NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Note 1. The Company and Summary of Significant Accounting
Policies
BASIS OF PRESENTATION
The
amounts in the notes are shown in thousands of EURO rounded to the
nearest thousand except for share and per share
amounts.
The
accompanying interim period consolidated financial statements of
Mymetics Corporation (the "Company" or “Mymetics”) 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,
2015.
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 ending September 30, 2016 were of a normal and recurring
nature.
Mymetics Corporation (the "Company" or
"Mymetics") 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
HIV and malaria and has later expanded to other vaccines for
infectious diseases since the acquisition of Bestewil Holding BV in
April 2009. The Company has established a network which enables it
to work with education centers, research centers, pharmaceutical
laboratories and biotechnology companies. The Company has the
following vaccines under development; (i) Herpes Simplex which is
at the pre-clinical stage and currently on hold, (ii) intranasal
influenza which has finished a clinical trial Phase I for which the
Company is seeking partners (iii) Respiratory Syncytial Virus (RSV)
which is at the pre-clinical stage, (iv) HIV-1 which has finished a
Phase I and has finished a repeat non-human primate study with the
Texas Biomedical Research Institute, (v) malaria, which has
finished a Phase Ib and a malaria transmission blocking vaccine
which is in pre-clinical study with PATH-MVI and LMIV and (vi) two
vaccine candidates that are currently in a discovery phase, one for
Chikungunya and one for Zika.
As of September 30, 2016, the Company is in the
pre-clinical 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 the licensing
of its RSV vaccine 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 significant losses since inception resulting in an
accumulated deficit of E72,947 at September 30, 2016. Further, the
Company’s current liabilities exceed its current assets by
E44,366 as of September 30, 2016, 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 our 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 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.
CASH
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 agreements contain non-refundable 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 stand-alone 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.
RSV Corporation
In
December 2013, the Company entered into an agreement with RSV
Corporation. The agreement provided RSV Corporation with an
exclusive license to the Company’s RSV technology in order to
develop and commercialize respiratory syncytial virus virosome
vaccines. The Company received a US$5 million upfront payment in
connection with the execution of the agreement and the Company was
entitled to receive milestone payments potentially totaling $77
million plus royalties on product sales, if any. The Company also
was entitled to receive payments for research and development
activities performed on behalf of RSV Corporation. RSV Corporation
was responsible for the development, manufacturing, and marketing
of any products resulting from this agreement.
In
accordance with ASC 605-25, the Company identified all of the
deliverables at the inception of the agreement. The significant
deliverables were determined to be the RSV technology license and
the research and development services including participation on
the Joint Collaboration and Steering Committee (JCSC). The Company
has determined that the RSV technology license had standalone value
from the research services. As a result, the research services were
considered a separate unit of accounting. The estimated selling
prices for these units of accounting were determined based on
market conditions and entity-specific factors such as the terms of
the collaborators’ previous collaborative agreements, recent
preclinical and clinical testing results of therapeutic products
that use the Company’s RSV technology, the Company’s
pricing practices and pricing objectives, and the nature of the
research services to be performed for RSV Corporation and market
rates for similar services. The arrangement consideration was
allocated to the deliverables based on the relative selling price
method. The Company recognized license revenue when the exclusive
license was delivered pursuant to the terms of the agreement which
was upon execution of the agreement. The Company recognized
research services revenue as the related services were
delivered.
On
January 25, 2016 Mymetics received notice from RSV Corporation
(RSVC) that it will no longer pursue the development of a vaccine
technology for Respiratory Syncytial Virus (RSV) in order to focus
on other infectious therapies. The LCA which was signed on December
27, 2013, between Bestewil Holding BV and RSVC has formally been
terminated as of July 25, 2016.
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.
TEXAS BIOMEDICAL RESEARCH INSTITUTE
In September 2014, the Company entered into a material
transfer agreement and fixed price contract with Texas Biomedical
Research Institute. The agreement provides Texas Biomedical
Research Institute the lead of a project which has been proposed to
the Bill and Melinda Gates Foundation with the objective to confirm
previous results obtained in non-human primates with these virosome
based HIV vaccine candidates. The Company has tested these
different formulations of virosome based HIV vaccine candidates in
preclinical non-human primate studies and in Phase I clinical
settings. The Company produced and transferred to Texas Biomedical
Research Institute the original material using the Company’s
background IP.
On April 11, 2016, the Company announced that its
innovative HIV vaccine candidate was shown to generate significant
protection in groups of 12 female monkeys against repeated AIDS
virus exposures during part of the preclinical study. The blinded
study was led by Dr. Ruth Ruprecht, Scientist & Director of the
Texas Biomed AIDS Research Program and was funded by the Bill &
Melinda Gates Foundation. During the first part of the study the
Mymetics’ two-component virosome-based HIV vaccine was able
to show significant efficacy of 87% in delaying the time to
persistent infection versus the control group after seven
intravaginal virus challenges. The study aimed to mimic the
exposure of women to semen from HIV-infected men, although the
viral dose of each of these seven animal challenges represented
about 70,000 times the average human HIV dose passed during sexual
intercourse from an HIV-infected male to an uninfected female.
During the second part of the study the animal viral challenge dose
was increased by 50% starting from the 8th challenge onward,
reaching more than 100,000 times the average amount of virus passed
from an infected man to a female partner. At this virus dose, the
vaccine did not show significant protection in the animals as the
immune system was overloaded. The Company is continuing its
collaboration with the Texas Biomedical Research Institute to
analyze the serum and mucosal samples to better understand the
mechanisms of action of the vaccine. The Company recognizes revenue
under the proportional performance method.
PATH-MVI
In November 2014, the Company signed an agreement with
PATH Malaria Vaccine Initiative (MVI) and the Laboratory of Malaria
Immunology and Vaccinology (LMIV) of the National Institute of
Allergy and Infectious Diseases (NIAID), where Mymetics has
developed and produced virosome based vaccine formulations for a
malaria transmission-blocking vaccine candidate which are based on
two antigens provided by LMIV. The vaccine formulations were then
tested in animal models. PATH MVI funded all activities under this
project, which started in January 2015 and ended in January 2016.
The Company has recognized revenue under the proportional
performance method.
On April 5, 2016, the Company announced that the
preclinical study funded by PATH-MVI and in collaboration with LMIV
where Mymetics’ virosome based formulations for a malaria
transmission-blocking vaccine candidate were tested and compared
with other vaccine formulations, had been successful. The study
showed that the virosome vaccine candidates, at the highest dose
tested, generate high antibody titers against the required antigens
and they were able to significantly reduce (97-100%) the
transmission of the Plasmodium falciparum parasite. The Company is
currently evaluating funding opportunities for the next steps of
development.
HORIZON 2020-SERI
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. In May 2015, the Company received a pre-payment
from the two granting organizations for a total value of E1.5
million. The pre-payment has been recorded as a current liability
and revenue has been recognized as services are
delivered.
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, 2016 or December 31, 2015. 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.
IN-PROCESS RESEARCH AND DEVELOPMENT
In-process
research and development (referred to as IPR&D) represents the
estimated fair value assigned to research and development projects
acquired in a purchased business combination that have not been
completed at the date of acquisition and which have no alternative
future use. IPR&D assets acquired in a business combination are
capitalized as indefinite-lived intangible assets. These assets
remain indefinite-lived until the completion or abandonment of the
associated research and development efforts. During the periods
prior to completion or abandonment, those acquired indefinite-lived
assets are not amortized but are tested for impairment annually, or
more frequently, if events or changes in circumstances indicate
that the asset might be impaired.
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 in the
period that the impairment occurs.
GOODWILL
Goodwill, which represents the excess of purchase price
over the fair value of net assets acquired, is carried at cost.
Goodwill is not amortized; rather, it is subject to a periodic
assessment for impairment by applying a fair value based test.
Goodwill is assessed for impairment on an annual basis 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 must
determine if further testing was necessary. If further testing was
necessary, the Company would have performed a two-step impairment
test for goodwill. The first step requires the Company to determine
the fair value of each reporting unit. To the extent a reporting
unit’s carrying amount exceeds its fair value, an indication
exists that the reporting unit’s goodwill may be impaired and
the Company must perform a second more detailed impairment
assessment. The second impairment assessment involves allocating
the reporting unit’s fair value to all of its recognized and
unrecognized assets and liabilities in order to determine the
implied fair value of the reporting unit’s goodwill as of the
assessment date. The implied fair value of the reporting
unit’s goodwill is then compared to the carrying amount of
goodwill to quantify an impairment charge as of the assessment
date.
The Company has conducted its impairment testing as of
April 1, of 2016 and 2015 of its goodwill recognized in connection
to the acquisition of Bestewil. In conclusion of this impairment
testing, the carrying amount of the reporting unit was lower than
the estimated fair value of the reporting unit. As the fair value
of the reporting unit is higher than the carrying amount, Step 2 of
the goodwill impairment test did not need to be completed. As of
September 30, 2016, 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, 2016 or December 31, 2015. The Company’s United
States tax returns are open to audit for the years ended December
31, 2012 to 2015. The returns for the Swiss subsidiary, Mymetics
S.A., are open to audit for the years ended December 31, 2010 to
2015. The returns for the Netherlands subsidiaries, Bestewil B.V.
and Mymetics B.V., are open to audit for the year ended December
31, 2015.
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 quarter ended September
30, 2016 and 2015, 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 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.
For the three months ended September 30, 2015, the
basic weighted average number of shares was 303,757,622. The total
potential number of shares issuable of 541,314,490 at September 30,
2015 includes 511,734,490 potential issuable shares related to
convertible loans, and 29,580,000 potential issuable shares related
to outstanding stock options granted to employees.
For the nine months ended September 30, 2015, the basic
weighted average number of shares was 303,757,622. The total
potential number of shares issuable of 537,477,124 at September 30,
2015 includes 511,734,490 potential issuable shares related to
convertible loans, and 25,742,634 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, 2016 or December 31, 2015.
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, 2016. As part of the 2013 stock
option plan, the Company awarded 8,850,000 stock options grants to
individuals in the nine months ended September 30, 2015. No stock
option grants were issued to individuals for the three months ended
September 30, 2015.
Stock
compensation expense amounted to E63 and E119 during the nine month
periods ended September 30, 2016 and 2015, respectively, and E18
and E33 during the three month periods ended September 30, 2016 and
2015, respectively, which is included in the statements of
operations 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 the unique
nature of these instruments.
CONCENTRATIONS
The Company derived 42% and 64% of revenue from its
relationship with one collaborative partner during the nine month
periods ended September 30, 2016 and September 30, 2015,
respectively, and 17% and 57% of revenue from its relationship with
one collaborative partner during the three month periods ended
September 30, 2016 and September 30, 2015, respectively.
Furthermore, that same collaborative partner accounted for 5% and
68% of the receivables balance at September 30, 2016 and December
31, 2015, respectively.
RELATED PARTY TRANSACTIONS
An individual employed by the law firm that acts
as the Company's general counsel is a member of the
Board of
Directors. The Company incurred professional fees to the
counsel's law firm totaling E15 and E51 for the period of three and
nine months ending September 30, 2016 and E8 and E46 for three and
nine months ending September 30, 2015, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In May
2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers: Topic 606 (ASU 2014-09), to supersede nearly all
existing revenue recognition guidance under GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised
goods or services are transferred to customers in an amount that
reflects the consideration that is expected to be received for
those goods or services. ASU 2014-09 defines a five step process to
achieve this core principle and, in doing so, it is possible more
judgment and estimates may be required within the revenue
recognition process than required under existing GAAP including
identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate
performance obligation. ASU 2014-09 is effective for the fiscal and
interim reporting periods beginning after December 15, 2017 using
either of two methods:
(i)
retrospective to
each prior reporting period presented with the option to elect
certain practical expedients as defined within ASU 2014-09;
or
(ii)
retrospective with
the cumulative effect of initially applying ASU 2014-09 recognized
at the date of initial application and providing certain additional
disclosures as defined per ASU 2014-09.
Management
is currently evaluating the impact of the Company's pending
adoption of ASU 2014-09 on its consolidated financial
statements.
Note 2. Intangible Assets
Intangible
assets consisted of in process research and development at
September 30, 2016 and December 31, 2015.
Note 3. Debt Financing
Certain
principal shareholders have granted the Company secured convertible
notes (in accordance with the Uniform Commercial Code in the State
of Delaware) and short term convertible notes, which have a total
carrying value of E45,033 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, 2016:
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1st-Issue
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Interest
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06/23/2006
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)
|
10%
pa
|
$
0.034
|
1.3787
|
|
Round
Enterprises Ltd.
|
02/10/2012
|
$
1,000
|
(6
)
|
10%
pa
|
$
0.034
|
1.3260
|
|
Eardley
Holding A.G.
|
02/14/2012
|
$
200
|
(6
)
|
10%
pa
|
$
0.034
|
1.3260
|
|
Round
Enterprises Ltd.
|
04/19/2012
|
$
322
|
(6
)
|
10%
pa
|
$
0.034
|
1.3100
|
|
Eardley
Holding A.G.
|
04/19/2012
|
$
80
|
(6
)
|
10%
pa
|
$
0.034
|
1.3100
|
|
Round
Enterprises Ltd.
|
05/04/2012
|
$
480
|
(6
)
|
10%
pa
|
$
0.034
|
1.3152
|
|
Eardley
Holding A.G.
|
05/04/2012
|
$
120
|
(6
)
|
10%
pa
|
$
0.034
|
1.3152
|
|
Round
Enterprises Ltd.
|
09/03/2012
|
$
200
|
(6
)
|
10%
pa
|
$
0.034
|
1.2576
|
|
Eardley
Holding A.G.
|
09/03/2012
|
$
50
|
(6
)
|
10%
pa
|
$
0.034
|
1.2576
|
|
Round
Enterprises Ltd.
|
11/04/2012
|
$
500
|
(6
)
|
10%
pa
|
$
0.034
|
1.2718
|
|
Eardley
Holding A.G.
|
12/06/2012
|
$
125
|
(6
)
|
10%
pa
|
$
0.034
|
1.3070
|
|
Round
Enterprises Ltd.
|
01/16/2013
|
$
240
|
(6
)
|
10%
pa
|
$
0.034
|
1.3318
|
|
Eardley
Holding A.G.
|
01/16/2013
|
$
60
|
(6
)
|
10%
pa
|
$
0.034
|
1.3318
|
|
Round
Enterprises Ltd.
|
03/25/2013
|
$
400
|
(6
)
|
10%
pa
|
$
0.037
|
1.2915
|
|
Eardley
Holding A.G.
|
04/14/2013
|
$
150
|
(6
)
|
10%
pa
|
$
0.034
|
1.3056
|
|
Round
Enterprises Ltd.
|
04/14/2013
|
$
600
|
(6
)
|
10%
pa
|
$
0.034
|
1.3056
|
|
Eardley
Holding A.G.
|
05/15/2013
|
$
170
|
(6
)
|
10%
pa
|
$
0.037
|
1.2938
|
|
Round
Enterprises Ltd.
|
05/15/2013
|
$
680
|
(6
)
|
10%
pa
|
$
0.037
|
1.2938
|
|
Eardley
Holding A.G.
|
06/24/2013
|
$
60
|
(6
)
|
10%
pa
|
$
0.025
|
1.3340
|
|
Round
Enterprises Ltd.
|
06/24/2013
|
$
240
|
(6
)
|
10%
pa
|
$
0.025
|
1.3340
|
|
Eardley
Holding A.G.
|
08/05/2013
|
$
80
|
(6
)
|
10%
pa
|
$
0.018
|
1.3283
|
|
Round
Enterprises Ltd.
|
08/05/2013
|
$
320
|
(6
)
|
|
$
0.018
|
1.3283
|
|
Total
Short Term Principal Amounts
|
|
$
27,785
|
|
|
|
|
|
Accrued
Interest
|
|
$
17,248
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LOANS AND NOTES
|
|
$
45,033
|
|
|
|
|
(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 Geneve 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.
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 for the periods ended September 30,
2016 and 2015 should be read in conjunction with the Company's
audited consolidated financial statements for the year ended
December 31, 2015 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, 2015 and, to the extent
included therein, our quarterly reports on Form 10-Q filed during
fiscal year 2016.
THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
Revenue
was E179 and E694 for the three months ended September 30, 2016 and
2015, respectively. E30 and E448 relate to the research and
development services provided under a License and Collaboration
Agreement for the RSV vaccine signed on December 23, 2013 for the
respective periods ending September 30, 2016 and 2015. For the
three months ended September 30, 2016 and 2015, additional revenue
of E149 and E246, respectively, was received from the grant revenue
recognized for the HIV and malaria projects.
Costs
and expenses decreased to E536 for the three months ended September
30, 2016 from E838 (-36.0%) for the three months ended September
30, 2015.
Research
and development expenses decreased to E241 in the current period
from E455 (-47.0%) in the comparative period of 2015. This is
mainly due to the decrease in RSV related laboratory cost due to
the cancellation of the LCA signed on December 27, 2013 between
Bestewil Holding BV and RSVC, which has formally been terminated as
of July 25, 2016.
General
and administrative expenses decreased to E298 in the three months
ended September 30, 2016 from E376 (-20.7%) in the comparative
period of 2015.
Interest
expense was stable at E642 for the three months ended September 30,
2016 and for the three months ended September 30, 2015 related to
existing loans from third party investors.
The
Company reported a net loss of (E1,003), or (E0.00) per share, for
the three months ended September 30, 2016, compared to a net loss
of (E790), or (E0.00) per share, for the three months ended
September 30, 2015.
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
Revenue
was E907 and E2,384 for the nine months ended September 30, 2016
and 2015, respectively, out of which, E379 was related to the
research and development services provided under the LCA with RSVC
and E528 was related to grant revenue recognized for the HIV and
malaria projects, during the nine months ended September 30, 2016.
For the nine month period ending September 30, 2015, E1,610 was
related to the research and development services provided under a
LCA with RSVC and E774 was related to the grant revenue recognized
for the HIV and malaria projects.
Costs
and expenses decreased to E1,517 for the nine months ended
September 30, 2016 from E2,748 (-44.8%) for the nine months ended
September 30, 2015, mainly due to a decrease in general and
administrative costs, research and development costs and foreign
exchange revaluation of mainly positions in USD.
Research
and development expenses decreased to E599 in the current period
from E1,376 (-56.5%) in the comparative period of 2015, mainly due
to the decrease in RSVC laboratory cost due to the cancellation of
the LCA signed on December 27, 2013 between Bestewil Holding BV and
RSVC, which has formally been terminated as of July 25,
2016.
General and administrative expenses decreased to
E930 in the nine months ended September 30, 2016 from E1,216
(-23.5%) in the comparative period of 2015
mainly
due to bonus (E46) and professional services related to the
European Grant preparation (E67) paid during the nine months ended
September 30, 2015.
Interest
expense decreased to E1,926 for the nine months ended September 30,
2016 from E1,928 for the nine months ended September 30, 2015
related to existing loans from third party investors.
The
Company reported a net loss of (E2,520), or (E0.01) per share, for
the nine months ended September 30, 2016, compared to a net loss of
(E2,306), or (E0.01) per share, for the nine months ended September
30, 2015.
LIQUIDITY AND CAPITAL RESOURCES
We
had cash of E1,104 at September 30, 2016 compared to E2,381 at
December 31, 2015.
Our first significant revenue has been 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 had received
an irrevocable and non-refundable upfront fee for the license of
USD 5 million at the beginning of 2014 and we have received fixed
monthly collaboration and R&D fees. Due to the ending of the
License and Collaboration Agreement with RSVC, for 2016, we
anticipate recognizing significantly less revenue related to the
research and development activities related to the RSV vaccine and
some revenue related to the Horizon 2020 project. New significant
revenues will not be 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, 2016, we had an accumulated deficit of
approximately E73 million, and had net loss of E2,520 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 E1,270 for the nine month
period ended September 30, 2016 mainly due to the decrease in
research and development revenue received from RSV
Corporation.During the nine month period ending September 30, 2015
net cash provided in operating activities was E1,019.
Investing
activities used cash of (E3) during the nine months ended September
30, 2016, compared to (E18) for the comparable period in 2015, all
related to the purchase of equipment for our laboratory in
Leiden.
Financing
activities for the nine months ended September 30, 2016 and
September 30, 2015 is NIL.
Salaries and related payroll costs represent gross
salaries for two executives, our CSO of Mymetics BV and nine
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, in addition to the full time Chief Scientific
Officer, three full-time assistants and one part-time
assistant.
We intend to continue to incur additional expenditures during the
next nine months for additional research and development of our HIV
and Malaria 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 two years our financing was
generated through a license and collaboration agreement and grant
agreements.
On June 19, 2015, through our wholly-owned
Swiss subsidiary, Mymetics SA, we entered into an Agreement with
Breslin AG ("Breslin"), under which Breslin agreed to serve as the
exclusive advisor to advise and support Mymetics in finding an
industry partner to assist with the further development of the
intranasal flu vaccine program which had successfully completed a
clinical Phase I trial. Solvay Pharmaceuticals, which was acquired
by Abbott Laboratories in 2009, was a prior partner of Mymetics for
the intranasal flu vaccine and had successfully completed a
clinical Phase I trial with 100 patients but transferred the
partnering rights back to Mymetics following a strategic refocusing
by Abbott Laboratories. Under the terms of the Agreement, Mymetics
has agreed to pay to Breslin a retainer of €7,500 per month
for nine months, capped at €45,000, in addition to certain
success fees for potential upfront and milestone payments and
royalties based upon potential sales of Mymetics' intranasal flu
vaccine product.
We anticipate that our normal operations will require
approximately E1,150 in the year ending December 31,
2016,
which
reflects in increased spending for the Horizon 2020 project
.
We
will seek to raise the required 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 E12 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 E8 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 E17,248 has been accrued on all of the
Company’s outstanding notes and advances (see detailed table
in Note 3 to the financial statements).
RECENT FINANCING ACTIVITIES
During the nine month period ending September 30, 2016,
our principal source of funds has been revenues related to a
HIV/MACIVIVA project with Horizon 2020/SERI and a License and
Collaboration Agreement (“LCA”) with RSV Corporation
(“RSVC”) signed on December 27, 2013 to license
Bestewil Holding BV.
We
have filed or are in the process of filing several new grant
applications with U.S. and European institutions in relation to our
HIV and malaria vaccines.
Management
anticipates that our existing capital resources will be sufficient
to fund our cash requirements through the next six months. We have
enough 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 2017, 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 and future clinical
trials.
OFF-BALANCE SHEET ARRANGEMENTS
The
Company does not have any off-balance sheet
arrangements.
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. 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, 2016.
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.