportion
to the contract costs incurred in performance of the work as
compared to total estimated contract costs. Costs incurred under
fixed price contracts represent a reasonable measurement of
proportional performance of the work. Direct costs incurred under
collaborative research and development agreements are recorded as
research and development expenses. If the performance under a fixed
price contract cannot be reasonably estimated, the Company
recognizes the revenue on a straight-line basis over the contract
term.
HORIZON 2020
In April 2015, the Company was selected to receive
project grants with a total of E8.4 million. A total of E5.3
million is funded as part of Horizon 2020, the European Union
research and innovation framework program and up to E3.1 million of
funding will be provided by the Swiss State “Secretariat for
Education, Research and Innovation” (SERI) for the Swiss
based consortium partners. The grant funds the evaluation,
development and manufacturing scale-up of thermo-stable and
cold-chain independent nano-pharmaceutical virosome-based vaccine
candidates. Of the total amount, E3.4 million is directly
attributable to Mymetics’ activities, with the remaining
balance going to the consortium partners. The project duration is
42 months and started on May 4, 2015. The Company received a
pre-payment from the two granting organizations for a total value
of E1.5 million in May 2015, a second tranche of E917 from the EU
was received in December 2016, and E614 from “SERI” was
received in April 2017, which will be used to finance the next
reporting covering the period of November 2016 to October 2017.
Thereafter another tranche of funding from the EU will be received
which, accumulated with earlier tranches, cannot exceed 90% of the
agreed budget. The pre-payments have been recorded as a current
liability in deferred revenue and revenue has been recognized as
services are delivered.
SANOFI PASTEUR BIOLOGICS
On December 1, 2016, Mymetics Corporation entered into
a material definitive Research Agreement with Sanofi Pasteur
Biologics, LLC, the vaccine division of Sanofi (SNY). The project
will investigate the immunogenicity of influenza vaccines based on
the Company’s proprietary virosome technology platform in
preclinical settings. If this project is successful it could result
in a further and more extensive collaboration between the two
companies. The project duration is six to twelve months and started
in January 2017. The revenue is recognized upon delivery of the
contractual material.
RECEIVABLES
Receivables
are stated at their outstanding principal balances. Management
reviews the collectability of receivables on a periodic basis and
determines the appropriate amount of any allowance. There was no
allowance necessary at September 30, 2017 or December 31, 2016. 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.
PROPERTY AND EQUIPMENT
Property
and equipment is recorded at cost and is depreciated over its
estimated useful life on straight-line basis from the date placed
in service. Estimated useful lives are usually taken as three
years.
IMPAIRMENT OF LONG LIVED ASSETS
Long-lived
assets, which include property and equipment, are assessed for
impairment whenever events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. The impairment
testing involves comparing the carrying amount to the forecasted
undiscounted future cash flows generated by that asset. In the
event the carrying value of the assets exceeds the undiscounted
future cash flows generated by that asset and the carrying value is
not considered recoverable, impairment exists. An impairment loss
is measured as the excess of the asset’s carrying value over
its fair value, calculated using a discounted future cash flow
method. An impairment loss would be recognized in net income (loss)
in the period that the impairment occurs.
GOODWILL
Goodwill represents the excess of purchase price over
the value assigned to the net tangible and identifiable intangible
assets of a business acquired. The Company typically performs its
annual goodwill impairment test effective as of April 1 of each
year, unless events or circumstances indicate impairment may have
occurred before that time. The Company assesses qualitative factors
to determine whether it is more likely than not that the fair value
of the reporting unit is less than its carrying amount. After
assessing qualitative factors, the Company determined that no
further testing was necessary. If further testing was necessary,
the Company would determine the fair value of each reporting unit,
and compare the fair value to the reporting unit's carrying amount.
An impairment loss would be recognized for the excess of a
reporting unit's carrying amount over its fair value. As of
September 30, 2017, management believes there are no indications of
impairment.
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.
The
Company reports a liability, if any, for unrecognized tax benefits
resulting from uncertain income tax positions taken or expected to
be taken in an income tax return. Estimated interest and penalties,
if any, are recorded as a component of interest expense and other
expense, respectively.
The
Company has not recorded any liabilities for uncertain tax
positions or any related interest and penalties at September 30,
2017 or December 31, 2016. The Company’s United States tax
returns are open to audit for the years ended December 31, 2014 to
2016. The returns for the Swiss subsidiary, Mymetics S.A., are open
to audit for the years ended December 31, 2010 to 2016. The returns
for the Netherlands subsidiaries, Bestewil B.V. and Mymetics B.V.,
are open to audit for the year ended December 31,
2016.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net
income or loss attributable to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted
earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and
potentially dilutive securities. For the periods ended September
30, 2017 and 2016, options and convertible debt were not included
in the computation of diluted earnings per share because their
effect would be anti-dilutive due to net losses incurred under the
treasury stock method.
For the three and nine months ended September 30, 2017,
the basic weighted and diluted average number of shares was
303,757,622. The total potential number of shares issuable of
614,033,846 at September 30, 2017 includes 584,933,846 potential
issuable shares related to convertible loans, and 29,100,000
potential issuable shares related to outstanding stock options
granted to employees.
For
the three months ended September 30, 2016, the basic weighted
average number of shares was 303,757,622. The total potential
number of shares issuable of 577,568,516 at September 30, 2016
includes 548,334,168 potential issuable shares related to
convertible loans, and 29,234,348 potential issuable shares related
to outstanding stock options granted to employees.
For
the nine months ended September 30, 2016, the basic weighted
average number of shares was 303,757,622. The total potential
number of shares issuable of 577,580,317 at September 30, 2016
includes 548,334,168 potential issuable shares related to
convertible loans, and 29,246,149 potential issuable shares related
to outstanding stock options granted to employees.
PREFERRED STOCK
The
Company has authorized 5,000,000 shares of preferred stock that may
be issued in several series with varying dividend, conversion and
voting rights. No preferred shares are issued or outstanding at
September 30, 2017 or December 31, 2016.
STOCK-BASED COMPENSATION
Compensation cost for all share-based payments is based
on the estimated grant-date fair value. The Company amortizes stock
compensation cost ratably over the requisite service
period.
The
issuance of common shares for services is recorded at the quoted
price of the shares on the date the shares are issued. No shares
were issued to individuals as fee for services rendered in the nine
months ended September 30, 2017 nor in the nine months ended
September 30, 2016.
During
the three month periods ended September 30, 2017 and 2016, stock
compensation expense amounted to E13 and E18, respectively. Stock
compensation expense amounted to E31 and E63 during the nine month
periods ended September 30, 2017 and 2016, respectively, and is
included in the consolidated statements of comprehensive loss
within general and administrative expenses.
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.
FAIR VALUE MEASUREMENTS
Fair
value guidance establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include:
Level
1-
Quoted
prices in active markets for identical assets or
liabilities.
Level
2-
Inputs
other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities;
quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by
observable
market data for substantially the full term of the assets or
liabilities.
Level
3-
Unobservable
inputs that are supported by little or no market activity and that
are significant to the fair value of the
assets
or liabilities.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The
Company generally has the following financial instruments: cash,
receivables, accounts payable, and notes payable. The carrying
value of cash, receivables and accounts payable, approximates their
fair value based on the short-term nature of these financial
instruments. Management believes that it is not practicable to
estimate the fair value of the notes payable due to conversion
features and the unique nature of these instruments.
CONCENTRATIONS
The Company derived 100% and 83% of revenue from its
relationship with one collaborative partner during the three month
periods ended September 30, 2017 and September 30, 2016,
respectively, and 82% and 57% with the same collaborative partner
during the nine month periods ended September 30, 2017 and
September 30, 2016, respectively.
RELATED PARTY TRANSACTIONS
Mr. Ernest M. Stern, the Company’s outside
U.S. counsel, is both a director of the Company and was a partner
in Akerman LLP, the firm retained as legal counsel by the Company.
Mr. Stern resigned from the firm Akerman LLP and became a partner
in the law firm of Culhane Meadows PLLC as of March 1, 2017.
Culhane Meadows PLLC is the Company’s legal counsel effective
March 1, 2017.
The Company incurred professional fees to the
counsel's law firms totaling E31 and E51 for the nine months ended
September
30, 2017 and 2016,
respectively.
Two
of the Company’s major shareholders have granted secured
convertible notes and short term convertible notes and promissory
notes, which have a total carrying amount of E48,276, including
interest due to date. Conversion prices on the Euro-denominated
convertible debt have been fixed to a fixed Euro/US dollar exchange
rate.
NEW ACCOUNTING PRONOUNCEMENTS
On May 28, 2014, FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers, Topic 606, requiring an entity to
recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. The
updated standard will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective and permits the use
of either the retrospective or cumulative effect transition method.
The updated standard becomes effective for us in the first quarter
of fiscal 2018. The Company is in the process of analyzing the
impact adoption will have on our annual and interim financial
statements. The Company will also be required to make additional
disclosures under the new guidance. We continue to assess the
impact on all areas of our revenue recognition, disclosure
requirements, and changes that may be necessary to our internal
controls over financial reporting.
In January 2017, the FASB issued ASU 2017-04,
Intangibles, Goodwill and Other, to supersede the current guidance
by replacing the current two-step impairment test with a one-step
impairment test. The guidance is effective for annual and interim
goodwill impairment tests in fiscal years beginning after December
15, 2019. Early adoption is permitted for goodwill impairment tests
performed after January 1, 2017. The Company elected early adoption
as of January 1, 2017. Adoption of this standard did not have an
impact on Company's consolidated financial statements.
Note 2. Debt Financing
Certain
principal shareholders have granted the Company secured convertible
notes (in accordance with the Uniform Commercial Code in the State
of Delaware), short term convertible notes and other short term
notes, which have a total carrying value of E48,276 including
interest due to date. Interest incurred on these notes since
inception has been added to the principal amounts.
The details of the convertible notes and loans are as follows
at September 30, 2017:
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Lender
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pa
|
$
0.025
|
1.3340
|
|
Eardley
Holding A.G.
|
|
08/05/2013
|
E
|
80
|
(6
)
|
10%
pa
|
$
0.018
|
1.3283
|
|
Round
Enterprises Ltd.
|
|
08/05/2013
|
E
|
320
|
(6
)
|
10%
pa
|
$
0.018
|
1.3283
|
|
Eardley
Holding A.G.
|
|
03/01/2017
|
E
|
230
|
(7
)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
|
03/01/2017
|
E
|
920
|
(7
)
|
|
N/A
|
N/A
|
|
Total
Short Term Principal Amounts
|
|
|
E
|
28,858
|
|
|
|
|
|
Accrued
Interest
|
|
|
E
|
19,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LOANS AND NOTES
|
|
|
E
|
48,639
|
|
|
|
|
(1) Private investment company of Dr. Thomas Staehelin, member of
the Board of Directors and of the Audit Committee of
the
Company. Face value is stated in U.S. dollars at $190.
(2) This maturity date is automatically prolonged for periods of
three months, unless called for repayment.
(3) Renamed Hyposwiss Private Bank Genève S.A. and acting on
behalf of Round Enterprises Ltd. which is a major
shareholder.
(4) The loan is secured against 2/3rds of the IP assets of Bestewil
Holding BV and against all property of the Company.
(5) The face values of the loans are stated in U.S. dollars at
$1,200 and $300, respectively.
(6) This maturity date is automatically prolonged for periods of
three months, unless called for repayment. The conversion price
per
share
is determined by the lower of (i) reducing by 10% the price per
share of the Company’s common stock paid by the
investors
in
connection with an investment in the Company of not less than
US$20,000, or (ii) at the stated conversion price using a
fixed
exchange
rate which are noted in the table above.
(7) On March 1, 2017, Round Enterprises Ltd. and Eardley Holding AG
each provided two promissory Notes for a total of E1,840 and
E460,
respectively, with a 2.5% interest per annum and a maturity date of
February 28, 2018. The first 50% of the promissory Notes
of E920 and E230, respectively, were provided
immediately.
The
second 50% of the promissory notes of E920 and E230,
respectively,
were provided on October 18, 2017.
Note 3. Subsequent Events
On October 18, 2017, Eardley Holding AG and Round
Enterprises Ltd. executed the second set of promissory notes for a
total of E1,150. These notes have the same terms and conditions as
the first set of promissory notes issued on March 1, 2017, with an
interest of 2.5% per annum and a maturity date of October 18,
2018.
On October 20, 2017, the Company entered into an
Amendment of the Research Agreement dated December 1, 2016 with
Sanofi Pasteur Biologics, LLC, the vaccine division of Sanofi SA,
(“Sanofi”), to extend the date of the Research
Agreement for an additional year. Under the terms of the Research
Agreement Sanofi wanted to compare the immunogenicity of
Mymetics’ influenza virosomes compared to Sanofi
Pasteur’s egg-based split vaccine. The interest of Sanofi in
a collaboration with Mymetics was based on the results of
preclinical and clinical studies a few years ago with Solvay
Pharmaceuticals that was acquired by Abbott in 2013. The initial
results of the recent study did not achieve the expected benefits
of Mymetics’ influenza virosomes and were contrary to earlier
results Mymetics obtained with Solvay in multiple studies. Mymetics
believes that there was an issue with the influenza virosome
formulations that were produced. Mymetics has agreed to pay for a
redesigned study, which Mymetics believes will be approximately
US$125,000.-. Following the new study in the coming months,
Mymetics will review the outcomes with Sanofi and determine next
steps.
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
September 30, 2017 and 2016 should be read in conjunction with the
Company's audited consolidated financial statements for the year
ended December 31, 2016 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, 2016 and, to the extent
included therein, our quarterly reports on Form 10-Q filed during
fiscal year 2017.
THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Revenue
was E399 and E179 for the three months ended September 30, 2017 and
2016, respectively, mainly related to the revenue recognized for
the work performed under the Horizon 2020 grants.
Costs and expenses increased to E769 for the three
months ended September 30, 2017 from E536 (43.5%) for the three
months ended September 30, 2016, mainly due to
the
subcontracting services related to the Horizon 2020 project with
acronym “Maciviva” (Manufacturing process for
Cold-chain Independent Virosome-based Vaccines)
incurred during the three months ended September
30, 2017.
Research and development expenses increased to E555 in
the current period from E241 (130.3%) in the comparative period of
2016, mainly due to the subcontracting services related to the
project with acronym “Maciviva” during the three month
period ending September 30, 2017.
General
and administrative expenses decreased to E276 in the three months
ended September 30, 2017 from E298 (-7.4%) in the comparative
period of 2016.
The
Company reported a net loss of (E1,020), or (E0.00) per share, for
the three months ended September 30, 2017, compared to a net loss
of (E1,003), or (E0.00) per share, for the three months ended
September 30, 2016.
NINE
MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Revenue
was E1,099 and E907 for the nine months ended September 30, 2017
and 2016, respectively. The increase was mainly related to the
revenue recognition of the GMP production related to the Maciviva
project.
Costs and expenses increased to E2,182 for the
nine months ended September 30, 2017 from E1,517 (43.8%) for the
nine months ended September 30, 2016, mainly due to the reversal of
aged R&D cost accrual of E154 during the nine months ended
September 30, 2016 and
to the subcontracting services
related to the project with acronym “Maciviva” during
the nine month period ending
September
30, 2017.
Research
and development expenses increased to E1,522 in the current period
from E599 (154.1%) in the comparative period of 2016, mainly due to
the reversal of aged R&D cost accrual of E154 during the nine
months ended September 2016, and subcontracting cost paid to vendor
for Good Manufacturing Production launched during the nine months
ended September 30, 2017.
General
and administrative expenses decreased to E900 in the nine months
ended September 30, 2017 from E930 (-3.2%) in the comparative
period of 2016.
Foreign
exchange revaluation generated a net gain of E285 during the nine
months ended September 30, 2017 and a net gain of E62 during the
nine months ended September 30, 2016, which is mainly due to the
revaluation of existing US$ based loans from related
parties.
The
Company reported a net loss of (E3,031), or (E0.01) per share, for
the nine months ended September 30, 2017, compared to a net loss of
(E2,520), or (E0.01) per share, for the nine months ended September
30, 2016.
LIQUIDITY AND CAPITAL RESOURCES
We
had cash of E830 at September 30, 2017 compared to E1,391 at
December 31, 2016.
Our first significant revenue was generated through the
exclusive negotiation fee recorded in September 9, 2013 and the
license and collaboration agreement for our RSV vaccine signed on
December 27, 2013. As consideration Mymetics received an
irrevocable and non-refundable upfront fee for the license of USD 5
million at the beginning of 2014 and fixed monthly collaboration
and R&D fees. This license and collaboration agreement ended in
2016. For 2017, we recognized a small amount of revenue related to
the Research Agreement with Sanofi Pasteur Biologics, to
investigate the immunogenicity of influenza vaccines based on
Mymetics’ proprietary virosome technology platform in
preclinical settings and anticipate revenue related to the Horizon
2020 project. New significant revenues is not expected, unless and
until a second major licensing agreement or other commercial
arrangement is entered into with respect to our
technology.
As
of September 30, 2017, we had an accumulated deficit of
approximately E79 million, and had net loss of E3,031 in the nine
month period ending on that date. We expect to continue to
incur net losses in the future for research, development and
activities related to the future licensing of our technologies, and
because of the accrual of interest payable on existing
loans.
Net
cash used in operating activities was E1,659 for the nine month
period ended September 30, 2017 mainly due to the subcontracting
services paid to vendors related to the Maciviva project of E710.
During the nine month period ended September 30, 2016 net cash used
in operating activities was E1,270.
Net
cash used in investing activities was (E34) during the nine months
ended September 30, 2017, related to the purchase of equipment for
our laboratory in Leiden, compared to (E3) for the comparable
period in 2016.
Financing
activities provided net cash of E1,150 for the nine months ended
September 30, 2017, related to promissory notes from our main
investors, and NIL for the comparable period ended September 30,
2016.
Salaries and related payroll costs represent gross
salaries for two executives, our CSO of Mymetics BV and seven
employees.
Under Executive Employment Agreements with our
CEO and two CSOs, we pay our executive officers a combined amount
of E65 per month.
Our
Swiss subsidiary, Mymetics S.A., has two employees on its payroll:
Director of Finance and Head of Manufacturing and Quality. Mymetics
BV has, besides the full time Chief Scientific Officer, three
full-time technicians and one part-time assistant.
We
intend to continue to incur additional expenditures during the next
six months for additional research and development of our HIV,
Influenza and Chikungunya vaccines, which we will try to seek
through collaborations with not-for-profit organizations. These
expenditures will relate to the continued testing of its prototype
vaccines and are included in the monthly cash outflow described
above.
In
the past, we have financed our research and development activities
primarily through debt and equity financings from various parties,
while the last three years our financing was generated partially
through a license and collaboration agreement and grant
agreements
We
anticipate that our normal operations will require approximately
E600 from existing capital resources in the year ending December
31, 2017. Additional
promissory notes
for a total of E1,150 from our main investors
is received in
October 2017. We will seek to raise additional capital from equity
or debt financings, and grants through donors and potential
partnerships with major international pharmaceutical and
biotechnology firms. However, there can be no assurance that we
will be able to raise additional capital on satisfactory terms, or
at all, to finance our operations. In the event that we are not
able to obtain such additional capital, we will be required to
further restrict or even cease our operations.
Monthly
fixed and recurring expenses for "Property leases" of E13 represent
the monthly lease and maintenance payments to unaffiliated third
parties for our offices, of which E4 is related to our executive
office located at Route de la Corniche 4, 1066 Epalinges in
Switzerland (100 square meters), and E9 related to Bestewil Holding
B.V. and its subsidiary Mymetics B.V operating from a similar
biotechnology campus near Leiden in the Netherlands, where they
occupy 120 square meters.
Included
in professional fees are legal fees paid to outside corporate
counsel and audit and review fees paid to our independent
accountants, and fees paid for investor relations.
Cumulative
interest expense of E19,781 has been accrued on all of the
Company’s outstanding notes and advances (see detailed table
in Note 2 to the financial statements).
RECENT FINANCING ACTIVITIES
During the nine month period ending September 30, 2017,
our principal source of funds has been revenues related to the
Horizon 2020 Maciviva project and the Research Agreement with
Sanofi Pasteur Biologics and additionally promissory notes from our
two main investors.
We
have filed or are in the process of filing several new grant
applications with U.S. and European institutions in relation to our
virosome based vaccines.
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 vaccines pre-clinical research costs for
new virosome vaccine.
Management anticipates that our existing capital
resources will be sufficient to fund our cash requirements through
the next three months. We have cash presently on hand in
conjunction with the collection of receivables, based upon our
current levels of expenditures and anticipated needs during this
period. For 2018, we will need additional funding through future
collaborative arrangements, licensing arrangements, and debt and
equity financings under Regulation D and Regulation S under the
Securities Act of 1933. We do not know whether additional financing
will be available on commercially acceptable terms when
needed.
If management 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 unable to secure such additional
financing when needed, we will have to curtail or suspend all or a
portion of our business activities and could be required to cease
operations entirely. Further, if new equity securities are issued,
our shareholders may experience severe dilution of their ownership
percentage.
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 our present projects and future
clinical trials.
OFF-BALANCE SHEET ARRANGEMENTS
None
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
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
no debt obligations which are sensitive to interest rate
fluctuations as all our notes payable have fixed interest rates, as
specified on the individual loan notes.
ITEM 4.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and
communicated to management, as appropriate, to allow timely
decisions regarding required disclosure. Our management, with the
participation and supervision of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report and determined that our disclosure controls
and procedures were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No
changes of internal control over financial reporting were made in
the nine months ended September 30, 2017.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
Our
management, Ronald Kempers, who is now both CEO and CFO, does not
expect that our disclosure controls or our internal control over
financial reporting will prevent or detect all error and all fraud.
A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control
system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the company
have been detected.
These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Controls can also be circumvented by
the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of
any system of controls is based in part on certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject
to risks. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance
with policies or procedures.