NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(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, 2017.
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 March 31, 2018 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.
Historically, its main research efforts focused on 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 pre-clinical stage and currently on hold, (ii) influenza for
elderly which has finished a clinical trial Phase I, (iii)
Respiratory Syncytial Virus (RSV) which is at the pre-clinical
stage and currently on hold and (iv) Chikungunya virus at the
discovery stage.
As
of March 31, 2018, 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, 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
E81,401 at March 31, 2018. Further, the Company’s current
liabilities exceed its current assets by E50,499 as of March 31,
2018, 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
within one year from the issuance of the financial
statements.
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 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
Effective January 1, 2018, we adopted Accounting
Standards Codification (ASC) Topic 606, Revenue from Contracts
with Customers, using the modified retrospective method and there
was no impact to our financial position and results of operations
as a result of the adoption. This standard applies to all contracts
with customers, except for contracts that are within the scope of
other standards, such as leases, insurance, collaboration
arrangements and financial instruments. Under Topic 606, an entity
recognizes revenue when its customer obtains control of promised
goods or services, in an amount that reflects the consideration
which the entity expects to receive in exchange for those goods or
services. To determine revenue recognition for arrangements that an
entity determines are within the scope of Topic 606, the entity
performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. We only apply the five-step model to
contracts when it is probable that the entity will collect the
consideration it is entitled to in exchange for the goods or
services it transfers to the customer. At contract inception, once
the contract is determined to be within the scope of Topic 606, we
assess the goods or services promised within each contract and
determine those that are performance obligations, and assess
whether each promised good or service is distinct. We then
recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.
Overall, adoption of
the new standard did not result in an adjustment to amounts
previously reported in our consolidated financial statements and
there were no other significant changes impacting the timing or
measurement of our revenue or our business processes and
controls.
The
Company has concluded that government grants are not within the
scope of Topic 606, as they do not meet the definition of a
contract with a “customer”. We concluded the definition
of a contract with a “customer” was not met as the
counterparty to the government grants has not contracted to obtain
goods or services and thus the contracts are not considered to have
commercial substance. Government grants provide the Company with
payments for certain types of expenditures related to research and
development activities over a contractually defined period. Revenue
from government grants is recognized in the period during which the
related costs are incurred, provided that the applicable conditions
under the government contracts have been met.
Grant Revenue - 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 amounts mentioned in the following statements
are purely related to Mymetics and not to the other partners in the
project: 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
was used to finance the next reporting covering the period of
November 2016 to October 2017. In November 2017, the Company
submitted the second report and a new funding request, which
resulted in another tranche of funding from the EU of E77 received
in February 2018. This brings the total funding received year to
date to E3,162, which represents 82% of the agreed contribution but
the maximum funding available until the end of the project. The
total cost incurred year to date represents 99% of
the
total
funding received year to date. The remaining funds will be received
after the Company receives approval for the final report which will
be submitted in November 2018. The maximum funds available is
E636.
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 March 31, 2018 or December 31, 2017. The
Company writes 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 exceeds
its fair value, 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. As of
March 31, 2018, 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 December 31,
2017 or 2016. The Company’s United States tax returns are
open to audit for the years ended December 31, 2014 to 2017. The
returns for the Swiss subsidiary, Mymetics S.A., are open to audit
for the year ended December 31, 2017. The returns for the
Netherlands subsidiaries, Bestewil B.V. and Mymetics B.V., are open
to audit for the year ended December 31, 2017.
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 quarters ended March 31, 2018 and 2017, 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 March 31, 2018, the basic weighted average
number of shares was 303,757,622. The total potential number of
shares issuable of 632,333,684 at March 31, 2018 includes
603,233,684 potential issuable shares related to convertible loans
and 29,100,000 potential issuable shares related to outstanding not
expired options granted to employees.
For
the three months ended March 31, 2017, the basic weighted average
number of shares was 303,757,622. The total potential number of
shares issuable of 595,734,007 at March 31, 2017 includes
566,634,007 potential issuable shares related to convertible loans,
and 29,100,000 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
March 31, 2018 or December 31, 2017.
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
three months ended March 31, 2018 nor in the three months ended
March 31, 2017.
Stock
compensation expense amounted to E6 and E12 during the three months
periods ended March 31, 2018 and 2017, 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 the unique
nature of these instruments.
CONCENTRATIONS
The
Company derived 100% of grant revenue for the three month periods
ended March 31, 2018 and March 31, 2017 from on
partner.
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 E6 and E23 for the three months ended
March 31, 2018 and 2017, 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 E50,622, including
interest due to date. Conversion prices on the Euro-denominated
convertible debt have been fixed to a fixed Euro/US dollar exchange
rate.
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 E50,995 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 March
31, 2018:
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Fixed
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Conversion
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Rate
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Lender
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1st-Issue
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Principal
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Duration
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Interest
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Price
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EUR/USD
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Price
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Date
|
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Amount
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(Note)
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|
Rate
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(stated)
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Conversion
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Eardley
Holding A.G. (1)
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06/23/2006
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|
|
E
|
154
|
|
(2
|
)
|
10%
pa
|
|
$
|
0.10
|
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N/A
|
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Anglo
Irish Bank S.A.(3)
|
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10/21/2007
|
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E
|
500
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(2
|
)
|
10%
pa
|
|
$
|
0.50
|
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1.4090
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Round
Enterprises Ltd.
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12/10/2007
|
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E
|
1,500
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|
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|
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|
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pa
|
|
$
|
0.50
|
|
1.4429
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Round
Enterprises Ltd.
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01/22/2008
|
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E
|
1,500
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|
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|
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|
10%
pa
|
|
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|
0.50
|
|
1.4629
|
|
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Round
Enterprises Ltd.
|
|
04/25/2008
|
|
|
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|
2,000
|
|
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|
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|
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pa
|
|
$
|
0.50
|
|
1.5889
|
|
|
Round
Enterprises Ltd.
|
|
06/30/2008
|
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|
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|
1,500
|
|
(2
|
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pa
|
|
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1.5380
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|
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|
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11/18/2008
|
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1,200
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1.2650
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|
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02/09/2009
|
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1.2940
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06/15/2009
|
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1.4045
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Holding A.G.
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06/15/2009
|
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100
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1.4300
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08/03/2009
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200
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10/13/2009
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1.4854
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12/18/2009
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2,200
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1.4338
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08/04/2011
|
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974
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10%
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N/A
|
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Eardley
Holding A.G.
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08/04/2011
|
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244
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N/A
|
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11/08/2011
|
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400
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1.3787
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Eardley
Holding A.G.
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11/08/2011
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100
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1.3787
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02/10/2012
|
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1.3260
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Eardley
Holding A.G.
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02/14/2012
|
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200
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|
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1.3260
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04/19/2012
|
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322
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|
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|
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|
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1.3100
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Eardley
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04/19/2012
|
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80
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|
0.034
|
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1.3100
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05/04/2012
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480
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|
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|
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pa
|
|
$
|
0.034
|
|
1.3152
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|
|
Eardley
Holding A.G.
|
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05/04/2012
|
|
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120
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|
|
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|
0.034
|
|
1.3152
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|
|
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09/03/2012
|
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200
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|
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|
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|
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|
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|
0.034
|
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1.2576
|
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|
Eardley
Holding A.G.
|
|
09/03/2012
|
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50
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|
|
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|
0.034
|
|
1.2576
|
|
|
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11/14/2012
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500
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|
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|
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|
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pa
|
|
$
|
0.034
|
|
1.2718
|
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|
Eardley
Holding A.G.
|
|
12/06/2012
|
|
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|
125
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|
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|
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|
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|
|
$
|
0.034
|
|
1.3070
|
|
|
Round
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|
|
01/16/2013
|
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240
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|
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|
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|
|
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|
0.034
|
|
1.3318
|
|
|
Eardley
Holding A.G.
|
|
01/16/2013
|
|
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|
60
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|
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|
|
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|
0.034
|
|
1.3318
|
|
|
Round
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|
|
03/25/2013
|
|
|
E
|
400
|
|
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|
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|
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pa
|
|
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|
0.037
|
|
1.2915
|
|
|
Eardley
Holding A.G.
|
|
04/14/2013
|
|
|
E
|
150
|
|
(6
|
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|
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pa
|
|
$
|
0.034
|
|
1.3056
|
|
|
Round
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|
|
04/14/2013
|
|
|
E
|
600
|
|
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|
)
|
10%
pa
|
|
$
|
0.034
|
|
1.3056
|
|
|
Eardley
Holding A.G.
|
|
05/15/2013
|
|
|
E
|
170
|
|
(6
|
)
|
10%
pa
|
|
$
|
0.037
|
|
1.2938
|
|
|
Round
Enterprises Ltd.
|
|
05/15/2013
|
|
|
E
|
680
|
|
(6
|
)
|
10%
pa
|
|
$
|
0.037
|
|
1.2938
|
|
|
Eardley
Holding A.G.
|
|
06/24/2013
|
|
|
E
|
60
|
|
(6
|
)
|
10%
pa
|
|
$
|
0.025
|
|
1.3340
|
|
|
Round
Enterprises Ltd.
|
|
06/24/2013
|
|
|
E
|
240
|
|
(6
|
)
|
10%
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
|
)
|
2.5%
pa
|
|
|
N/A
|
|
N/A
|
|
|
Eardley
Holding A.G.
|
|
10/18/2017
|
|
|
E
|
230
|
|
(7
|
)
|
2.5%
pa
|
|
|
N/A
|
|
N/A
|
|
|
Round
Enterprises Ltd.
|
|
10/18/2017
|
|
|
E
|
920
|
|
(7
|
)
|
2.5%
pa
|
|
|
N/A
|
|
N/A
|
|
|
Total Short Term Principal Amounts
|
|
|
|
|
E
|
29,948
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
|
|
E
|
21,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LOANS AND NOTES
|
|
|
|
|
E
|
50,995
|
|
|
|
|
|
|
|
|
|
|
(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) The maturity date the later of (i) June 30, 2018, or (ii) the
end of a subsequent calendar quarter in which the Company receives
a written request from the lender for repayment of the unpaid
principal and accrued interest due under the Notes.
Note 3. Subsequent Events
On
April 16, 2018, the Company entered into a Research and Option to
License Agreement with Anergis SA (“Anergis”). Under
the terms of the Research Agreement, a pre-clinical study program
will evaluate the immunogenicity profile of the Anergis’
peptides designed to treat birch allergy when presented on
Mymetics’ proprietary virosomes, with or without undisclosed
TLR ligands or other adjuvants, and will compare the results to
Anergis’ AllerT product combination. The results of the
program are expected in the first quarter of 2019.
In
the event that the results of the pre-clinical study program are
successful, Anergis has the option to obtain an exclusive worldwide
license of Mymetics’ virosome technology for the development
of allergy vaccines. Should Anergis and Mymetics execute a License
and Collaboration Agreement (LCA), Anergis would make an upfront
payment to Mymetics in an amount that increases as the date of
executing the LCA is delayed, milestone payments based on certain
regulatory clearances and royalties for net sales.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The
following discussion and analysis of the results of operations and
financial condition of Mymetics Corporation for the periods ended
March 31, 2018 and 2017 should be read in conjunction with the
Company's audited consolidated financial statements for the year
ended December 31, 2017 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, 2017 and, to the extent
included therein, our quarterly reports on Form 10-Q filed during
fiscal year 2017.
THREE MONTHS ENDED MARCH 31, 2018 AND 2017
Revenue
was E297 and E383 for the three months ended March 31, 2018 and
2017, respectively, mainly related to the revenue recognized for
the work performed under the Horizon 2020 grants.
Costs
and expenses decreased to E533 for the three months ended March 31,
2018 from E976 (-45.4%) for the three months ended March 31, 2017,
mainly due to higher subcontracting services of E372 paid to PXT
during the same period in 2017, related to the Horizon 2020
Maciviva project.
Research
and development expenses decreased to E308 in the current period
from E667 (-53.9%) in the comparative period of 2017, mainly due to
lower subcontracting services during the three month period ending
March 2018.
General
and administrative expenses decreased to E277 in the three months
ended March 31, 2018 from E330 (-16.1%) in the comparative period
of 2017. The decrease is mainly due to higher legal cost and audit
cost related to the goodwill testing, incurred during the three
months ended March 31, 2017.
Interest
expense increased to E653 for the three months ended March 31, 2018
from E646 for the three months ended March 31, 2017 related to
existing loans from third party investors.
The
Company reported a net loss of (E898), or (E0.00) per share, for
the three months ended March 31, 2018, compared to a net loss of
(E1,239), or (E0.00) per share, for the three months ended March
31, 2017.
LIQUIDITY AND CAPITAL RESOURCES
We
had cash of E545 at March 31, 2018 compared to E1,180 at December
31, 2017.
Our
revenue has been generated through the Horizon 2020 project. For
2018, new significant revenues will not be expected, unless and
until a major licensing agreement or other commercial arrangement
is entered into with respect to our technology.
As
of March 31, 2018, we had an accumulated deficit of approximately
E81 million, and had net loss of E898 in the three 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 E634 for the three month
period ended March 31, 2018. During the three month period ending
March 31, 2017 net cash used in operating activities was E988
mainly due to the subcontracting services paid to PXT related to
the Maciviva project of E372.
Net
cash used in investing activities was NIL during the three months
ended March 31, 2018, compared to (E18) for the comparable period
in 2017 related to the purchase of equipment for our laboratory in
Leiden.
Net
cash provided in financing activities is NIL for the three months
ended March 31, 2018, compared to E1,150 for the comparable period
ended March 31, 2017 related to promissory notes from our main
investors.
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, besides the CEO and CSO, two
additional 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
nine months for additional research and development of our HIV,
Influenza and Chikungunya vaccines, which we will try to seek
through collaborations with pharmaceutical companies or 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
and through license and collaboration agreements and grant
agreements.
We
anticipate that our normal operations will require approximately
E1,400 in the year ending December 31, 2018. 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 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 204 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 E21,047 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 three month period ending March 31, 2018, our principal source
of funds has been revenues related to the Horizon 2020
project.
In
November 2017, the Company submitted the second report and a new
funding request, which resulted in another tranche of funding from
the EU of E77 received in February 2018. This brings the total
funding received year to date to E3,162, which represents 82% of
the agreed contribution but the maximum funding available until the
end of the project. The remaining funds will be received after the
Company receives approval for the final report which will be
submitted in November 2018. The maximum available funds is
E636.
We
have filed or are in the process of filing 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 nine 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 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 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 three months ended March 31, 2018.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
Our
management, Ronald Kempers, who is 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.