The Company and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

The Company and Summary of Significant Accounting Policies

The amounts in the notes are shown in thousands of EURO, unless otherwise noted, and rounded to the nearest thousand except for share and per share amounts.

The accompanying interim period condensed consolidated financial statements of Mymetics Corporation (the "Company") set forth herein have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period condensed consolidated financial statements should be read together with the audited financial statements and the accompanying notes included in the Company's latest annual report on Form 10-K for the fiscal year ended December 31, 2022.

The Company was created for the purpose of engaging in vaccine research and development. Its main research efforts in the beginning have been concentrated in the prevention and treatment of the AIDS virus and malaria. The Company has established a network which enables it to work with education centers, research centers, pharmaceutical laboratories and biotechnology companies. Besides the HIV and malaria vaccine candidates, the Company additionally has generated preclinical data for the following vaccines: Herpes Simplex and Respiratory Syncytial Virus (“RSV”), neither of which is currently being developed. The company also has clinical data for an intranasal influenza vaccine for the elderly which has finished a Phase I clinical trial and is currently on hold. As of June 30, 2023, the Company has generated preclinical data for an intra nasal Covid-19 vaccine and early-stage preclinical data in immunotherapy in the field of oncology. The Company has been collaborating with leading academic institutions, such as Baylor College of Medicine in Texas, the Amsterdam Medical Center (AMC) of the University of Amsterdam in the Netherlands and the University Hospital in Bern, Switzerland until April 2023.

On January 16, 2023, the Board appointed Marcel B. Rüegg to the Board to fill the vacancy created by Mr. Stern’s resignation. Mr. Rüegg was also appointed to the Audit Committee. The Company entered into an independent director agreement with Mr. Rüegg (the “Director Agreement”) setting forth the terms of his compensation. Pursuant to the Director Agreement, Mr. Rüegg is entitled to a fee of CHF 5,000 per quarter, which is payable quarterly, and CHF 350 per hour for each additional hour worked outside of meetings of the Board or attending more than one meeting of the Board per quarter, which is payable quarterly. The Company also agreed to reimburse Mr. Rüegg for pre-approved reasonable business expenses incurred in good faith in connection with the performance of his duties for the Company. The Company also agreed to indemnify, defend and hold harmless Mr. Rüegg, to the fullest extent permitted by law, and as provided by, or granted pursuant to, any charter provision, bylaw provision, agreement, vote of stockholders or disinterested directors or otherwise, subject to certain exceptions based on good faith and reasonableness.

On February 8, 2023, the Company announced that it has been conducting a process to explore strategic alternatives to enhance shareholder value. The Board authorized management and its external advisors to initiate such a process, and it has been considering a broad range of strategic alternatives including a potential sale of part or all of the Company. In connection therewith, the Company, through its external advisors, had requested bids (the “Bid Process”) for any combination of assets (including but not limited to as a going concern), by February 24, 2023, at 5:00 pm ET (the “Bid Deadline”). To the extent the Company determined there were viable bids by or prior to the Bid Deadline, the Company pursued those possible alternatives. To the extent the there were no viable bids provided by or prior to the Bid Deadline, the Company would consider other alternatives, including the winding up of its operations shortly after the Bid Deadline. On February 24, 2023, the Company announced that it was still discussing with counterparties potential bids for any combination of its assets (including but not limited to as a going concern) and had decided to extend the bid process (the “Bid Process”) for an indeterminate period of time. There can be no assurance that the Bid Process will result in the sale of part or all of the Company or other change or outcome. The Company has retained McDermott, Will & Emery LLP as legal counsel in connection with the Bid Process.

On May 12, 2023, the Company received an email from the OTC Markets Group compliance department notifying the Company that it no longer meets the Standards for Continued Eligibility for OTCQB as per the OTCQB Standards, Section 2.3(2), as a result of the closing bid price for the Company’s common stock being below $.01 per share on at least one of the prior thirty consecutive calendar days. As per Section 4.1 of the OTCQB Standards, the company will be granted a cure period of 90 calendar days during which the closing bid price for the Company’s common stock must be $0.01 or greater for ten consecutive trading days in order to continue trading on the OTCQB marketplace. If this requirement is not met by August 10, 2023, the company will be removed from the OTCQB marketplace. From June 21, 2023 until August 7, 2023, the closing bid price for the Company’s common stock was above $0.01, meeting the cure period requirement, however on August 8, 2023 the closing bid price dipped again below $0.01.

In addition, in the event that the Company’s closing bid price falls below $0.001 at any time for five consecutive trading days, the Company will be immediately removed from OTCQB.

The Board of Directors of the Company continues to evaluate the next steps, which could include a voluntary delisting of the OTCQB marketplace in connection with a possible winddown of the Company’s operations.

While the Company pursues these strategic alternatives, due to lack of liquidity, cost reductions for 2023 have been put in place, including the termination of employment agreements for all employees, except Ronald Kempers. On July 26, 2023, the Company decided to wind down its wholly owned subsidiary Bestewil Holding BV (“BH”) and Mymetics BV, which is the wholly owned subsidiary of BH. BH has a remaining patent, which the Company expects to acquire to partially compensate for the approximate Euro 6 million accumulated intercompany loans from Mymetics Corporation to BH. The Company is working with the appropriate accountants to ensure this winddown process follows the applicable tax and accounting regulations. The execution of the winddown is expected to take several months to complete and is subject to various risks and uncertainties that could impact on the Company's ability to successfully complete the winddown or the costs associated with the winddown. To the extent that none of the remaining strategic alternatives are viable, we are exploring a possible winddown of the Company. As of the date of this filing, there is no certainty or conclusion on the future of the Company.

These consolidated financial statements have been prepared assuming the Company will continue as a going concern, however the significantly reduced human resource and lack of financial resources has triggered the Company to record a complete Goodwill write-off for the period ending June 30, 2023. The Company has experienced negative cash flows from operations and significant losses since inception resulting in an accumulated deficit of €112,101 at June 30, 2023. Further, the Company’s current liabilities exceed its current assets by €74,347 as of June 30, 2023, and there is no assurance that cash will become available to pay current liabilities in the near term. Management is seeking strategic alternatives but there can be no assurance that management will be successful in any of those efforts. These conditions raise substantial doubt about our ability to continue as a going concern within three months of the issuance of the financial statements. Besides the Goodwill impairment, the financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Leases

Effective January 1, 2019, the Company adopted ASC 842, which established a right-of-use ("ROU") model requiring lessees to record a right-of-use ("ROU") asset and lease obligations on the balance sheet for all leases with terms longer than 12 months. The Company determines if an arrangement is a lease at inception. Where an arrangement is a lease, the Company determines if it is an operating lease or a finance lease. At lease commencement, the Company records a lease liability and corresponding right-of-use ("ROU") asset. Lease liabilities represent the present value of our future lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the Company’s lease liability is determined using its incremental collateralized borrowing rate at lease inception. ROU assets represent its right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term (operating leases only), the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight line expense recognition. The Company does not apply lease recognition requirements for short-term leases. Instead, the Company recognizes payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated.

New Accounting Pronouncement

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, ASU 2020-06 simplifies accounting for the issuance of convertible instruments by removing major separation models required under current GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share (EPS) calculation in certain areas. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, beginning in fiscal years which begin after December 15, 2020. The FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact of the pending adoption of this new standard on its consolidated financial statements.

Foreign Currency Translation

The Company translates non-Euro assets and liabilities of its subsidiaries at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the period. Unrealized gains or losses from these translations are reported as a separate component of comprehensive income. Transaction gains or losses are included in foreign exchange (gain) loss in the consolidated statements of comprehensive loss. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations. The Company's reporting currency is the Euro because substantially all of the Company's activities are conducted in Europe.

Cash

The Company considers all highly liquid investments purchased with maturities of six months or less to be cash equivalents. Cash deposits are occasionally in excess of insured amounts.

Revenue Recognition

Effective January 1, 2018, the Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, using the modified retrospective method and there was no impact to financial position and results of operations as a result of the adoption. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Overall, adoption of the new standard did not result in an adjustment to amounts previously reported in our consolidated financial statements and there were no other significant changes impacting the timing or measurement of our revenue or our business processes and controls.

The Company has concluded that government grants are not within the scope of Topic 606, as they do not meet the definition of a contract with a “customer”. The Company concluded the definition of a contract with a “customer” was not met as the counterparty to the government grants has not contracted to obtain goods or services and thus the contracts are not considered to have commercial substance. Government grants provide the Company with payments for certain types of expenditures related to research and development activities over a contractually defined period. Revenue from government grants is recognized in the period during which the related costs are incurred, provided that the applicable conditions under the government contracts have been met.

NIH

On April 29, 2019, the National Institutes of Health (“NIH”) awarded the Company and Texas Biomedical Research Institute (“Texas Biomed”) a five-year grant for the project called “Cold Chain-independent, Needle-free Mucosal Virosomal Vaccine to Prevent HIV-1 Acquisition at Mucosal Levels” (“NIH Grant”). The project started on May 1, 2019, and has been planned for five years. It was initially co-led by Texas Biomed, but due to the move of Dr. Ruth Ruprecht, the Co-Principal Investigator, to the University of Louisiana at Lafayette (“ULL”) at the end of 2019, ULL has become the co-lead with Mymetics for this project. The overall budget related to the project is US$8,850 with US$8,761 approved for the period of (May 2019 to April 2024). This includes the funds approved for the period of (May 2023 to April 2024) of US$1’630.

The amounts mentioned in the following statements are purely related to the Company and not to the other partners in the project: The overall portion of the grant allocated to the Company is US$4,052 approved for the period of (May 2019 to April 2024). This includes the funds approved for the period of (May 2023 to April 2024) of US$97. In March 2023, an amendment to the contract was signed to reduce the allocated funds from ULL to the Company from US$1,328 to US$ 815, as more funds were allocated to the animal studies at ULL.

The cost granted under the sub-award with Texas Biomed for the period of (May to December 2019) was US$743, of which, US$599 (€542) was incurred as revenue.

The sub-award contracts between ULL and the Company for the period of (January 2020 to April 2021) were signed for a total budget of US$1,319, of which, US$1,048 (€909) was incurred as revenue.

The sub-award contract between ULL and the Company for the period of (May 2021 to April 2022) was signed for a total budget of US$1,078, of which, US$986 (€899) was incurred as revenue.

The sub-award contract, including the amendment, between ULL and the Company for the period of (May 2022 to April 2023) was signed for a total budget of US$815, of which, US$674 (€638) was incurred as revenue as of end of April 2023.

The sub-award contract between ULL and the Company for the period of (May 2023 to April 2024) was signed for a total budget of US$97, of which, US$19 (€17) was incurred as revenue.

Since the beginning of the project to date, the Company has incurred a total cost of US$3,326 (€3,005) which was recognized as grant revenue from the NIH. For the three and six months ended on June 30, 2023, the Company has incurred a total cost of US$116 (€106) and US$404 (€376), respectively, which was recognized as grant revenue from the NIH. The First results are expected to be reported in 2023.

The project has the objective to prepare the Company’s HIV-1 vaccine candidate for clinical trials, by first executing a non-human primate (“NHP”) study, where the test subjects will be receiving Mymetics’ virosome based HIV-1 vaccine candidate by several intra-muscular and intra-nasal applications, followed by rectal challenges. As of June 30, 2023, Mymetics has successfully produced six sets of virosome based vaccines and the NHPs have received two intramuscular vaccinations and three intranasal vaccinations in two different studies. The vaccinations were well tolerated. The final studies are ongoing. The vaccine candidate is created to induce protective mucosal antibodies acting as a frontline defense against sexual HIV transmission. This grant from the NIH has allowed the Company to continue some of the developments that were achieved during the European Horizon 2020 project.

In February 2022, Mymetics announced the publication of results in Frontiers in Immunology title: “Cooperation between Systemic and Mucosal Antibodies Induced by Virosomal Vaccines Targeting HIV1 Env: Protection of Indian Rhesus Macaques against Mucosal SHIV challenges”.

Receivables

Receivables are stated at their outstanding principal balances. Management reviews the collectability of receivables on a periodic basis and determines the appropriate amount of any allowance. There was no allowance necessary at June 30, 2023 or December 31, 2022. The Company writes off receivables to the allowance when management determines that a receivable is not collectible. The Company may retain a security interest in the products sold.

Property and Equipment

Property and equipment is recorded at cost and is depreciated over its estimated useful life on straight-line basis from the date placed in service. Estimated useful lives are usually taken as three years.

Impairment of Long-Lived Assets

Long-lived assets, which include property and equipment, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. The impairment testing involves comparing the carrying amount to the forecasted undiscounted future cash flows generated by that asset. In the event the carrying value of the assets exceeds the undiscounted future cash flows generated by that asset and the carrying value is not considered recoverable, impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, calculated using a discounted future cash flow method. An impairment loss would be recognized in net income (loss) in the period that the impairment occurs.

Goodwill

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. The Company typically performs its annual goodwill impairment test effective as of April 1 of each year, unless events or circumstances indicate impairment may have occurred before that time. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. With the significantly reduced human resources and lack of funds the Company has recorded a complete Goodwill write-off for the period ending June 30, 2023.

Research and Development

Research and development costs are expensed as incurred.

Taxes on Income

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates.

The Company reports a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of interest expense and other expense, respectively.

The Company has not recorded any liabilities for uncertain tax positions or any related interest and penalties at December 31, 2022 or 2021. The Company’s United States tax returns are open to audit for the years ended December 31, 2018 to 2021. The returns for the Swiss subsidiary, Mymetics S.A., are open to audit for the year ended December 31, 2021. The returns for the Netherlands subsidiaries, Bestewil B.V. and Mymetics B.V., are open to audit for the year ended December 31, 2021.

Earnings per Share

Basic earnings per share is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities. For the periods ended June 30, 2023 and 2022, options and convertible debt were not included in the computation of diluted earnings per share because their effect would be anti-dilutive due to net losses incurred under the treasury stock method.

For the three and six months ended June 30, 2023, the basic weighted and diluted average number of shares was 303,757,622. The total potential number of shares issuable of 820,925,100 at June 30, 2023 includes 795,175,100 potential issuable shares related to convertible loans, and 25,750,000 potential issuable shares related to outstanding stock options granted to employees.

For the three and six months ended June 30, 2022, the basic weighted and diluted average number of shares was 303,757,622. The total potential number of shares issuable of 784,480,472 at June 30, 2022 includes 758,730,472 potential issuable shares related to convertible loans, and 25,750,000 potential issuable shares related to outstanding stock options granted to employees.

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock that may be issued in several series with varying dividend, conversion and voting rights. No preferred shares are issued or outstanding at June 30, 2023 or December 31, 2022.

Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value Measurements

Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

	Level 1-	Quoted prices in active markets for identical assets or liabilities.
	Level 2-	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or abilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by servable market data for substantially the full term of the assets or liabilities.
	Level 3-	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the sets or liabilities.

Fair Values of Financial Instruments

The Company generally has the following financial instruments: cash, receivables, accounts payable, and notes payable. The carrying value of cash, accounts receivable, and accounts payable, approximates their fair value based on the short-term nature of these financial instruments. Management believes the fair value of the note’s payable is reflecting the actual value reported for these instruments.

Concentrations

The Company derived 99% of grant revenue for the six-month periods ended June 30, 2023 and 2022, respectively, from one grantor, respectively. For the period ended December 31, 2022, the Company derived 100% of grant revenue from one partner.

Related Party Transactions

Mr. Ernest M. Stern, the Company’s, is a partner in Culhane Meadows PLLC and was outside counsel to the company and a director of the Company until his resignation on December 20, 2022. Culhane Meadows PLLC was the Company’s legal counsel until December 31, 2022. Fees incurred with the law firm was NIL in the six months ended June 30, 2023, and €33 for the six months ended June 2022.

Two of the Company’s major shareholders have granted secured convertible notes and short-term convertible notes and promissory notes, which have a total carrying amount of €73,675 including interest due as of June 30, 2023. Conversion prices on the Euro-denominated convertible debt have been fixed to a fixed Euro/US dollar exchange rate.

MYMETICS CORP 10-Q