NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(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,
2019.
The accompanying financial statements of the Company
are unaudited. However, in the opinion of the Company, the
unaudited condensed 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 and nine-month period ending
September 30, 2020 were of a normal and recurring
nature.
The Company was created for the purpose of engaging in
vaccine research and development. Its main research efforts in the
beginning have been concentrated in the prevention and treatment of
the AIDS virus and malaria. The Company has established a network
which enables it to work with education centers, research centers,
pharmaceutical laboratories and biotechnology companies. Besides
the HIV and malaria vaccine candidates under development, the
Company additionally has the following vaccines in its pipeline;
(i) Herpes Simplex which is at the 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
and currently on hold.
As of September 30, 2020, the Company was engaged in
the pre-clinical testing of some of its vaccine candidates, but a
commercially viable product is not expected for several more years.
However, the Company generated some revenue as of the prior quarter
through collaboration and grant agreements. The Company is working
on several research projects with commercial partners for
immunotherapy in the fields of allergy and oncology and for some
infectious diseases with academic partners. Since April 2020 the
Company has additionally started to work on the development of a
virosome-based vaccine to prevent Covid-19, the disease caused by
the SARS-CoV-2 virus. For the Covid-19 vaccine candidates the
Company is collaborating with leading academic institutions, such
as Baylor College of Medicine in Texas. The allergy project is in
collaboration with Anergis SA, for which the Company prepared
virosome-based vaccines which include Anergis peptides for treating
birch pollen allergy. These formulations were tested in two
preclinical studies, compared to the Anergis’ earlier
formulations and other comparators, and showed successful
results.
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 €92,095 at September 30, 2020. Further, the
Company’s current liabilities exceed its current assets by
€61,087 as of September 30, 2020, 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.
IMPACT OF THE NOVEL CORONAVIRUS
On January 30, 2020, the World Health Organization
(“WHO”) announced a global health emergency because of
a new strain of coronavirus originating in Wuhan, China (the
“COVID-19 outbreak”) and the risks to the international
community as the virus spreads globally beyond its point of origin.
In March 2020, the WHO classified the COVID-19 outbreak as a
pandemic, based on the rapid increase in exposure
globally.
The full impact of the COVID-19 outbreak continues to evolve as of
the date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on the Company’s
financial condition, liquidity, and future results of
operations.
Management is actively monitoring the global situation on its
financial condition, liquidity, operations, scientific
collaborations, suppliers, industry, and workforce. Given the daily
evolution of the COVID-19 outbreak and the global responses to curb
its spread, the Company is not able to estimate the effects of the
COVID-19 outbreak on its results of operations, financial
condition, or liquidity for fiscal year 2020.
The Company’s partner for the oncology immunotherapy project
in the Netherlands has decreased their laboratory experiments due
to reduced operating hours in those facilities. While the Company
considers this disruption to be temporary, continued disruption in
this project will lead to delayed advances by the Company of its
research and could negatively impact revenue for the remainder of
fiscal year 2020 and the Company’s overall
liquidity.
The Company is dependent on its workforce to deliver and advance
its research. Developments such as physical distancing and working
from home directives have and will continue to impact the
Company’s ability to deploy its workforce effectively. While
expected to be temporary, prolonged workforce disruptions may
negatively impact future revenues for the remainder of fiscal year
2020 and the Company’s overall liquidity.
The Company is dependent on its partners in certain projects, such
as the University of Louisiana at Lafayette (“ULL”) for
the NIH funded project to maintain the agreed timelines and execute
their tasks. Developments such as social distancing and
shelter-in-place directives and lock-down directives have and will
continue to impact the Company’s ability to execute on
project plans and research objectives effectively. While expected
to be temporary, prolonged disruptions in collaboration projects
may negatively impact funding for the remainder of fiscal year 2020
and the Company’s overall liquidity.
Although the Company cannot estimate the length or gravity of the
impact of the COVID-19 outbreak at this time, if the pandemic
continues, it may have a material adverse effect on the
Company’s results of future operations, financial position,
and liquidity for the remainder of fiscal year 2020.
CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT
On March 27, 2020, the U.S. Government enacted the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) was
signed into law. The CARES Act includes various income and payroll
tax provisions. The Company has analyzed the tax provisions of the
CARES Act and determined they have no significant financial impact
to the condensed financial statements. The Company has no intention
of taking advantage of other benefits provided by the CARES Act but
will continue to evaluate the impact on the Company’s
financial position.
PRINCIPLES OF CONSOLIDATION
The
condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated.
NEW ACCOUNTING PRONOUNCEMENT
On January 1, 2020, the Company adopted Accounting
Standard Update ("ASU") No. 2018-13, Fair Value Measurement (Topic
820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement, to improve the
effectiveness of disclosures. The amendments remove, modify, and
add certain disclosure requirements in Topic 820, “Fair Value
Measurement.” The amendments on changes in unrealized gains
and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal
year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The adoption had no impact on the Company's condensed consolidated
financial statements.
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
foreign exchange (gain) loss 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
The Company considers 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
The Company recognizes revenue when its customer
obtains control of promised goods or services, in an amount that
reflects the consideration which the Company expects to receive in
exchange for those goods or services. To determine revenue
recognition for arrangements that the Company determines are within
the scope of ASU No. 2014-19, Revenue from Contracts with
Customer (“Topic
606”), the Company 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 Company satisfies a performance obligation. The
Company only applies the five-step model to contracts when it is
probable that the Company 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, the Company 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. The Company 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.
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”. The Company
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.
NIH
On April 29, 2019, the National Institutes of Health
(“NIH”) awarded the Company and Texas Biomedical
Research Institute (“Texas Biomed”) a five-year grant
for the project called “Cold Chain-independent, Needle-free
Mucosal Virosomal Vaccine to Prevent HIV-1 Acquisition at Mucosal
Levels” (“NIH Grant”). The project started on May
1, 2019 and is planned for five years. It was initially co-led by
Texas Biomed, but due to the move of Dr. Ruth Ruprecht, the
Co-Principal Investigator, to the University of Louisiana at
Lafayette (“ULL”) at the end of 2019, ULL has become
the co-lead with Mymetics for this project. The overall budget
related to the project is USD 8,850, with USD 1,940 approved for
the first year, and USD 1,856 for the second year. The overall
portion of the grant allocated to the Company is USD 5,930, with
USD 1,190 approved for the first year, and USD 1,052 for the second
year. To date, the sub-award contract between ULL and the Company
for the second year (May 2020 to April 2021) is still pending for
signature. The cost incurred since May 2020 as of September 30,
2020, mainly labor cost and stability studies for a total amount of
€126, has not been recorded as revenue. For the overall
project, to date, the Company has recognized €943 of grant
revenue from the NIH related to the cost invoiced as of April 30,
2020. During 2020, €401 and €12 have been recognized
during the nine and three months ended September 30, 2020,
respectively. First results are expected to be reported in
2021.
The project has the objective to prepare the
Company’s promising HIV-1 vaccine candidate for clinical
trials, by first executing a non-human primate (“NHP”)
study, where the test subjects will be receiving Mymetics’
virosome based HIV-1 vaccine candidate by several intra-muscular
and intra-nasal applications, followed by rectal challenges. As of
September 30, 2020, Mymetics has successfully produced two sets of
virosome based vaccines and the NHPs have received two
intramuscular vaccinations and three intranasal vaccinations. The
vaccinations were well tolerated and there were no safety issues.
This study is ongoing. The vaccine is created to induce protective
mucosal antibodies acting as a frontline defense against sexual HIV
transmission. This newly awarded grant from the NIH can continue
some of the developments that were achieved during the European
Horizon 2020 project.
License Agreement – UPPERTON Ltd.
On July 26, 2019 Mymetics and Upperton Ltd. signed a
License Agreement (the “Agreement”) that sets out the
rights and obligations of the two parties with respect to the
development, manufacturing and exploitation of certain virus-like
particles based vaccines (which includes virosomes) into solid
(powder or tablet) form that are based on each party’s
background or pre-existing intellectual property (“IP”)
and the foreground IP rights or the IP that was developed by either
party or both parties during the Maciviva project and could be
developed during future collaborations.
Under the terms of the Agreement Mymetics receives an
exclusive and royalty-free, worldwide license to use the Upperton
background IP for the development, research, sale or in/out license
for virus-like particle vaccines that use the foreground IP rights.
All title, right and interest in and to all foreground IP rights
vests in Mymetics for such development, research, sale or in/out
license, and Mymetics is free to use and exploit such foreground IP
rights. Mymetics has provided Upperton the non-exclusive license to
manufacture virus-like particle-based vaccines for third parties
for indications other than respiratory viruses, certain allergies,
HIV, malaria and chikungunya. For these foreground IP licenses, the
parties have agreed to pay each other a certain low single digit
percentage of revenues, license fees and royalties that each of the
parties receives from their exploitation. No revenue has been
received nor recognized during the three and nine months ended
September 30, 2020.
License Agreement – ANERGIS SA
In December 2018, the Company announced that the
success criteria of the Research and Option to License Agreement
with Anergis SA (“Anergis”) had been met. Under the
terms of the Research Agreement, a pre-clinical study program
evaluated 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 these results were compared to Anergis’
AllerT product combination. In October 2019 Anergis started a new
evaluation study in collaboration with Stallergenes Greer SA, in
which the Mymetics COP virosomes were evaluated in a preclinical
study. On May 28, 2020 the
Company announced that Stallergenes Greer and Anergis reported the
results of the joint research study (the second study) evaluating
the effects of the second generation Contiguous Overlapping
Peptides (COP) allergen immunotherapy in a therapeutic model of
birch allergy, with the aim of shortening the AIT administration
schemes. In the second study, conducted by Stallergenes Greer,
COP-Virosomes, and COP and virosomes alone were compared to a
placebo group in an in-house therapeutic model of birch pollen
allergy. Recombinant Bet v 1 alone (the major allergen of birch
pollen) and birch extract were also used as controls in this
setting. COP-virosomes were the only synthetic therapy able to
fully reverse asthma symptoms as well as lung inflammation (i.e.,
significant reduction in eosinophils in bronchial fluids).
Pro-allergic immune responses also decreased with COP-virosome
therapy with a significant decrease of the IL-4, a Th2
cytokine.
Anergis had a time limited option to license the virosomes from
Mymetics in the field of allergies that requires Anergis to raise
funds from third parties to pay Mymetics the license fee under the
terms of the License and Collaboration Agreement and the clinical
development. Although the option to license has expired as Anergis
has not yet been able to raise sufficient funds, Anergis and
Mymetics are currently in negotiation about a possible business
relationship, but there is no assurance that this will be
concluded. No revenue has been received nor recognized during the
three and nine months ended September 30, 2020.
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, 2020 or December 31, 2019. 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. The Company has one reporting unit.
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,
2020, or December 31, 2019. The Company’s United States tax
returns are open to audit for the years ended December 31, 2015 to
2018. The returns for the Swiss subsidiary, Mymetics S.A., are open
to audit for the year ended December 31, 2019. The returns for the
Netherlands subsidiaries, Bestewil B.V. and Mymetics B.V., are open
to audit for the year ended December 31, 2019.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net
income or loss attributable to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted
earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and
potentially dilutive securities. For the periods ended September
30, 2020 and 2019, options and convertible debt were not included
in the computation of diluted earnings per share because their
effect would be anti-dilutive due to net losses incurred under the
treasury stock method.
For the three and nine months ended September 30, 2020,
the basic weighted and diluted average number of shares was
303,757,622. The total potential number of shares issuable of
720,431,036 at September 30, 2020 includes 694,681,036 potential
issuable shares related to convertible loans, and 25,750,000
potential issuable shares related to outstanding stock options
granted to employees.
For
the three and nine months ended September 30, 2019, the basic
weighted and diluted average number of shares was 303,757,622. The
total potential number of shares issuable of 687,233,201 at
September 30, 2019 includes 658,133,201 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
September 30, 2020 or December 31, 2019.
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, 2020 nor in the nine months ended
September 30, 2019.
During
the three-month periods ended September 30, 2020 and 2019, stock
compensation expense amounted to €0 and €0,
respectively. Stock compensation expense amounted to €0 and
€2 during the nine-month periods ended September 30, 2020 and
2019, respectively, and is included in the condensed 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 markets that are not active; or orther imputs
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
and nine month periods ended September 30, 2020 and 93% for the
three and nine month periods ended September 30, 2019 from one
grantor, respectively.
RELATED PARTY TRANSACTIONS
Mr. Ernest M. Stern, the Company’s outside
U.S. counsel, is both a director of the Company and is a partner in
Culhane Meadows PLLC, the firm retained as legal counsel by the
Company. The Company incurred professional fees to the
counsel's law firms totaling €4 and €12 for the three
months ended September 30, 2020 and 2019 respectively; and
€26 and €25 for the nine months ended September 30,
2020 and 2019, 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 €61,264
including interest due as of September 30, 2020. 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 €61,687 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, 2020:
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Eardley
Holding A.G. (1)
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06/23/2006
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€162
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(2)
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10%
pa
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$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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€500
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(2)
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10%
pa
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$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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€1,500
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(2)
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10%
pa
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$0.50
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1.4429
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Round
Enterprises Ltd.
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01/22/2008
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€1,500
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(2)
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10%
pa
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$0.50
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1.4629
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Round
Enterprises Ltd.
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04/25/2008
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€2,000
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(2)
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10%
pa
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$0.50
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1.5889
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Round
Enterprises Ltd.
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06/30/2008
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€1,500
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(2)
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10%
pa
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$0.50
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1.5380
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Round
Enterprises Ltd.
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11/18/2008
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€1,200
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(2)
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10%
pa
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$0.50
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1.2650
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Round
Enterprises Ltd.
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02/09/2009
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€1,500
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(2)
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10%
pa
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$0.50
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1.2940
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Round
Enterprises Ltd.
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06/15/2009
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€5,500
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(2,4)
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10%
pa
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$0.80
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1.4045
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Eardley
Holding A.G.
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06/15/2009
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€100
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(2,4)
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10%
pa
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$0.80
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1.4300
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Von
Meyenburg
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08/03/2009
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€200
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(2)
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10%
pa
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$0.80
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1.4400
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Round
Enterprises Ltd.
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10/13/2009
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€2,000
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(2)
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5%
pa
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$0.25
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1.4854
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Round
Enterprises Ltd.
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12/18/2009
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€2,200
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(2)
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5%
pa
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$0.25
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1.4338
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Round
Enterprises Ltd.
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08/04/2011
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€1,024
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(5,6)
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10%
pa
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$0.034
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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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€256
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(5,6)
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$0.034
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N/A
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Round
Enterprises Ltd.
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11/08/2011
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€400
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10%
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$0.034
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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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(6)
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$0.034
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1.3787
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Round
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02/10/2012
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€1,000
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(6)
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10%
pa
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$0.034
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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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(6)
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10%
pa
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$0.034
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1.3260
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Round
Enterprises Ltd.
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04/19/2012
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€322
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(6)
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10%
pa
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$0.034
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1.3100
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Eardley
Holding A.G.
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04/19/2012
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€80
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(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.
|
11/14/2012
|
€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)
|
10%
pa
|
$0.018
|
1.3283
|
|
Eardley
Holding A.G.
|
03/01/2017
|
€230
|
(2)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
03/01/2017
|
€920
|
(2)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding A.G.
|
10/18/2017
|
€230
|
(2)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
10/18/2017
|
€920
|
(2)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding A.G.
|
06/01/2018
|
€160
|
(7)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
06/01/2018
|
€640
|
(7)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding A.G.
|
11/10/2018
|
€160
|
(7)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
11/10/2018
|
€640
|
(7)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding A.G.
|
06/15/2019
|
€120
|
(8)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
06/15/2019
|
€480
|
(8)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding A.G.
|
12/20/2019
|
€120
|
(9)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
12/20/2019
|
€480
|
(9)
|
2.5%
pa
|
N/A
|
N/A
|
|
Eardley
Holding AG
|
06/15/2020
|
€220
|
(10)
|
2.5%
pa
|
N/A
|
N/A
|
|
Round
Enterprises Ltd.
|
06/15/2020
|
€880
|
(10)
|
2.5%
pa
|
N/A
|
N/A
|
|
Total
Short Term Principal Amounts
|
|
€33,919
|
|
|
|
|
|
Accrued
Interest
|
|
€27,768
|
|
|
|
|
|
TOTAL
LOANS AND NOTES
|
|
€61,687
|
|
|
|
|
(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 at USD 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 at USD 1,200 and USD
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 USD 20,000, or (ii) at the stated conversion price
using a fixed
exchange rate which are noted in the table
above.
(7)
On June 1, 2018, Round Enterprises Ltd. and Eardley Holding AG each
provided two promissory Notes for a total of €1,280 and
€320 in two tranches, respectively, with a 2.5% interest per
annum. The first tranche of the promissory Notes of €640 and
€160, respectively, were provided immediately. The second
tranche of the promissory notes of €640 and €160,
respectively, were provided on November 10, 2018 with a 2.5%
interest per annum. The maturity date of these promissory notes to
follow the same principle of other convertible loans and is the
later of (i) June 30, 2019, 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.
(8)
On June 15, 2019, Round Enterprises Ltd. and Eardley Holding AG
each provided a promissory Note of €480 and €120,
respectively, with a 2.5% interest per annum. The maturity date of
these promissory notes to follow the same principle of other
convertible loans and is the later of (i) December 31, 2019, 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.
(9)
On December 20, 2019, Round Enterprises Ltd. and Eardley Holding AG
each provided a promissory Note of €480 and €120,
respectively, with a 2.5% interest per annum. The maturity date of
these promissory notes to follow the same principle of other
convertible loans and is the later of (i) June 30, 2020, 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.
(10)
On June 15, 2020, Round Enterprises Ltd. and Eardley Holding AG
each provided a promissory Note of €880 and €220,
respectively, with a 2.5% interest per annum. The maturity date of
these promissory notes to follow the same principle of other
convertible loans and is the later of (i) September 30, 2020, 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.
On April 2, 2020, the Swiss entity, Mymetics SA,
received a Federal credit line of Chf 168 (€156) in relation
with the Covid-19. This credit line applies for five years and is
fully guaranteed by the Swiss Confederation via guarantee
organizations. The interest rate is currently at 0 percent until
March 31, 2021. The Swiss Confederation has the right to adjust the
interest rate to the market rate. The first revision will take
place as of April 1, 2021.
Note 3. Leases
The facility lease agreement for Epalinges,
Switzerland, is automatically renewed month by month with a notice
period of three months. The related rent is paid monthly in the
amount of €4 and is considered a short-term lease. The
facility lease agreement for Leiden, The Netherlands, runs until
March 31, 2020 but was renewed until March 31, 2022 and can be
terminated with a six-month notice as of September 30, 2021. The
related rent is paid monthly in the amount of €9. The Company
does not have any other operating lease for its research and
development facilities, corporate headquarter, offices and
equipment.
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 the Company for the periods ended September
30, 2020 and 2019 should be read in conjunction with the Company's
audited consolidated financial statements for the year ended
December 31, 2019 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, 2019 and, to the extent
included therein, our quarterly reports on Form 10-Q filed during
fiscal year 2020.
IMPACT OF THE NOVEL CORONAVIRUS
On
January 30, 2020, the World Health Organization (“WHO”)
announced a global health emergency because of a new strain of
coronavirus originating in Wuhan, China (the “COVID-19
outbreak”) and the risks to the international community as
the virus spreads globally beyond its point of origin. In March
2020, the WHO classified the COVID-19 outbreak as a pandemic, based
on the rapid increase in exposure globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the
date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on the Company’s
financial condition, liquidity, and future results of
operations.
Management
is actively monitoring the global situation on its financial
condition, liquidity, operations, scientific collaborations,
suppliers, industry, and workforce. Given the daily evolution of
the COVID-19 outbreak and the global responses to curb its spread,
the Company is not able to estimate the effects of the COVID-19
outbreak on its results of operations, financial condition, or
liquidity for fiscal year 2020.
The
Company’s partner for the oncology immunotherapy project in
the Netherlands has decreased their laboratory experiments due to
reduced operating hours in those facilities. While the Company
considers this disruption to be temporary, continued disruption in
this project will lead to delayed advances by the Company of its
research and could negatively impact future revenue for the
remainder of fiscal year 2020 and the Company’s overall
liquidity.
The
Company is dependent on its workforce to deliver and advance its
research. Developments such as physical distancing and working from
home directives have and will continue to impact the
Company’s ability to deploy its workforce effectively. While
expected to be temporary, prolonged workforce disruptions may
negatively impact future revenues for the remainder of fiscal year
2020 and the Company’s overall liquidity.
The
Company is dependent on its partners in certain projects, such as
the University of Louisiana at Lafayette (“ULL”) for
the NIH funded project to maintain the agreed timelines and execute
their tasks. Developments such as social distancing and
shelter-in-place directives and lock-down directives have and will
continue to impact the Company’s ability to execute on
project plans and research objectives effectively. While expected
to be temporary, prolonged disruptions in collaboration projects
may negatively impact funding for the remainder of fiscal year 2020
and the Company’s overall liquidity.
Although
the Company cannot estimate the length or gravity of the impact of
the COVID-19 outbreak at this time, if the pandemic continues, it
may have a material adverse effect on the Company’s results
of future operations, financial position, and liquidity for the
remainder of fiscal year 2020.
CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT
On
March 27, 2020, the U.S. Government enacted the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) was
signed into law. The CARES Act includes various income and payroll
tax provisions. The Company has analyzed the tax provisions of the
CARES Act and determined they have no significant financial impact
to the condensed financial statements. The Company has no intention
of taking advantage of other benefits but will continue to evaluate
the impact on the Company’s financial position.
THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
For the three months ended September 30, 2020
revenue was €12, which was related to the revenue recognized
for the work performed under the NIH Grant project, and €242
for the three months
ended September 30, 2019, related to the revenue recognized for the
work performed under the NIH Grant project.
Costs
and expenses decreased to €363 for the three months ended
September 30, 2020 from €660 (-45.0%) for the three months
ended September 30, 2019, mainly lower costs in the NIH Grant
project as it was delayed due to the worldwide pandemic situation
and a €116 positive impact from foreign currency adjustments
mainly in USD nominated shareholder loans.
Research and development expenses decreased to
€215 in the current period from €295 (-27.1%) in the
comparative period of 2019, mainly lower costs in the NIH Grant
project due to the worldwide pandemic situation.
General
and administrative expenses increased to €254 in the three
months ended September 30, 2020 from €243 (4.5%) in the
comparative period of 2019, mainly due to the directors and
officers (“D&O”) liability annual insurance premium
expensed during the three months ended September 30,
2020.
Foreign
exchange revaluation generated a net gain of €116 and a net
loss of €113 during the three months ended September 30, 2020
and 2019, respectively, which was is due to the revaluation of
existing US$ based loans from related parties and US$ cash
position.
Interest
expense increased to €679 for the three months ended
September 30, 2020 from €671 for the three months ended
September 30, 2019 related to an increase in existing loans from
related parties.
The
Company reported a net loss of (€1,038), or (€0.00) per
share, for the three months ended September 30, 2020, compared to a
net loss of (€1,094), or (€0.00) per share, for the
three months ended September 30, 2019.
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Revenue was €429 for the nine months ended
September 30, 2020, with €401 related to the revenue
recognized for the work performed under the NIH Grant project and
the remaining for a small pre-clinical research project with a US
academic institution, and
E370 for the nine months ended September 30, 2019, related to the
revenue recognized for the work performed under the NIH Grant
provided by the NIH via Texas Biomedical
Institute.
Costs
and expenses decreased to €1,617 for the nine months ended
September 30, 2020 from €1,655 (-2.3%) for the nine months
ended September 30, 2019.
Research
and development expenses increased to €789 in the current
period from €720 (9.6%) in the comparative period of 2019,
mainly due to higher subcontracting services during the same period
in 2019 related to the NIH Grant project.
General
and administrative expenses increased to €875 in the nine
months ended September 30, 2020 from €770 (13.6%) in the
comparative period of 2019, mainly due to the D&O liability
annual insurance premium fully expensed during the nine months
ended September 30, 2019.
Foreign exchange revaluation generated a net gain
of €78 and a net loss of €135 during the nine months
ended September 30, 2020 and 2019, respectively, which was is due
to the revaluation of existing US$ based loans from related parties
and US$ cash position.
The
Company reported a net loss of (€3,233), or (€0.01) per
share, for the nine months ended September 30, 2020, compared to a
net loss of (€3,304), or (€0.01) per share, for the
nine months ended September 30, 2019.
LIQUIDITY AND CAPITAL RESOURCES
We
had cash of €623 at September 30, 2020 compared to €683
at December 31, 2019.
During 2019 and 2020, our revenue has been generated
through the NIH Grant project. 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 or new grant financings are awarded.
As
of September 30, 2020, we had an accumulated deficit of
approximately €92 million, and had net loss of €3,233
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 €1,316 and €774
for the nine-month period ended September 30, 2020 and 2019,
respectively. The increase was mainly due to a decrease in account
receivables during the nine-month period ending September 30, 2019
related to final funding received from the “Maciviva”
project, and the decrease of the accrued interests on convertible
loan for the nine months ending September 30, 2020.
Net
cash used in investing activities was €5 during the
nine-months ended September 30, 2020 and NIL during the same period
in 2019.
Financing
activities provided net cash of €1,256 for the nine-months
ended September 30, 2020, which includes €1,100 of promissory
notes from our main investors and €156 of borrowings on a
Swiss Federal credit line in relation with the Covid-19, and
€600 for the nine-months ended September 30, 2019, 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 €65 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, two 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,
Covid-19 vaccine development project and immunotherapy projects,
which we will try to seek through collaborations with
pharmaceutical companies or with not-for-profit organizations.
These expenditures will relate to the continued research and
testing of these 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
€660 of cash in the year ending December 31, 2020. 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 €13
represent the monthly lease and maintenance payments to
unaffiliated third parties for our offices, of which €4 is
related to our executive office located at Route de la Corniche 4,
1066 Epalinges in Switzerland (100 square meters), and €9
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 €27,768 has been accrued on all of the
Company’s outstanding notes and advances (see detailed table
in Note 2 to the financial statements).
Anergis
is investigating the possibility to fund a license agreement with
Mymetics, but for now nothing is confirmed. In May 2019, the
Company started an NIH grant funded project to evaluate the HIV
vaccine in a non-human primate study and prepare for clinical
trials. Since April 2020 the Company has started to work on the
development of a virosome-based vaccine to prevent Covid-19, the
disease caused by the SARS-CoV-2 virus and has attracted some
in-kind contributions from the European Community through their
Transvac2 program. For the Covid-19 vaccine candidates the Company
is collaborating with leading academic institutions, like Baylor
College of Medicine in Texas. Management believes that the
Company’s research and development activities will result in
valuable intellectual property that can generate significant
revenues in the future through licensing since the Company believes
that vaccines are one of the fastest growing markets in the
pharmaceutical industry.
RECENT FINANCING ACTIVITIES
During the nine-month period ending September 30, 2020,
our principal source of funds has been promissory notes received in
a prior quarter from our two main investors and the revenue
generated through the NIH grant / HIV project.
We have filed or are in the process of filing several
new grant applications with U.S. and European institutions in
relation to our virosome based vaccines.
We anticipate using our current funds and those we receive
in the future both to meet our working capital needs and for
funding the ongoing vaccines pre-clinical research costs for new
virosome vaccine.
Management anticipates that our existing capital
resources will be sufficient to fund our cash requirements through
the next three months. We have cash presently on hand in
conjunction with the collection of receivables, based upon our
current levels of expenditures and anticipated needs during this
period. For 2020, 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.
These conditions raise substantial doubt about our ability to
continue as a going concern.
If management cannot raise funds on acceptable terms
when needed, we may not be able to successfully commercialize our
technologies, take advantage of future opportunities, or respond to
unanticipated requirements. If unable to secure such additional
financing when needed, we will have to curtail or suspend all or a
portion of our business activities and could be required to cease
operations entirely. Further, if new equity securities are issued,
our shareholders may experience severe dilution of their ownership
percentage.
The extent and timing of our future capital
requirements will depend primarily upon the rate of our progress in
the research and development of our technologies, our ability to
enter into a partnership agreement with a major pharmaceutical
company, and the results of our present projects and future
clinical trials.
On January 30, 2020, the World Health Organization
(“WHO”) announced a global health emergency because of
a new strain of coronavirus originating in Wuhan, China (the
“COVID-19 outbreak”) and the risks to the international
community as the virus spreads globally beyond its point of origin.
In March 2020, the WHO classified the COVID-19 outbreak as a
pandemic, based on the rapid increase in exposure
globally.
The full impact of the COVID-19 outbreak continues to
evolve as of the date of this report. As such, it is uncertain as
to the full magnitude that the pandemic will have on the
Company’s financial condition, liquidity, and future results
of operations.
Management is actively monitoring the global situation
on its financial condition, liquidity, operations, scientific
collaborations, suppliers, industry, and workforce. Given the daily
evolution of the COVID-19 outbreak and the global responses to curb
its spread, the Company is not able to estimate the effects of the
COVID-19 outbreak on its results of operations, financial
condition, or liquidity for the remainder of fiscal year
2020.
The Company’s partner for the oncology
immunotherapy project in the Netherlands has decreased their
laboratory experiments due to reduced operating hours in those
facilities. While the Company considers this disruption to be
temporary, continued disruption in this project will lead to
delayed advances by the Company of its research and could
negatively impact future revenue for the remainder of fiscal year
2020 and the Company’s overall liquidity.
The Company is dependent on its workforce to deliver
and advance its research. Developments such as physical distancing
and working from home directives will impact the Company’s
ability to deploy its workforce effectively. While expected to be
temporary, prolonged workforce disruptions may negatively impact
future revenues in fiscal year 2020 and the Company’s overall
liquidity.
The Company is dependent on its partners in certain
projects, such as the University of Louisiana at Lafayette
(“ULL”) for the NIH funded project to maintain the
agreed timelines and execute their tasks. Developments such as
social distancing and shelter-in-place directives and lock-down
directives will impact the Company’s ability to execute on
project plans and research objectives effectively. While expected
to be temporary, prolonged disruptions in collaboration projects
may negatively impact funding for the remainder of fiscal year 2020
and the Company’s overall liquidity.
Although the Company cannot estimate the length or gravity
of the impact of the COVID-19 outbreak at this time, if the
pandemic continues, it may have a material adverse effect on the
Company’s results of future operations, financial position,
and liquidity for the remainder of fiscal year 2020.
OFF-BALANCE SHEET ARRANGEMENTS
None
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
INTEREST RATE RISK
Fluctuations
in interest rates may affect the fair value of financial
instruments. An increase in market interest rates may increase
interest payments and a decrease in market interest rates may
decrease interest payments of such financial instruments. We have
no debt obligations which are sensitive to interest rate
fluctuations as all our notes payable have fixed interest rates, as
specified on the individual loan notes.
ITEM 4.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and
communicated to management, as appropriate, to allow timely
decisions regarding required disclosure. Our management, with the
participation and supervision of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report and determined that our disclosure controls
and procedures were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No
changes of internal control over financial reporting were made in
the nine months ended September 30, 2020.
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.