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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 20032005

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM ______ TO _____

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                        COMMISSION FILE NUMBER 000-25132

                              MYMETICS CORPORATION
             (Exact name of Registrant as specified in its charter)

DELAWARE                                              25-1741849
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)
European Executive Office 14, rue de la Colombiere CH-1260 Nyon (Switzerland) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011 41 22 363 13 10 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ ] If this report is a an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes [ ] No [X] Indicate by check mark whether the Registrant:registrant (1) has filed all reports required to be filed bybe Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant'sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]. The aggregate market value of the voting common stock held by non-affiliates of the Registrant (assuming officers and directors are affiliates) was approximately U.S. $2,371,982.80$2,683,6 as of December 31, 2003,2005, computed on the basis of the average of the bid and ask prices on such date. The Registrant has no non-voting common stock. As of March 18, 2004,31, 2006, there were 59,394,45495,020,464 shares of the Registrant's Common Stock outstanding. ================================================================================ USE OF EUROS The financial information contained in this Form 10-K is provided in Euros (E) (except in "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters" which is provided in United States Dollars, and except as expressly indicated otherwise herein). See Note 1 to the Consolidated Financial Statements contained in this Form 10-K for further explanation. As of March 18, 2004,31, 2006, 1 Euro was convertible into 1.223541.2074 United States Dollars. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements, which are identified by the words "believe," "expect," "anticipate," "intend," "plan" and similar expressions. The statements contained herein which are not based on historical facts are forward-looking statements that involve known and unknown risks and uncertainties that could significantly affect our actual results, performance or achievements in the future and, accordingly, such actual results, performance or achievements may materially differ from those expressed or implied in any forward-looking statements made by or on our behalf. These risks and uncertainties include, but are not limited to, risks associated with our ability to successfully develop and protect our intellectual property, our ability to raise additional capital to fund future operations and compliance with applicable laws and changes in such laws and the administration of such laws. These risks are described below and in "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" included in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statements were made. RISK FACTORS You should carefully consider the risks described below together with all of the other information included in this report on Form 10-K. An investment in our common stock is very risky. If any of the following risks materialize, our business, financial condition or results of operations could be adversely affected. In such an event, the trading price of our common stock could decline, and you may lose part or all of your investment. We are a company engaged exclusively in research and development activities, focusing primarily on human and veterinary biology and medicine. When used in these risk factors, the terms "we" or "our" refer to Mymetics Corporation and its subsidiaries. 2 Our strategy was crafted in part to minimize the risks usually associated with clinical trials, regulatory approvals and marketing, which we would expect to be borne by our future partner(s). WE HISTORICALLY HAVE A NOTE PAYABLE AMOUNTING TO E3,127 WHICH IS DUE JUNE 30, 2004, WHERE THERE IS NO ASSURANCE THAT THE NOTE MAY BE PAID, EXTENDED, RESTRUCTURED OR REFINANCED. THESE CONDITIONS RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITYLOST MONEY AND EXPECT LOSSES TO CONTINUE AS A GOING CONCERN. As more fully disclosed under Item 13 of this Form 10-K, we have no reasonable hope to be able to reimburse the credit facility due to MFC Bank on or before its present due date of June 30, 2004, and despite our efforts and recent achievements, we have no assurance that MFC Bank will accept to renegotiate it on terms acceptable to us. WE NEED TO RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS TO FUND OUR RESEARCH EFFORTS AND TO FULLY DEVELOP COMMERCIALLY VIABLE PRODUCTS. WE CANNOT ASSURE YOUFOR THE FORESEEABLE FUTURE, WHICH MEANS THAT WE WILLMAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS WHEN NEEDED OR THAT SUCH CAPITAL OR GRANTS WILL BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL. OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE CANNOT RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS WHEN NEEDED. The costs for us to continue our researchFUNDING. i We historically have lost money. In the year ended December 31, 2005, we sustained net losses of approximately E1,939,000. In the years ended December 31, 2004 and to develop our intellectual property will be substantial. We expect that our existing capital resources will satisfy our capital requirements throughDecember 31, 2003, we sustained net losses of approximately June 2004. However, given the fact that we do not have any current sources of revenue, substantial additional capital or grants will likely be needed to continue the developmentE 2,202,000 and commercialization of our intellectual property. Currently there are no firm commitments for any additional financing. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants and there can be no assurance that additional financing will be available. While the amount of capital required cannot be estimated with precision, we estimate it will require approximately 2 million Euros just to move our business forward into a position of being prepared to initiate clinical trials. The availability of and the need for future capital will depend on many factors, including: - continued scientific progress in our research and development program; - results of pre-clinical tests; - results of any clinical trials; - the time and cost involved in obtaining regulatory approvals; - future collaborative relationships; and - the cost of manufacturing. If adequate funds are not available, we may be required to curtail or cease operations. 3 WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO GENERATE OPERATING LOSSES FOR THE FORESEEABLE FUTURE.E 2,786,000, respectively. We currently are engaged in research and development activities and do not have any commercially marketedmarketable products. The product research and development process requires significant capital expenditures, and we do not have any other sources of revenue to off-set such expenditures. Accordingly, we expect to generate additional operating losses at least until such time as we are able to generate significant revenues. IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR RESEARCH AND INTELLECTUAL PROPERTY, WE MAY NEVER GENERATE SIGNIFICANT REVENUES OR ACHIEVE PROFITABILITY. Our current objective is to develop vaccine and therapeutic compounds and specific therapies for certain retroviral diseases or diseases with a viral autoimmune content. All of our potential products and production technologies are in the research or pre-development stages and no revenues have been generated from product sales. The first products and applications target human immunodeficiency virus, or HIV, and feline immunodeficiency virus, or FIV, the precursors to human and feline acquired immunodeficiency syndrome, or AIDS. We will not become profitable, if ever, unless we develop our intellectual property to a point where it can be licensed to third parties on financially favorable terms or applied in the creation and development of one or more products that can generate revenues. Although our due diligence has indicated that our research and discovery regarding "mimicry" may lead to important discoveries in the scientific community regarding the HIV infection process, other discoveries may be necessary to develop an effective vaccine, and we may never be able to develop our research and intellectual property into a commercially profitable product. Our success will depend on our ability to: - effectively commercialize the research through collaborative relationships with third parties; - prepare acceptable protocols necessary to obtain regulatory approvals; - effectively conclude clinical trials; - effectively establish commercial viability; and - effectively establish marketing and manufacturing relationships. If we are unable to commercializedraw down on the current research,Standby Equity Distribution Agreement provided by Cornell Capital or find alternative financing on commercially reasonable terms or generate revenue from the sale of products, we docould be forced to curtail or cease our operations. At December 31, 2005, we had an accumulated deficit of approximately E14,087,000. Total cash disbursed since 1990 for operating activities, including Research and Development, is E 8,901,000. In order to become profitable, we will need to generate revenues to off-set our operating costs, including our general and administrative expenses. We may not achieve or sustain our revenue or profit objectives, and our losses may increase in the future, and, ultimately, we may have other products from which to derive revenue. 4 WE MUST OVERCOME SIGNIFICANT OBSTACLEScease operations. Our operating results are impossible to predict, because we have not begun selling any products. As a result, we cannot determine if we will be successful in our proposed plan of operation. Accordingly, we cannot determine what the future holds for our proposed plan of business. As such, an investment in our business is extremely risky and could result in the entire loss of your investment. OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO SUCCESSFULLY DEVELOPEVALUATE OR MARKET PRODUCT CANDIDATES. ThePREDICT OUR FUTURE BUSINESS PROSPECTS. We have no operating history. We are in the development of product candidates isstage, and our proposed operations are subject to significantall of the risks of failure, which are inherent in establishing a new business enterprise. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the formation of a new business, the development of new medical productstechnology, and products based on new technologies. These risks include: - delaysthe competitive and regulatory environment in pre-clinical testing, product development, clinical testing or manufacturing; - unplanned expenditures for product development, clinical testing or manufacturing; - failurewhich we will operate. We have made no material sales to date and have accumulated a net deficit from inception through December 31, 2006 of approximately Euro 14 million. It is likely that additional losses will be incurred in the future. See "Description of the technologiesBusiness" and products being developed to have the desired effect or an acceptable safety profile; - failure to receive regulatory approvals; - emergence"Plan of equivalent or superior products; - inability to manufacture (directly or through third parties) product candidates on a commercial scale; - inability to market products due to third party proprietary rights; - inability to find collaborative partners to pursue product development; and - failure by future collaborative partners to successfully develop products. If these risks materialize, our research and development efforts may not result in any commercially viable products. COMMERCIALIZATION OF OUR INTELLECTUAL PROPERTY AND CREATION OF VIABLE PRODUCTS DEPEND ON COLLABORATIONS WITH OTHERS.Operations." IF WE ARE UNABLE TO FIND COLLABORATORSCANNOT DEVELOP AND INTRODUCE NEW PRODUCTS, WE CANNOT COMPETE SUCCESSFULLY IN THE FUTURE,MARKETPLACE. Our key products still are in the development stage. See "Business - Where Are We and Where Are We Going?". While we are pleased about the progress made to date on these products, we cannot be sure that these products in development will be completed or, if completed, will be commercially viable. WE MAY NOT BE ABLE TO DEVELOP PROFITABLECOMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS, WHICH COULD HARM OUR FUTURE SALES OF PRODUCTS. Our strategy for the research, development and commercialization of products requires us to enter into contractual arrangements with corporate collaborators, licensors, licensees and others. We do not have the funds to develop products on our own, and intend to depend on collaborators to develop products on our behalf. If collaborative relationships cannot be found, we may not be able to continue our development programs. Moreover, we could become involved in disputes with collaborative partners, which could lead to delays or termination of development programs and time-consuming, expensive and distracting litigation or arbitration. Even if we fulfill our obligations under a collaborative agreement, a partner may terminate the agreement. If any collaborative partner terminates or breaches an agreementA few companies currently compete with us in the market for our products. Some of these companies have far greater capital, marketing, and other resources than we do. Furthermore, we cannot assure you that these or otherwise failsother firms will not develop new or enhanced products that are more effective than any that we currently have or will develop in the future. ii We have no certainty as to complete its obligations in a timely manner,the availability and terms of future financing. We believe that we will have sufficient working capital available through lines of credit and the proceeds of future offerings to finance our ability to successfully commercialize our intellectual property will be adversely affected. 5 IF WE ARE NOT ABLE TO DEMONSTRATE THE RESULTS OF OUR RESEARCH IN CLINICAL TRIALS, OR IF CLINICAL TRIALS ARE DELAYED, WE MAY NOT BE ABLE TO OBTAIN REGULATORY CLEARANCE TO MARKET OUR PRODUCTS IN THE UNITED STATES OR IN FOREIGN COUNTRIES ON A TIMELY BASIS, OR AT ALL. Assuming we are able to successfully develop our research into potential products,activities through at least June 2006. We anticipate, however, that such products will require regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of the products under development, pre-clinical studies and clinical trials must demonstrate that the product is safe and effective for use in each target indication. If any of the products fail in clinical trials, the approval of the United States Food and Drug Administration (the "FDA") and similar agencies operating in foreign countriesfunds will not be obtainedsufficient to meet our capital needs for the foreseeable future. Therefore, we expect that we will be required to seek additional financing in the future. We cannot be sure that such products, andfinancing will be available or available on attractive terms, or that such financing would not result in a substantial dilution of shareholders' interest. If we cannot obtain financing when we need it or on terms that are commercially reasonable to us, we will not be able to generate revenues from such products. Clinical testing is a long, expensivepursue our business plan as we currently anticipate. See "Use of Proceeds", "Plan of Operations", "Management's Discussion and uncertain process. One cannot be certain that the data collected from the clinical trials will be sufficientAnalysis", and "Projections." ALTHOUGH WE HAVE RESTRUCTURED OUR EXISTING DEBT, WE HAVE NOT ALLEVIATED OUR WORKING CAPITAL NEEDS. We need to support approvaladdress our working capital needs by the FDA or any foreign regulatory authorities, thatend of June 2006 to allow us to continue devoting our efforts to development of the clinical trials willbusiness instead of raising needed capital. NEITHER CHRISTIAN ROCHET, OUR CHIEF EXECUTIVE OFFICER, NOR ERNST LUEBKE, OUR CHIEF FINANCIAL OFFICER, ARE FULLY PAID FOR THEIR EFFORTS. Finding people of comparable talent and dedication to our business would be completed on schedule or, even if the clinical trials are successfully completed and on schedule, that the FDA or any foreign regulatory authorities will ultimately approve the productdifficult given our inability to pay management for commercial use. Clinical trials could be delayed for a variety of reasons, including: - delays in enrolling volunteers; - lower than anticipated retention rate of volunteers in the trials; and - serious adverse events related to the products being developed. Our research is presently focused on developing vaccines and therapeutics to prevent and treat HIV. Trials will be conducted on animals prior to humans. Results of animal trials, even if successful, may not be relevant for determining the preventive or therapeutic effect of any potential product designed to prevent or treat HIV infection in humans. In addition, results from early clinical trials are not necessarily indicative of future results. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in late stage clinical trials even after promising results in early stage development. Furthermore, pre-clinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approvals. Negative or inconclusive results or interpretations could cause the trials to be unacceptable for submission to regulatory authorities. IFtheir work. ALTHOUGH WE DO NOT BELIEVE EITHER SYLVAIN FLEURY, OUR CHIEF SCIENTIFIC OFFICER OR MARC GIRARD, AN IMPORTANT SCIENTIFIC CONSULTANT, HEAD OF OUR VACCINE DEVELOPMENT PROGRAM, ARE UNABLEPLANNING TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, WE WILLLEAVE US, REPLACING EITHER OF THESE MEMBERS OF OUR SCIENTIFIC TEAM WOULD BE UNABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS. We are dependent on the principal members of our management and scientific staff. In order to successfully complete our research and development activities and our commercialization plans, we will need to hire personnel with experience in clinical testing, drug discovery, government regulation, manufacturing, marketing and finance. We may not be able to attract and retain personnel on acceptable terms given the intense competition for such personnel among high technology enterprises, including biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. 6 IF WE FAIL TO ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD PARTIES, WE WILL NOT BE ABLE TO COMMERCIALIZE PRODUCTS. We do not currently have any sales or marketing infrastructure, and we do not have significant experience in marketing, sales and distribution. Future profitability will depend in part on plans to enter into successful marketing arrangements with third parties. To the extent that we enter into marketing and sales arrangements with other companies, revenues will depend on the efforts of others. These efforts may not be successful.DIFFICULT. If we are unable to enter into successful third-party arrangements,pay Sylvain Fleury's salary, he may soon lose his Swiss residency permit. Dr Fleury has been following, and associated with, our AIDS vaccine project since 1998 and we may notbelieve that replacing him as CSO on time for successfully prosecuting our pending patent applications would be ablenext to commercializeimpossible. We are therefore exposed to the risk of losing our products. IFpending patent applications. OUR BUSINESS MODEL IS PREDICATED ON OUR BELIEF THAT WE DO NOT SUCCESSFULLY COMPETEWILL BE ABLE TO ENGAGE LARGE PHARMACEUTICAL COMPANIES TO PARTNER WITH US IN THE DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS AND KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, WE WILL BE UNABLE TO CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION. The biotechnologyOUR PRODUCTS. Our failure to succeed in this endeavor will dramatically change our financial needs and pharmaceutical industries are highly competitive and subjectability to significant and rapid technological change. We are aware of several companies that are actively engaged in research and development in areas related to our research focus. Many of these companies are addressing the same diseases and disease indications that we are addressing. As a result of this intense competition,successfully sell any products that we develop may become obsolete beforedevelop. INDUSTRY RISKS. Like any other bio-technology company, we also face the risk that any results that we achieve in animal tests will not be replicated in human patients. We also work in an extremely competitive industry where patent protection is vital to the long-term success of our company. OUR PRINCIPAL OFFICES ARE LOCATED IN SWITZERLAND AND IT MAY BE DIFFICULT FOR YOU TO ENFORCE JUDGMENTS AGAINST US OR OUR DIRECTORS AND EXECUTIVE OFFICERS. Although we are able to recovera company incorporated under the expenses incurred in their development. Moreover, manylaws of these companies, either alone or together with their collaborative partners, have substantially greater financial resourcesDelaware, all our officers and larger researchdirectors are located outside of the United States. A substantial portion of our assets now are, and development staffs. These competitors, either alone or together with their collaborative partners, also have significantly greater experience in: - developing products; - undertaking pre-clinical testing and human clinical trials; - obtaining FDA and other regulatory approvals of products; and - manufacturing and marketing products. IF OUR INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT PRODUCT CANDIDATES, WE COULD ENCOUNTER MORE DIRECT COMPETITION, WHICH COULD ADVERSELY IMPACT REVENUES. Our success depends, in part, on our ability to: - obtain and maintain patents or rights to patents; - protect trade secrets; - operate without infringing upon the proprietary rights of others; and - prevent others from infringing on our proprietary rights. We will be able to protect proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of biotechnology companies involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that are owned or licensed from third parties may not provide 7 adequate protection against competitors. Pending patent applications, those applications that we may file in the future we expect will be, located outside the U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments iii obtained in U.S. courts against us or those applications thatpersons based on the civil liability provisions of the U.S. securities laws. It may be licensed from third parties, may not resultdifficult and costly for an investor to get a court in patents being issued. Also, patent rights may not provide adequate proprietary protectionSwitzerland to enforce a judgment obtained in other jurisdictions, including the U.S., against us or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect intellectual property rights toour directors or officers under the same extent as do thesecurities laws of the United States. In addition to patents, we rely on trade secrets and proprietary know-how. Protection of trade secrets and know-how is sought,States WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR BYLAWS THAT MAY DISCOURAGE A CHANGE OF CONTROL. Our bylaws contain provisions that could discourage, delay or prevent a change in part, through confidentiality and proprietary information agreements and customary principles of "work-for-hire." These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information. Failure to protect proprietary rights could seriously impair our competitive position. IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE COULD BECOME SUBJECT TO SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM MARKETING OUR PRODUCTS. The areas in which we have focused our research and development have a number of competitors. This has resulted in a number of issued patents and still-pending patent applications. Patent applications in the United States are, in most cases, maintained in secrecy until the patents issue. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. In the event of such infringement, we may be prevented from pursuing certain product development or commercialization and may be required to obtain a license for the use of the proprietary rights or patents. We may also be required to pay damages for past infringement. The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property lawsuits, U.S. Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and in foreign countries involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue and their outcome is uncertain. Litigation may be necessary in the future to: - enforce patents that we own or license; - protect trade secrets or know-how that we own or license; or - determine the enforceability, scope and validity of the proprietary rights of others. We believe that our technology has been independently developed and does not infringe upon the proprietary or intellectual property rights of others. We cannot, however, guarantee that our technology does not, and will not in the future, infringe upon the rights of third parties. We may be a party to legal proceedings and claims relating to the proprietary information of others from time to time in the ordinary coursecontrol of our business. If we become involvedcompany or changes in any litigation, interference or other administrative proceedings, we will 8 incur substantial expense andour management that the efforts of technical and management personnel will be significantly diverted. An adverse determination may subject us to loss of proprietary position or to significant liabilities, or require licenses that may not be available from third parties. We may be restricted or prevented from manufacturing and selling products, if any, in the event of an adverse determination in a judicial or administrative proceeding or if we fail to obtain necessary licenses. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms, if at all. WE CAN NOT BE SURE THAT ANY FUTURE OR CURRENTLY PENDING PATENT APPLICATIONS RELATING TO OUR PRODUCTS WILL ISSUE ON A TIMELY BASIS, IF EVER. Since patent applications in the United States are maintained in secrecy until 18 months from the priority date, and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be certain that we were the first to develop the inventions covered by eachstockholders of our pending patent applications or that we werecompany may deem advantageous. These provisions - - limit the firstability of our stockholders to file patent applications for such inventions. Even if patents are issued, the degreecall special meetings of protection afforded by such patents will depend upon the:stockholders; - scope of the patent claims; - validity and enforceability of the claims obtained in such patents; and - our willingness and financial ability to enforce and/or defend them. EVEN IF WE OBTAIN REGULATORY APPROVAL TO MARKET AND SELL OUR PRODUCTS, WE WILL BE SUBJECT TO ONGOING REGULATORY REVIEW, WHICH WILL BE EXPENSIVE AND MAY AFFECT OUR ABILITY TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS. Even if regulatory approvalprovide for a product is secured, such approval may be subject to limitations on the indicated uses for which the product may be marketed. Such limitations may restrict the size of the available market for the product or contain requirements for costly post-marketing surveillance studies. Manufacturers of medical products are subject to continued review and periodic inspections by the FDA and other regulatory authorities. The subsequent discovery of previously unknown problems with the product, clinical trial subjects, or with the manufacturer or its manufacturing facility may result in the imposition of restrictions on the product or manufacturer, including withdrawal of the product from the market. If we or any of our collaborative partners fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. 9 IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, WE ARE NOT LIKELY TO GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE. Even if we are able to successfully develop a viable product and obtain regulatory approval of such product, such product may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any medical product depends on a number of factors, including:staggered board; - demonstration of clinical efficacy and safety; - cost-effectiveness; - potential advantages over alternative therapies; - reimbursement policies of government and third party payors; - effectiveness of marketing and distribution capabilities; and - the success of physician education programs. Physicians will not recommend therapies using products until clinical data or other factors demonstrate their safety and efficacy as compared to other drugs or treatments. Even if the clinical safety and efficacy of therapies using the products is established, physicians may elect not to recommend the therapies for other reasons, including whether the mode of administration of products is effective for certain indications. WE ARE A PARTY TO LITIGATION WHICH HAS BEEN DETERMINED ADVERSELY TO US AND WE ARE UNABLE TO PAY THE PLAINTIFF WITH THE FUNDS NOW AVAILABLE TO US. We and our French subsidiary were party to several lawsuits seeking damages from our company and our subsidiary, as described under "Item 3. Legal Proceedings.". All except one case were immaterial and have been settled, either in court or out of court, with all amounts previously accounted for in our financial statements. One material case was lost and although the full amount had been provided for in our financial statements, we do not have sufficient funds to meet our obligations should the plaintiff demand immediate payment of the amount we now owe him, unless we are able to raise a sufficient amount of additional capital. Our inability to meet such obligations would have a material adverse effect on our liquidity and could threaten our business. OUR STOCK PRICE MAY EXPERIENCE SIGNIFICANT VOLATILITY, WHICH COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT. The market price of our common stock, likeprovide that of the common stock of many other development stage biotechnology companies, may be highly volatile. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many biotechnology and pharmaceutical companies for reasons frequently unrelated to, or disproportionate to, the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. 10 THE MARKET FOR OUR COMMON STOCK IS VERY LIMITED Our common stock is currently traded only on the OTC Bulletin Board. Accordingly, we cannot provide assurances as to the future liquidity of our common stock or the price at which you would be able to sell your shares in any available market. THE ISSUANCE OF ADDITIONAL EQUITY SECURITIES MAY DILUTE YOUR INVESTMENT. We currently have 59,394,454 shares of common stock outstanding, 1 share of Special Voting Preferred Stock, options to purchase an aggregate of 606,250 shares of common stock and warrants to purchase an aggregate of 6,080,166 shares of common stock. We are authorized to issue up to 80 million shares of common stock and 5 million shares of preferred stock without additional stockholder approval. The issuance of additional common stock or preferred stock will dilute our stockholders' percentage ownership, and, depending on the offering price of such stock, may also serve to dilute the value of such ownership interest. WE CURRENTLY DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR SHARES. We have never declared or paid any cash dividends on our common stock, nor do we intend on doing so in the foreseeable future. The payment of dividends, if any, in the future is within the discretion of our board of directors is expressly authorized to make, alter or repeal the bylaws; and will depend- - establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon our earnings, capital requirements and financial condition as well as other relevant factors. We currently intend to retain all earnings, if any, to finance our continued growth and the development of our business. Furthermore, our ability to declare or pay dividends may be limited in the future by the terms of any then-existing credit facilities, which may contain covenants that restrict the payment of cash dividends. POLITICAL OR SOCIAL FACTORS MAY ADVERSELY IMPACT REVENUES BY DELAYING OR IMPAIRING THE CORPORATION'S ABILITY TO MARKET ITS PRODUCTS. We are focused on developing vaccines and products for the treatment and prevention of HIV. Products developed to address the HIV/AIDS epidemic have been, and may continue to be, subject to competing and changing political and social pressures. The political and social response to the HIV/AIDS epidemic has been emotionally charged and unpredictable. Such political and social forces may serve to delay or prevent introduction of our products into the marketplace or to place restrictions upon the pricing, availability and marketing of such products. 11stockholders at stockholder meetings. iv TABLE OF CONTENTS PART I ITEM 1. BUSINESS............................................. 13 ITEM 2. PROPERTIES .......................................... 26 ITEM 3. LEGAL PROCEEDINGS ................................... 26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................. 28 ITEM 6. SELECTED FINANCIAL DATA ............................. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 31 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................... 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......... 34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................. 34 ITEM 9A. CONTROLS AND PROCEDURES.............................. 34 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .. 35 ITEM 11. EXECUTIVE COMPENSATION .............................. 38 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS....... 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 43 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............... 49 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.......................................... 51 SIGNATURES............................................................. 71 12 PART I ITEM 1. BUSINESS....................................................... 1 ITEM 2. PROPERTIES .................................................... 13 ITEM 3. LEGAL PROCEEDINGS ............................................. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................ 15 ITEM 6. SELECTED FINANCIAL DATA ....................................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................... 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................... 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................ 31 ITEM 9A. CONTROLS AND PROCEDURES........................................ 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............ 32 ITEM 11. EXECUTIVE COMPENSATION ........................................ 35 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS................. 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................ 43 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES......................... 44 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................................... 45 SIGNATURES................................................................ 68
v PART I ITEM 1. BUSINESS THE CORPORATION OVERVIEW We are a holdingbiotechnology research and development company devoted to fundamental and applied research in the area of human biology and medicine conducting our business throughfrom our subsidiaries 6543 Luxembourg S.A.European offices located in Lausanne and Nyon (near Geneva), a joint stock company organized in 2001 under the laws of Luxembourg ("LuxCo"), and Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France ("Mymetics S.A.").Switzerland. We were incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name "PDG Remediation, Inc." In November 1996, we reincorporated under the laws of the State of Delaware and changed our name to "ICHOR Corporation." In July 2001, we changed our name to "Mymetics Corporation." We own all of the outstanding voting stock of LuxCo6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg, and Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France ("Mymetics S.A."), which is a wholly-owned subsidiary of LuxCo.6543 Luxembourg S.A. In this document, unless the context otherwise requires, "Mymetics" and the "Corporation" refer to Mymetics Corporation and its subsidiaries. We currently do not make, market or sell any products or services, and thus, we have no revenues. We believe, however, that our research and development activities and the resultingwill result in strong intellectual property will lead to the creation of commercially viable products, whichthat can generate revenues for us in the future. If financially favorable terms are available, we may license Our business model is to conduct our research and development far enough to be able to sign a partnership agreement with one (or more) major pharmaceutical company(ies) active in the field(s) of HIV-AIDS preventive vaccines and/or sell our intellectual property to third parties. If we fail to develop our intellectual property, we are unlikely to generate significant revenues.therapies. DEVELOPMENT OF THE CORPORATIONCOMPANY From our inception in 19941990 to December 1997, we operated in the environmental services industry, focusing on thermal treatment (in Florida), remediation services (in Florida and Pennsylvania) and waste oil recycling (in Illinois). In February 1995, we completed an initial public offering. In 1998 and 1999, after disposing of our thermal treatment, remediation services and waste oil recycling businesses, we provided consulting services to an industrial customer in Europe. In June 1999, we acquired a majority interest in Nazca Holdings Ltd., whose business involved the exploration for and development of groundwater resources in Chile. Following the disposal of our interest in Nazca in July 2000, we did not have an operating business. In March 2001, we acquired 99.9% of the outstanding shares of Mymetics S.A. in consideration for shares of our common stock and shares of Class B Exchangeable Preferential Non-Voting Stock of LuxCo,6543 Luxembourg S.A., or Preferential Shares, which are convertible into shares of our common stock. In 2002, we acquired the remaining 0.1% of the outstanding common stock of Mymetics S.A. pursuant to share exchanges with the remaining stockholders of Mymetics S.A. The terms of these recent share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. Mymetics S.A. was, and continues to be, a biotechnology research and development company. On June 30, 2001, we closed on a private offering of 1,333,333In 2004, all the remaining convertible shares of our common stock, at E1.77 (U.S. $1.50) per share,6543 Luxembourg S.A. not already held by Mymetics Corporation have been converted into shares of Mymetics Corporation. MYMETICS CORPORATION Mymetics' primary objective is to develop vaccines and therapies to prevent, respectively treat the effect of certain retroviruses, including the human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency 1 syndrome, or AIDS. Additional applications of Mymetics' research include potential treatments and/or vaccines for an aggregate price of E2,355,600 (U.S. $2,000,000). This private placement was exempt from registration pursuant to Regulation S of the Securities Act of 1933,human oncoviral leukemias, multiple sclerosis, and the shares were sold to foreign investors meeting the requirements of Regulation S. 13 In August, 2002 the Company formed Mymetics Deutschland GmbH for the purpose of applying for German government support of research activities to be conducted in Germany. This company never became active and was finally sold to MFC Securities (Deutschland) GmbH, an affiliate of our lender, MFC Merchant Bank S.A. MYMETICS CORPORATIONorgan transplantation. Prior to 2002, our activities were primarily conducted in Europe. During the second quarter of 2002, through our operations in the United States, we launched programs in the United States in an attempt to reinforce our intellectual property portfolio and to accelerate the commercialization of our technology. This was done, in part, by attempting to target products and business development in the United States. Again, prior to this time, activities such as design of the prototype molecules, synthesis, and in vitro testing had been conducted exclusively in Europe. WeOur previous management believed that expanding our operating activities in the United States offered numerous advantages, including greater access to expertise, grants, subsidies, intellectual property and public and private research teams. Due to financial constraints, we were forcedit decided to limit these activities in January 2003. MYMETICS S.A. Our subsidiary, Mymetics S.A., is a biotechnology researchFollowing the management changes of July 2003, our activities have again been conducted exclusively in Europe, with certain in-vitro and development company devoted to fundamental and applied researchpre-clinical tests being performed in the areaUnited States. Under our "best of human and veterinary biology and medicine. Mymetics S.A.'s primary objective is to develop therapies to treat certain retroviruses, includingclass" R&D model, the human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of Mymetics S.A.'s research include potential treatments and/or vaccines for animal AIDS, human and animal oncoviral leukemias, multiple sclerosis and organ transplantation. To date, Mymetics S.A. has conducted its fundamental research in Europe. Mymetics S.A.'soverall research strategy, as well as most original ideas, are defined and contributed by our own scientific team, including Dr. Sylvain Fleury, Ph.D. (Chief Scientific Officer) and Professor Marc Girard, DVM, D.Sc. (Head of Vaccine Development). Any given project is to structure and manage a network of public and private best-in-class research teams, each with a clearly delineated focus. Mymetics S.A. has segmented its primary researchfirst subdivided into modules,"technology modules" which are then out-sourced,subcontracted to "best of class" teams from academia, public or private laboratories or industry, all chosen for their high standards and specific know how. For example, if we need rabbits to be bred, we will outsource this work on a commercial basis to the best company we can find. Most of the work that we outsource is easily replaced by other vendors. In unique cases, like protein engineering, we are more dependent upon companies like Protein eXpert. That said, we believe that with rare exception, we can replace these providers as well. We also believe that having such specialized expertise in-house would make us dependant on the staff required to carry out such tasks. We believe we benefit from the established relationships with our "partners" and approach our relationship in that manner. Mymetics pays for and coordinates the work, consolidates the results and retains all intellectual property associated with it. In certain limited cases, we will sign partnership agreements with companies offering technologies which can enhance or add value to our own products under its direct supervision,development. Our agreement with Pevion AG, a small Swiss company with which we signed a scientific collaboration agreement which includes an option to high-level, specialized and complementary public and private research teams.receive an exclusive license to use their Virosome Vaccine delivery technology in conjunction with our AIDS preventive vaccine under development is an example of such an agreement. Under this model, Mymetics S.A. retains all intellectual property rights in the combined research and applies for domestic and international patents whenever justified. As agreed and coordinated by Mymetics, S.A., the research teams are authorized to co-publish their results. MYMETICS GMBH Mymetics Deutschland GmbH was formedWe intend to sign a partnership agreement with one of the few major pharmaceutical companies presently active in 2002 for the purposepreventive vaccine against HIV-AIDS as soon as our human clinical phase I trials are completed. We hope this could happen before June 2007. The type of applying for German government supportpartnership agreement we intend to sign is typical in the world of research activities to be conducted in Germany. The German government offers subsidy programs asbiotechnology: an initial cash payment, followed by a meansseries of attracting business investment into partspayments associated with specific milestones and finally, royalties on any sales of eastern Germany. In particular, Mymetics Deutschland GmbH was organized to take advantage of (i) an investment matching program offeredend products, assuming these will have been approved by the German government, wherebyvarious regulatory authorities involved, such as the German government matches the amount of certain investments made by companies in eastern Germany and (ii) a broader program, whereby the German government offers significant amounts of grant money to companies in eastern Germany that satisfy certain conditions. Mymetics Deutschland GmbH solicited interest from existing research teams in eastern Germany, formulated four distinct research programs and applied for German government grants. In December 2002, Mymetics Deutschland GmbH was 14 informed that two of its programs would be eligible for matching grants. However, the broader program described above, which may have served as a source of substantial working capital, was suspended by the German government for biotechnology companies. Consequently, the former Board of Directors elected to suspend its planned expansion of research activities into Germany and sold the German company to MFC Securities (Deutschland) GmbH, an affiliate of our lender, MFC Merchant Bank S.A., in July 2003. RECENT INDUSTRY DEVELOPMENTS During the first quarter of 2003, one of our major competitors received approval from the United States Food and Drug AdministrationAdministration. We would not expect this to occur prior to 2009-2010. LUXEMBOURG 6543 S.A. Our Luxembourg subsidiary, Luxembourg 6543 S.A., was founded in 2001 within the context of its fusion inhibitor candidate drug. Thisthe acquisition of Mymetics S.A. by Mymetics Corporation as a legal vehicle to allow the former French shareholders of Hippocampe S.A. to defer 2 French taxes due on the exchange of their Hippocampe S.A. shares for Mymetics Corporation shares. The company presently is dormant and we intend to liquidate it as soon as the necessary resources to do so will be available. In that case, the shares of Mymetics S.A. held by Luxembourg 6543 S.A. will be transferred to Mymetics Corporation. MYMETICS S.A. Our French subsidiary, Mymetics S.A. (formerly Hippocampe S.A.), founded in 1990, is a biotechnology research and development combined with advances in ourcompany devoted to fundamental and applied research activities, served to validate our basic technology in the area of fusion inhibitorsbiology and medicine. The company is the legal owner of our initial key patents, which were applied for prior to it being acquired by Mymetics Corporation. At this time, it is not possible to transfer these patents to any non-French legal entity without the French tax authorities' approval. This approval implies an assessment of the actual economic value of the patents, which in particular,turn will only be assessable once the efficacy of gp41-derived peptide product. Given this validation, as well as (i) advancestechnology protected by the patents is licensed or sold to a third party in one or more arms-length transactions. Mymetics S.A. is presently inactive. Its last salaried employee completed her assignment by, and had her employment contract terminated on January 31, 2005. We do not intend to hire new staff in France in the our researchforeseeable future, as all R&D will be carried on under Mymetics Corporation's responsibility. On February 7, 2006 the Tribunal de Commerce in Lyon, France placed Mymetics S.A., under receivership ("Redressement Judiciaire") as a result of an ongoing dispute between Mymetics Corporation and development efforts, (ii) poor worldwide capital market conditionsa former officer and (iii) lackdirector, Dr. Pierre-Francois Serres, who obtained a judgment against Mymetics S.A. in France (that is now under appeal) in the amount of sufficient long term working capital, we have decidedE173,000 for an alleged wrongful termination by the Company's prior management during 2003. The court appointed two judges to re-direct our business development strategy: rather than independently fundingoversee the completioncase, a lawyer to represent the creditors and a judicial administrator to manage Mymetics S.A., all of researchwhom are considered agents of the court. The court further imposed a "two-month observation period" during which management and development programs priorthe administrator should strive to find a solution to the sale or licensing of our technologycrisis. We expect to a major international pharmaceutical or biotechnology firm, we have opted to accelerate the exploration of potential partnerships with major international pharmaceutical and biotechnology firms. We have also accelerated the development of our patent portfolio. SCIENCE OVERVIEW Virus. A virus is a non-cellular organism consisting of deoxyribonucleic acid ("DNA") or ribonucleic acid ("RNA") and a protein coat. During the free and infectious stage of their life cycle, viruses do not perform the usual functions of living cells, such as respiration and growth. Rather, when viruses enter a living plant, animal or bacterial cell, they utilize the host cell's chemical energy and synthesizing ability to replicate. After the replication of the viral components by the infected host cell, virus particles are released and the host cell is often destroyed. The approximately 2,450 viral species identified to date are divided into about 75 groups. HIV belongs to the group of retroviruses, so called because they contain the reverse transcriptase enzyme that copies viral RNA back into DNA (the reverse of what usually occurs: DNA is copied into RNA). Retroviruses include three main groups: spumaviruses, oncoviruses that are often associated with cancers and lentiviruses that cause slow evolving pathologies, e.g. AIDS-associated lentiviruses. HIV. The human immunodeficiency virus (HIV) is a lentivirus that belongs to Retroviridae family that has RNA as genetic material. Once inside the target cells (mostly T cells, monocytes/macrophages and dendritic cells), HIV uses it's own reverse transcriptase enzyme in combination with the cell's machinery to copy it's RNA into DNA. Afterward, the HIV DNA can be integrated into the host chromosomes. If integration happened, it means that after each cell division, the HIV genome is transmitted to the daughter cell with the host chromosomes. In other words, HIV can be spread to the next cell generation forever. HIV infection is characterized by the inability of the host immune system to mount an efficient immune response capable of neutralizing the HIV. Therefore, HIV is still replicating and spreading in the infected host, affecting and killing numerous cells of the immune system, leading to the life-threatening late stage of the disease called AIDS (Acquired Immuno Deficiency Syndrome). 15 The global HIV epidemic is composed of multiple subtypes (clades)and inter-subtypes recombinant forms, eachcome up with a distinct geographic distribution. Two strainsviable solution before the end of HIV capable of causing AIDS have been identified, HIV-1 and HIV-2. The genetic material of these two strains is approximately 60% identical. HIV-1 is world-wide spread (pandemic), while HIV-2 seems to be more limited to certain areas of Africa (epidemic). Each strain contains a number of subtypes, which are slight genetic variations of the virus. These variations result from the high mutation rate of HIV's genetic material. HIV uses these mutations as a mechanism to evade the immune system. Indeed, mutationsthis observation period. TECHNOLOGY CURRENT APPROACHES Current drug treatments in HIV genome may decrease or abolish the recognition of viral proteins by the host antibodies or cellular immune response toward HIV. Most variations occur in the gene encoding the GP120 protein, and these mutations can alter the protein's structure and consequently, the recognition by the host immune system. AIDS. AIDS is a fatal epidemic disease caused by an infection by HIV (HIV-1 or HIV-2). In most cases, HIV invades the host and slowly attacks and destroys the immune system, the body's defense against disease, leaving the infected individual vulnerable to malignancies and infections that eventually cause death. The immune system's response (antibodies and cellular immune response) is usually sufficient to temporarily arrest progress of the infection and reduce levels of the virus in the blood. Virus replication continues, however, and gradually destroys the immune system by infecting and destroying critical white blood cells known as CD4 cells. The main cellular target of HIV is a special subtype of white blood cells critical to the immune system, known as helper T lymphocytes, or T4 helper cells. These cells play a central role in the orchestration of the immune responses by stimulating or activating virtually all of the other cells involved in immune protection. These cells include B lymphocytes that produce antibodies needed to fight infection; cytotoxic T lymphocytes, which destroy cells infected with virus; and macrophages and other effector cells, which attack invading pathogens. Furthermore, helper T cells are the main producer of a small molecule named IL-2 cytokine. This IL-2 acts as a key messenger between helper T cells and other effector cells of the immune system. Once HIV has entered into the helper T cell, it can impair the functioning of or destroy the cell. Therefore, it will contribute to lower this IL-2 messenger concentration present in the HIV-infected host and consequently, leading to a major defect in cell communication. A hallmark of the onset of AIDS is a drastic reduction in the number of helper T cells in the body of HIV-infected subjects. HIV can also infect other cells, including certain monocytes and macrophages, dendritic cells as well as brain cells. All these cells express a common protein at their cell surface called CD4. This CD4 protein serves usually as primary receptor for the HIV surface envelope glycoprotein called gp160, which explain why HIV preferred target cells expressing the CD4 molecule. Destruction of CD4+ lymphocytes is the major cause of the immunodeficiency observed in AIDS, and decreasing CD4+ lymphocyte levels appear to be the best indicator of morbidity in these patients. As the infection progresses, the immune system's control of HIV levels weakens, the number of viruses in the blood rises and the level of critical T cells declines to a fraction of their normal level. Viral Envelope of HIV. The viral envelope of HIV is covered with mushroom-shaped spikes called gp160 that enable the virus to attach itself to the target cell. The cap of each "mushroom" is comprised of gp120 molecules and its stem is comprised of gp41 molecules that is anchored into the viral envelope(gp120+gp41=gp160). Gp120 is a glycoprotein that protrudes from the surface of HIV and binds to the CD4 receptor of the CD4+ T-cells. In a two-step process that allows HIV to breach the membrane of T-cells, the gp120-CD4 complex 16 refolds to reveal a second structure that binds to CCR5 or CXCR4, one of several chemokine co-receptors used by the virus to gain entry into T cells. Gp41 is a glycoprotein embedded in the outer envelope of HIV and plays a key role in HIV's infection of cells by carrying out the fusion of the viral and cell membranes. Immune System. The immune system functions to protect the body against infection and foreign substances, including viruses and bacteria. This defensive function is performed by certain body's white blood cells (T cells that belong to leukocytes) capable of recognizing foreign substances presented by a number of accessory cells like dentritic cells. When an immunocompetent T cell recognizes foreign material or a biological invader presented by dendritic cells or macrophages, it normally induces an immune response. For example, B lymphocytes may be stimulated to produce and secrete antibodies capable of binding and neutralizing the pathogene, while cytotoxic T lymphocytes might be activated to destroy cells infected with viruses. This recognition function relies on the immune system's ability to recognize specific foreign molecular configurations, generically referred to as antigens. After specific recognition by T4 helper T cells, the most central cell of the immune system, interleukine-2 ("IL-2") is produced by these same T4 helper T cells. IL-2 is a central interleukine that can activate most of the cells of the immune system, including B cells, NK cells, CD4+ helper and cytotoxic T lymphocytes. BUSINESS STRATEGY Our current objective is to develop a platform of both therapeutic compounds and vaccines. We have made a series of discoveries about how the body's immune system responds to retroviruses, specifically HIV. The foundation of our platform technology and product pipeline is our discovery of a subtle mimicry between the virus and the host cells. By understanding the precise dynamics of the virus's GP41 and the host-cell's IL-2, we strongly believe we have the potential to design and develop specific therapeutic molecules and antibodies to disrupt or even prevent the disease. In addition to targeting HIV and AIDS, we plan to apply these findings to the potential treatment or even prevention of a range of additional diseases, including certain echoviruses causing leukemia. Some biotechnology companies are focusingfocus on slowing or impeding the progress of the virus once it has infected the body's host cells. Other biotechnology firms are attemptingRecent approaches seek to develop therapies that prevent the virus from fusing with host cells. If the virus cannot fuse, it cannot enter inside the cell and reproduce, andthereby facilitating the successful fight of the body's immune system then succeeds in arrestingagainst the invasion. OurHowever, fusion process is a late event that likely takes place after the transcytosis event, which corresponds to the step event that allows the virus to penetrate into the body generally across the genital-reproductive mucosal barriers. Therefore, vaccines or therapies for preventing this very early event of HIV transcytosis became another important research aspect. Until recently, vaccine development was focusing on clade B strains, which dominate the epidemic in industrialized countries but cause only about 12% of infections globally. Development of non-clade B candidates, having clade C as a key target became a priority and Mymetics seriously intends to invest all its research effort in developing its "universal" vaccine, with a primary interest for the clade C because of its world dominance, especially in countries under development like Africa, India and Asia.. Generally, HIV transmission occurs through sexual contacts. Indeed, semen and cervico-vaginal secretions may potentially transmit HIV to the gastrointestinal, anorectal and genitourinary tracts because they contain cell-free HIV particles 3 and numerous HIV-infected cells. Contracting HIV infection may be subdivided into two main events. The first event, considered as a very early step, corresponds to viral transcytosis on mucosal surface that facilitates virus translocation and spreading into the body (entry into the body across the mucosal barrier). The second event, which usually takes place after transcytosis, represents the infection step that leads to virus entry into target cells (ex. CD4+ T lymphocytes).Therefore, the HIV vaccine should ideally elicit immune responses not only in the blood but most importantly, also at the primary entry site, which corresponds to two important anatomically compartments: genital-reproductive tracts and intestine/rectal mucosal tissues. MYMETICS' APPROACH Mymetics proposes an innovative vaccine by combining three important concepts: 1- Minimal mimicry, which consists to remove in part or entirely the human homologies naturally present in some HIV protein that serve as vaccine component. To achieve that objective, Mymetics intends to use as candidate vaccine the smallest engineered viral antigen sequence for two main reasons. First, the smaller is the protein, the more limited are the homologies with human proteins. Second, its easier to remove human homologies into a small viral protein because of their limited distribution. Furthermore, our approach is also based onshould significantly reduce the conceptrisk of preventing viral fusion. Our scientific strategy is unique in that its design is baseddeveloping potential autoimmunity on a serieslong-term following vaccination. 2- Focused immune response on relevant gp41 epitopes that may induce protective antibodies. Generally, the immune system develops immune responses toward all possible regions of discoveries involving mimicry, more specifically betweenthe foreign antigens (peptides, proteins, etc.). However, antigens are often harbouring several immunodominant regions, each eliciting an immune response of different magnitude (low, intermediate or strong recognition/affinity by the immune system) and frequency (region rarely, sometimes or often recognized by the immune system). Therefore, itaE(TM)s frequent to observe an immune response that preferentially recognizes some areas, while others are neglected. Furthermore, viruses have developed antigens that contain often immunodominant regions for distracting the immune system. These immunodistractive regions may have little or no function for the pathogen protein but may blind the immune system. Consequently, immune responses against the pathogen might be sometimes useless. Mymetics is developing vaccines that contain antigens expressing limited immunodominant regions, while immunodistractive regions have been removed or altered without affecting the immunogenicity of the antigen. 3- Induction of mucosal and blood protection in different anatomical compartments. Induction of mucosal antibodies (anti-transcytosis) should block the early event of HIV translocation at the genito-reproductive and intestine tracts, thus preventing HIV entry and spreading in the body, while blood (systemic) antibodies will act on a later event that consists to prevent the infection of target cells (neutralizing antibodies). Mymetics is developing a "universal" HIV-1 vaccine constituted by at least two different molecules: a recombinant engineered trimeric gp41 protein and gp41peptides, both containing key conserved regions and each of them eliciting potentially two major types of antibodies not mutually exclusive and with a broad activity spectrum: 1) mucosal antibodies to inhibit transcytosis and cell infections at the submucosa level; 2) neutralizing antibodies to block HIV fusion with cells for preventing infection. By carefully modifying parts of the HIV envelope glycoprotein GP41gp41 molecule, we have obtained peptides and engineered molecules that: - - May form stable dimers, trimers or tetramers and the host's IL-2, oneprotein folding is close to the native protein; - - Are soluble in the absence of detergent and can be incorporated into an artificial lipidic membrane, which is more suitable for in vivo work; 4 - - Can be chemically synthesized or easily produced by recombinant bacteria like E. coli; - - Have been stripped of an immunodominant area that generates numerous non-neutralizing antibodies, which may fool the most central cytokineimmune response. - - Have been stripped of its key IL-2-like sequence, minimizing the important potential cross-reaction with host proteins that may contribute to the destruction of the immune system. By exploiting this mimicry,system seen in HIV has foundpatients; This type of new engineered trimeric gp41 molecules should be able to elicit antibodies with a new mechanismbroad spectrum of action (cross-clade neutralization like A, B and C): blocking virus translocation across the mucosal barrier and/or to evadeinhibit virus-cell fusion, thus preventing HIV-1 infection. Based on our recent research results, we believe that our vaccine candidate and strategies definitely place us amongst the immune response. Indeed,most advanced teams devoted to AIDS vaccine research worldwide. Our findings further apply to a range of additional diseases, including certain oncoviruses often associated with leukemia. THE IMMUNE RESPONSE Normally, the body's immune system responds to the invasion of pathogen. In the case of HIV, invasion, but fails to differentiate properly between the viral GP41 and the host's IL-2 cytokine. As a result, we believe thatfor example, an infected host cell alerts the immune system attacks both of them with equal vigor. The unfortunate consequence isby secreting interleukine-2 (IL-2), a special protein (called a cytokine) that the body, in turning on itself, undercuts its own defenses overtime. By better understanding these precise dynamics, we believe we will be able to design vaccines and to develop specific therapeutic molecules to prevent HIV from entering the host cells and the body's immune system to recognize HIV. Our current scientific strategy is based on the gp41-IL-2 mimicry to create therapeutic peptides to prevent HIV fusion and vaccines capable of inducing neutralizing antibodies that recognize strictly the GP41acts as a separate and distinct entity from IL-2. If this can be accomplished, 17 the body's immune system should be able to identify and attack the virus instead of inducing an autoimmune disease directed toward the IL-2 and affecting the qualitykey messenger for many cells of the immune system. IL-2 acts as a T cell growth factor, promotes NK proliferation and stimulates B cell growth (cells that produce antibodies). Together, these "soldier cells" attack foreign pathogens like viruses, and help to destroy them. From the first encounter with the invader, the immune system keeps a memory of what happened and specialized "memory" T and B cells are established as guardians in the host's body. The Discovered Molecular Mimicry Between Trimeric GP41next time the invaders try to enter, they will be swiftly attacked and disarmed. HIV AND IL-2. WeAIDS The HIV (Human immunodeficiency virus) is a retrovirus that gradually destroys the immune system and ultimately leads to AIDS, is famously the most genetically diverse viral pathogen known, specially in Africa where HIV is also rapidly mutating. Indeed, HIV exists under many different versions like members of a large family, they are different from, but related to each other. By sequencing the viral genomes (genes), researchers have been able to map out the family tree of HIV. At the root of the tree, there are three groups called M, N and O, group M being responsible for the current AIDS pandemic. Group M is split into nine genetic subtypes, also called nine clades (designated A through K, with no E or I). The original definition of clades was based on short genomic sequences, mostly within the HIV envelope protein (Env: gp160). These nine clades have uneven geographic distribution patterns. Clade C circulates in South Africa, India and parts of China. Clade A and D are common in East Africa and clade B is common in North & South America and Western Europe. Looking at the global numbers, it emerges that four clades (A, B, C and D) plus two recombinant forms called CRFs 01 and 02 (both of which are about 70% clade A) account for over 90% of all infections worldwide. From this perspective, diversity can be mostly limited to 4 key major clades, plus small contributions from the non-A segments of these two CRFs. According to the statistics, clade C represents the world dominant HIV (>50%). HIV attaches itself to the target host cell using a harpoon-like surface protein called gp160. This protein spears the host cell's membrane, drawing them together so that the virus can fuse with the host cell. 5 Once attached, the virus penetrates the cell and commandeers the cell's machinery. Then it rapidly replicates itself. What makes HIV-1 so lethal? It targets the most central cell of the immune system, the CD4+ T cells which produce the IL-2 cytokine, a key messenger for immune cells. These cells usually coordinate the cellular and humoral responses that are directed to thwart the pathogen (HIV). When the number of such CD4+ T cells decreases significantly over time, the amount of IL-2 becomes also too low for an efficient immune attack orchestration. Consequently, HIV as well as other pathogens evade the activity of the immune system, leaving the host vulnerable to disease. HIV proves itself an elusive target because it: - - reproduces itself at an extraordinary rate (several billion new virus particles are created daily) - - mutates rapidly: as it reproduces itself, it makes mistakes that produce new virus particles that are slightly different; these differences make the virus harder to target by the immune system. MYMETICS AND HIV-AIDS Normally, the immune system would respond to this attack: IL-2 would be secreted mostly by activated CD4+ T cells to signal the alarm to the other T-Cells subtypes and B-cells. With HIV, this approach backfires. Why? Mymetics has discovered a peculiar inter-reactivity between part of the virus's "harpoon" and the host cell's "alarm" (IL-2). We call it "mimicry". The shaft of the virus' harpoon, called gp41, actually appears to "mimic" the host cell's IL-2. This dynamic enables the virus to attach itself to the host cell membrane at a precise portal. An unusual consequence: when the "soldiers" (antibodies) arrive to battle the virus, they "confuse" the virus's gp41 with the host cell IL-2 - and attack and destroy them both. As the immune system methodically kills its own soldiers, the HIV continues to replicate swiftly. The equilibrium shifts and the HIV outpace our body's defenses. The result is AIDS, a fatal disease that affects an increasing number of people worldwide. WHERE ARE WE AND WHERE ARE WE GOING? Mymetics has documented the existence of an important three-dimensional molecular mimicry between the trimeric ectodomaingp41 glycoprotein of HIV-1 and the human interleukin-2 (IL-2) cytokine, a mimicry also found in lentiviruses causing AIDS in other animal species. Mymetics has already explored this mimicry over the last four years as starting point for developing a safe HIV-1 candidate vaccine capable of eliciting protective antibodies, while preventing potential harmful cross-reactivities toward host proteins such as the human IL-2 (Mymetics US Patent 6,455,265). We believe that this innovative concept may render vaccines from the 21st century as efficacious as those from the 20th century, in addition to be safer. Together with Protein'eXpert S.A., we have succeeded in engineering and producing in bacteria E. Coli the first gp41 generation in September 2003, which forms soluble and stable gp41 trimers that closely resembles the native gp41 found on HIV-1. This first generation of gp41 immunogen is devoid of the transmembrane proteincluster I and 2F5/4E10 epitopes, in addition of immunosuppressive lentiviruses (HIV-SIV-FIV) and thebeing mutated in one important IL-2 mimicry area. The design of the infected host species. Our initialfirst gp41 generation was intended to identify new important epitopes as well as to focus the immune response on possible neutralizing epitopes different from the 2F5/4E10 previously identified by other teams. From January to August 2004, the first gp41 generation was tested in rabbits for it's capacity to elicit neutralizing antibodies toward HIV-1. Such antibodies were obtained in large quantities and their neutralizing potential was evaluated 6 by our academic collaborators. Thus, a renowned scientist in the field of transcytosis, Dr. Morgane Bomsel (Cochin Institute, Paris, France), obtained 60% inhibition of HIV-1 transcytosis with primary strains. Sera were also tested in the laboratory of Dr Christiane Moog (Institut Pasteur, Strasbourg, France), a well acclaimed specialist in neutralizing antibodies in the HIV field. In the performed assay, primary T cells infection by primary HIV-1 strains from clade B (Bx-08 and SF-162) and clade C (TV1) were respectively neutralized at 70%, 80% and 90% by low sera dilutions. When total rabbit antibodies were purified from the serum, a neutralizing activity of 80% was obtained with an antibody concentration of 20ug/ml, using three primary HIV-1 strains. These results were publishedare similar to those obtained with the French Academy of Sciences in November 2000. Autoimmune Consequences for HIV Infected Subjects. We have found some2F5 monoclonal antibody (>90% inhibition), one of the expected autoimmune consequencesmost potent neutralizing antibodies so far identified. Infection of primary human macrophages by primary HIV-1 strains was also strongly inhibited (>90%) with a low antibody concentration (<2ug/ml). These preliminary results were highly encouraging, considering that the first gp41 generation of immunogen did not include the 2F5/4E10 epitopes. A second gp41 generation that has included the 2F5 and 4E10 epitopes was obtained in August 2004 and produced on a larger scale in September 2004. However, several technical difficulties were encountered during the production of this antigen. First, these gp41 proteins formed inclusion bodies in bacteria that were difficult to solubilize. Gp41 proteins obtained after denaturation and refolding were forming dimer of trimers instead of the natural trimeric form, as observed with the gp41 1st generation. Despite of this, these new gp41 immunogens were incorporated into liposomes and were well recognized by the 2F5 and 4E10 monoclonal antibodies kindly provided by Dr Wayne Koff (IAVI), which suggest the presence of functional epitopes. Rabbit immunizations with gp41-liposomes have been achieved from Fall 2004 to Winter 2005 and animal sera were tested. Not surprisingly, this gp41 2nd generation did not elicit neutralizing antibodies in rabbits, as we initially expected. When mixed with liposomes, the gp41 2nd generation can form proteo-liposomes that are unstable. Furthermore, gp41 proteins can bind randomly to liposomes with no preferential orientation. In such situation, some key epitopes like the 2F5 may not be properly maintained or presented to the immune system and consequently, these epitopes are ignored or poorly recognized. Based on the experience acquired over the past three years, we strongly believe that orienting the anchorage of gp41 proteins or gp41-derived peptides onto stable synthetic lipid membranes will better present the antigen to the immune system. Therefore, a 3rd generation of recombinant gp41 proteins was engineered during Winter-Spring 2005, which lead to the conclusion that not all epitopes should be present on the same antigenic structure. In fact, to avoid protein aggregation and to improve the yield of protein production, some epitopes most be taken separately from others on different antigens. This approach offers the main advantage to present key epitopes to the immune system, using different antigens, which should eliminate the problem of epitope immunodominance. Furthermore, we intend to better target the mucosal immune system by a more adequate vaccine delivery: nasal administration and epido-dermis junction using micro-needles. In parallel, during Winter-Spring 2005, and in collaboration with Pevion Biotech Ltd. (Switzerland) and Dr. Bomsel from the Cochin Institute in Paris (France) we have formulated the second vaccine component that consists of peptides derived from the conserved proximal membrane region of the gp41 ectodomain. These peptides were grafted in an oriented manner onto biosynthetic stable spheres. Rabbit immunizations were launched from May to November 2005 for targeting the mucosal immune response. Biological samples were analyzed and all rabbits have produced specific antibodies toward the gp41 peptides. More importantly, when these samples were tested into transcytosis assays, most of these vaginal secretions (diluted 10-fold for the assay) containing antibodies that were able to prevent translocation (transcytosis) of primary R5 clades B and C with an efficiency of 80-90%, which is close to what is achieved with human secretions 7 isolated from HIV-resistant women. Starting in Winter 2006, a pre-clinical trial with the peptide approach on non-human primates (macaques) is scheduled in Beijing, China. We expect these macaques to develop specific antibodies at the mucosal levels over the six months vaccination protocol. Following vaccination, macaques should be challenged with viruses to measure the level of protection. In parallel, we are in the process of developing the gp41 4th generation that will combine the best characteristics of the described virus-host molecular mimicryfirst three generations of gp41 previously synthesized. We plan to launch other pre-clinical trials on macaques in HIV infected subjects. As expected, HIV positive sera recognize human IL-2. The tests included 2,352 HIV+summer 2006 for testing the combined vaccine components, meaning injecting together gp41-derived peptides and HIV-sera,recombinant trimeric gp41 proteins, each eliciting different types of antibodies for different anatomical compartments. Clinical lots of gp41 immunogens are planed for late 2006 for toxicology and phamacokinetics evaluations. Human tolerance and immunogenicity of the results demonstrated that 100% of HIV+ patients (stages II, III and IV) were positive for the presence of anti IL-2 antibodies. Later, antibody cross-reactivities were found between the structurally and physically antigenic analogous sites of GP41 (HIV-1) and human IL-2. The first results were presented in the Journal of Autoimmunity in 2001 and were also presentedgp41 immunogens should thereafter take place in a poster session atphase I clinical trial in 2007. Visit the Cold Springs Harbor, New York meetingIAVI web site (www.iavi.org) for more background information on infectious disease in December 2001.AIDS. VACCINAL USE OF THE MIMICRY DISCOVERY Our current research modules focus on the following three fields: - FUNDAMENTAL RESEARCH. We believe that our insight into the GP41/IL-2 mimicry can help to explain, in large part, the main AIDS-associated disorders: drop of peripheral IL-2, decrease of non-infected T helper lymphocytes, apoptosis of non-infected cells, lymphoproliferation disorders and (alpha)2 microglobulin increase and hypergammaglobulinemia. Some of the possible effects of the tridimensional GP41 (HIV-1)/human IL-2 molecular mimicry on the AIDS-associated disorders are being evaluated by our research teams. These teams are also studying molecular mimicry in FIV, between the viral envelope protein gp36 and feline IL-2. - THERAPEUTIC MOLECULES. Based on insights into mimicry, we have developed a series of synthetic peptides that might inhibit the fusion between HIV or FIV and its target cell in an infected host. For the in vitro work, these synthetic peptides have been effective for blocking both HIV and FIV infections, while in vivo experiments with FIV peptides is under investigation to validate our HIV model. These therapeutic molecules would prevent the virus entry into the target cell, inhibiting its attempts to reproduce. Having demonstrated that the transmission of HIV depends on the viral load, and that no transmission has been observed below 1500 viral copies/ml., treatment with therapeutic agents may provide a strategy to control AIDS epidemicity. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs. In a series of independent in vitro experiments, our rationally designed peptide compounds were proven to effectively block viral fusion. These compounds also showed a potency that is equivalent to the gp41 compound recently approved by the United States Food and Drug 18 Administration (FDA). The relative potency of our compounds were presented in a poster presentation given at Interscience Conference on Antimicrobal Agents and Chemotherapy in San Diego CA in September 2002. An additional poster presentation at the International Feline Retrovirus Research Symposium conference in December 2002 showed the potency of a series of our FIV gp36-derived peptides, and in particular highlighted the surprising potency of a short compound (consisting of 8 amino acids only). Results were also recently published in the Journal of Virology (March 2003) in an article entitled "Antiviral Activity and Conformational Features of an Octapeptide Derived from the membrane-Proximal Ectodomain of the Feline Immunodeficiency Virus Transmembrane Glycoprotein." An additional poster presentation at the annual International Conference on Retroviruses and Opportunistic Infection in Boston in February 2003 communicated the results of a series of benchmarking in vitro assays, highlighting the potency of our HIV gp41 "IL-2 like"-derived peptide compounds across a wide array of clades or strains of the virus. These data appear to validate our strategy of creating compounds from well-conserved, IL-2-homologous regions, for the greatest possible application for patients worldwide. Based on the success of in vitro compounds, we launched our first in vivo tests in the feline model, collaborating with well-known research partners at the Retroviral Center at the University of Pisa, Italy. These tests are expected to provide valuable insight into the actual efficacy of the potential peptides, in particular the shorter peptides, which would offer a number of practical advantages in terms of commercialization, including less complexity, lower cost to manufacture, less immunogenicity, and potential greater bio-availability. - PREVENTIVE VACCINES.VACCINES We believe that our discovery of the host-virus IL-2 mimicry opens the door to novel therapeutic and HIV-AIDS preventive vaccine strategies for both humans and animals.strategies. We believe that properly mutated trimeric gp41 and gp36 represent excellent candidate vaccines because they are devoid of the "IL-2" like structure and its harmful associated side effects. Furthermore, these engineered gp41 and gp36 have conserved their antigenic properties and correspond to the most conserved region of the viral envelope glycoprotein, which otherwise exhibits considerable genetic diversity. Our specific preventive vaccine would be "universal" in that it would train the body's immune system to recognize and defeat a broad array of HIV strains, while preventing the potential induction of the autoimmune reaction toward IL-2. Our recent advances in protein engineering and production allowed us to obtain very good soluble and stable trimeric gp41, and gp36, which has acceleratedkept our vaccine program competitive. THERAPEUTIC MOLECULES Based on insights into mimicry, we have developed a series of synthetic peptides, based on the preliminary vaccine program. A first roundwell-conserved IL-2 homologous regions, that might inhibit the fusion between HIV or FIV (the virus causing AIDS in cat) and its target cell in an infected host. For the in vitro work, these synthetic peptides have been effective for blocking both HIV and FIV infections, while in vivo experiments with FIV peptides were investigated until 2003. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs for FIV and HIV. Meanwhile, FIV cause a disease with a low mortality incidence and the market for such peptides is too limited and hardly profitable. Therefore, we have decided to cease this research activity, especially when our financial situation is limited. Similarly, research on HIV peptides was stopped because new compounds were emerging in the market and we could not remain competitive. However, if our financial situation improves in a short term, we have the possibility to combine our HIV peptide technology with another one for creating a new type of rabbit immunizations with various protocols testing different adjuvants, protein doses and route of administration is already under investigation. A second round of immunizations is planned for June 2004. Results are expected in November 2004. 19 drug orally available, which could become highly attractive. We currently have compound prototypes potentially capable of commercialization, including: 8 - - Preventive vaccines - administered to healthy subjects (HIV-negative) to prevent infection by HIV. - - Therapeutic molecules (pharmacological agents) - administered to infected subjects to prevent cell infection by HIV and FIV. - Preventiveslowing down virus spreading. Visit our web site www.mymetics.com for more detailed information on our technology platform. INTERNATIONAL AIDS VACCINE INITIATIVE (IAVI) Visit the IAVI site (www.iavi.org)for more background information on AIDS or Download the IAVI Global Report (pdf format) which packs a wealth of useful information about AIDS, vaccines - administered to healthy subjects to prevent infection by HIV or FIV. The Company is exploring both HIV and FIVother related issues in parallel, and gaining insight into product design through the synergies between these two programs. KEY STAFF Our Board of Directors and management team have changed over the pasta few months. As disclosed in our form 10-Q for the quarter ended September 30, 2003, Michael K. Allio, John M. Musacchio and Rober Demers have been replaced as Directors by Christian J.-F. Rochet, Ernst Luebke and Robert Zimmer. As regards officers, Michael K. Allio has been replaced as Interim Chief Executive Officer by Christian J.-F. Rochet, President and Chief Executive Officer, while John M. Musacchio has been replaced as Chief Financial Officer and Treasurer by Ernst Luebke. Research and Development activities have been spearheaded since November 3, 2003 by our new Chief Scientific Officer, Dr. Sylvain Fleury, Ph.D., in replacement of Dr. Pierre-Francois Serres, who was appointed on that same day Head of Exploratory Research. Dr. Fleury is an experienced research and development scientist in the fields of biology, virology, immunology and AIDS.easy-to-read pages at (www.iavi.org/pdf/globalscience.pdf). RESEARCH AND DEVELOPMENT EXPENSES For the year ended December 31, 2003, we focused on research and development and, as a result, did not generate any revenues or engage in any marketing activities. For the years ended December 31, 2003, December 31, 2002 and December 31, 2001, we spent E 1,263,000, E 1,878,000 and E 482,000 respectively, on research and development activities. INTELLECTUAL PROPERTY We are the exclusive owner of intellectual property relating to our core business which is focused on the development of novel HIVHIV-AIDS preventive vaccines and FIV therapeutics and vaccines.therapeutics. Particularly, we own two issued French patents FR99 06528 and FR01 15424 and one USU.S. issued patent US 6,455,265 and its corresponding national filings and divisional filings in various countries including US,Europe, the United States, Japan, Canada EP and Israel. We also filed two Patent Cooperation Treaty, or PCT, applications, WO 03/048187 and WO 03/104262, with national phases in USthe United States and EP. We have additionally filed four United States provisional applications related to the field. On July 24, 2004, we applied for a new PCT which covers our mutated, trimeric, stable recombinant gp41 protein. On March 10, 2006, we applied for a new PCT which covers our latest prototype HIV-AIDS preventive vaccine based on our recombinant modified gp41 protein. We rely primarily on a combination of patent, copyright, trademark and trade secret laws, as well as contractual restrictions, to protect our intellectual property. These legal protections afford limited protection. We generally require employees, strategic research partners and consultants with access to our intellectual property to execute confidentiality agreements. Despite our efforts to protect our intellectual property, unauthorized parties 20 may attempt to copy the research and research methods that form the basis of our intellectual property. The laws of many countries do not afford the same level of protection as those provided by United States intellectual property laws. Litigation may be necessary to protect and enforce our rights in our intellectual property. COMPETITION We have not yet developed an actual product or generated any revenues. Our future competitive position depends on our ability to successfully develop our intellectual property, and to either use such intellectual property to produce one or more products capable of generating significant revenues or to license or sell such intellectual property to third parties on financially favorable terms. Although we believe that the results of our research and development activities have been favorable, there are numerous entities and individuals conducting research and development activities in the area of human and veterinary biology and medicine all of which could be considered competitors. While many of these individuals and entities have greater financial, manufacturing, technical, human resource, marketing and distribution capabilities, and greater experience in conducting pre-clinical and clinical trials and in obtaining regulatory and FDA approvals, we believe that our technologies nonetheless provide us with a competitive advantage. Further, we may face significant competition in the design and development of some of our therapeutic compounds and preventive vaccines. Therapeutic Molecules (pharmacological agents). The biopharmaceutical industry is intensely competitive, especially in the field of HIV. If we are successful in developing and proving our therapeutic agents, we will compete with existing developed and approved therapies. The FDA has approved 16 antiviral drugs to treat HIV and AIDS, which fall into two categories depending on whether they target one or two viral enzymes: either HIV protease or reverse transcriptase ("RT"). RT drugs aim to block reverse transcriptases and prevent transcription of the virus' generic material from RNA to DNA. There are two classes of RT drugs: nucleoside analogues inhibitors and non-nucleoside inhibitors. The approved nucleoside analogues inhibitors include drugs such as Retrovir (ziduvodine; AZT), Videx (didanosine; ddl), Hivid (zalcitabine; ddc), Zerit (stavudine; d4T), Epivir (larnivudine; 3TC), Combivir (ziduvodine + lamivudine), Ziagen (abacavir; ABC). These drugs are manufactured by companies such as GlaxoSmithKline Plc, Bristol-Myers Squibb Company, Roche Holding AG and BioChem Pharma Inc. The approved non-nucleoside inhibitors include drugs such as Viramuno (nevlrapine), Rescriptor (delavirdine), Sustiva (efavirenz; EFV) which are produced by Boehringer Ingelhelm Gmbh, Pharmacia & Upjohn Inc. and E. I. Du Pont de Nemours and Company. The objective of approved protease inhibitor drugs is to prevent the assembly of new virus particles. The approved protease inhibitors include drugs such as Invirase (saquinavir), Fortovase (saquinavir), Norvir (ritonavir), Crixivan (indinavir), Viracept (nellinavir) and Agenerase (amprenavir), which are manufactured by companies including Roche Holding AG, Abbot Laboratories, Merck & Co. Inc., Agouron Pharmaceuticals Inc., Vertex Pharmaceuticals Incorporated and Glaxo Wellcome Plc. Both HIV protease and RT drugs have demonstrated their efficacy in terms of HIV blood concentration and HIV-positive period and are used to slow the progression of the disease. Furthermore, efficacy has been higher with drug combinations. None of these drugs are, however, a cure, and mutations of HIV's envelope produce viral strains resistant to both classes of drugs. These drugs also produce toxic side effects on the peripheral nervous system and gastrointestinal tract. Non-compliance on combination therapies and 21 interruptions in dosing could have an effect on, and trigger, accelerated viral replication. If successful in developing and validating our therapeutic molecules, we believe that there are significant existing and future markets for the treatment of HIV and AIDS. There can be no assurance that currently approved drugs or products developed in the future for the treatment of HIV/AIDS by our competitors (which may include Roche Holding AG, Abbot Laboratories, Merck & Co. Inc., Agouron Pharmaceuticals Inc., Vertex Pharmaceuticals Incorporated, Glaxo Wellcome Plc, Bristol-Myers Squibb Company, Trimeris, Inc., Progenics, Inc., and BioChem Pharma Inc.) will not be effectively marketed and sold. We believe, however, that our unique approach and fundamental understanding of molecular mimicry will provide an advantage over existing and future competitors. The progress of Trimeris Inc. in securing FDA approval for its fusion inhibitor product, "Fuzeon", a gp41-derived peptide comprised of 36 amino acids, represents excellent proof-of-concept for us by demonstrating, through human trials, that such a compound is safe and effective in lowering viral load. Industry experts estimate that the annual revenue generated from this drug may reach U.S. $500,000,000 - U.S. $750,000,000, which confirms the significant demand for fusion inhibitor drugs. The media has also, however, published that Trimeris and its partner Roche face significant challenges and limitations, including prohibitive cost of goods, a complex manufacturing process involving 106 separate steps in chemical synthesis, an elevated retail price (recent estimates exceed $20,000 per patient per annum, more than double the cost of current therapies), significant supply shortages and difficult delivery of the drug (requiring subcutaneous injection twice/day of 90 mg. of the drug). These challenges suggest that a drug that can be made less expensively, and delivered more easily, will have significant competitive advantages. Preventive Vaccines. We are conducting research aimed at developing a "universal" preventive vaccine against HIV, with a primary interest for the HIV-1 virus, whichclade C because of its world dominance. Our vaccine willshall provide protection against a 9 broad array of viral strains.HIV-1 strains from different clades such as A, B, C and D. In the field of HIV vaccines, the recent failure in 2003 of the VAXGEN product in Phase III clinical trials underscores the need for an effective solution to the global challenge posed by HIV. As this particular candidate was based on technology unrelated to our technology, we do not feel that the cessation of clinical trials with respect to VAXGEN negatively impacts our prospects for developing a viable preventive vaccine. In the field of FIV vaccines, Ft. Dodge, a division of Wyeth Pharmaceuticals, launched the industry's first FIV preventive vaccine in late 2002. We consider this development as further validation of the demand and viability of this product category. Press releases issued by Ft. Dodge cite a significant potential market for this drug. Like the Trimeris product, the Ft. Dodge feline vaccine appears to suffer from a range of drawbacks, so we consider the competitive threat of Ft. Dodge's FIV preventive vaccine to be moderate. The worldwide vaccine market is dominated by four large multinational companies: Sanofi Pasteur S.A. (formerly Aventis Pasteur S.A.), Merck & Co., SmithKline BeechamGlaxoSmithKline Plc, Wyeth Lederle Vaccines & Pediatrics (a division of American Home Products Corporation), and Aventis Pasteur S.A. CompaniesChiron Inc. Other companies such as The Immune Response Corporation, VaxGen Inc., Trimeris, Inc., and Progenics Pharmaceuticals, Inc., are also developing preventive vaccines. 22 We believe that whileWhile many of these companiesindividuals and entities have greater financial manufacturing, technical, human resource, marketing and distributionscientific capabilities, and greater experience in conducting pre-clinical and clinical trials, and in obtaining regulatory and FDA approvals,we believe that our technologies, nonetheless, provide us with a competitive advantage. Our innovative approach to vaccine development is very competitive. Our approach is based on three main aspects: 1) design of lipid membrane anchored-antigens forming dimmers, trimers and tetramers that force the immune system to focus the response only on key conserved regions; 2) the induction of protective antibodies not only in the blood but most importantly in the genito-reproductive and intestinal mucosal compartments (primary HIV entry site) and; 3) on the observed immunological cross-reactivity (or mimicry) between the well preserved, antigenic and immunodominant domain of GP41 and IL-2, and relies on the observation of expected autoimmune consequences in HIV infected subjects. We believe thatOverall, our approach is most promising in comparison with thevaccine candidate will provide an advantage over existing and future approaches that have been pursued so far because all our competitors are using DNA, viral vectors, recombinant proteins or peptides with native viral sequences with no or limited deletion of human sequence homologies (linear or tridimensional) and poorly induce mucosal immunity. Therefore, all these vaccine prototypes are potentially harmful on a long-term basis for human health and do not target properly mucosal tissues. Vaccine candidates under development of investigation are including: - - Sub-unit vaccine: a technology addressing a piece of the outer surface of HIV, such as GP160, GP140 or GP120, produced by genetic engineering. - - Live vector vaccine: a live bacterium or virus such as vaccinia (used in the smallpox vaccine) modified so it cannot cause disease, but can transport into the body one or more genes that makes one or more HIV proteins. - - Vaccine combination: an example includes a "prime-boost strategy", use of a recombinant vector vaccine to induce cellular immune responses followed by booster shots of a sub-unit vaccine to stimulate antibody production. - - Peptide vaccine: chemically synthesized pieces of HIV proteins (peptides) known to stimulate HIV-specific immunity. - - Virus-like particle vaccine (pseudovirion vaccine): a non-infectious HIV look-alike that has one or more, but not all, HIV proteins. - - DNA vaccine: direct injection of genes coding for HIV proteins. - - Whole-killed virus vaccine: HIV that has been inactivated by chemicals, irradiation or other means rendering it non-infectious. - - Live-attenuated virus vaccine: live HIV from which one or more apparent disease-promoting genes of the virus have been deleted. 10 GOVERNMENTAL REGULATION Our strategy was crafted in part to minimize the risks usually associated with clinical trials, regulatory approvals and marketing, which we would expect to be borne by future partner(s). We contract with third parties to perform research projects related to our business. These third parties are located in various countries and are subject to the applicable laws and regulations of their respective countries. Accordingly, regulation by government authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of our proposed products by our future partners and intherefore has an indirect impact on our ongoing research and product development activities. Any products that we developwill be developed by our future partners(s) based on our technology will require regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical studies and clinical 23 trials and other approval procedures of the FDA and similar regulatory authorities in foreign countries. In addition, various federal and state statutes and regulations will also govern or influence testing, manufacturing, safety, labeling, storage and record keeping related to such products and their marketing. The process of obtaining these approvals and the subsequent substantial compliance with appropriate federal and state statutes and regulations require the expenditure of substantial time and financial resources. The success of our businessObtaining royalties in the future will depend on our future partners' ability to obtain and maintain the necessary regulatory approvals. Pre-clinical studies generally are conducted on laboratory animals to evaluate the potential safety and the efficacy of a product. In the United States, we must submit the results of pre-clinical studies to the FDA as a part of an investigational new drug application, or IND, which application must become effective before we can begin clinical trials in the United States. An IND becomes effective 30 days after receipt by the FDA unless the FDA objects to it. Typically, clinical evaluation involves a time-consuming and costly three-phase process. At this time, neither we nor any of our partners has submitted any of our pre-clinical results to the FDA nor any European or other health regulation agency. The process which is described below is therefore to be considered as generic background information which is relevant to the industry as a whole. Phase I. Refers typically to closely monitored clinical trials and includes the initial introduction of an investigational new drug into human patients or normal volunteer subjects. Phase I clinical trials are designed to determine the metabolismmetabolic and pharmacologic actions of a drug in humans, the side effects associated with increasing drug doses and, if possible, to gain early evidence on effectiveness. Phase I trials also include the study of structure-activity relationships and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes. During Phase I clinical trials, sufficient information about a drug's pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase II studies. The total number of subjects and patients included in Phase I clinical trials varies, but is generally in the range of 20 to 80 people. Phase II. Refers to controlled clinical trials conducted to evaluate the effectiveness of a drug for a particular indication or indications in patients with a disease or condition under study and to determine the common short-term side effects and risks associated with the drug. These clinical trials are typically well-controlled, closely monitored and conducted in a relatively small number of patients, usually involving no more than several hundred subjects. Phase III. Refers to expanded controlled clinical trials, which many times are designated as "pivotal trials" designed to reach end points that the FDA has agreed in advance, if met, would allow approval for marketing. These clinical 11 trials are performed after preliminary evidence suggesting effectiveness of a drug has been obtained. They are intended to gather additional information about the effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling. Phase III trials can include from several hundred to several thousand subjects depending on the specific indication being treated. The FDA closely monitors the progress of each of the three phases of clinical trials that are conducted in the United States and may, at its discretion, reevaluate, alter, suspend or terminate the testing based upon the data accumulated to that point and the FDA's assessment of the risk/benefit ratio to the patient. We have not yet conducted any clinical trials and are currently focused on research. 24 Once Phase III trials are completed, drug developers submit the results of pre-clinical studies and clinical trials to the FDA, in the form of an new drug application, or NDA, for approval to commence commercial sales. In response, the FDA may grant marketing approval, request additional information or deny the application if the FDA determines that the application does not meet the predetermined study end points and other regulatory approval criteria. Furthermore, the FDA may prevent a drug developer from marketing a product under a label for its desired indications, which may impair commercialization of the product. If the FDA approves the new drug application, the drug becomes available for physicians to prescribe in the United States. After approval, the drug developer must submit periodic reports to the FDA, including descriptions of any adverse reactions reported. The FDA may request additional studies, known as Phase IV trials, to evaluate long-term effects. We will be required to comply with similar regulatory procedures in countries other than the United States. In addition to studies requested by the FDA after approval, a drug developer may conduct other trials and studies to explore use of the approved compound for treatment of new indications. The purpose of these trials and studies and related publications is to broaden the application and use of the drug and its acceptance in the medical community. WeOur future partner(s) will have to complete an approval process, similar to the one required in the United States, in virtually every foreign target market in order to commercialize our product candidates based on our technology in those countries. The approval procedure and the time required for approval vary from country to country and may involve additional testing. Approvals (both foreign and in the United States) may not be granted on a timely basis, or at all. In addition, regulatory approval of prices is required in most countries other than the United States. We face the risk that the resulting prices would be insufficient to generate an acceptable return to us or our collaborators. A failure to obtain or maintain the necessary regulatory approvals will have an materially adverse effect on our business.partner(s). EMPLOYEES As of December 31, 2003,2006, neither Mymetics S.A.our Luxembourg nor our French affiliates had any employees. Mymetics Corporation had two full-time employees: Mr. Cristian J.-F. Rochet, our Chief Executive Officer, and Mr. Ernst Luebke, our Chief Financial Officer. Both officers were employed under informal agreements based on general terms agreed in 2003 by our Board of Directors. In addition, Mymetics Corporation had two part-time employees: Dr. Sylvain Fleury, Ph.D., our Chief Scientific Officer, and his assistant, Dr. Eleonora Simeoni, Ph.D., both employed under a three-way agreement with the University Hospital (CHUV) in Lausanne. Dr. Simeoni's contract ended on December 31, 2006. Mymetics Corporation further had one part-time consultant: Professor Marc Girard, DVM, D. SC., our acting Head of Vaccine Development. In consideration of the high quality and value to our shareholder of Dr. Fleury's 12 work and results, as well as the considerable risks he took in terms of his career when joining Mymetics, the Board of Directors agreed to compensate him at a level with the other officers of the Company, deducting from this amount any full-time employees. Indeed, all formerly reported employment agreements were either i) of a predetermined duration and not renewed, ii) resigned byamount paid to CHUV on Dr. Fleury's account. Under their respective holdersemployment or iii) terminatedconsulting agreements, all our officers have agreed that their credited salaries, fees and out-of-pocket expenses will only be paid to them from time to time and as the Company's financial position would allow it. As a result, Mr. Rochet, Mr. Luebke, Dr. Fleury and Prof. Girard were respectively owed Euro 143,662, Euro 217,606, 83,078 and Euro 90,739 at December 31, 2006. All officers have also agreed in principle that approximately 50% of their respective claims be converted into Mymetics common restricted shares at the current market price at the time such conversion would be formally agreed upon by the former management, as disclosed in our form 10-Q for the quarter ended September 30, 2003.Board of Directors. WWW.MYMETICS.COM News and information about Mymetics Corporation and its subsidiaries wereis available on our web site, www.mymetics.com, until August 2003, after which the site was temporarily shut off, as some of its contents had to be substantially updated. We intend to provide again, free of charge and as soon as practically feasible, news and other information about the Corporation, including access to our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after we file or furnish them electronically with the United States Securities and Exchange Commission. 25 www.mymetics.com. ITEM 2. PROPERTIES Until February 2004, Mymetics S.A. leasedWe currently occupy approximately 17060 square meters of office space that houses our administrative operations in Saint-Genis Laval (Near Lyon, France)Nyon, Switzerland (near Geneva), in which the Corporation's European administrative activities hadat 14, rue de la Colombiere. Our CSO and his assistant have been conducted until July 31, 2003. The all inclusive rent for such facilities was approximately E 1,641 per month, with a lease expiring on January 31, 2006. From March 2004, this space has been reduced to approximately 45 square meters at an approximate all inclusive rent of E 500 per month. Thisusing office space is now used exclusively by Dr. P.-F. Serres, our Head of Exploratory Research. This amended lease still expires on January 31, 2006. Up until January 31, 2003, we leased approximately 250 square feet of space in Annapolis, Maryland. The rent under our Annapolis lease was $1,000 per month prior to its termination. From February 2003 until July 2003, the former management of the Company used a small amount of space at the office of our former Chairman, Michael K. Allio, as its principal executive office. This space was being provided by Mr. Allio at no charge, keeping however in mind that between January 1, 2003 and July 31, 2003, charged Mymetics USD 217,750 for services rendered, USD 8,500 as director's fee and USD 32,528.69 for travel and other expenses, i.e. a total of USD 250,278.69 or USD 35,754.10 per month. Following the July 31, 2003 changes in the Company's management, our executive office was transferred to Nyon (Near Geneva, Switzerland), initially at our CEO and CFO's respective offices. On February 1, 2004, our European Executive Office was moved to a new leased office of approximately 60 square meter in Nyon, at an approximate all inclusive cost of E 1,000 per month. All of the furniture and office equipment beingfacilities provided free of charge by the University Hospital (CHUV) in Lausanne. The lease for our CEO and CFO. As regardsFrench facilities, previously located at 52, avenue du Chanoine Cartellier in Saint Genis Laval location, has been cancelled on April 30, 2005. We also conduct our research activities. these are conductedoperations at the properties of various third parties, with whom the Corporation contracts to perform research projects.worldwide. We believe that our current facilities are adequate for our foreseeable needs, and no additional space presently is necessary. The lease in Nyon can be terminated at short notice. ITEM 3. LEGAL PROCEEDINGS On December 19, 2000,Our present policy is to defend vigorously only the Swiss Law firm which had been retained bysuits with material amounts being sought in damages and after considering the Directors ofpotential legal costs involved. We do not currently maintain any insurance but are planning to conclude one as soon as our Frenchfinancial resources will allow it. Neither Mymetics Corporation nor our wholly owned subsidiary Mymetics S.A. (formerly Hippocampe S.A.)6543 Luxembourg SA are presently involved in any litigation incident to advise them during their loan and reverse merger negotiations with MFC Merchant Bank S.A. filed a claimour business. As disclosed in the Court of Geneva (Switzerland) against Mymetics S.A. following the latter's decision to refuse to pay more than 13.3% of the firm's invoice for legal services. Following initial hearings, the Court ordered an amount of CHF 89,188, accruing interest at 5% p.a., to be put in receivership by MFC Merchant Bank S.A. on that day. The sum claimed in principal, interests and expenses amounts to approx. CHF 120'000 (E80,000). On December 18, 2003,our Form 8-K dated February 13, 2006, our French subsidiary Mymetics S.A. was formally notifiedplaced under receivership ("Redressement Judiciaire") on February 7, 2006 by the Tribunal de Commerce in Lyon, France, as a result of an ongoing dispute between Mymetics Corporation and a former officer and director, Dr. Pierre-Francois Serres, who has a judgment against Mymetics S.A. in France (that is now under appeal) in the amount of E173,000 for an alleged wrongful termination by the Company's prior management during 2003. The court appointed two judges to oversee the case, a lawyer to represent the creditors and a judicial administrator to manage Mymetics S.A., all of whom are considered agents of the December 2nd, 2003 judgement renderedcourt. The court further imposed a "two-month observation period" during 13 which management and the administrator should strive to find a solution to the crisis, which we are attempting to do. On April 4, 2006, the court extended the observation period until July 18, 2006, based on a favorable report about the future of Mymetics delivered by the courtjudicial administrator. We are actively working on a plan which we expect would allow our French subsidiary to emerge from "Redressement Judiciaire" on or about that date. By way of Geneva (Switzerland)background, Dr. Serres was terminated by the Company's previous management and later reinstated by existing management as Chief Scientific Officer retroactively commencing May 5, 2003. In November 2003 Dr. Serres was appointed Head of Exploratory Research. Dr. Serres resigned on June 13, 2005 as director of the Company and as an officer of the Company on December 26, 2005. Previously, the Lyon Industrial Tribunal had granted Dr. Serres an emergency injunction on October 14, 2003. In consideration for being reinstated by the Company's new management, Dr. Serres agreed in August 2003 to forfeit all legal and punitive compensation for having been terminated by the Company's prior management. Despite this matter,pledge, Dr. Serres maintained his proceeding and on November 3, 2005, the Lyon Industrial Tribunal awarded Dr. Serres the full E173,000 he was seeking, of which approximately E100,000 is payable immediately despite the fact that we immediately appealed the judgment. We have attempted without success to negotiate with Dr. Serres regarding the payments immediately due to him under the judgment. In light of limited financial resources at that time, we did not have enough funds to both pay Dr. Serres the amount immediately due for approximately E100,000 and to initiate new rounds of animal preclinical trials supported by whichthe latest encouraging scientific results. We decided to allocate existing financial resources to the preclinical trials and to contest the judgment of the Lyon Industrial Tribunal based upon advice of our French counsel that the judgment was illegal under French law and that an appeal should be successful. Dr. Serres pursued a strategy of raising pressure on the Company to pay his judgment by seeking to have our subsidiary liquidated through the Tribunal de Commerce in Lyon. We intend, therefore, to raise the money necessary to pay Dr. Serres and remove Mymetics S.A. was condemnedfrom receivership. At the same time, we expect to payprevail on the full amount claimedappeal of the decision by the plaintiff (CHF 89,188), plus interest at 5% p.a. from November 24, 2000Lyon Industrial Tribunal and CHF 10,000 as a participation to the plaintiff's legal costs. Although the full amount had been provided for in our financial statements,should we do notso, we understand that Dr. Serres will have sufficient funds to meetreimburse us for all monies we have paid to him under the Industrial Tribunal judgment. While we expect to prevail in all of these cases, our obligations should the plaintiff demand immediate paymentmanagement believes that adverse results in one or more of the amount we now owe him, unless we are able to raise a sufficient amount of additional capital. Our inability to meet such obligations wouldthese cases could have a material adverse effect on our liquidity and could threaten our business. On April 21, 2003 our former Vice Presidentresults of Development, Joseph D. Mosca,filed a claim against usoperations in the Circuit Court of Maryland for Howard County. Mr. Mosca claims that we breached the employment agreement between him and us and that we violated the Maryland wage payment and collection law by not paying him all the amounts he is owed. He was demanding $375,000 in damages as a result of such claims. On May 22, 2003, this case was moved to the U.S. District Court in Maryland. Following settlement discussions, we reached an agreement with Mr. Mosca in October 2003 whereby Mymetics will pay Mr. Joseph D. Mosca, no later than November 1, 2004, a final settlement of $10,000, in exchange of which Mr. Mosca is waiving all further charges and claims against the Company. This amount had previously been provided for in our financial statements. 26 In late June 2003, Dr. Pierre-Francois Serres, our former chief scientific officer and a current member of our board, filed a claim against our French subsidiary, Mymetics S.A., claiming he is entitled to benefits arising out of his termination from employment. In a judgment passed on October 14, 2003, the court ruled in favor of Dr. Pierre-Francois Serres and consequently, allowed him a total compensatory amount of E46,735. In a further agreement with the current Board of Directors, Dr. Serres pledged not to claim payment of this amount following the Board's decision to reinstate him as Chief Scientific Officer of the Company. ITEM 4.future periods. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 2714 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. The Corporation's common stock is quoted on the OTC Bulletin Board under the trading symbol "MYMX". The Corporation's trading symbol changed from ICHR to MYMX in July 2001, pursuant to a corporate name change from ICHOR Corporation to Mymetics Corporation. (b) Market Information. The Corporation's common stock was quoted on the OTC Bulletin Board under the trading symbol "MYMX" until December 30, 2005 when it was moved to the "Pink Sheet" market (trading symbol "MYMX.PK") due to our inability to file in a timely manner our report on Form 10-Q for the period ended September 30, 2005 with the Securities and Exchange Commission. (c) The following table sets forth the quarterly high and low sale price per share of the Corporation's common stock for the periods indicated. The prices represent inter-dealer quotations, which do not include retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
FISCAL QUARTER ENDED HIGH LOW - -------------------- ------ ------ 20022004 March 31.........................................31............ $0.125 $0.125 June 30............. 0.118 0.10 September 30........ 0.08 0.08 December 31......... 0.30 0.27 2005 March 31............ $ 3.85 $ 2.150.18 $0.31 June 30.......................................... 3.70 2.7030............. 0.045 0.25 September 30..................................... 3.45 0.0630........ 0.045 0.08 December 31...................................... 0.36 0.09 2003 March 31......................................... $ 0.22 $ 0.09 June 30..........................................31......... 0.035 0.14 0.09 September 30..................................... 0.12 0.07 December 31...................................... 0.14 0.04(*)
(*) at December 30, 2005, last day of OTC trading (b) Stockholders. At March 18, 2004,31, 2006, the Corporation had approximately 640605 holders of record of its common stock, some of which are securities clearing agencies and intermediaries. (c) Dividends. The Corporation has not paid any dividends on its common stock and does not anticipate that it will pay any dividends in the foreseeable future. (d) Securities Authorized for Issuance Under Equity Compensation Plans. EQUITY COMPENSATION PLAN INFORMATION The following table provides information about the common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2003.2005.
- ---------------------------------------------------------------------------------------------------------------------- Number of Securities remaining available for Number of Securities to be Weighted Average Exercise available for issuance under equity issued upon exercise of Price of Outstanding equity compensation plans Outstanding Options, Warrants and Options, Warrants and (excluding securities Warrants andreflected Rights Rights reflected in column (a)) Plan Category (a) (b) (c) - ----------------------------------------------------------------------------------------------------------------------------------- -------------------------- ------------------------- ------------------------------- Equity Compensation Plans Approved by Security Holders (1) 606,250455,000 (2) U.S. $0.92$0.97 4,557,500 - ---------------------------------------------------------------------------------------------------------------------- Equity Compensation Plans not 1,500,000 (4) U.S. $0.10 Approved by Security Holders 80,1661,500,000 (3) U.S. $1.725$0.10 N/A - ------------------------------------------------------------------------------------------------------------------------------- ---------- --------- Total 2,186,416 U.S. $0.39 4,557,500 - ----------------------------------------------------------------------------------------------------------------------========= ========== =========
2815 (1) Equity compensation plans approved by our security holders include (i) our 1994 Amended and Restated Stock Option Plan, (ii) our 1995 Qualified Incentive Stock Option Plan and (iii) our 2001 Stock Option Plan. Our 1994 Amended and Restated Stock Option Plan and our 1995 Qualified Incentive Stock Option Plan were both terminated in March 2001, but some options granted under these plans prior to such termination remain outstanding and are included in this table. (2) Includes (i) 442,500 shares of common stock underlying options granted under our 2001 Stock Option Plan and (ii) 100,000 shares of common stock underlying options granted under our 1995 Qualified Incentive Stock Option Plan and (iii) 63,75012,500 shares of common stock underlying options granted under our 1994 Amended and Restated Stock Option Plan. (3) From time to time we have granted our lender, MFC Merchant Bank S.A., warrants to purchase shares of our common stock. These warrants are granted in connection with certain credit facilities provided to us by MFC Merchant Bank S.A., and placement services provided by MFC Merchant Bank S.A. in connection with a private placement of our securities in June 2001. These warrants were not granted pursuant to any formal equity compensation plan approved by our board of directors, but rather, each grant was an individual equity compensation arrangement, authorized by our board of directors and granted as compensation for services provided. All of the outstanding warrants were granted pursuant to similar forms of warrants, and each has an exercise price of U.S. $1.725. (4) We do not have any formal equity compensation plan that has not been authorized by our stockholders. These grants are made on an individual basis and are approved by our board of directors. Accordingly, there are no shares of common stock reserved for issuance under these arrangements. ISSUANCES OF UNREGISTERED SECURITIES Set forth below is information regarding our sales of unregistered securities during the period commencing on January 1, 20032005 and ending on JanuaryMarch 31, 2004.2006. These issuances were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as transactions by an issuer not involving any public offering. The present- - On March 7, 2005, we issued MFC Merchant Bank SA 500,000 shares as fee for the restructuring of its E3.4 million loan. - - On March 15, 2005, we issued Professor Stanley A. Plotkin 200,000 shares as initial fee for joining our Board of directors believes that until such time as the Company has fully recovered from its present difficult situation, it should be managed exclusively by major shareholders to ensure that stakeholders' long term interests would prevail over short term mercenary considerations. The present Board of directors further believes that the Company needs to have rapid access to the inner circle of world opinion leaders in matters of HIV-AIDS if it wants to have its ideas, work and results peer recognized and accepted to qualify for grants and other donations. With this in mind, we have been able to attract world class personalities such as Mr. Jacques-Francois Martin, former CEO of Laboratoires Merieux, member of the Board of the IAVI and CEO of the vaccine Fund chaired by Mr. Nelson Mandela, and Professor Marc Girard, DVM, D. Sc., former Head of the Laboratory of Molecular Virology at the Pasteur Institute in Paris (France), former Director, European Research Center 29 for Virology and Immunology (CERVI) in Lyon (France), former Head of the HIV Task Force at the French National Agency for AIDS Research (ANRS), Paris, former Director General of the Merieux Foundation in Lyon (France), former Chairman of the European Consortium for an HIV Vaccine (EuroVac), Brussels. But one doesn't attract bees with vinegar, thus:Directors. - - In September 2003,On March 15, 2005, we issued Dr. Robert Zimmer, our only director which was not also a major shareholder of the Company, 400,000 commonNorthern Light International 1,500,000 shares as a one-off remuneration as outside director and in recognition of the fact that he had accepted to serve the Company despite the absence of D&O insurance coverage.fee for consulting services. - - In November 2003,On April 21, 2005, we issued Dr. Sylvain Fleury, Ph. D., 500,000 commonour French animal farm 60,000 shares as settlement of Mymetics Corporation in recognition of his support of the Company since 1997 (he was instrumental in having Aralis Participations S.A., still a major shareholder of Mymetics Corporation, support Hippocampe S.A. - now Mymetics S.A. - between 1997 and 2000) and in compensation for his modest remuneration as CSO of Mymetics.invoices totaling E11,680, or approximately $.23 per share. - - In November 2003,On May 5, 2005, we issued Mr. Jacques-Francois Martin 1,000,000 common shares of Mymetics Corporation in recognition of his support of the Company and more specifically, for his early introduction to the inner circle of world class experts and opinion makers in matter of HIV-AIDS. - - In November 2003, we agreed to issue Mr. Jacques-Francois Martin an additional 2,000,000 common shares of Mymetics Corporation, contingent upon his accepting to be elected Chairman of Mymetics Corporation. - - In December 2003, we issued two investors 1,500,000one investor 52,000 common shares of Mymetics Corporation for E124,800,E5,000, or approximately $.10$.125 per share. - - In December 2003, we issued the same two investors warrants to acquire, before July 31, 2004, an additional 1,500,000 common shares of Mymetics Corporation at $.10 per share. - - In January 2004,On June 16, 2005, we issued two investors 2,000,00050,000 common shares of Mymetics Corporation for E166,400,$4,000 each, or approximately $.10$.08 per share. - - In January 2004, we issued the same two investors warrants to acquire, before July 31, 2004, an additional 2,000,000 common shares of Mymetics Corporation at $.10 per share. - - In January 2004, we issued Professor Marc Girard, DVM, D. Sc., 500,000 common shares of Mymetics Corporation in recognition of his support of the Company and in compensation for his modest remuneration as Head of our Vaccines Development. - - In February 2004,On June 20, 2005, we issued one investors 2,500,000investor 343,500 common shares of Mymetics Corporation for $250,000,E5,000, or $.10approximately $.063 per share. - - In February 2004,On June 22, 2005, we issued the same investor a warrant to acquire, before July 31, 2004, an additional 2,500,00083,300 common shares of Mymetics Corporation for $4,998, or $.06 per share. - - On June 24, 2005, we issued another investor 100,000 common shares of Mymetics Corporation for $6,000, or $.06 per share. - - On July 7, 2005, we issued another investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share. 16 - - On July 8, 2005, we issued the same investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share. - - On July 11, 2005, we issued the same investor 144,516 common shares of Mymetics Corporation for E7,000, or approximately $.06 per share. - - On August 2, 2005, we issued the same investor 206,452 common shares of Mymetics Corporation for E10,000, or approximately $.06 per share. - - On August 16, 2005, we issued another investor 50,000 common shares of Mymetics Corporation for $2,500, or $.05 per share. - - On September 27, 2005, we issued six individuals a total of 2,041,200 shares as fee for various services in lieu of cash at $.10$.03 per share. - - On October 19, 2005, we issued a previous investor 87,459 common shares of Mymetics Corporation for E3,000, or approximately $.03 per share. - - On October 20, 2005, we issued the same investor 174,918 common shares of Mymetics Corporation for E6,000, or approximately $.03 per share. - - On October 20, 2005, we issued our CEO's free-lance secretary 185,000 shares as settlement of invoices totaling CHF 12,000, or approximately $.05 per share. - - On October 21, 2005, we issued a previous investor 116,612 common shares of Mymetics Corporation for E4,000, or approximately $.03 per share. - - On October 28, 2005, we issued the same investor 116,612 common shares of Mymetics Corporation for E4,000, or approximately $.03 per share. - - On November 24, 2005, we issued the same investor 390,667 common shares of Mymetics Corporation for E6,000, or approximately $.03 per share. - - On December 12, 2005, we issued the same investor 781,337 common shares of Mymetics Corporation for E12,000, or approximately $.03 per share. - - On December 20, 2005, we issued another investor 6,000,000 common shares of Mymetics Corporation for $300,000, or $.05 per share. - - On January 12, 2006, we issued MFC Merchant Bank SA 2,500,000 shares as fee for the restructuring of its E3.7 million loan. - - On January 30, 2006, we issued one bank and one individual 50,000 shares each as fee for introduction services at $.035 per share. - - On January 30, 2006, we issued a previous investor 4,000,000 common shares of Mymetics Corporation for $200,000, or $.04 per share. - - On March 3, 2006, we issued another previous investor 3,000,000 common shares of Mymetics Corporation for E100,000, or $.04 per share. - - On March 7, 2006, we issued another previous investor 2,750,000 common shares of Mymetics Corporation for $110,000, or $.04 per share. All such issues of shares and warrants were made under an informal Equity Compensation Plan not approved by Security holders. These grants were made on an individual basis and were approved by our Board of directors. In addition, the Board has offered 2,000,000 common shares to Mr. J.-F. Martin upon acceptance of an offer as board chairman. The fair value of these shares was approximately E33 at December 31, 2003. These shares have not been considered issued for purposes of these financial statements. 30 ITEM 6. SELECTED FINANCIAL DATA The following table reflects selected consolidated financial data for the Corporation for the fiscal years ended December 31, 2003,2006, 2005, 2002, 2001 and 2000, and 1999, respectively. 17
ForFOR THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED DECEMBERDEC 31, DECEMBERDEC 31, DECEMBERDEC 31, DECEMBERDEC 31, DECEMBERDEC 31, 2005, 2004 2003 2002 2001 2000 1999 ---- ---- ---- ---- ----------- ------- ------- ------- ------- (EUROS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) OPERATING DATA Operating revenues .....................0 0 0 8 26 13 47 Research & Development Expenses ........489 612 1,263 1,878 482 101 94 General & Administrative Expenses ......1,138 1,264 1,090 1,293 1,034 351 37 Loss from continuing operations ........Operations 1,939 2,202 2,786 (3,622) (15,701) (1,314) (99)(1,848) COMMON SHARE DATA(1) Loss from continuing operations per common share ........................(0.03) (0.04) (0.05) (0.07) (0.37) (0.04) (0.00) Weighted average common shares outstanding (in thousands) ..........71,972 62,145 51,285 50,046 42,460 33,311 33,311 BALANCE SHEET DATA Working capital ........................(6,051) (2,035) (4,294) (2,306) 565 (652) (24)504 Total assets ...........................166 192 367 477 1,692 625 146 Long-term obligations .................. 242 242281 3,110 242 242 242 Total stockholders' equity .............(6,280) (5,065) (4,400) (2,349) 693 (765) (257)
- ---------------- (1) Basic and diluted common share data is the same. 18 ITEM 7. 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 years ended December 31, 2002, 20012005, 2004 and 20002002 should be read in conjunction with the Corporation's audited consolidated financial statements and related notes and the description of the Company's business and properties included elsewhere herein. RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 20032005 COMPARED TO YEARS ENDED DECEMBER 31, 20022004 AND DECEMBER 31, 2001 Revenues of2003 We did not achieve any revenue for the yearyears ended December 31, 2003 were nil compared2005 or December 31, 2004. Our lack of revenue is directly attributable to E8,000our focus on research and development. The Company predicts that this focus will continue for the foreseeable future, but we are unable to predict future economic conditions at the time that our products are ready to be commercialized by our future partners(s), as described elsewhere in this document. Future revenues could be affected by local and other economic conditions, technology, competitive forces, and/or challenges to the Company's intellectual property. Costs and expenses decreased to E1,939,000 for the year ended December 31, 2002 and E26,0002005 from E2,202,000 for the year ended December 31, 2001.2004, a decline of 11.9%. Costs and expenses decreased to E2,202,000 for the year ended December 31, 2004 from E2,786,000 for the year ended December 31, 2003, from E3,630,000 for year ended December 31, 2002 (-23.3%) and E15,727,000 for the year ended December 31, 2001, in this particular case as a resultdecline of a decrease in bank fees to E63,000 for the year ended December 31, 2002 from E14,063,000 in the comparative period in 2001 (-99.6%)20.9%. 31 Research and development expenses decreased to E1,263,000E489,000 in the current yearperiod from E1,878,000E612,000 in the comparative period of 2002 (-32.7%) as2004, a resultdecline of our current cash shortfall, this after having increased from E482,000 during20.1%. Research and development expenses decreased to E612,000 in the yearperiod ended December 31, 2001 to E1,878,000 (+290%)2004 from E1,263,000 in the comparative period of 2003, a decline of 51.5%. The successive decreases of R&D expenses during the year ended December 31, 2002 asyears 2004 and 2005 were mostly due to our decision taken in 2003 to adapt our R&D efforts to our present financial capabilities by i) focusing our efforts on the development of a resultpreventive human vaccine against HIV-AIDS, an area in which we believe to have a competitive advantage and which addresses a world crisis of catastrophic proportion, ii) temporarily suspending our development efforts of therapeutic human antiviral peptides which, despite showing very encouraging results, would be facing strong existing competition, iii) suspending the development of a feline preventive vaccine which, despite being an excellent model for our mimicry based technology would have only limited commercial potential and iv) abandoning all development of our increase in research activities.feline therapeutic peptides due to our perception of a weak or non existent commercial potential. In addition, it is worth noting that 2004 was a year of development of our key recombinant gp41 vaccine protein, which induced sizeable expenses, while 2005 was a consolidation year during which our latest vaccine prototype was tested on rabbits, which implies limited costs but requires more time to complete, such time depending on biological factors and not on the amount of money invested. General and administrative expenses decreased to E1,090,000E1,138,000 in the year ended December 31, 20032005 from E1,293,000E1,264,000 in the comparativecomparable period of 2002 (-15.7%)2004, or 10.0%. This was mostly due to our continuing efforts at limiting G&A expenses wherever and whenever possible. While this may sound like a wise move, its effect has been to severely hamper our ability to operate under normal business conditions. It has also increased the level of risks under which we operate, as none of our critical employee or officer has a resultbackup ready to step in should a critical need arise. We expect to return to normal operating conditions, and in particular to 19 backup our critical employees and officers, as soon as our financial conditions will allow us to do so. This decrease in G&A expenses was achieved despite an increase in our officers' credited (but mostly unpaid) annual salary, from E96,000 in 2004 to E144,000 in 2005, a decision taken to i) compensate our CEO and CFO for the high level of cuts initiatedpersonal risks taken by the new management since July 31, 2003, mostly in managementaccepting to operate without D&O insurance coverage and ii) to bring their salaries and/or fees and travel expenses.closer to prevailing market conditions. General and administrative expenses had previously increased to E1, 293,000E1,264,000 in the year ended December 31, 20022004 from E1,034,000E1,090,000 in the comparativecomparable period of 2001 (+25.0%), mostly due to increases in said management salaries, fees and travel expenses. The Corporation reported2003, a net lossincrease of 2,786,00016.0% resulting from i) a decrease in salaries and fees paid to former well paid officers having left the Company in 2003, partially replaced in August 2003 by shareholder officers drawing moderate salaries and incurring limited travel expenses, in particular a marked reduction of transatlantic flights and ii) a general decrease of E62,000 in operating expenses such as rent, lawyers fees, etc. and iii) E207,000 as cost of shares issued for services, such as the initial grant of 500,000 shares to Professor Girard, our Head of vaccines development (E29,000), or E0.05 per share, for the year endedcost of shares issued in addition to cash, either to "buy time" from critical creditors inherited from the former management or to "buy fidelity" from critical suppliers of services. CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Certain of the estimates and assumptions required to be made relate to matters that are inherently uncertain as they pertain to future events. While management believes that the estimates and assumptions used were the most appropriate, actual results could differ significantly from those estimates under different assumptions and conditions. The following is a description of those accounting policies believed by management to require subjective and complex judgments which could potentially affect reported results. REVENUE RECOGNITION AND RECEIVABLES As we are a development stage company, we have not generated any material revenues since we commenced our current line of business in 2001, and we do not anticipate generating any material revenues on a sustained basis unless and until a licensing agreement or other commercial arrangement is entered into with respect to our technology. However, should the Company engage in any form of commercial activity, a Revenue Recognition and Receivables policy according to the following principles would be implemented: Revenue related to the sale of products is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Receivables are stated at their outstanding principal balances. Management reviews the collectibility of receivables on a periodic basis and determines the appropriate amount of any allowance. Based on this review procedure, management has determined that the allowances at December 31, 2003, compared2005 and 2004 are sufficient. The Company charges off receivables to E3,622,000the allowance when management determines that a receivable is not collectible. The Company may retain a security interest in the products sold. The Company makes estimates of the uncollectibility of its accounts receivable. The Company analyzes accounts receivable and historical bad debt levels, customer 20 credit worthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, customers in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company's net income is directly affected by management's estimate of the collectibility of accounts receivable. Management believes that adequate controls are in place to ensure compliance with contractual product specifications, a substantial history of such performance has been established, and historical returns and allowances have not been significant. If actual sales returns and allowances exceed historical amounts, the Company's sales would be adversely affected. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 of Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition. BUSINESS PLAN During the next 12 months, we intend to continue development and commercialization activities currently underway and to explore new activities. With respect to our gp41 research activities, we intend to continue the activities currently ongoing. In this regard: - - We completed the testing in rabbits for capacity to elicit neutralizing antibodies from our second generation of recombinant, mutated, trimeric gp41 proteins, and we have conducted the production, purification and characterization of the third generation of gp41, involving four laboratories in France. Despite the no or E0.07,low induction of neutralizing antibodies with the gp41 second generation, these results were extremely important and crucial for a better understanding of our vaccine candidate. These results lead us to a third generation of gp41, still not optimal, for testing certain protein properties and behaviors. Step by step, we conluded that the year ended December 31, 2002the best trimeric gp41 protein folding and E15,701,000oriented epitope presentation should be optimal if a vaccine candidate is constituted not by one single gp41 protein harboring all the immunogenic regions (epitopes), but rather by two gp41 proteins presenting various protein subregions, each targeting a different anatomical compartment (blood or mucosal protection). We have hypothesized that this approach would offer the main advantage of presenting key epitopes to the immune system, using different antigens, to avoid the problem of epitope immunodominance. For testing our hypothesis, we have initiated in Spring 2005 rabbit immunizations with a gp41 peptide, one of the two potential gp41 subunits that will constitute our final vaccine candidate. Our results obtained at the end of 2005 were extremely encouraging. Most of our rabbits have produced specific antibodies and vaginal protection is likely possible because vaginal seretions were containing antibodies capable of bloking up to 90% of the virus translocation (transcytosis) of primary HIV strains from clades B and C. To evaluate if there is a real level of protection at the mucosa level (preventing HIV to cross the vaginal epithelium), only macaque study will allow to answer this question. - - We plan to continue to engage in the designing of a fourth generation of gp41 protein and testing its ability to elicit neutralizing antibodies. We intend also to initiate at the beginning of 2006 immunizations in non-human primates with gp41 peptides and later in 2006 with recombinant gp41 proteins for eliciting protective antibodies in blood and at the year ended December 31, 2001.mucosa level. Depending on the pre-clinical trial results on macaques, a phase I clinical trial for human tolerance and immunogenicity could take place in 2007. The precise timing of the gp41 (and any related) activities over the next 12 months and beyond cannot be predicted with certainty, as they are dependent upon 21 the timing of completion of research and development milestones and the requirements of our testing laboratories. For a description of the activities proposed to be conducted in relation to gp41, see "Description of Business - Where Are We and Where Are We Going?" Along with our gp41 research, we continue to explore other complementary research studies conducive to the further research and development of an HIV-1 vaccine. As discussed in the section entitled "Description of Business - Mymetics Corporation," we subcontract our research project modules to best of class research teams. We pay for and coordinate the work, consolidate the results, and retain all associated intellectual property. On rare occasions, we sign partnership agreements with companies offering technologies that can enhance our products. As discussed in the section entitled "Description of Business - Government Regulation," we will contract with third parties to develop future products based upon our technology, and the process for that product development is highly regulated. The first phase involves closely monitored clinical trials and the initial introduction of an investigational new drug into human patients. We expect to complete these human clinical phase I trials by the end of 2007 and then to sign a partnership agreement with a major pharmaceutical company. The agreement most likely would involve an initial cash payment, followed by a series of payments associated with specific milestones and, finally, royalties on any sales of end products. We have initiated discussions under Non Disclosure Agreements with three of the five major pharmaceutical companies targeted as potential development partners. We do not expect to generate any revenues from any of our product development activities or licensing until 2009. LIQUIDITY AND CAPITAL RESOURCES The Corporation had E70m000 cash at December 31, 2005, compared to no/immaterial cash at December 31, 2004 and E125,000 at December 31, 2003, compared2003. As we are a development stage company, we have not generated any material revenues since we commenced our current line of business in 2001, and we do not anticipate generating any material revenues on a sustained basis unless and until a licensing agreement or other commercial arrangement is entered into with respect to E183,000 at December 31, 2002 and E888,000 at December 31, 2001. Net cash used by operating activities was E1,773,000 for the year ended December 31, 2003, compared to E3,235,000 for the year ended December 31, 2002 and E2,000,000 for the year ended December 31, 2001. The major factor was successive increases in accounts payable, which provided cash of E780,000 and E16,000 for the years ended December 31, 2003 and 2002 respectively, compared to a decrease of accounts payable of E508,000 for the year ended December 31, 2001. Investing activities provided no/immaterial cash for the year ended December 31, 2003 compared to E252,000 for the year ended December 31, 2002 and used cash of E237,000 for 2001. Financing activities provided cash of E1,263,000 for the year ended December 31, 2003 compared to E2,181,000 in the same period last year. Proceeds from issuance of common stock provided cash of E125,000 for the year ended December 31, 2003 compared to E8,000 in the same period in 2002 and E2,724,000 during the year 2001.our technology. Increases in borrowing pursuant to a non-revolving term facility and other short term advances provided cash of E1,138,000E425,000 in current year, E2,173,000E241,000 in the comparative period last year and E116,000E1,138,000 in 2001.2003. The non-revolving term facility is in the principal amount of up to E3.150E3.8 million and matures on December 31, 2006, with partial repayments of E900,000 on June 30, 2004.2006. In addition, any amount repaid under this facility can be converted at the lender's option into "rule 144" restricted common shares of Mymetics Corporation at $0.30 per share. At December 31, 2003,2005, Mymetics had borrowed an aggregate of E3,127,000E3,754,000 pursuant to this non-revolving term facility. The Corporation expects that it will require substantial additional capitalAs of December 31, 2005, we had an accumulated deficit of approximately E14 million and we incurred losses of E1,939,000 in the twelve-month period ending December 31, 2005. These losses are principally associated with the research and development of our HIV vaccine technologies, research into potential animal AIDS treatments, and other related research activity. We expect to continue to incur expenses in the future for research, development and activities related to the future licensing of our technologies. These losses also include E0 of stock based 22 compensation and approximately E34,000 directors' fees. For further information regarding stock-based compensation and other amounts paid to officers, directors, affiliates and their immediate family members, see the section of this report entitled "Executive Compensation." Accounts payable of E2,095,000 at December 31, 2005, include E535,000 due to our officers as unpaid salaries, fees and out-of-pocket expenses and E1,560,000 representing various monthly bills for operating expenses paid to unrelated third parties, including utility bills, equipment servicing, laboratory expenses, plant and office expenses, and professional fees. Payable to Shareholders of E242,000 at December 31, 2005, represents various amounts advanced by our founder, Dr. P.-F. Serres, to Hippocampe S.A. (now Mymetics S.A., our French affiliate) between 1990 and 1999. These advances are reimbursable subject to the French legal concept of "retour a meilleure fortune" or "return to better times". This ambiguous concept has been contractually defined in november 1998 between Dr. Serres and Aralis Participations S.A., then a major shareholder of Hippocampe S.A., as essentially a positive working capital ratio of 1.2 during four consecutive quarters, said ratio to be computed exclusively on the basis of commercial revenues for Hippocampe S.A., i.e. to the exclusion of subsidies, whether from related or unrelated parties. Considering the present status of Mymetics S.A., it is impossible to predict when such amounts will be reimbursed to Dr. Serres. Consequently, they are classified as long term debts. As a result of having put our French subsidiary in receivership (see Item 3. Legal Proceedings), Dr. Serres has made it impossible for Mymetics SA to ever returning to "better times". Consequently, this amount will never have to be repaid and we shall have to reverse this amount due as soon as the French courts close the Mymetics SA file. Net cash used by operating activities was E561,000 for the year ended December 31, 2005, compared to E1,241,000 for the year ended December 31, 2004 and E1,773,000 for the year ended December 31, 2003. The major factor were successive increases in accounts payable, which provided cash of E604,000, E259,000 and E780,000 for the years ended December 31, 2005, 2004 and 2003 respectively. Investing activities provided immaterial cash for the years ended December 31, 2005 and 2004, and 2003. Financing activities provided cash of E781,000 for the year ended December 31, 2005 compared to E928,000 in the same period last year and E1,263,000 in 2003. Proceeds from issuance of common stock provided cash of E356,000 for the year ended December 31, 2005 compared to E687,000 in the same period in 2004 and E125,000 during the year 2003. Our budgeted monthly cash outflow, or cash burn rate, for 2006 is approximately 320,000 per month for fixed and normal recurring expenses, as follows, assuming we will be able to obtain the necessary financing: 23
Monthly 12 Months -------- --------- 2006 budget Management salaries, social costs and fees E 60,000 720,000 Travelling expenses 20,000 240,000 Property leases and operating expenses 2,000 24,000 Administration (accounting and 1 secretary) 13,000 156,000 Professional fees 20,000 240,000 Interest expenses 14,000 168,000 -------- --------- Total General and Administrative expenses E129,000 1,548,000 -------- --------- Internal R&D (salaries and Laboratory reagents) 18,000 216,000 Pre-clinical trials (not financed by the US NIH or other donors) 105,000 1,260,000 External collaborators 68,000 816,000 -------- --------- Total Research and Development expenses 191,000 2,292,000 -------- --------- Total E320,000 3,840,000 ======== =========
24 We expect that the monthly cash outflow may increase significantly in 2006 over 2005 as the Company increases its research and development clinical studiesactivities, and regulatory activities necessaryprepares for additional research and compliance duties associated with the signing of a partnership agreement with a major pharmaceutical company. Salaries and related payroll costs represents fees for all of our directors other than our employee directors, gross salaries for two of our executive officers, and payments under consulting contracts with two of our officers. We do not pay our non-employee directors, and we credit our two salaried executive officers a combined amount of E24,000 per month. Since January 1, 2004 and until November 30 of that year, payments of $CHF 9,000 (approx. E6,000) per month for Dr. Sylvain Fleury's services as our Chief Scientific Officer have been made pursuant to bring its potential productsa three-way consulting agreement with Centre Hospitalier Universitaire Vaudois (CHUV), a Swiss University Hospital located in Lausanne, where Dr. Fleury is employed to marketallow him to supervise a research project funded by the Swiss FNRS (Swiss National Research Foundation) which he had initiated before joining Mymetics. In April 2005, this agreement was extended to include the services of a qualified virologist under Dr. Fleury's supervision in order to reduce the cost and turn-around time of certain scientific work previously outsourced by the Company to third parties. Payments under this agreement were suspended in December 2004 due to lack of funds. CHUV accepted nevertheless to maintain the agreement in force and to establish production, marketingfinance the resulting expenses until such time as additional funds could be raised by the Company. The debt owed CHUV peaked at over CHF 200,000 (E129,000) in December 2005, when CHUV threatened to terminate the agreement unless a significant portion of the outstanding amount was repaid, which would have meant the loss of a major Company resource. On December 20, 2005 and sales capabilities.March 8, 2006 the Company was able to pay CHUV CHF 50,000 (E32,000) and CHF 100,000 (USD 77,000) respectively, a total amount considered sufficient by CHUV in the light of our latest scientific achievements to suspend all threats of termination. Since January 15, 2004, payments of E4,000 per month for Professor Marc Girard's services as our Head of Vaccines Development were due pursuant to a consulting agreement dated June 10, 2004, as disclosed in our filing on Form 10-Q for the period ended June 30, 2004 to the Securities and Exchange Commission. We have not been able to make the payments due under the agreement on a regular basis and we owed Professor Girard approximately E91,000 at December 31, 2005. We have been able to make a significant payment recently to Professor Girard and expect that the matter of payments owed will soon be settled amicably. Monthly fixed and recurring expenses for "Property leases" of E1,000 represents the monthly lease and maintenance payments to unaffiliated third parties for our executive offices located at 14, rue de la Colombiere in Nyon (Switzerland) (600 square feet), which can be cancelled on one month notice. Despite the fact that the lease of our French facility expired in January 2006, we have been able to cancel it at no additional cost as of April 30, 2005 as no more company work is performed in France since that date. We do not lease any research facilities since Dr. Fleury's facilities are provided free of charge by CHUV as part of his FNRS project. We will eventually have to lease our own minimal laboratory facilities to conduct quality checks and to verify scientific results now that Dr. Fleury's FNRS project has ended. We are planning to lease in the next few months facilities on the campus of the Swiss Federal Institute of Technology (EPFL) in Lausanne (Switzerland), located 15 miles from our Nyon office. Included in professional fees are estimated recurring legal fees paid to outside corporate counsel and ongoing litigation expenses, audit and review fees paid to our independent accountants, and fees paid for investor relations. Interest expense represents interest paid to MFC Merchant Bank S.A. for a note payable. This note payable in the maximum amount of E3.7 million carries an interest rate of Libor + 4% which is accrued on a quarterly basis. 25 As of March 31, 2006, we had two full-time salaried executives, exclusive of our contracts for the consulting services of our Chief Scientific Officer, his assistant and our Head of Vaccines Development. Certain secretarial work for our CEO is outsourced to self-employed secretaries who accept being partially paid in common stock of Mymetics at the current market price. We anticipate hiring an assistant to our CFO as well as a part-time laboratory technician in the first half of 2006, and may need to hire additional personnel in order to meet the needs and demands of any future workload. We intend to continue to incur additional expenditures during the next 12 months for additional research and development of our HIV vaccines. These expenditures will relate to the continued gp41 testing and are included in the monthly cash outflow described above. Additional funding requirements during the next 12 months may arise upon the commencement of a phase I clinical trial. We expect that funding for the cost of any clinical trials would be available either from debt or equity financings, donors and/or potential pharmaceutical partners before we commence the human trials. In the past we have financed our research and development activities primarily through debt and equity financings from various parties. The Corporation anticipates its operations will require approximately E1.5E3.8 million in the year ending December 31, 2004.2006. The Corporation will seek to raise the required capital from lenders, equity or debt issuances,financings, donors and/or potential partnerships with major international pharmaceutical and biotechnology firms. However, there can be no 32 assurance that the Corporation will be able to raise additional capital on terms satisfactory to the Corporation, or at all, to finance its operations. In the event that the Corporation is not able to obtain such additional capital, it would be required to further restrict or even halt its operations. RECENT FINANCING ACTIVITIES In May 2005, our share price decreased suddenly from USD 0.30 to USD 0.05, making it extremely difficult to attract new investors under Regulation S. In June 2005, the animal farm hosting our rabbit tests threatened to destroy the animals unless their invoices were paid on a continuous basis. This could only be done if we allocated all our remaining financial resources to our ongoing scientific work while stopping all payment to corporate service providers such as auditors, lawyers, tenant, etc. Considering that losing our test animals at this time would have meant in practice the end of Mymetics, our Management decided to "go for broke" by allocating all our remaining cash to the ongoing animal test, accepting the consequences of this strategic decision, notably that we could not keep current on our filings with the Securities and Exchange Commission and that we would probably be "Pink Sheeted" as a result. We did indeed miss the deadline for filing our Form 10-Q at September 30, 2005 and were subsequently demoted from the Bulletin Board to the Pink Sheet market on December 30, 2005. We expect to return to the Bulletin Board in the near future. Our decision to maintain our scientific work at all cost was finally vindicated in late 2005, when our scientific results turned out to be largely beyond our best expectations. New investors could be convinced, critical debts could be repaid, our overdue filing could be filed and above all, our results could be presented to the US National Institutes of Health (NIH), who decided to test our prototype vaccine at their own US facilities, and finally to the world scientific and pharmaceutical business community at the March 2006 Keystone Meeting in Colorado, where they attracted considerable attention. 26 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 research costs associated with our gp41 testing. Provided we can obtain sufficient financing resources, we expect to begin phase I clinical trials in 2007. As in the past and to the extent this research work will not be conducted by institutions such as the US National Institutes of Health (NIH), the International AIDS Vaccine Initiative (IAVI) or the Center for HIV/AIDS Vaccine Immunology (CHAVI), we will subcontract such work to "best of class" research teams. We do not anticipate that our existing capital resources will be sufficient to fund our cash requirements through the next three months. We do not have enough cash presently on hand, based upon our current levels of expenditures and anticipated needs during this period, and we will need additional proceeds from the exercise of warrants and options and other sources such as private placements under Regulation D and Regulation S under the Securities Act of 1933. 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 future clinical trials. To date we have generated no material revenues from our business operations. We are unable to predict when or if we will be able to generate revenues from licensing our technology or the amounts expected from such activities. These revenue streams may be generated by us or in conjunction with collaborative partners or third party licensing arrangements, and may include provisions for one-time, lump sum payments in addition to ongoing royalty payments or other revenue sharing arrangements. However, we presently have no commitments for any such payments. Sources of additional capital include funding through future collaborative arrangements, licensing arrangements, and debt and equity financings. We do not know whether additional financing will be available on commercially acceptable terms when needed. If we 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 we are unable to secure such additional financing when needed, we will have to curtail or suspend all or a portion of our business activities and we could be required to cease operations entirely. Further, if we issue equity securities, our shareholders may experience severe dilution of their ownership percentage. OFF-BALANCE SHEET ARRANGEMENTSARRANGMENTS The Corporation does not have any off-balance sheet arrangements. 27 TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
PAYMENTS DUE BY PERIOD (THOUSANDS OF EUROS) ------------------------------------------- LESS MORE THAN 1 - ------------------------------------------------------------------------------------------------------------------ Payment due by period3 3 - ------------------------------------------------------------------------------------------------------------------ Less than5 THAN CONTRACTUAL OBLIGATION TOTAL 1 1-3 Years 3-5 Years More thanYEAR YEARS YEARS 5 Contractual Obligations Total Year yearsYEARS - ---------------------------------------------------------------------------------------------------------------------------------------- ----- ------ ----- ----- ------- Long-term Debt Obligations - - - - - - ------------------------------------------------------------------------------------------------------------------debt E 0 E 0 E 0 E 0 E0 Capital (Finance) Lease Obligations - - - - - - ------------------------------------------------------------------------------------------------------------------E 0 E 0 E 0 E 0 E0 Operating Lease Obligations E12,500 E6,000 (2) E6,500 (2) - - - ------------------------------------------------------------------------------------------------------------------E 0 E 0 E 0 E 0 E0 Purchase Obligations E162,000 E72,000 (1) E45,000 (3) E45,000(3) - - ------------------------------------------------------------------------------------------------------------------E175(1,2) E115 E30 E 30 E0 Other Long-termLong-Term Liabilities Reflected on E242,000 - - E242,000(4) - the Registrant'sMymetics Balance Sheet under U.S. GAAP - ------------------------------------------------------------------------------------------------------------------ Total E416,500 E78,000 E51,500 E287,000 - - ------------------------------------------------------------------------------------------------------------------E242(3) E 0 E 0 E242 E0 ---- ---- --- ---- --- TOTAL E417 E115 E30 E272 E0 ==== ==== === ==== ===
(1) Includes E62,000 with our supplierRepresents various amounts due to suppliers and partners in respect of gp41 proteins and E10,000 forthe neutralizing antibodies tests currently under way. (2) Office lease rent in France. (3) French auditors ("Commissaire aux Comptes") are elected for 6 years and cannot be terminated. Our French auditor has just been reelected.re-elected in 2003. Based on current budget and cost estimates, we posted E15,000 per year from 2004for the audits 2005 until 2009. (4)(3) Due to a shareholder,P.-F. Serres, one of our former directors, repayable only after certain conditions related to our French subsidiary's financial situation hashave been stable and its equity reconstituted.met. We hopedo not expect having to achieverepay this condition within 3 years.amount at any time in the future. 28 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates which could affect our financial condition and results of operations. We have not entered into derivative contracts for our own account to hedge against such risk. 33 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 debt obligations which are sensitive to interest rate fluctuations. The following tables provide information about our exposure to interest rate fluctuations for the carrying amount of such debt obligations as of December 31, 20032005 and 20022004 and expected cash flows from these debt obligations. 29 EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31, 20032005 (IN THOUSANDS) --------------------------------------------------------------------------------- CARRYING FAIR VALUE VALUE 2004 2005 2006 2007 2008 2009 2010 THEREAFTER ----- ----- ------------ ------ ------ ---- ---- ---- ---- ---------- Debt obligations...... E3,127 E3,127 E3,221E3,754 E3,754 E3,754 E-- E-- E-- E-- E--
YEAR ENDING DECEMBER 31, 20022004 (IN THOUSANDS) --------------------------------------------------------------------------------- CARRYING FAIR VALUE VALUE 2003 2004 2005 2006 2007 2008 2009 THEREAFTER ----- ----- ------------ ------ ------ ---- ---- ---- ---- ---------- Debt obligations...... E1,989 E1,989 E2,082E3,368 E3,368 E3,060 E-- E-- E-- E-- E--
30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data required with respect to this Item 8, and as identified in Item 14 of this annual report, are included in this annual report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. As of the end of the registrant's fiscal year ended December 31, 2003,2005, an evaluation of the effectiveness of the registrant's "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried out by the registrant's principal executive officer and principal financial officer. Based upon that evaluation, the registrant's principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, the registrant's disclosure controls and procedures are effective to ensure that information required to be disclosed by the registrant in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. It should be noted that while the registrant's principal executive officer and principal financial officer believe that the registrant's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the registrant's disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. (b) Changes in Internal Control Over Financial Reporting. During the fiscal year ended December 31, 2003,2005, there were no changes in the registrant's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. 3431 PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The number of directors of the Company is established at six. Our six person board is divided into three classes, designated as Class I, Class II and Class III. The term of the Class I directors will expire at our 20042007 annual meeting of stockholders, the term of the Class II directors will expire at our 20052008 annual meeting of stockholders, and the term of the Class III directors will expire at our 20032006 annual meeting of stockholders. A plurality of the votes of the shares of our common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors are required to elect the directors. There currently are twothree vacancies on the Board caused by the resignation of Peter P. McCann, Ph.D.,Dr. Pierre-Francois Serres, who was a Class III director whose term would have expired at our 20032006 annual meeting of stockholders, and Patrice Pactol,Dr. Robert Zimmer, who was a Class II director whose term would have expired at our 20052008 annual meeting of stockholders and Professor Stanley A. Plotkin, who was a Class I director, whose term would have expired at our 2007 annual meeting of stockholders. We intend to haveOn January 11, 2006, Dr. Sylvain Fleury, Ph. D., our current Chief Scientific Officer, was elected to fill the vacancy caused by the resignation of Mr. Patrice Pactol.Dr. Serres. The positionpositions left vacant by the resignation of Dr. Peter McCannRobert Zimmer and Professor Plotkin will be reserved for a potential candidateinvestors and/or candidates related to the securing of a strategic partner. 3532 The following table sets forth information regarding each of our current directors and executive officers.
EXPIRATION OF TERM NAME CURRENT POSITION WITH THE COMPANY AGE AS A DIRECTOR - ---- ----------------------------------------------------------------------- --- --------------------------------- Pierre-Francois Serres Head of Exploratory Research, Founder 54 2003 (Class III) and Director (appointed November 3, 2003) Christian Rochet Chief Executive Officer, President 55 200557 2008 (Class II) And Director (appointed July 31, 2003) Ernst LubkeLuebke Chief Financial Officer, Treasurer, 58 200460 2007 (Class I) And Secretary (appointed July 31, 2003) Robert Zimmerand Director (appointed July 31, 2003) 57 2005 (Class II) Sylvain Fleury, Ph. D. Chief Scientific Officer 41(appointed 43 2006 (Class III) November 3, 2003) and Director (appointed January 11, 2006) Marc Girard, DVM, D. Sc. Head of Vaccine Development 69 n/a (appointed November 3, 2003)January 15, 2004)
Dr. Pierre-Francois Serres first became our Chief Scientific Officer on February 7, 2002 and has been a Director since March 28, 2001. On May 2, 2003, Dr. Serres' position as Chief Scientific Officer was terminated by33 CHRISTIAN ROCHET Mr. Rochet is the former Board of Directors. As a result of the changes in the Company's Board of July 31, 2003, Dr. Serres was reinstated in his former office of Chief Scientific Officer. He was then promoted as Head of our Exploratory Research efforts on November 3, 2003, and replaced as Chief Scientific Officer by Dr. Sylvain Fleury, Ph. D. Dr. Serres previously served as the Company's Chief Executive Officer and President and was the founder, Chief Executive Officer and Presidenta Director of our subsidiary,Mymetics. Prior to joining Mymetics S.A. (formerly, Hippocampe S.A.), a French human and veterinary research and development company. Christian Jean-Francois Rochet isin July 2003, he had been an independent business consultant on development and diversification strategies.strategies for over 21 years. He became a shareholder of Hippocampe S.A. (now our subsidiary Mymetics S.A.) in 1997, on the scientific advice of Dr. Sylvain Fleury, Ph. D., and was a director of that company between 1999 and 2001. Between March 2003 and July 31, 2003, Mr. Rochet, in his capacity as a shareholder of Mymetics, shareholder, initiated and spearheaded the efforts of a group of nine dissatisfied shareholders representing a majority of shares, which led to the resignation of the former Company directors and officers (with the exception of Dr. Serres) on July 30, 2003. On July 31, 2003, Mr. Rochet was elected as President and Director, and appointed as Chief Executive Officer of the Company. Ernst Lubke isERNST LUEBKE Mr. Luebke was appointed as our Chief Financial Officer and as a Director on July 31, 2003. Prior to joining Mymetics, Mr. Luebke spent over 21 years as an independent international business consultant and was the founder of several companies active in the medical and biotech sectors. AlongTogether with Christian J.-F.Mr. Rochet, he became a major shareholder of Hippocampe S.A. (now our subsidiary Mymetics S.A.) in 1997, and was a director of that company between 1999 and 2001. On July 31, 2003, Mr. Lubke,Luebke, one of the nine dissatisfied shareholders of Mymetics referred to above, was elected as Director and appointed as Chief Financial Officer and Treasurer of the Company. Mr. LubkeLuebke was further appointed Secretary of the Company on August 29, 2003. 36 Robert Zimmer isSYLVAIN FLEURY, Ph.D. Dr. Fleury was appointed as our Chief Scientific Officer in November 2003 and as a graduate of the prestigious Ecole Centrale de Paris, M.D., Sc.D., a former: (i) assistant-professorDirector on January 11, 2006. In addition to serving as our Chief Scientific Officer, Dr. Fleury has maintained his academic research activity on lentiviral gene therapy in heart transplantation at the FacultyDepartment of MedicineExperimental Surgery from the Centre Hospitalier Universitaire Vaudois (CHUV) in Lausanne, Switzerland. Dr. Fleury moved to the CHUV in January 1997 where he initially worked as Assistant to Professor Giuseppe Pantaleo until June 2000, a leading expert in AIDS. During that time, he studied the immune regeneration of Strasbourg (France)HIV infected subjects under highly active anti-retroviral therapy. He then moved to the Division of Cardiology (CHUV) as Project leader for developing new research activities in gene therapy applied to heart transplantation, in collaboration with Novartis, and genetic studies involving chemokines and chemokine receptors in heart rejection. In January 2004, Dr. Fleury was transferred to the Department of Experimental Surgery directed by Professor Yann Barrandon, a world leader on stem cells. The agreement between the CHUV and Mymetics has allowed Dr. Fleury to maintain an office and access to all the research facilities from the hospital, in addition to conducting research for Mymetics in other laboratories. Dr. Fleury obtained his B.Sc. in Microbiology in 1985 from the University of Montreal (Canada), (ii) department head athis M.Sc. in Virology in 1988 from the Foundation for hormonology researchInstitut Armand-Frappier (Laval, Canada) and his Ph.D. in Paris, (iii) responsible for the coordination of1992 from the Clinical Pharmacology department at Hoffmann La Roche in Basle (Switzerland), (iv) Senior Executive President and CSOResearch Institute of Jago Pharma AG, a drug delivery specialist later acquired by Skyepharma. Dr. Zimmer is currently Managing Director of Bio Delivery Systems S.A. (BDS), a French company specializing in drug delivery technologies, and Chairman of Zimmer & Associates, a Swiss consulting firm specialized in strategic development of pharmaceutical products. On July 30, 2003, Dr. Zimmer was elected as Director, and appointed as Vice President, Head of Business development of Mymetics Corporation. Owing however to unexpected but positive developments at BDS which interfered with his capacity to effectively discharge his duties as an officer of Mymetics, Dr. Zimmer resigned his officer position on September 1, 2003, while accepting to remain as an outside director of the Company. Dr. Sylvain Fleury, Ph. D., obtained his B. Sc. in microbiology, his M. Sc. In Virology and his Ph. D. in immunology from various prestigious institutionsMontreal in Canada between 1982 and 1992. A recipient of several awards and prizes,with Rafick Sekaly. During his Ph.D., Dr. Fleury worked on the CD4 molecule, which is the primary HIV cellular receptor. From 1993-1996, Dr. Fleury completed his post graduatepostgraduate studies on HIV-AIDSin Bethesda (USA) at the NIAID, National Institutes of Health (NIH), in Bethesda, Maryland, USA, before moving in 1997 to Lausanne (Switzerland), first as Assistant to Professor Giuseppe Pantaleo,with Dr. Ronald N. Germain, a leading expert on AIDS at the Centre Hospitalier Universitaire Vaudois (CHUV) until 2000, then as Project Leader at said CHUV's Division of cardiology and, currently, at its Department of Experimental Surgery.world renowned Immunologist. Dr. Fleury wasis the first expert Christian Rochetrecipient of several awards and Ernst Lubke consulted before they decided to investprizes and has published articles in Hippocampe S.A.his field of study in 1997. Dr. Fleury was also consulted by the former management of Mymetics. Hescientific journals with a high impact such as Science, Cell, Nature, Nature Medicine, Circulation. 34 MARC GIRARD, DVM, D. SC. Professor Girard was appointed as our New Chief Scientific Officer on November 3, 2003,Head of Vaccine Development in replacementJanuary 2004. Prior to joining Mymetics, Professor Girard served as Director General, Fondation Merieux, in Lyon, France between 2001 and 2003. Between 1999 and 2001, Professor Girard served as Director, European Research Center for Virology and Immunology (CERVI), Lyon, France. Professor Girard has also taught as a professor since 1966, most recently between 1984 and 1999 at the Institut Pasteur, Paris, France where he also served as the Head of Dr. Serres, then promotedLaboratory of Molecular Virology, Department of Virology, Institut Pasteur, Paris between 1980 and 1999. During his career, Professor Girard has served the medical community in a variety of capacities, including as Head, HIV Vaccine Task Force, French National Agency for AIDS Research (ANRS), Paris between 1988 and 1998, the Chairman, Department of Exploratory Research. Dr. Fleury has been sharingVirology, Institut Pasteur, Paris between 1997 and 1999 and the Chairman, European Consortium for an HIV Vaccine (EuroVac), Brussels between 1999 and 2002. Professor Girard received his time between CHUVD.V.M. (Alfort Veterinary College) in 1960, his D. Sc. (University of Paris) in 1967 and Mymetics since that date. We intend to elect Dr. Fleury ascompleted a Directorpost doctoral fellow in 1966 through studies with Prof. James Darnell, MIT then Albert Einstein College of Medicine and Prof. David Baltimore and Renato Dulbecco of the Company withinSalk Institute. Professor Girard is also the next foreseeable future.published author of several articles in his field of study. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has notappointed two of our directors as members of our Audit Committee, i.e. Mr. Christian Rochet and Mr. Ernst Luebke and determined that we have anMr. Ernst Luebke, who further serves as Mymetics' CFO, qualifies as our "audit committee financial expert" sitting on the board. Given the recent turmoil our company has faced, our directors and management believe that their time and our resources would be better spent focusing on our operations than on searching for an audit committee financial expert.. CODE OF ETHICS We have not adopted a formal "code of ethics" that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Given the very small number of our company's employees and the recent turmoil our company has faced, our directors and management believe that adopting a written code of ethics is not necessary at this time, and that their time and our resources would be better spent focusing on our operations. 37 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes of ownership with the SEC within specified due dates. These persons are required by SEC regulations to furnish us with copies of all such reports they file. Based solely on the review of the copies of such reports furnished to us, we believe that, with respect to our fiscal year ended December 31, 2003,2005, all of our executive officers, directors and 10% stockholders filed all required reports under Section 16(a) in a timely manner, except as follows: the Company,Dr. Serres, Dr Fleury, Professor Girard, Ms. Reindle and a Swiss bank acting on behalf of Mr. Allio, Mr. Demers, Dr. McCann, Mr. Musacchio, Mr. Pactol, Professor Girard, Dr. Fleury, Dr. Serres and Dr. Zimmer individually, did not timely report grantsseveral of stock options or stock such persons received in 2002 and 2003.its clients. 35 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth for the last three fiscal years information on the annual compensation earned by Dr. Peter P. McCann, who served as our Presidentdirectors and Chief Executive Officer from February 7, 2002 until January 31, 2003, and Dr. Pierre-Francois Serres, who served as our President and Chief Executive Officer from March 28, 2001 until February 7, 2002. No named executive officer received an aggregate annual consideration (salary and bonus) from the Company in excess of $100,000 during the fiscal year ended December 31, 2003.officers.
Annual Compensation Long Term Compensation --------------------------- Awards Payouts Annual Compensation Securities All ------------------------------- Underlying Other Name and Principal Position Year Salary Bonus Options/SARs Compensation - --------------------------- ---- ------------------ ----- ------------ ------------ Peter P. McCann, Ph.D. (1) 2005 -- -- -- -- 2004 -- -- -- -- 2003 $ 16,164 -- 75,000 -- 2002 $ 144,667 -- 11,250 -- 2001Pierre-Francois Serres (2) 2005 -- -- -- -- Pierre-Francois Serres (2) 2003 Euro 82,317 (3) -- -- -- 2002 Euro 91,464 (4) -- 1,250 -- 2001 Euro 86,181 (4) -- 10,000 Euro 1,630 (5) Michael K. Allio (6) 2003 -- (7) -- -- $ 8,500 (8) 2002 -- (7) -- 101,250 $ 26,000 (8) 2001 -- (7) -- 60,000 $ 5,750 (8) Christian J.-F. Rochet (9) 2003 Euro 40'000 (11) -- -- -- 20022004 -- -- -- -- 20012003 -- -- -- -- Ernst Lubke (10) 2003 Euro 40'000 (11) -- -- -- 2002Michael K. Allio (3) 2005 -- -- -- -- 20012004 -- -- -- -- 2003 -- (4) -- -- $8,500 (5) Christian J.-F. Rochet (6) 2005 Euro 144,000 (8) -- -- -- 2004 Euro 96,000 (8) -- -- -- 2003 Euro 40,000 (8) -- -- -- Ernst Luebke (7) 2005 Euro 144,000 (8) -- -- -- 2004 Euro 96,000 (8) -- -- -- 2003 Euro 40,000 (8) -- -- -- Robert Zimmer, M.D. (12) 2003 0 (13)(9) 2005 -- (10) -- -- -- 20022004 -- (10) -- -- -- 2003 -- 2001 --(10) -- -- -- Sylvain Fleury, Ph. D. (14) 2003 0 (15)(11) 2005 Euro 144,000 (12) -- -- -- 20022004 Euro 96,000 (12) -- -- -- 2003 -- 2001(11) -- -- -- Marc Girard, DVM, D.Sc. (13) 2005 Euro 48,000 (8) -- -- -- 2004 Euro 46,000 (8) -- -- -- 2003 -- (8) -- -- --
36 - ---------- (1) Dr. McCann was our President and Chief Executive Officer from February 7, 2002 to January 31, 2003. (2) Dr. Serres was our President and Chief Executive Officer from March 28, 2001 until February 7, 2002. He was our Chief Scientific Officer from March 28, 2001 until terminated by the former Board of directors on May 5, 2003. Dr. Serres was reinstated as Chief Scientific Officer by the new Board of directors in August 2003 retroactively from May 5, 2003 until November 3, 2003, when he was promoted as Head of Exploratory Research, a position he resigned on December 26, 2005, following his current positionearlier resignation as a director on June 13, 2005. Considering Dr. Serres' behavior after his reinstatement (see Part I, Item 3 LEGAL PROCEEDINGS) and the facts that he had (i) not contributed any useful work to the Company, (ii) not negotiated in good faith an employment agreement with the Company. In exchange for being reinstated retroactively, Dr Serres acceptedCompany and (iii) reneged on his pledge not to forfeit all legal and punitiveclaim compensation for having been terminated without cause. The French Industrial Tribunal ("Prud'hommes") has indeed granted Dr. Serres Euro 45,735by the previous Board of directors in May 2003, the directors have decided to that effect in its emergency injunction of October 14, 2003. The final amount which Mymetics would most probably be ordered to pay Dr. Serres in terms of legal and punitive compensation if the case had been allowed to run its full course would have been in excess of Euro 91,000. This agreement between Dr. Serres and the Company has yet to be finalized in writing by our respective lawyers. (3) This amount includes Euro 46,317 credited as compensation to Dr. Serres under his former status by our subsidiary Mymetics S.A. from January 1, 2003 until August 15, 2003 and Euro 36,000 (i.e. Euro 8,000 per month)reverse all unpaid amounts previously credited to Dr. Serres since August 16, 2003 as compensation for his reinstated positions, as disclosed under (2) above. No payments in relation to this amount have actually been made in 2003 to Dr. Serres who, in(see note (8) hereafter). In accordance with prudent accounting principles, we have instead provided a full allowance to cover the temporary policy set byrisk of not prevailing in our appeal against the new Board, has accepted that the actual of any compensation due to him be deferred, either totally or partially, until the Company's financial position would allow such payments to be made without jeopardizing the Company's prospects. (4) These represent amounts paidjudgment awarded to Dr. Serres by our subsidiary, Mymetics S.A. (5) Dr. Serres received Euro 1,630 for his participation on the Board of Directors of our subsidiary, Mymetics S.A. (6)Industrial Tribunal. (3) Mr. Allio was our Interim Chief Executive Officer from January 1, 2003 until July 30, 2003. (7)(4) Mr. Allio received $ 73,176 in 2001, $ 260,302 in 2002 and $ 217,500 in 2003 under thea consulting agreement referred to below. We believe thatwhich, in our opinion and on account of the context of a small start up company like ours,and the services Mr. Allio was to provide usMymetics under his consulting agreement, makemade him a de facto executive of the Company. (8)(5) Mr. Allio received $ 5,750 in 2001, $ 26,000 in 2002 and $ 8,500 in 2003 for his participation on the Board of Directors of Mymetics Corporation. (9)(6) Mr. Rochet has been our President and Chief Executive Officer since July 31, 2003. (10)(7) Mr. LubkeLuebke has been our Chief Financial Officer and Treasurer since July 31, 2003 and our Secretary since August 29, 2003. 38 (11) As explained under (3) above, the(8) The temporary policy set by the new Board statesof directors in August 2003 stated that the actual payment of any compensation due to directors and officers of Mymetics be deferred, either totally or partially, until the Company's financial position would allow such payments to be made without jeopardizing the Company's prospects. As a result, these amounts have remained unpaid at December 31, 2003. In addition, the Company owed Mr. Rochet, Mr. Luebke, Dr. Fleury and Mr. LubkeProfessor Girard at year end respectively Euro 21,325143,662, Euro 217,606, Euro 83,078 and Euro 12,04690,739 as salary and reimbursement of actual travel and other expenses disbursed by them on account of Mymetics. (12)(9) Dr. Zimmer has been our VP, Business Development from July 31, 2003 until September 1, 2003. (13)(10) Dr. Zimmer has given up any direct compensation for his short tenure as VP, Business Development. As outside director sincefrom September 1, 2003 until June 7, 2005, Dr Zimmer receivesreceived no compensation other than the 400,000 common shares of Mymetics the Board has decided to issue him in 2003, as disclosed elsewhere in thisour Form 10-K. (14)10-K for that year. (11) Dr. Fleury has been appointed as our Chief Scientific Officer on November 3, 2003. (15) Dr. Fleury has given up any direct compensation for the interim period between his formal appointment as our Chief Scientific Officer on November 3, 2003 and January 1, 2004, the reference date of the part time Consulting Agreement signed by Dr. Fleury, Mymetics and the Centre Hospitalier Universitaire Vaudois (CHUV), with which Dr. Fleury shares his time. The Board has decided to 37 issue Dr. Fleury 500,000 common shares of Mymetics in appreciation of his past services and as partial compensation for the sacrifices Dr. Fleury has accepted in terms of compensation and career when he accepted to join the Company. (12) In acknowledgement of the exceptional quality of the work done and the unique results obtained by Dr. Fleury, the Board has decided that Dr. Fleury's compensation should be on a par with the compensation of full time officers of the Company despite the fact that under the three-way agreement referred to under (11) above, Dr. Fleury devotes only 30% of his legal work time to Mymetics (and 70% to CHUV), as ideas and insights are indeed independent of the amount of time spent on solving a problem. Accordingly, Dr. Fleury's current account with the Company is credited with the gross amounts indicated here and debited with all amounts paid to CHUV under said Agreement. As all Company officers, Dr. Fleury has accepted that the payment of the balance owed to him be deferred until the Company's financial position will allow it (see (8) above). (13) Professor Girard has been appointed on January 9, 2004 by our Board of Directors as Head of Vaccine Development, effective January 15, 2004, under a part time consulting agreement formally signed on June 9, 2004. OPTION GRANTS IN LAST FISCAL YEAR On January 31, 2003, Dr. McCann resigned from our Board and as our Chief Executive Officer and President. In connection with Dr. McCann's resignation, the former Board granted him options to purchase 75,000 shares of our common stock at an exercise price of $0.14 per share. On May 1, 2003, the former Board granted one of the members of our scientific advisory board, Prabhavathi B. Fernandes, Ph.D., stock options to purchase 150,000 shares of our common stock at an exercise price of U.S. $0.12 per share.None. COMPENSATION OF DIRECTORS Employee directors are not compensated for their role as directors. Until July 30, 2003, our outside directors received an annual fee of $7,500, a fee of $750 for each meeting they attended and a fee of $250 for each committee meeting they attended. This policy has been temporarily suspended by the new Board, all of the new members, as well as Dr. Serres, having accepted to serve without receiving any direct remuneration until the Company's financial position allows it to resume past practice. As all meetings are now either held by telephone or whenever the directors meet on other business matters, no reimbursement for expenses incurred in attending such meetings are necessary any more. Pursuant to our 2001 Stock Option Plan, all directors are entitled to receive stock options pursuant to the terms and provisions of such plan. Until July 30, 2003, the Company practice had been to grant each director (i) 10,000 stock options upon initial election as a director and (ii) 1,250 additional stock options for each subsequent year of service after the initial year. During the fiscal year ended December 31, 2003, 225,000 stock2005, no options were granted by the former board to our directors under our 2001 Stock Option Plan. We do not expect to grant any such options in the near future. As disclosed elsewhere in this Form 39 10-K, we have instead issued common shares to certain persons, the involvement of which we consider as crucial to save the Company from its present difficult financial situation. CONSULTING AGREEMENT WITH MICHAEL ALLIO In August, 2001, the former Board entered into a Consulting Agreement with Michael Allio, one of the Company's Directors. Pursuant to this agreement, which was amended by the First Amendment to Consulting Agreement dated August 21, 2002, and the Second Amendment to Consulting Agreement dated April 14, 2003, Mr. Allio agreed to provide Mymetics with strategic management consulting services. Mr. Allio's engagement under this agreement included, without limitation, (i) developing the scope of the business, (ii) establishing a European-North American operations team, (iii) directing and coordinating initial corporate identity and branding efforts, (iv) crafting a coherent business plan, (v) assisting the Company in establishing a viable U.S. identity and (vi) exploring strategic partnerships in the U.S., Europe and possibly elsewhere. In consideration for those services, Mr. Allio was to receive $25,000 per month, plus reimbursement of reasonable business expenses. In addition and pursuant to the Consulting Agreement, as amended, Mr. Allio was granted options to purchase (i) 50,000 shares of our common stock at an exercise price of $2.50 per share (granted as of August 31, 2001) and (ii) 100,000 shares of our common stock at an exercise price of $0.55 per share (granted as of August 21, 2002), all of which are currently vested. The Consulting Agreement could be terminated by either party on 15 days' prior written notice. One of the first decisions made by the new Board of directors was to terminate this Agreement in August 2003. SERVICES AGREEMENT WITH MFC MERCHANT BANK, S.A. In May 2001, the former Board entered into a Services Agreement with MFC Merchant Bank, S.A. ("MFC Bank"), which previously beneficially owned more than 5% of our outstanding common stock. Pursuant to the Services Agreement, MFC Bank agreed to provide Mymetics with the services of Mr. Musacchio, the Company's Secretary, Chief Operating Officer, Chief Financial Officer and a Director. In consideration for such services, MFC Bank was paid Euro 5,000 per month until Mr. Musacchio resigned on July 30, 2003. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER 31, 20032005 None of our named former executive officers exercised any stock options during 2003.2004. The following table provides information concerning the number and value of unexercised options held by our named executive officer(s) at December 31, 2003. 402005. 38
Name Shares Value Number of Securities Value of Acquired RealizedUnexercised Underlying Unexercised In-the-Money Options Unexercised on Exercise at December 31, 2003 In-the-MoneyShares Options at December 31, 2003(3)2005 December 31, 2005(3) Acquired Value ---------------------------- --------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ------------ ------------- ----------- ------------- Dr. Pierre- - - - --- -- 10,000(1) - - - -(4) - -(4)-- --(4) --(4) Francois Serres - - - --- -- 1,250(2) - - - -(4) - -(4)-- --(4) --(4)
39 - ---------- (1) These options are fully vested and exercisable at $3.15 per share. (2) These options are fully vested and exercisable at $3.50 per share. (3) The value of unexercised in-the-money options held at December 31, 20032005 represents the total gain which an option holder would realize if he or she exercised all of the in-the-money options held at December 31, 2003,2005, and is determined by multiplying the number of shares of common stock underlying the options by the difference between an assumed fair market value per share and the per share option exercise price. An option is in-the-money if the exercise price per share of the option is below the assumed fair market value per share. (4) The fair market value of the stock underlying these options was $0.05$0.035 per share on December 31, 2003,2005, based on the closing market price of our common stock on such date. The exercise price of these options exceeds the fair market value on December 31, 2003.2005. Accordingly, these options were not in-the-money on December 31, 2003.2005. EMPLOYMENT AGREEMENTS On May 3, 2001, Mymetics entered into an employment agreement with Dr. Serres pursuant to which he received a monthly salary of Euro 7,622 (paid by our subsidiary Mymetics S.A.) and normal benefits. In addition, Dr. Serres was permitted to participate in our 2001 Stock Option Plan, as well as receive discretionary bonuses as approved by the Board. On May 5, 2003, Dr. Serres' employment agreement was terminated by the former Board. On July 31, 2003, Dr. Serres was reinstated by the new Board, however on different terms as explained below. On March 18, 2002, Mymetics entered into an employment agreement with Dr. McCann, pursuant to which he received an annual salary of one hundred seventy thousand U.S. Dollars ($170,000) and normal benefits. In addition, Dr. McCann was permitted to participate in our 2001 Stock Option Plan, as well as receive discretionary bonuses as approved by the Board. Effective January 31, 2003, Dr. McCann resigned from our Board and as our Chief Executive Officer and President. In connection with Dr. McCann's resignation, the former Board granted him options to purchase 75,000 shares of our common stock at an exercise price of $0.14 per share. 41 The new directors and officers elected and/or appointed since July 31, 2003 have agreed to work without the benefit of a written agreement, relying only on general terms agreed by the Board of directors in the matter of compensation, which was set at nil for directors, and at E8,000 per month on a full time basis for officers, plus reimbursement of reasonable travel and other expenses. This amount was subsequently increased to E12,000 per month effective January 1, 2005. The actual payment of such amounts shall be deferred until the Company's financial position has been stabilized. The directors and officers have further agreed to work without the benefit of D&O insurance coverage, no insurance company having accepted so far to cover such risks. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All executive officer compensation decisions are made by the Compensation Committee of the Board. The Compensation Committee reviews and recommends the compensation arrangements for officers and other senior level employees, and takes such other action as may be required in connection with the Company's compensation and incentive plans. From January 1, 2003 until July 30, 2003, the members of the Compensation Committee were Mr. Allio, Mr. Demers and Dr. McCann. For part of 2002 and 2003, Dr. McCann served as our chief executive officer. From July 31, 2003, the members of the Compensation Committee were Mr. Rochet, Mr. Lubke,Luebke, Dr. Serres and Dr. Zimmer.Zimmer, the latter two until their resignation only, i.e. June 7 and June 13, 2005 respectively. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information about the beneficial ownership of our common stock as of March 18, 2004,31, 2006, by: (a) each of our named executive officers; (b) each of our directors; (c) each person known to us to be the beneficial owner of more than 5% of our outstanding voting securities; and (d) all of our current executive officers and directors as a group. The following is based solely on statements and reports filed with the Securities and Exchange Commission or other information we believe to be reliable. There were 59,394,45495,020,464 shares of our common stock outstanding on March 18, 2003.31, 2006. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and 40 entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 29, 2004,31, 2005, are deemed outstanding. These shares of common stock, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. 4241
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS ----------------------------------- -------------- -------------------- ---------------- Martine Reindle Common 10,819,874 (2) 7.42%9,022,653 9.50% CP 18 CH - 1295 Mies, Switzerland Anglo Irish Bank (Suisse) SA Common 13,450,000 14.15% 7, place des Alpes CH - 1201 Geneva, Switzerland Ernst LubkeLuebke (1) Common 5,881,638 (2) 4.03%4,079,418(3) 4.29% Chief Financial Officer, Secretary and Director Christian Rochet (1) Common 377,138 (3) 0.25% Chief Executive Officer, President and Director Dr. Sylvain Fleury (1) Common 500,000 (4) 0.34%500,000(2) 0.53% Chief Scientific Officer Prof. Marc Girard (1) Common 400,000 (4) 0.27%500,000(2) 0.53% Head of Vaccine Development and member of the SAB Dr. Robert ZimmerChristian Rochet (1) Common 400,000 (4) 0.27% Dr. Pierre-Francois Serres (1) Common 6,585,618 (5) 4.51% Head of Exploratory Research377,138(3) 0.40% Chief Executive Officer, President and Director All current executive officers and Common 14,144,394 9.70%5,456,556 5.75% directors as a group (3(4 persons)
42 - ---------- (1) Address is Mymetics Corporation, European Executive Office, 14, rue de la Colombiere, CH-1260 Nyon (Switzerland). (2) Includes 1,797,221 shares of our common stock owned by Aralis Participations S.A. Martine Reindle is the Chairperson, a substantial equity holder and a member of the Board of Directors of Aralis Participations S.A. Ernest Lubke is an officer, a substantial equity holder and a member of the Board of Directors of Aralis Participations S.A. Accordingly, Ms. Reindle and Mr. Lubke may be deemed to have or share voting and/or investment power over the shares of our common stock owned by Aralis Participations S.A.Granted for services. (3) Acquired prior to being elected as director and appointed as officer. (4) Granted for services. (5) Includes 11,250 shares of common stock which Dr. Serres presently has the right to acquire pursuant to vested stock options granted under our 2001 Stock Option Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS During 2003,2005, there were no transactions (or series of similar transactions), and there are currently no proposed transactions (or series of similar transactions), to which we were, are or will be a party in which the amount involved exceeds $60,000 and in which any of our directors, executive officers or holders of more than 5% of our common stock, or an immediate family member of any of the foregoing, had or will have a direct or indirect interest, other than the transactions described below. 43 With the exception noted hereafter (already reported on our Form 10-Q for the quarter ended September 30, 2003), we believe that all of the transactions set forth below were executed on terms no less favorable to us than we could have obtained from unaffiliated third parties. Itinterest. Furthermore, it is our intention to ensure that all future transactions, including loans, between us and our officers, directors and principal stockholders and their affiliates are on terms no less favorable to us than those that we could obtain from unaffiliated third parties. CREDIT FACILITY AND RELATIONSHIP WITH MFC MERCHANT BANK S.A. MFC Merchant Bank S.A. ("MFC Bank") is a wholly-owned Swiss banking subsidiary of KHD Humbold Wedag Ltd. (formerly MFC Bancorp Ltd.), a Canadian company currently listed on the NASDAQ. MFC Bank has been instrumental in arranging in December 2000: (i) the acquisition of a French biotech company, Hippocampe S.A. (later renamed Mymetics S.A.), and (ii) a credit facility in the amount of Euro 1.3 million. As compensation for its decisive role in this material transaction, MFC Bank received various fees and warrants which allowed it, duringBetween 2001 and 2002, to acquire substantially in excess2003, the credit facility was amended and restated a number of 5% of the outstanding shares of our common stock. MFC Bank and its parent company MFC Bancorp Ltd., have effectively controlled Mymetics from December 2000 untiltimes, last on July 2003. During this period, Mr. Musacchio, the second highest paid officer of MFC Bancorp Ltd. according to that company's filings with the Securities and Exchange Commission, was Mymetics' chief operating officer, chief financial officer, secretary and a member of its Board of directors. During that same period, key Company functions such as budgeting, authorization of vendor agreements and/or payments, accounting and reporting, were either conducted by service companies close to, or by officers provided on a temporary basis by MFC Bancorp Ltd. This state of affairs was completely modified in July30, 2003, when a group of 9 shareholders took control of the Company and replaced all of its directors and officers (with the exception of Dr. Pierre-Francois Serres, the founder of Hippocampe S.A.) with shareholders of the Company. Owing to the materiality of this change, we quote hereafter certain material facts and events that were previously disclosed in our Form 10-Q for the quarter ended September 30, 2003 to the Securities and Exchange Commission, indicating in square brackets and full capitals any material subsequent events or results. Quote ------------ On July 20, 2003, Messrs. Christian Rochet and Ernst Lubke (now President and Chief Executive Officer and Chief Financial Officer of the Company) then representing a group of 9 Swiss and French shareholders (including the Founder of Mymetics, Dr. Pierre-Francois Serres) holding at that time over 55% of the Company's share capital, met with Mr. John M. Musacchio, then Chief Operating Officer and Chief Financial Officer of the Company, to inform him of the decision of said group of shareholders to request the resignation of all the Directors and Officers of the Company (except Dr. Serres) and their intent to have some of the Company's major shareholders appointed as new Directors and officers. Mr. Musacchio acknowledged this decision and pledged an orderly transfer of responsibilities. The reasons for this group of shareholders' decision were the alarming Company disclosures (or absence of disclosures), and in particular: 44 > the continuously high ratio of general and administrative expenses compared to R&D expenses, > the scarcity of significant, published scientific results, > the refusal of the Board of Directors to acknowledge and act on nominations to the Board of Mymetics of prestigious and well connected personalities, made in August 2001 by Messrs. Rochet and Lubke, > the apparent inability of the Company to attract new capital following the significant decline of the Company's share price in August 2002, > the resignation of key executives (the CEO and the VP of development)in February 2003, > and finally, the unfriendly removal of Dr. Serres, the Company's Founder and Chief Scientific Officer in May 2003. The aforementioned shareholders intend to redress the situation by severely limiting G&A expenses, in particular salaries, consulting fees and travel expenses, and to devote a higher proportion of funds to the Company's core business, i.e. R&D related to AIDS and other autoimmune related pathologies. [THE NEW DIRECTORS AND OFFICERS HAVE ACCEPTED COMPENSATIONS WHICH REPRESENT APPROXIMATELY ONE THIRD OF WHAT OUR FORMER DIRECTOR AND INTERIM CEO HAD RECEIVED AS FEES UP UNTIL HIS LAST DAY IN OFFICE. THEY HAVE ALSO ACCEPTED THE DEFERRAL OF ACTUAL PAYMENT OF THEIR COMPENSATION UNTIL THE COMPANY CAN SAFELY PAY THEM AND FURTHER ACCEPTED TO WORK WITHOUT THE BENEFIT OF D&O INSURANCE. TRAVEL EXPENSES HAVE BEEN REDUCED TO THE BAREST MINIMUM, IN PARTICULAR AS REGARDS TRANSATLANTIC TRAVEL. ALL BOARD MEETINGS ARE NOW HELD BY TELEPHONE. OFFICE EXPENSES HAVE BEEN DRATICALLY REDUCED. RECOURSE TO OUTSIDE SERVICE PROVIDERS HAS BEEN LIMITED TO THE BARE MINIMUM, WITH MORE WORK DONE IN-HOUSE RATHER THAN BEING OUTSOURCED TO EXPENSIVE SERVICE PROVIDERS. WE EXPECT TO OPERATE IN THIS MODE UNTIL THE COMPANY HAS FULLY RECOVERED, AND MAINTAIN A MODEST WAY OF LIFE BEYOND THAT, IN RESPECT OF OUR STAKEHOLDERS]. To achieve this goal, we can rely on the backing of some prominent personalities in matters of AIDS, such as Mr. Jacques Martin, former CEO of Laboratoires Merieux, member of the Board of the IAVI and CEO of the vaccine Fund chaired by Mr. Nelson Mandela, and Professor Marc Girard, former CSO of Laboratoires Merieux, present CEO of the Merieux Foundation, a most respected expert on vaccines. [MR. MARTIN HAS BEEN INSTRUMENTAL IN OUR ABILITY TO GAIN ACCESS TO KEY PLAYERS IN THE WORLD OF HIV-AIDS. THE APPOINTMENT OF PROFESSOR MARC GIRARD AS HEAD OF OUR VACCINE DEVELOPMENT AND MEMBER OF OUR SCIENTIFIC BOARD AS BEEN REPORTED IN OUR FORM 8-K DATED FEBRUARY 20, 2004] On July 24, 2003, a letter formally requesting the resignation of the Company Directors and Officers (except Dr. Serres) was sent by said group of shareholders to the Company Counsel, following which new Directors were elected and new Officers appointed on July 30 and 31, 2003. A management audit of the Company's position, procedures, operations and material transactions since July 20, 2003 was immediately performed. Critical findings and subsequent, related events since our takeover are listed hereafter. 45 > On July 28, 2003, Messrs. Michael K. Allio (Director, interim President and CEO) and John M. Musacchio (Director, COO, CFO and Secretary of the Mymetics) closed all the "Non MFC" bank accounts of Mymetics Corporation and transferred their remaining cash balances to the Company's account with MFC Merchant Bank SA. It is worth noting that according to various filings of MFC Bancorp, a US publicly traded Canadian company and the dominant shareholder of MFC Merchant Bank SA, Mr. John M. Musacchio, is also a Vice president of MFC Bancorp Ltd., in fact its second highest paid officer as of December 31, 2002. > On July 30, Messrs. Michael K. Allio and John M. Musacchio executed on behalf of the Company (the Borrower) a second amendment to the existing credit facility agreement with MFC Merchant Bank SA (the Lender) and MFC Bancorp Ltd. (Guarantor). Purpose of this amendment was essentiallyexecuted to: (i) increase the principal amount from E3,000,000 to E3,150,000,E3,15 million, (ii) convert the credit facility from "Term Credit" to "On Demand Credit" and (iii) reaffirm and strengthen the bank's lien on substantially all of the Company's Intellectual Property. We believe that this so-called second amendmentThe Lender later agreed twice to postpone the credit facility agreement, which considerably increases the dominationrepayment date of the MFC group overloan, first to June 30, 2004, then to December 31, 2005. On that date, the Company, could not have been negotiated and executed on such short notice if Mr. John M. Musacchio had not been a party to both sides of the amendment, or in other words, we do not consider this amendment as having been negotiated and concluded at arm's length by the former management of Mymetics Corporation. > On September 19, 2003, MFC Merchant Bank SA formally cancelled its 3.2 ME credit facility. > On October 8, 2003, Messrs. Christian Rochet(the Lender) and Ernst Lubke met with the management of MFC Merchant Bank SA to discuss the latest developments and in particular, to draw the bank's attentionBancorp Ltd. (Guarantor) executed a third Amendment to the fact thatLoan Agreement which i) increased the Company was in immediate dangeramount to Euro 3.7 million, ii) set a new repayment date to December 31, 2005 and iii) provided for partial repayments of losing its key Intellectual Property as a result of its inability to pay certain creditors following the bank's decision to cancel its recently amended credit facility. Indeed, The Intellectual Property counsel was denying any further services to the Company, which faced the risk of losing certain key US patent applications. In addition, former unpaid staff members of our French subsidiary had initiated legal action against their former employer, who could be put into forced receivership as a result of its inability to pay what was legally due to them. Such a development would represent a real threat to the Company's ability to continue as a going concern because Mymetics SA, our French subsidiary, is the legal owner of certain key Mymetics patents. Despite these pressing facts, Messrs. Rochet and Libke were informed that the banks' decision to cancel the credit facility was final. However, after a personal plea by Mr. Jacques-Francois Martin, the bank agreed that repayment of the cancelled loan would not be requested beforeEuro 200,000 on March 31, 2005, Euro 300,000 on June 30, 2004. [ALL IMMEDIATE THREATS TO THE FRENCH SUBSIDIARY'S SURVIVAL HAVE BEEN REMOVED]. > On November 4, 2003, MFC Merchant Bank SA confirmed its decision not2005 and Euro 400,000 on September 30, 2005. Finally, the Loan Agreement was amended a fourth time on February 16, 2005 to requesti) set a new repayment date to December 31, 2006, ii) provide for partial repayments of the outstanding cancelled credit facility amount beforeEuro 200,000 on June 30, 2004. 46 > On November 13, 2003, MFC Merchant Bank SA also accepted our analysis that our IP portfolio was being jeopardized due2005, Euro 300,000 on December 31, 2005 and Euro 400,000 on June 30, 2006, and iii) allow the Lender, at its sole discretion, to our inability to make paymentsconvert all or part of patent registration and/or renewal fees as well as our inability to meetany repayment made under the expenses of prosecution of critical outstanding patent application. As a result, MFC Merchant Bank SA, which holds a lien on substantially all our IP portfolio as explained above, has instructed our IP counsel to prepare a docket of actions needed to maintain our portfolio and confirmed that it would make all payments required to that effect, such sumsLoan Agreement to be added to the balance of the cancelled credit line previously mentioned. The bank however refused to consider any rescue plan for our French subsidiary, claiming it did not own any significant assets any more and could therefore be left to become bankrupt. We took issue with this analysis and pleaded in vain that the bank reconsiders its position on this account, but to no avail. On December 8, 2003, we learned from our IP counsel that on June 25, 2003, a key US patent owned by our French subsidiary had been sold and assigned toconverted into Mymetics Corporation "for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged". It appears so far that this transfer was only authorized by the former CEO of our French subsidiary, without authority being granted to her by the company Boardcommon shares ("Conseil de Surveillance"rule 144 restricted"), as required by French law. As regards adequate consideration, no traces of either a reasonable contract nor any other evidence have been found so far in the records of either companies. The auditor of our French subsidiary ("Commissaires aux Comptes"), who enjoys a wide and compelling role of whistle blower under French Law, believes that such patent transfer is likely to be interpreted by French tax authorities as criminal misuse of Company property and tax evasion. In a formal letter dated December 9, 2003 and addressed to the French company's management, he demands that all details of this transaction be made available to him no later than December 31, 2003, failing which he would be compelled to submit the case to the Attorney General ("Procureur General de la Republique"). We intend of course to heed to that request and to cooperate fully with any investigation that might follow. [WE HAVE MEANWHILE COMPLIED WITH OUR FRENCH AUDITOR'S DEMANDS]. > Last but not least, the late filing of this Form 10-Q was due to the difficulties we faced in assembling all the required data under the hardship described above, but also to the fact that critical service firms needed to do so in accordance with US regulations were denying us their services until their outstanding invoices were settled. [NORMAL RELATIONS WITH OUR KEY SERVICE PROVIDERS HAVE SINCE BEEN RESUMED] Now, despite all of the above and the fact that several key scientific partners of the Company have not been paid, some of them since early 2003, Mymetics has been able to show significant results based on Dr. Pierre-Francois Serres hypothesis, and most notably: > A "world's first" in the pursuit of a universal vaccine against AIDS: the successful synthesis, in an economically sustainable and scalable fashion, of a stable trimeric form of gp41, the HIV's membrane protein now regarded by several key scientists as having the highest potential as a base for a successful AIDS vaccine. 47 > The successful synthesis of short and economically feasible therapeutic anti-HIV peptides, having the potential to become serious competitors to some of today's most successful, but problems beset, antiviral drugs. [WE HAVE INITIATED DISCUSSIONS WITH A MAJOR LEADER IN SUCH ANTIVIRAL THERAPY WHO IS CURRENTLY FACING SERIOUS PROBLEMS WITH SAID PRODUCT]. Since taking office on July 31, 2003, the new Directors and Officers of the Company have achieved some significant results despite the absence of cash and/or credit facilities, and in particular: > Presentation during the "AIDS Vaccine 2003" venue in New York of our scientific results to several key scientists of the US National Institute of Health (NIH) and other public and private AIDS research institutes. As a result of such presentations, we have been offered to cooperate with certain key institutes such as SCRIPPS and been invited to apply for initial NIH AIDS related grants. [WE HAVE SINCE SIGNED AN INITIAL AGREEMENT WITH SCRIPPS AND APPLIED FOR A FIRST NIAID GRANT AIMED AT OBTAINING DECISIVE SCIENTIFIC PROOFS OF CONCEPT WITHIN A LIMITED TIME FRAME]. > Successful discussions with several outstanding and high profile scientists and managers who accepted to join the Company as soon as its current cash crisis is resolved. [THE APPOINTMENT OF PROFESSOR MARC GIRARD AS HEAD OF OUR VACCINE DEVELOPMENT AND MEMBER OF OUR SCIENTIFIC BOARD AS BEEN REPORTED IN OUR FORM 8-K DATED FEBRUARY 20, 2004] > Initiation of partnership discussion with pharmaceutical companies, all world leaders in the respective human or veterinary vaccine related (AIDS) fields. [DISCUSSIONS WITH THREE SUCH POTENTIAL PARTNERS WILL BE CONDITIONNED BY THE INITIAL RESULTS FROM OUR RECENTLY INITIATED SCIENTIFIC TRIALS, SOME OF WHICH COULD HAVE BEEN COMPLETED LONG BEFORE JULY 31, 2003] > Initiation of discussions with three potential new investors willing in principle to acquire from the Company 1 million shares at USD 0.10$0.30 per share. Such discussions are nevertheless hampered by the fact that only publicly available data such as past Company filings, published scientific papers and patents, could be produced and used to convince said potential investors. In addition, critical partners needed to execute such transactions such as legal counsel, were unwilling to provide the services needed to perform such transactions in accordance with US regulations. We are nevertheless hopeful that such discussions will proceed and be successful after this 10-Q filing has been made. [FOUR NEW INVESTORS HAVE SINCE ACQUIRED 6 MILLION COMMON SHARES OF THE COMPANY AT APPROXIMATELY $.10 PER SHARE, PLUS WARRANTS FOR THE SAME NUMBER OF SHARES AT THE SAME PRICE TO BE EXERCIZED BEFORE JULY 31, 2004, AS REPORTED IN OUR FORMS 8-K DATED FEBRUARY 20 AND MARCH 22, 2004] - --------- Unquote 48 Despite limited means and impressive hurdles to overcome,On August 30, 2005, we have been able since July 31, 2003 to graduate from an assured crash to a (still) bumpy ride. In more practical terms, we have been able to (i) attract four new investors, (ii) remove all immediate threats of bankruptcy or forced liquidation, (iii) normalize our relations with our critical suppliers of scientific or corporate services, (iv) launch critical scientific tests aimed at reinforcing our position in the discussions we have initiated with certain pharmaceutical companies, (v) gain reasonable assurance that results will be encouraging, never forgetting however that biology remains a complex and largely unpredictable science, and (vi) applied for grants from public and private donors. We intend to devote in the future more time and efforts to grant applications (which are very time consuming), as such sources of funds are non dilutive by essence. We believe that our chances of obtaining such funds in a reasonable time span are high enough to continue justifying our directors' and officers' efforts and personal sacrifices. Despite our efforts and achievements, we have no reasonable hope to be able to reimburse the Euro 3.2 million credit facility due to MFC Bank on or before its present due date of June 30, 2004, and have no assurance that MFC Bank will accept to renegotiate it on terms acceptable to us. COMPENSATION AND SERVICES AGREEMENTS In May 2001, Mymetics entered into a services agreement with MFC Merchant Bank S.A. pursuantFifth Amendment Agreement to the Loan Agreement, dated for reference August 21, 2005, which MFC Merchant Bank S.A. agreedprovided for an extension of the first repayment of Euro 200,000, initially due on June 30, 2005, to provideDecember 31, 2005, all other clauses of the Company withCredit Facility as previously amended remaining identical. On January 11, 2006, we entered into a sixth Amendment Agreement to the servicesLoan Agreement, dated for reference December 21, 2005, which provided for an extension of Mr. Musacchiothe first repayment of Euro 200,000, initially due on December 31, 2005, to actJune 30, 2006, for a total amount due on that date of E900,000, all other clauses of the Credit Facility as Chief Operating Officer, Chief Financial Officer, Secretarypreviously amended remaining identical. 43 The third, fourth and a memberfifth Amendments were duly reported on Form 8-K dated February 19and August 30, 2005 respectively to the Securities and Exchange Commission. Copy of our board of directors. As explained above, Mr. Musacchio resigned all his positions with the Company and its affiliatessixth Amendment is included in this report on July 30, 2003, effectively terminating the service agreement between Mymetics and MFC Merchant Bank S.A.Form 10-K as Exhibit 10.45. COMPENSATION AGREEMENTS We have entered into compensation arrangements with certain of our directors. The terms of these arrangements are described in more detail under "Compensation of Directors" ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table provides information about the fees billed to the registrant for professional services rendered by Peterson Sullivan PLLC during fiscal 20032005 and 2002:2004:
2003 2002 -------- --------2005 2004 ------- ------- Audit Fees $ 30,461 $ 34,030$43,027 $38,256 Audit-Related Fees - - Tax Fees $ 20,547 22,5721,649 8,829 All Other Fees - - -------- --------------- ------- Total $ 51,008 $ 56,602 ======== ========$44,676 $47,085 ======= =======
49 Audit Fees. Audit fees consist of fees for the audit of the registrant's annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements. Audit-Related Fees. Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported as Audit Fees. During fiscal 20032005 and 2002,2004, the services provided in this category included due diligence reviews, audits of employee benefit funds, and consulting on accounting standards and transactions. Tax Fees. Tax fees consist of fees for tax compliance services, tax advice and tax planning. During fiscal 20032005 and 2002,2004, the services provided in this category included assistance and advice in relation to the preparation of corporate income tax returns. All Other Fees. Any other fees not included in Audit Fees, Audit-Related Fees or Tax Fees. Pre-Approval Policies and Procedures. Prior to February 14, 2006, Our Board of Directors pre-approvespre-approved all services to be provided by Peterson Sullivan Peterson PLLC. 5044 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Index to Financial Statements Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a)(2) ALL OTHER SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO. (3) List of Exhibits 2.1 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.2 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.3 Purchase Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (2) 2.4 Amendment to the Purchase Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (3) 2.5 Revised Purchase Agreement dated July 28, 1999 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (4) 2.6 Share Exchange Agreement dated July 30, 2002 between the Corporation and the stockholders of Mymetics S.A. listed on the 45 signature page thereto (5) 3(i) Articles of Incorporation of the Corporation (as amended through May 10, 2002) (6) 3(ii) Bylaws (7) 4.1 Form of Specimen Stock Certificate (8) 4.2 Form of letter regarding Warrant 4.3 Form of Share Exchange Agreement 9.1 Voting and Exchange Trust Agreement dated March 28, 2001, Among the Corporation, 6543 Luxembourg S.A. and MFC Merchant Bank S.A. (8) 51 10.1 Services Agreement dated May 31, 2001, between the Corporation and MFC Merchant Bank, S.A.(7) 10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois Serres and the Corporation (7) 10.3 Indemnification Agreement dated March 28, 2001, between the Corporation and MFC Bancorp Ltd. (7) 10.4 Agreement dated for reference May 15, 2000, between the Corporation and Maarten Reidel (7) 10.5 Preferred Stock Redemption and Conversion Agreement dated for reference December 21, 2000, between the Corporation and Sutton Park International Ltd. (10) 10.6 Preferred Stock Conversion Agreement dated for reference December 21, 2000, between the Corporation and Med Net International Ltd. (11) 10.7 Preferred Stock Conversion Agreement dated December 21, 2000, between the Corporation and Dresden Papier GmbH (11) 10.8 Assignment Agreement dated December 29, 2000, among the Corporation, Mymetics S.A. and MFC Merchant Bank S.A. (1) 46 10.9 Credit Facility Agreement dated July 27, 2000, between MFC Merchant Bank, S.A. and the Corporation (1) 10.10 Amended Credit Facility Agreement dated for reference August 13, 2001, between MFC Merchant Bank, S.A. and the Corporation (16) 10.11 Second Amended Credit Facility Agreement dated for reference February 27, 2002, between MFC Merchant Bank, S.A. and the Corporation (16) 10.12 Amended and Restated Credit Facility Agreement dated for reference February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd., and the Corporation (16) 10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd. to MFC Merchant Bank S.A. (16) 10.14 Shareholder Agreement dated March 28, 2001, among the Corporation, the Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8) 10.15 Support Agreement dated March 28, 2001, between the Corporation and 6543 Luxembourg S.A. (8) 10.16 1995 Qualified Incentive Stock Option Plan (12) 10.17 Amended 1994 Stock Option Plan (13) 10.18 2001 ICHOR Corporation Stock Option Plan (7) 52 10.19 Employment Agreement dated March 18, 2002, between the Corporation and Peter P. McCann (14) 10.20 Consulting Agreement dated August 31, 2001, between the Corporation and Michael K. Allio (8) 10.21 Amendment to Consulting Agreement dated August 21, 2002, between the Corporation and Michael K. Allio (16) 47 10.22 Employment Agreement dated March 18, 2002, between the Corporation and Dr. Joseph D. Mosca (15) 10.23 Separation Agreement and Release dated January 31, 2003, between the Corporation and Peter P. McCann (16) 10.24 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Robert Demers (8) 10.25 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Michael K. Allio (8) 10.26 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and John M. Musacchio (8) 10.27 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Patrice Pactol (8) 10.28 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Pierre-Francois Serres (8) 10.29 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Pierre-Francois Serres (16) 10.30 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Patrice Pactol (16) 10.31 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Robert Demers (16) 10.32 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and John M. Musacchio (16) 10.33 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Michael K. Allio (16) 10.34 Director and Non-Employee Stock Option Agreement dated August 21, 2002, between the Corporation and Michael K. Allio (16) 10.35 Director and Non-Employee Stock Option Agreement dated June 20, 2002, between the Corporation and Peter P. McCann (16) 48 10.36 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Peter P. McCann (16) 10.37 Director and Non-Employee Stock Option Agreement dated February 6, 2003, between the Corporation and Peter P. McCann (16) 53 10.38 Patent Pledge Agreement dated November __, 2002 among Mymetics S.A., Mymetics Deutschland GmbH, the Corporation and MFC Merchant Bank S.A. (16) 11.1 Statement Regarding Calculation of Per Share Earnings. 21.1 List of Subsidiaries 24.1 Powers of Attorney (included on the signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer - -------------------------- (1) Incorporated by reference to the Corporation's Schedule 14C filed with the Securities and Exchange Commission on April 26, 2001. (2) Incorporated by reference to the Corporation's report on Form 8-K filed with the Securities and Exchange Commission on October 22, 1998. (3) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on April 15, 1999. (4) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 13, 1999. (5) Incorporated by reference to the Corporation's Amendment No. 1 to Form 49 S-1 filed with the Securities and Exchange Commission on August 8, 2002. (6) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (7) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001. (8) Incorporated by reference to the Corporations Registration Statement on Form S-1, File No. 333-88782, filed with the Securities and Exchange Commission on May 22, 2002. (9) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 9, 2000. (10) Incorporated by reference to Schedule 13D/A filed by MFC Bancorp Ltd. with the Securities and Exchange Commission on dated January 2, 2001. 54 (11) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 14, 2001. (12) Incorporate by reference to the Corporation's Registration Statement on Form S-8, File No. 333-15831, filed with the Securities and Exchange Commission on November 8, 1996. (13) Incorporated by reference to the Corporation's Registration Statement on Form S-8, File No. 333-15829, filed with the Securities and Exchange Commission on November 8, 1996. (14) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2001,2003, and filed with the Securities and Exchange Commission on March 29, 2002. (15) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (16) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2002,2004, and filed with the Securities and Exchange Commission on March 27, 2003. (b) Reports on Form 8-K None. 55During our fourth quarter ended December 31, 2005, we did not file any reports on Form 8-K with the Securities and Exchange Commission. 50 PETERSON SULLIVAN PLLC 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders Mymetics Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of Mymetics Corporation (a development stage company) and Subsidiaries as of December 31, 20032005 and 2002,2004, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity (deficit), and cash flows for the years ended December 31, 2003, 20022005, 2004, and 2001,2003, and for the period from May 2, 1990 (inception) to December 31, 2003.2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditingthe standards generally accepted inof the United States.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mymetics Corporation (a development stage company) and Subsidiaries as of December 31, 20032005 and 2002,2004, and the results of their operations and their cash flows for the years ended December 31, 2003, 20022005, 2004, and 2001,2003, and for the period from May 2, 1990 (inception) to December 31, 2003,2005, in conformity with accounting principles generally accepted in the United States. The accompanying 2003 consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not developed a commercially viable product and, therefore, has not been able to generate revenues, which has resulted in significant losses being incurred. Further, the Company has a note payable amounting to E3,127 which is due June 30, 2004, whereCompany's current liabilities exceed its current assets by E6,051 as of December 31, 2005, and there is no assurance that cash will become available to pay current liabilities in the note may be paid, extended, restructured or refinanced.near term. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ Peterson Sullivan PLLC - ------------------------------------- Peterson Sullivan PLLC Seattle, Washington March 18, 2004 56April 1, 2006 51 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED BALANCE SHEETS December 31, 20032005 and 20022004 (In Thousands of Euros)
ASSETS 2003 2002 --------- ---------2005 2004 -------- -------- ASSETS Current Assets Cash E 12570 E 183-- Receivables 100 5942 110 Prepaid expenses 6 36 --------- ---------2 2 -------- -------- Total current assets 231 278114 112 Patents 136 199 --------- ---------52 80 -------- -------- E 367166 E 477 ========= =========192 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable E 1,2322,095 E 4521,491 Taxes and social costs payable 53 119 Note15 40 Current portion of note payable 3,127 1,9893,754 500 Other 113 24 --------- ---------301 116 -------- -------- Total current liabilities 4,525 2,5846,165 2,147 Payable to Shareholders 242 242 --------- ---------Note Payable, less current portion 39 2,868 -------- -------- Total liabilities 4,767 2,8266,446 5,257 Shareholders' Equity (Deficit) Common stock, U.S. $.01 par value; 80,000,000495,000,000 shares authorized; issued and outstanding 54,344,45482,670,464 at December 31, 20032005 and 50,944,50568,447,864 at December 31, 2002 607 5792004 778 720 Common stock issuable 59 Preferred stock, U.S. $.01 par value; 5,000,000 shares authorized; none issued or outstanding -- -- Additional paid-in capital 18,142 17,8886,227 5,522 Deficit accumulated during the development stage (23,799) (21,013)(14,087) (12,148) Accumulated other comprehensive income 650 197 --------- --------- (4,400) (2,349) --------- ---------743 841 -------- -------- (6,280) (5,065) -------- -------- E 367166 E 477 ========= =========192 ======== ========
The accompanying notes are an integral part of these financial statements. 5752 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2003, 20022005, 2004 and 2001,2003, and the Period from May 2, 1990 (Inception) to December 31, 20032005 (In Thousands of Euros, Except Per Share Data)
Total Accumulated During Development Stage (May 2, 1990 to December 31, 2005 2004 2003 2002 2001 2003) --------- --------- --------- ----------2005) ------- ------- ------- --------------- Revenues Sales E --- E --- E --- E 224 Interest - 8 26-- -- -- 34 --------- --------- --------- ---------- - 8 26------- ------- ------- -------- -- -- -- 258 Expenses Research and development 489 612 1,263 1,878 482 3,9855,086 General and administrative 1,138 1,264 1,090 1,293 1,034 3,9986,400 Bank fee - 63 14,063 14,932-- 66 -- 935 Interest 222 201 176 60 79 331964 Goodwill impairment - 209 --- -- -- 209 Amortization 80 59 64 64 51 322461 Directors' fees -- -- 193 63 18 274 --------- --------- --------- ----------Other 10 -- -- 10 ------- ------- ------- -------- 1,939 2,202 2,786 3,630 15,727 24,051 --------- --------- --------- ----------14,339 ------- ------- ------- -------- Loss before income tax provision (1,939) (2,202) (2,786) (3,622) (15,701) (23,793)(14,081) Income tax provision - - --- -- -- 6 --------- --------- --------- ----------------- ------- ------- -------- Net loss (1,939) (2,202) (2,786) (3,622) (15,701) (23,799)(14,087) Other comprehensive income Foreign currency translation adjustment (98) 191 453 97 100 650 --------- --------- --------- ----------743 ------- ------- ------- -------- Comprehensive loss E (2,333) E (3,525) E (15,601) E (23,149) ========= ========= ========= ==========E(2,037) E(2,011) E(2,333) E(13,344) ======= ======= ======= ======== Basic and diluted loss per share E (0.03) E (0.04) E (0.05) E (0.07) E (0.37) E (0.65) ========= ========= ========= ================= ======= =======
The accompanying notes are an integral part of these financial statements. 5853 MYMETICS CORPORATION AND SUBSIDIARIES (A Development Stage Company) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) For the Period from May 2, 1990 (Inception) to December 31, 20032005 (In Thousands of Euros)
Date of Number of Transaction Shares Par Value ------------- ------------ ---------- Balance at May 2, 1990 E - Shares issued for cash June 1990 33,311,361 119 Net losses to December 31, 1999 - - ------------ ------- Balance at December 31, 1999 33,311,361 119 Bank fee - - Net loss for the year - - ------------ ------- Balance at December 31, 2000 33,311,361 119 Effect on capital structure resulting from a business combination March 2001 8,165,830 354 Issuance of stock purchase warrants for bank fee March 2001 - - Issuance of shares for bank fee March 2001 1,800,000 21 Issuance of shares for bank fee June 2001 225,144 3 Issuance of shares for cash June 2001 1,333,333 15 Exercise of stock purchase warrants in repayment of debt June 2001 1,176,294 13 Exercise of stock purchase warrants for cash December 2001 3,250,000 37 Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2001 49,261,962 562 Exercise of stock options March 2002 10,000 - Issuance of stock purchase warrants for bank fee June 2002 - - Exercise of stock purchase warrants in repayment of debt and for cash July 2002 1,625,567 16 Issuance of remaining shares from 2001 business combination August 2002 46,976 1 Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2002 50,944,505 579 Issuance of shares for services September 2003 400,000 4 Shares retired October 2003 (51) - Issuance of shares for services November 2003 1,500,000 12 Issuance of shares for cash December 2003 1,500,000 12 Issuance of stock purchase warrants for financing fee December 2003 - - Net loss for the year - - Translation adjustment - - ------------ ------- Balance at December 31, 2003 54,344,454 E 607 ============ =======
59
Accumulated Other Deficit Comprehensive Accumulated Income - Foreign Additional During the Currency Date of Number of Par Paid-in Development Translation Transaction Shares Value Capital Stage Adjustment Total -------------- ---------- ----- ---------- ----------- --------------- ---------------- ------- Balance at May 2, 1990 E - E - E - Shares issued for cash - - - Net losses to December 31, 1999 - (376) - ----------- ------------ ------- Balance at December 31, 1999 - (376) - Bank fee 806 - - Net loss for the year - (1,314) - ----------- ------------ ------- Balance at December 31, 2000 806 (1,690) - Effect on capital structure resulting from a business combination (354) - - Issuance of stock purchase warrants for bank fee 14,063 - - Issuance of shares for bank fee (21) - - Issuance of shares for bank fee (3) - - Issuance of shares for cash 2,109 - - Exercise of stock purchase warrants in repayment of debt 259 - - Exercise of stock purchase warrants for cash 563 - - Net loss for the year - (15,701) - Translation adjustment - - 100 ----------- ------------ ------- Balance at December 31, 2001 17,422 (17,391) 100 Exercise of stock options 8 - - Issuance of stock purchase warrants for bank fee 63 - - Exercise of stock purchase warrants in repayment of debt 396 - - Issuance of remaining shares from 2001 business combination (1) - - Net loss for the year - (3,622) - Translation adjustment - - 97 ----------- ------------ ------- Balance at December 31, 2002 17,888 (21,013) 197 Issuance of shares for services 29 - - Shares retired - - - Issuance of shares for services 100 - - Issuance of shares for cash 113 - - Issuance of stock purchase warrants for financing fee 12 - - Net loss for the year - (2,786) - Translation adjustment - - 453 ----------- ------------ ------- Balance at December 31, 2003June 1990 33,311,361 E119 E 18,142-- E (23,799)-- E 650 =========== ============ =======
60
Total ------------ Balance at May 2, 1990-- E - Shares issued for cash 119 Net losses to December 31, 1999 -- -- -- (376) -------------- (376) Balance at December 31, 1999 33,311,361 119 -- (376) -- (257) ---------- ---- ------ -------- ---- ------- Bank fee -- -- 806 -- -- 806 Net loss for the year -- -- -- (1,314) -------------- (1,314) ---------- ---- ------ -------- ---- ------- Balance at December 31, 2000 33,311,361 119 806 (1,690) -- (765) Effect on capital structure resulting from a business combination -March 2001 8,165,830 354 (354) -- -- -- Issuance of stock purchase warrants for bank fee 14,063in connection with credit facility (restated) March 2001 -- -- 210 -- -- 210 Issuance of shares for bank fee -March 2001 1,800,000 21 (21) -- -- -- Issuance of shares for bank fee -June 2001 225,144 3 (3) -- -- -- Issuance of shares for cash June 2001 1,333,333 15 2,109 -- -- 2,124 Exercise of stock purchase warrants in repayment of debt June 2001 1,176,294 13 259 -- -- 272 Exercise of stock purchase warrants for cash December 2001 3,250,000 37 563 -- -- 600 Net loss for the year (15,701)(restated) -- -- -- (1,848) -- (1,848) Translation adjustment -- -- -- -- 100 ------------100 ---------- ---- ------ -------- ---- ------- Balance at December 31, 2001 49,261,962 562 3,569 (3,538) 100 693 Exercise of stock options March 2002 10,000 -- 8 -- -- 8 Issuance of stock purchase warrants for bank fee June 2002 -- -- 63 -- -- 63 Exercise of stock purchase warrants in repayment of debt July 2002 1,625,567 16 396 -- -- 412 Issuance of remaining shares from 2001 business combination -August 2002 46,976 1 (1) -- -- -- Net loss for the year -- -- -- (3,622) -- (3,622) Translation adjustment -- -- -- -- 97 ------------97 ---------- ---- ------ -------- ---- ------- Balance at December 31, 2002 50,944,505 579 4,035 (7,160) 197 (2,349) ========== ==== ====== ======== ==== ======= Issuance of shares for services September 2003 400,000 4 29 -- -- 33 Shares retired October 2003 (51) - - -- -- -- Issuance of shares for services November 2003 1,500,000 12 100 -- -- 112 Issuance of shares for cash December 2003 1,500,000 12 113 -- -- 125 Issuance of stock purchase warrants for financing fee December 2003 -- -- 12 -- -- 12 Net loss for the year -- -- -- (2,786) -- (2,786) Translation adjustment -- -- -- -- 453 -------------453 ---------- ---- ------ -------- ---- ------- Balance at December 31, 2003 E54,344,454 607 4,289 (9,946) 650 (4,400) ====================== ==== ====== ======== ==== ======= Issuance of shares for services January 2004 550,000 5 27 -- -- 32 Issuance of shares for cash January 2004 2,000,000 17 150 -- -- 167 Issuance of stock purchase warrants for financing fee January 2004 -- -- 40 -- -- 40 Issuance of shares for cash February 2004 2,500,000 21 187 -- -- 208 Issuance of stock purchase warrants for financing fee February 2004 -- -- 62 -- -- 62 Issuance of shares for services April 2004 120,000 1 11 -- -- 12 Issuance of shares for bank fee May 2004 500,000 4 62 -- -- 66 Issuance of shares for cash May 2004 2,000,000 16 148 -- -- 164 Issuance of shares for services August 2004 250,000 2 26 -- -- 28 Issuance of shares for cash August 2004 1,466,667 12 128 -- -- 140 Issuance of stock purchase warrants for financing fee August 2004 -- -- 46 -- -- 46 Issuance of shares for services September 2004 520,000 4 29 -- -- 33 Issuance of shares for cash September 2004 50,000 -- 4 -- -- 4 Issuance of shares for services October 2004 2,106,743 16 132 -- -- 148 Issuance of shares for services November 2004 2,000,000 15 177 -- -- 192 Issuance of shares for cash November 2004 40,000 -- 4 -- -- 4 Net loss for the year -- -- -- (2,202) -- (2,202) Translation adjustment -- -- -- -- 191 191 ---------- ---- ------ -------- ---- ------- Balance at December 31, 2004 68,447,864 E720 E5,522 E(12,148) E841 E(5,065) ========== ==== ====== ======== ==== ======= Issuance of shares for services January 2005 500,000 4 83 -- -- 87 Issuance of shares for services March 2005 200,000 2 33 -- -- 35 Issuance of shares for services March 2005 1,500,000 11 247 -- -- 258 Issuance of shares for services April 2005 60,000 1 10 -- -- 11 Issuance of shares for cash May 2005 52,000 -- 5 -- -- 5 Issuance of shares for cash June 2005 50,000 -- 3 -- -- 3 Issuance of shares for cash June 2005 50,000 -- 3 -- -- 3 Issuance of shares for cash June 2005 343,500 3 14 -- -- 17 Issuance of shares for cash June 2005 83,300 1 3 -- -- 4 Issuance of shares for cash June 2005 100,000 1 4 -- -- 5 Issuance of shares for cash July 2005 144,516 1 6 -- -- 7 Issuance of shares for cash July 2005 144,516 1 6 -- -- 7 Issuance of shares for cash July 2005 144,516 1 6 -- -- 7 Issuance of shares for cash August 2005 206,452 2 8 -- -- 10 Issuance of shares for cash August 2005 50,000 -- 2 -- -- 2 Issuance of shares for services September 2005 500,000 4 8 -- -- 12 Issuance of shares for services September 2005 500,000 4 8 -- -- 12 Issuance of shares for services September 2005 500,000 4 8 -- -- 12 Issuance of shares for services September 2005 300,000 3 5 -- -- 8 Issuance of shares for services September 2005 68,000 1 1 -- -- 2 Issuance of shares for services September 2005 173,200 1 3 -- -- 4 Issuance of shares for cash October 2005 87,459 1 2 -- -- 3 Issuance of shares for services October 2005 185,000 2 6 -- -- 8 Issuance of shares for cash October 2005 174,918 1 5 -- -- 6 Issuance of shares for cash October 2005 116,612 1 3 -- -- 4 Issuance of shares for cash November 2005 116,611 1 3 -- -- 4 Issuance of shares for cash November 2005 390,667 3 3 -- -- 6 Issuance of shares for services November 2005 20,000 -- -- -- -- -- Issuance of shares for services November 2005 20,000 -- -- -- -- -- Issuance of shares for services November 2005 20,000 -- -- -- -- -- Issuance of shares for services November 2005 500,000 5 9 -- -- 14 Issuance of shares for services December 2005 140,000 2 2 -- -- 4 Issuance of shares for cash December 2005 390,667 3 3 -- -- 6 Issuance of shares for cash December 2005 390,666 3 3 -- -- 6 Issuance of shares for cash December 2005 6,000,000 50 200 -- -- 250 Net loss for the year -- -- -- (1,939) -- (1,939) Translation adjustment -- -- -- -- (98) (98) ---------- ---- ------ -------- ---- ------- Balance at December 31, 2005 82,670,464 837 6,227 (14,087) 743 (6,280) ========== ==== ====== ======== ==== =======
The accompanying notes are an integral part of these financial statements. 6154 MYMETICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2003, 20022005, 2004 and 20012003 and the Period from May 2, 1990 (Inception) to December 31, 20032005 (In Thousands of Euros)
Total Accumulated During Development Stage (May 2, 1990 to December 31, 2005 2004 2003 2002 2001 2003) ---------- ---------- ----------2005) ------- ------- ------- --------------- Cash Flows from Operating Activities Net loss E (2,786) E (3,622) E (15,701) E (23,799)E(1,939) E(2,202) E(2,786) E(14,087) Adjustments to reconcile net loss to net cash used in operating activities Amortization 80 59 64 64 51 322461 Goodwill impairment - 209 --- -- -- 209 Fees paid in warrants -- 148 12 63 14,063 14,138223 Services and fees paid in common stock 466 511 145 - - 9511,928 Amortization of debt discount -- -- -- 210 Changes in current assets and liabilities net of effects from reverse purchase Receivables 68 (10) (41) (10) 53 (62)(4) Accounts payable 604 259 780 16 (508) 9341,797 Taxes and social costs payable (25) (13) (66) 36 (26) 5315 Other 185 7 119 9 68 155 ---------- ---------- ---------- ---------347 ------- ------- ------- -------- Net cash used in operating activities (561) (1,241) (1,773) (3,235) (2,000) (7,099)(8,901) Cash Flows from Investing Activities Patents and other (52) (3) (1) (102) (45) (338) Short-term investments - 354 (205) -(393) Cash acquired in reverse purchase - --- -- -- 13 13 ---------- ---------- ---------- ---------------- ------- ------- -------- Net cash provided by (used in) investing activities (52) (3) (1) 252 (237) (325)(380) Cash Flows from Financing Activities Proceeds from the issuance of common stock and warrants 356 687 125 8 2,724 2,9764,019 Borrowings from shareholders - - --- -- -- 242 Increase in note payable and other short-term advances 425 241 1,138 2,173 116 3,8114,477 Loan fees - - --- -- -- (130) ---------- ---------- ---------- ---------------- ------- ------- -------- Net cash provided by financing activities 781 928 1,263 2,181 2,840 6,8998,608 Effect of exchange rate changes on cash (98) 191 453 97 100 650 ---------- ---------- ---------- ---------743 ------- ------- ------- -------- Net increase (decrease) in cash 70 (125) (58) (705) 703 12570 Cash, beginning of period -- 125 183 888 185 - ---------- ---------- ---------- ----------- ------- ------- ------- -------- Cash, end of period E 70 E -- E 125 E 183 E 888 E 125 ========== ========== ========== =========70 ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements. 6255 MYMETICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The Company and Summary of Significant Accounting Policies Basis of Presentation The amounts in the notes are rounded to the nearest thousand except for per share amounts. Mymetics Corporation ("the Company") was created for the purpose of engaging in research and development of human health products. Its main research efforts have been concentrated in the prevention and treatment of the AIDS virus. The Company has established a network which enables it to work with education centers, research centers, pharmaceutical laboratories and biotechnology companies. These financial statements have been prepared treating the Company as a development stage company. As of December 31, 2003,2005, the Company had not performed any clinical testing and a commercially viable product is not expected for several more years. As such, the Company has not generated significant revenues. Revenues reported by the Company consist of incidental serum by-products of the Company's research and development activities and interest income. For the purpose of these financial statements, the development stage started May 2, 1990. These financial statements have also been prepared assuming the Company will continue as a going concern. The Company has experienced significant losses since inception resulting in a deficit in shareholders' equity (deficit) of E4,400E6,280 at December 31, 2003.2005. Deficits in operating cash flows since inception have been financed through debt and equity funding sources. In order to remain a going concern and continue the Company's research and development activities, management intends to seek additional funding. Further, the Company has a note payable amounting to E3,127 which is due June 30, 2004, whereCompany's current liabilities exceed its current assets by E6,051 as of December 31, 2005, and there is no current source ofassurance that cash will become available to pay it when due.current liabilities in the near term. Management is planning to negociate a further extension of the due date, restructure the note terms or refinance it. Butseeking additional financing but there can be no assurance that management will be successful in any of thesethose efforts. 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 year. Unrealized gains or losses from these translations are reported as a separate component of comprehensive income. Transaction gains or losses are included in general and administrative expenses in the consolidated statements of operations. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations. The Company's reporting currency is the Euro because a substantial portionsubstantially all of the Company's activities have beenare conducted in Europe. 63 Cash Cash deposits are occasionally in excess of insured amounts. Interest paid was E164 in 2005, E201 in 2004, E176 and in 2003, E60 in 2002 and E42 in 2001.2003. The Company has paid no income tax since its inception. 56 Revenue Recognition The Company recordsRevenue related to the sale of products is recognized when all of the productsfollowing conditions are deliveredmet: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and the Company has only a security interest in the products should a customer default on payment.collectibility is reasonably assured. Receivables Receivables are stated at their outstanding principal balances. Management reviews the collectibility of receivables on a periodic basis and determines the appropriate amount of any allowance. Based on this review procedure, management has determined that the allowances at December 31, 20032005 and 2002,2004, are sufficient. The Company charges off receivables to the allowance when management determines that a receivable is not collectible. The Company may retain a security interest in the products sold. Goodwill and Other Intangibles As required, the Company adopted Statement of Financial Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," beginning January 1, 2002. Under this standard, goodwill of a reporting unit and intangible assets that have indefinite useful lives are not amortized but are tested annually for impairment. Intangible assets with a finite life are amortized over their estimated useful lives. 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. Earnings per Share Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. The weighted average number of shares was 71,972,491 for the year ended December 31, 2005, 62,177,629 for the year ended December 31, 2004, and 51,285,044 for the year ended December 31, 2003, 50,045,658 for the year ended December 31, 2002, and 42,459,784 for the year ended December 31, 2001. The weighted average number of shares for the period May 2, 1990 through December 31, 2003, was 36,520,581.2003. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities. Warrants and options were not included in the computation of diluted earnings per share because their effect would be anti-dilutive due to net losses incurred. 64 Preferred Stock The Company has authorized 5,000,000 shares of preferred stock. No shares are issued or outstanding at December 31, 2005. The preferred stock is issuable in several series with varying dividend, conversion and voting rights. The specific series and rights will be determined upon any issuance of preferred stock. Stock-Based Compensation 57 The Company has a stock-based employee compensation plan, which is described more fully in Note 6.7. The Company accounts for the planoptions and other stock-based compensation under the recognition and measurement principles of APBAccounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Compensation costThe expense for stock options and warrants to purchase stock granted to non-employees is measured using the Black-Scholesa fair value valuation model at the date of grant multiplied by the number of options granted, amortized over the estimated life of the option or warrant. This compensation cost is recognized ratably over the vesting period. In accordance with APB No. 25, the Company records compensation costs only for stock options issued to non-employees.granted. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. 58
Total Accumulated During Development Stage (May 2, 1990 2005 2004 2003 2002 2001 to December 31, 2003) ---------- ---------- ----------2005) ------- ------- ------- --------------------- Net Income (Loss) - ----------------- As reported E (2,786) E (3,622) E (15,701) E (23,799)E(1,939) E(2,202) E(2,786) E(14,087) Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of any related tax effects -- -- (27) (72) (221) (320) ---------- ---------- ---------- -------------------- ------- ------- -------- Pro forma E (2,813) (3,694) E (15,922) E (24,119) ========== ========== ========== =============E(1,939) (2,202) E(2,813) E(14,407) ======= ======= ======= ======== Basic and Diluted Earnings (Loss) Per Share - ------------------------------------------- As reported E (.05)(.03) E (.07)(.04) E (.37) E (.65)(.05) Pro forma E (.05)(.03) E (.07)(.04) E (.38) E (.66)(.05)
For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value of each option granted was estimated for proforma purposes on the grant date using the Black-Scholes model (use of this model for proforma purposes is not intended to indicate the value of the Company as a whole). There were no options issued in 2005 and 2004. The assumptions used in calculating fair value for 2003 are as follows: 59
2003 2002 2001 --------------- ---------------- ---------------- Risk-free interest rate 4.00% 4.75% 4.5% Expected life of the options 7 years 7 years 8 years Expected volatility 164.02%-206.16% 71.10% - 243.12% 63.91% - 160.97%206.16% Expected dividend yield 0% 0% 0%
The issuance of common shares for services is recorded at the quoted price of the shares on the date the services are rendered. The Company has offered 2,000,000 common shares to an individual upon acceptance of an offer as board chairman. The fair value of these shares was approximately E33 at December 31, 2003. These shares have not been considered issued for purposes of these financial statements. 65 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. Reclassifications Certain reclassifications have been made to the 2002 financial statement amounts in order for them to conform to current year presentation. New Accounting Standards SFAS No. 151, "Inventory Costs," is effective for fiscal years beginning after June 15, 2005. This statement amends the guidance in APB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The adoption of SFAS No. 151 is expected to have no impact on the Company's consolidated financial statements. SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions," is effective for fiscal years beginning after June 15, 2005. This Statement amends SFAS No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." The adoption of SFAS No. 152 is expected to have no impact on the Company's consolidated financial statements. SFAS No. 123(R), "Share-Based Payment," replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the compensation cost relating to share-based payment transactions be recognized at fair value in the financial statements. The Company is required to apply this statement in the first interim period that begins after December 15, 2005. The Company is currently analyzing the requirements of the adoption of SFAS No. 123(R). SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29," is effective for fiscal years beginning after June 15, 2005. This Statement addresses the measurement of exchange of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. The adoption of SFAS No. 153 is expected to have no impact on the Company's consolidated financial statements. The EITF reached consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," which provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. 60 The FASB issued FSP EITF 03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1," "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," which delays the effective date for the measurement and recognition criteria contained in EITF 03-1 until final application guidance is issued. The adoption of this consensus or FSP is expected to have no impact on the Company's consolidated financial statements. Financial Accounting Standards Board Interpretation ("SFAS"FIN") No. 147 gives guidance47, "Accounting for Conditional Asset Retirement Obligations," ("FIN 47"), was issued in March 2005. FIN 47 clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. Asset retirement obligations covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity, even if the timing and method of settling the obligation are conditional on accounting fora future event that may or may not be within the acquisitioncontrol of financial institutions (effective for acquisitions on or after October 1, 2002). SFAS No. 148the entity. FIN 47 also clarifies treatmentwhen an entity would have sufficient information to reasonably estimate the fair value of stock-based compensation (effective foran asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2002).2005. The adoption of FIN 47 is expected to have no impact on the Company's consolidated financials statements. SFAS No. 149 amends existing standards on derivatives (effective for derivatives entered into or modified after June 30, 2003).154, "Accounting Changes and Error Corrections," a replacement of APB No. 20, "Accounting Changes," and SFAS No. 150 gives guidance on3, "Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 changes the requirements for the accounting for certainand reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS No. 154 requires retrospective application to prior periods' financial instruments with characteristicsstatements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of both liabilities and equity (effectivethe change. SFAS No. 154 is effective for financial instruments entered into after May 31, 2003). Financial Accounting Standards Board Interpretation No. 46 requires consolidation of certain variable interest entities (effective foraccounting changes made in fiscal years endingbeginning after December 15, 2003). These new standards do2005; however, this statement does not change the transition provisions of any existing accounting pronouncements. The adoption of SFAS No. 154 is expected to have an effectno impact on the Company's consolidated financial statements. In September 2005, the EITF reached consensus on Issue No. 05-08, "Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature." EITF 05-08 is effective for financial statements beginning in the first interim or annual reporting period beginning after December 15, 2005. The adoption of EITF 05-08 is expected to have no impact on the Company's consolidated financial statements. In September 2005, the EITF reached consensus on Issue No. 05-02, "The Meaning of 'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.'" EITF 05-02 is effective for new instruments entered into and instruments modified in reporting periods beginning after June 29, 2005. The adoption of EITF 05-02 is expected to have no impact on the Company's consolidated financial statements. In September 2005, the EITF reached consensus on Issue No. 05-07, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues." EITF 05-07 is effective for future modifications of debt instruments beginning in the first interim or annual reporting period beginning after December 15, 2005. The adoption of EITF 05-07 is expected to have no impact on the Company's consolidated financial instruments. 61 Note 2. Receivables
2003 2002 --------- ----------2005 2004 ---- ---- Trade receivables (including E23 from a shareholder in 2003 and 2002)E-- E 37 E 3731 Value added tax 72 41refund 42 101 Other 20 15 -------- ---------- 129 93-- 7 --- ---- 42 139 Allowance for doubtful accounts (including E23 from a shareholder in 2003 and 2002)-- (29) (34) -------- ---------- E 100 E 59 ======== ==========--- ---- E42 E110 === ====
Note 3. Goodwill and Other Intangible Assets Prior to January 1, 2002, the Company was amortizing goodwill over a five-year period. In accordance with current accounting standards, goodwill is not to be amortized beginning January 1, 2002. Goodwill was acquired during 2001 at a cost of E247 and amortization amounted to E38 for the year ended December 31, 2001. Had goodwill not been amortized in 2001, net loss would have amounted to E(15,663) and basic and diluted loss per share would not have changed. No additional acquisitions have occurred. Based on a review of the fair value of the Company's only reporting unit at December 31, 2002,2003, management has determined that the recorded goodwill iswas fully impaired. Accordingly, an impairment loss of E209 was recorded in the 2002 statement of operations. Other intangible assets consist of patents which are stated at cost of the fees paid to the French and US patent office.offices. At December 31, 20032005 and 2002,2004, the carrying amount of patents was E136E52 and E199E80 net of accumulated amortization of E189E328 and E125,E248, respectively. Amortization expense relating to patents was E80, E59, and E64 E64for 2005, 2004 and E13 for 2003, 2002 and 2001, respectively. Amortization expense is expected to amount to E64 during each of the next two years and E8E52 during 2006, which will completely amortize this asset. 66 asset unless new patents are filed during that year. Note 4. Transactions With Affiliates During 2000, the Company agreed to pay a fee in common stock to MFC Merchant Bank SA ("MFC Bank") for services provided in a business combination transaction. The parent of MFC Bank is a shareholder of the Company. The common shares were not issued in 2000. The fair value of the shares at the measurement date, amounting to E806 (which may not be indicative of the value of the Company as a whole), was included in additional paid-in capital at December 31, 2000. In 2001, a total of 2,025,144 common shares were issued to MFC Bank which resulted in E24 being reclassified to common stock based on the par value of the shares. The Company has a non-revolving term credit facility with MFC Bank which allowed the Company to borrow up to E3,150E3,700 at LIBOR plus 4% (approximately 6.1 %6.40% at December 31, 2003)2005), with an installment of E900 repayable on June 30, 2004, as extended,2006 and the balance due December 31, 2006, collateralized by all of the Company's assets plus any future patents. The Company owed E3,127E3,754 and E1,989E3,368 under this facility as of December 31, 20032005 and 2002,2004, respectively. The fair value of this note approximates carrying value because the note is short-term and has a market rate of interest. The agreement allows MFC Bank to convert the loan balance into common stock at U.S.$0.30 per share. Accordingly, 14,765,733 shares have been reserved at December 31, 2005, for potential issuance. The Company incurred fees of E37E87 and E155E66(paid with shares of the Company) to MFC Bank in 20032005 and 2002,2004, respectively, related to management and financing services. 62 In March 2001, the Company granted warrants under the agreements with MFC Bank which entitled MFC Bank to purchase 6,001,693 of the Company's common shares. The warrants allowed MFC Bank to convert to shares an amount equal to the maximum of the credit facility including unpaid interest plus the arrangement and retainer fees. The warrants arewere exercisable within a three-year period beginning August 2000 at approximately E.2319E0.2319 per common share. TheProceeds from the credit facility were allocated pro-rata based on the relative fair valuevalues of the beneficial conversion feature amountingcredit facility and related warrants as the proceeds were received up to E14,063 (which may not be indicativethe maximum proceeds available under the credit facility. The maximum limit of the valuecredit facility was E1,300 and the balance outstanding representing proceeds received under the credit facility was E228. The amount attributable to the warrants of the Company as a whole) was calculated on March 28, 2001, the grant date, using the Black-Scholes model. This amountE210 was recorded as paid-in capitala discount against the carrying amount of E14,063the credit facility and allocateda credit to bank fee expense inadditional paid-in-capital. The discount was amortized using the effective interest method over the original term of the credit facility, which was due August 31, 2001. During 2001, MFC Bank exercised warrants to acquire 1,176,294 common shares in exchange for the arrangement fee and the retainer fee plus E52 in accrued interest. MFC also exercised warrants to acquire 3,250,000 common shares for cash in 2001. In 2002, the Company granted 26,775 additional warrants under the original agreements with MFC Bank. The fair value of the beneficial conversion feature on these warrants was calculated using the Black-Scholes model which amounted to E63. This amount was recorded as paid-in capital of E63 and allocated to bank fee expense in 2002. During 2002, MFC Bank exercised the remaining warrants to acquire 1,602,174 common shares. This resulted in a decrease of E372 due on the revolving term credit facility with MFC Bank. This is a non-cash transaction for purposes of the statement of cash flows. In June 2001, the Company issued additional warrants to MFC Bank to purchase 103,559 common shares at U.S. $1.725 per share exercisable during a three-year period. These warrants were issued in connection with MFC Bank's placement of 1,333,333 of the Company's common shares. The warrants were valued at E118 based on the fair value of the placement fees rendered and was a cost of the placement. In 2002, MFC Bank exercised warrants to acquire 23,393 common shares. This resulted in a decrease of E40 due on the revolving term credit facility with MFC Bank. This is a non-cash transaction for purposes of the statement of cash flows. In July 2003, the Company sold a nonoperating subsidiary to an affiliate of MFC Bank for cash of E25, resulting in no gain or loss. In May 2004, the Company issued 500,000 shares of common stock to MFC Bank as consideration for the bank's extension of the due date of the note payable to the bank. The Company recorded a bank fee for E66 as a result of this issuance. The amounts payable to shareholders bear no interest, have no collateral, and are repayable upon the Company becoming profitable. Since the timing of the Company becoming profitable cannot be determined, the fair value of the amounts payable to shareholders cannot be determined. The Company is not expected to become profitable in the near-term, therefore, the amounts payable to shareholders have been classified as long-term. During 2003The Company owes officers and 2002, the Company incurreddirectors approximately E529 at December 31, 2005, for salaries and fees to its Chairman of E239 and E275also for consulting from a company owned by him, and E27 in 2001 from a company owned by the former Chief Financial Officerexpenses paid on behalf of the Company. Accounts payable at December 31, 2002, includes E23 of these fees. 67These amounts are unsecured, do not bear interest and are included in accounts payable. 63 Note 5. Income Taxes The reconciliation of income tax on income computed at the federal statutory rates to income tax expense is as follows:
2005 2004 2003 2002 2001 --------- ---------- --------------- ----- ----- U.S. Federal statutory rates on loss from operations E (947) E (1,231) E (5,338)E(659) E(749) E(947) Nondeductible fee paid in warrants and common stock -- 224 50 21 4,781 Effect of exchange rate changes on U.S. net operating loss carryforward (235) 103 242 101 - Change in valuation allowance 894 423 582 1,114 514 Other -- (1) 73 (5) 43 --------- ---------- --------------- ----- ----- Income tax expenseprovision E --- E --- E - ========= ========== ==========-- ===== ===== =====
Deferred tax asset is composed of the following:
2003 2002 ----------- ----------2005 2004 ------- ------- Difference in book and tax basis of amounts payable to shareholder E 82 E 82 Net operating loss carryforwards United States 1,373 1,0632,224 1,357 France 787 515 ----------- ---------- 2,242 1,6601,253 1,226 ------- ------- 3,559 2,665 Less valuation allowance for deferred tax asset (2,242) (1,660) ----------- ----------(3,559) (2,665) ------- ------- Net deferred tax asset E --- E - =========== ==========-- ======= =======
64 The Company's provision for income taxes was derived from U.S. and French operations. At December 31, 2003,2005, the Company had estimated net operating loss carryforwards which expire as follows: United States France ------------- ----------- 2004 E - E - 2005 - 94 2006 - 381 2007 - 1,039 2008 - 801 2021-2023 4,038 - --------- ---------- E 4,038 E 2,315 ========== ========== 68
United States France ------ ------ 2005 E -- E 94 2006 -- 381 2007 -- 1,039 2008 -- 801 2009 -- 1,290 2010 -- 80 2011-2025 6,542 -- ------ ------ E6,542 E3,685 ====== ======
Note 6.7. Stock Option Plans 1994 Amended Stock Option Plan The Company's 1994 stock option plan provided for the issuance of up to 350,000 shares of the Company's common stock to employees and non-employee directors. The plan was terminated during 2002. The following table summarizes information with respect to this plan:
Weighted Number Average Number of Exercise Shares Exercise Price ---------------- ----------------------- ---------- Outstanding and exercisable at December 31, 2001 73,7502003 63,750 U.S. $ .82 ====== Exercised.83 Expired in 2002 (10,000) --------2004 (50,000) .75 Outstanding and exercisable at December 31, 20032004 13,750 U.S. $1.11 Expired in 2005 (1,250) .75 ------- Outstanding and 2002 63,750exercisable at December 31, 2005 12,500 U.S. $ .83 ========$1.15 ======= ========== Reserved for future grants at December 31, 2003 - ========2005 -- =======
At December 31, 2005, exercise prices ranged from $0.75 to $1.1875. 1995 Qualified Incentive Stock Option Plan 65 The Company's board of directors approved a stock option plan on August 15, 1996, which provided for the issuance of up to 150,000 shares of the Company's common stock to key employees. The plan was terminated during 2002. The following table summarizes information with respect to this plan:
Weighted Number Average Number of Exercise Shares Exercise Price ---------------- ------------------------ ---------- Outstanding and exercisable at December 31, 2003, 20022004 and 20012003 100,000 U.S. $$.75 Expired in 2005 (100,000) .75 Outstanding and exercisable At December 31, 2005 -- -- ======== ================ Reserved for future grants at December 31, 2003 -2005 -- ========
69 The exercise price on these options is $0.75. 2001 Qualified Incentive Stock Option Plan The Company's board of directors approved a stock option plan on June 15, 2001, which provides for the issuance of up to 5,000,000 shares of the Company's common stock to employees and non-employee directors. No options were issued in 2004 and 2005. The weighted average fair value of these options at the grant dates were E.12, E.62E0.12 and E2.24E0.62 per option in 2003 2002 and 2001,2002, respectively. The following table summarizes information with respect to this plan:
Weighted Number Average Number of Exercise Shares Exercise Price ----------------- ------------------------- --------- Granted in 2001 100,000 U.S. $ 2.86 ---------- Outstanding and exercisable at December 31, 2001 100,000 U.S. $ 2.86 ======== Granted in 2002 117,500 U.S. $ .99 ---------- Outstanding and exercisable at December 31, 20022003 217,500 U.S. $ 1.83$1.83 ========== ======== Granted in 2003 225,000 U.S. $ .14 ------------------- Outstanding and exercisable at December 31, 2003, 2004 and 2005 442,500 U.S. $ .97 ========= ========== Reserved for future grants at December 31, 20032005 4,557,500 ===================
66 Almost all options have an expiration date ten and a half years after issuance. At December 31, 2005, exercise prices range from $0.12 to $3.50. Note 7.8. Commitments and Contingencies The Company leasesleased property under noncancelable operating leases through January 2006. Future minimum lease payments under noncancelable operating leases are as follows: 2004 E 7 2005 7 2006 1 ------ E 15 ======
This could however be cancelled without penalty in March 2005. Total rent expense per year was E15 for 2005, E32 for 2004, and E24 for 2003, E30 for 2002 and E7 for 2001.2003. The Company was party to a second case in which a creditor claims that the Company owes it approximately E30. The claim was filed before a court in Lyon ("Tribunal de Grande Instance") on June 29, 2004. The Company is involvedsubject to a proceeding brought by Dr. Serres, a current director and former officer, for alleged wrongful termination of Dr. Serres by the Company's previous management. Dr. Serres was reinstated as Chief Scientific Officer by the new Board of Directors retroactively from May 5, 2003 until November 3, 2003, when he was promoted as Head of Exploratory Research, his current position with the Company. In exchange for being reinstated retroactively, Dr. Serres agreed to forfeit all legal and punitive compensation for having been terminated without cause. The French Industrial Tribunal granted Dr. Serres E46 in various mattersan emergency injunction on October 14, 2003. The final amount which Dr. Serres has claimed in terms of litigation arisinglegal and punitive compensation if the case had been allowed to run its full course is in excess of E175. The Company's French legal counsel believes however that this claim is without merit as under French law, salaried company directors and officers are only eligible for severance pay and other compensation if certain, very stringent, conditions are met which, in the ordinary course of business. InCompany's counsel's opinion, is evidently not the opinion of management,case for Dr. Serres. The agreement between Dr. Serres and the estimated outcome of such issues will not have a material effect on the Company's financial statements.Company has yet to be finalized. Note 8.9. Subsequent eventsEvents In January 2004, the Company issued a total of 2,000,000 common shares to two investors for cash of E166. In February 2004,2006, the Company issued 2,500,000 common shares to MFC Merchant Bank S.A. as a fee for postponing the partial repayment due on December 31, 2005 to June 30, 2006, 4,000,000 common shares to an investor for cash of E208. As part of this new financing, the Company also issued warrants entitling the investors to acquire an additional 4,500,000$200,000 and 50,000 common shares atto a price of $.10 per share. The total fair value of these warrants at the grant dates was E102. All warrants expire July 31, 2004. 70bank as introduction fee. In March 2006, 200,000 shares were issued to an individual as introduction fee and 5,750,000 common shares to two investors for $230,000. 67 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2004.April 14, 2006. Mymetics Corporation By: /s/ Christian J. F. Rochet ------------------------------------------------------------------- Name: Christian J. F.J.F. Rochet Title: Chief Executive Officer 68 POWERS OF ATTORNEY Each person whose signature appears below constitutes and appoints Ernst Luebke as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on From 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on March 29, 2004. Signature Title --------- ----- /s/ Christian J.F. Rochet Chief Executive Officer and --------------------------- Director (Principal Executive Christian J.F. Rochet Officer) /s/ Ernst Luebke Chief Financial Officer and --------------------------- Director (Principal Financial and Ernst Luebke Accounting Officer) /s/ Pierre-Francois Serres Director --------------------------- Pierre-Francois Serres /s/ Robert Zimmer Director --------------------------- Robert Zimmer 71April 14, 2006.
Signature Title - --------- ----- /s/ Christian J.F. Rochet Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) Christian J.F. Rochet /s/ Ernst Luebke Chief Financial Officer and Director - ------------------------------------- (Principal Financial and Accounting Officer) Ernst Luebke /s/ Sylvain Fleury Chief Scientific Officer and - ------------------------------------- Director Sylvain Fleury, Ph. D.
69 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.2 Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1) 2.3 Purchase Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (2) 2.4 Amendment to the Agreement dated October 17, 1998 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (3) 2.5 Revised Purchase Agreement dated July 28, 1999 between the Corporation and the majority stockholders of Nazca Holdings Ltd. (4) 2.6 Share Exchange Agreement dated July 30, 2002 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (5) 3(i) Articles of Incorporation of the Corporation (as amended through May 10, 2002) (6) 3(ii) Bylaws (7) 4.1 Form of Specimen Stock Certificate (8) 4.2 Form of letter regarding Warrant 4.3 Form of Share Exchange Agreement 9.1 Voting and Exchange Trust Agreement dated March 28, 2001, among the Corporation, 6543 Luxembourg S.A. and MFC Merchant Bank S.A. (8) 10.1 Services Agreement dated May 31, 2001, between the Corporation and MFC Merchant Bank, S.A.(7) 10.2 Employment Agreement dated May 3, 2001, between Pierre-Francois Serres and the Corporation (7) 10.3 Indemnification Agreement dated March 28, 2001, between the Corporation and MFC Bancorp Ltd. (7) 10.4 Agreement dated for reference May 15, 2000, between the Corporation and Maarten Reidel (7) 72 10.5 Preferred Stock Redemption and Conversion Agreement dated for reference December 21, 2000, between the Corporation and Sutton Park International Ltd. (10)
70 10.6 Preferred Stock Conversion Agreement dated for reference December 21, 2000, between the Corporation and Med Net International Ltd. (11) 10.7 Preferred Stock Conversion Agreement dated December 21, 2000, between the Corporation and Dresden Papier GmbH (11) 10.8 Assignment Agreement dated December 29, 2000, among the Corporation, Mymetics S.A. and MFC Merchant Bank S.A. (1) 10.9 Credit Facility Agreement dated July 27, 2000, between MFC Merchant Bank, S.A. and the Corporation (1) 10.10 Amended Credit Facility Agreement dated for reference August 13, 2001, between MFC Merchant Bank, S.A. and the Corporation (16) 10.11 Second Amended Credit Facility Agreement dated for reference February 27, 2002, between MFC Merchant Bank, S.A. and the Corporation (16) 10.12 Amended and Restated Credit Facility Agreement dated for reference February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd., and the Corporation (16) 10.13 Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd. to MFC Merchant Bank S.A. (16) 10.14 Shareholder Agreement dated March 28, 2001, among the Corporation, the Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8) 10.15 Support Agreement dated March 28, 2001, between the Corporation and 6543 Luxembourg S.A. (8) 10.16 1995 Qualified Incentive Stock Option Plan (12) 10.17 Amended 1994 Stock Option Plan (13) 10.18 2001 ICHOR Corporation Stock Option Plan (7) 10.19 Employment Agreement dated March 18, 2002, between the Corporation and Peter P. McCann (14) 10.20 Consulting Agreement dated August 31, 2001, between the Corporation and Michael K. Allio (8) 10.21 Amendment to Consulting Agreement dated August 21, 2002, between the Corporation and Michael K. Allio (16) 10.22 Employment Agreement dated March 18, 2002, between the Corporation and Dr. Joseph D. Mosca (15) 73 10.23 Separation Agreement and Release dated January 31, 2003, between the Corporation and Peter P. McCann (16) 10.24 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Robert Demers (8) 10.25 Director and Non-Employee Stock Option Agreement dated July 19,
71 2001, between the Corporation and Michael K. Allio (8) 10.26 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and John M. Musacchio (8) 10.27 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Patrice Pactol (8) 10.28 Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Corporation and Pierre-Francois Serres (8) 10.29 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Pierre-Francois Serres (16) 10.30 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Patrice Pactol (16) 10.31 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Robert Demers (16) 10.32 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and John M. Musacchio (16) 10.33 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Michael K. Allio (16) 10.34 Director and Non-Employee Stock Option Agreement dated August 21, 2002, between the Corporation and Michael K. Allio (16) 10.35 Director and Non-Employee Stock Option Agreement dated June 20, 2002, between the Corporation and Peter P. McCann (16) 10.36 Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Corporation and Peter P. McCann (16) 10.37 Director and Non-Employee Stock Option Agreement dated February 6, 2003, between the Corporation and Peter P. McCann (16) 10.38 Patent Pledge Agreement dated November __, 2002 among Mymetics S.A., Mymetics Deutschland GmbH, the Corporation and MFC Merchant Bank S.A. (16) 10.39 Third Amendment to the Credit Facility Agreement dated for reference December 31, 2005, between MFC Merchant Bank, S.A. and the Corporation (17) 10.40 Fourth Amendment to the Credit Facility Agreement dated for reference February 16, 2005, between MFC Merchant Bank, S.A. and the Corporation (17) 10.41 Consulting Agreement dated for reference January 1, 2004, between the Centre Hospitalier Universitaire Vaudois (CHUV), the Corporation and Dr. Sylvain Fleury, Ph.D. (18) 10.42 Consulting Agreement dated for reference January 1, 2004, between the Corporation and Professor Marc Girard, DVM, D.Sc. (18) 10.43 Cooperation and Option Agreement dated March 10, 2005, between the Corporation and Pevion A.G. (18) 10.44 Consulting Agreement dated March 23, 2005, between the
72 Corporation and Northern Light International. (18) 10.45 Sixth Amended Credit Facility Agreement dated for reference December 31, 2005, between MFC Merchant Bank, S.A. and the Corporation 11.1 Statement Regarding Calculation of Per Share Earnings. 21.1 List of Subsidiaries 74 24.1 Powers of Attorney (included on the signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934 32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
- ------------------------- (1) Incorporated by reference to the Corporation's Schedule 14C filed with the Securities and Exchange Commission on April 26, 2001. (2) Incorporated by reference to the Corporation's report on Form 8-K filed with the Securities and Exchange Commission on October 22, 1998. (3) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on April 15, 1999. (4) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 13, 1999. (5) Incorporated by reference to the Corporation's Amendment No. 1 to Form S-1 filed with the Securities and Exchange Commission on August 8, 2002. (6) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (7) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001. (8) Incorporated by reference to the Corporations Registration Statement on Form S-1, File No. 333-88782, filed with the Securities and Exchange Commission on May 22, 2002. (9) Incorporated by reference to the Corporation's report on Form 8-K/A filed with the Securities and Exchange Commission on August 9, 2000. (10) Incorporated by reference to Schedule 13D/A filed by MFC Bancorp Ltd. with the Securities and Exchange Commission on dated January 2, 2001. (11) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 14, 2001. (12) Incorporate by reference to the Corporation's Registration Statement on 73 Form S-8, File No. 333-15831, filed with the Securities and Exchange Commission on November 8, 1996. (13) Incorporated by reference to the Corporation's Registration Statement on Form S-8, File No. 333-15829, filed with the Securities and Exchange Commission on November 8, 1996. 75 (14) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2001,2003, and filed with the Securities and Exchange Commission on March 29, 2002. (15) Incorporated by reference to the Corporation's report on Form 10-Q for the quarter ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (16) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2002,2004, filed with the Securities and Exchange Commission on March 27, 2003. 76 (17) Incorporated by reference to the Corporation's report on Form 8-K filed With the Securities and Exchange Commission on February 18, 2005. (18) Incorporated by reference to the Corporation's report on Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 30, 2004. 74