<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
JUNE 30, 1997 0-26770
------------------- ---------------------
NOVAVAX, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2816046
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8320 GUILFORD ROAD, COLUMBIA, MD 21046
- --------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(301) 854-3900
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Shares Outstanding at August 7, 1997
11,898,507
<PAGE> 2
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Total revenues $ 149,733 $ 26,997 $ 149,733 $ 26,997
------------ ------------ ------------ ------------
Cost and expenses:
General and administrative 601,567 540,744 1,243,820 976,483
Research and development 760,833 909,912 1,362,456 1,735,985
------- ------- --------- ---------
Operating loss (1,212,667) (1,423,659) (2,456,543) (2,685,471)
Interest income 78,726 38,824 112,980 89,454
------------ ------------ ------------ ------------
Net loss $ (1,133,941) $ (1,384,835) $ (2,343,563) $ (2,596,017)
============ ============ ============ ============
Net loss per common share $ (.10) $ (.14) $ (.21) $ (.26)
============ ============ ============ ============
Weighted average number of
common shares outstanding 11,891,507 9,992,987 11,389,929 9,967,962
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE> 3
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,846,499 $ 2,481,258
Marketable securities -- 500,820
Accounts receivable 92,653 --
Prepaid expenses and
other current assets 96,492 171,027
------------ ------------
Total current assets 6,035,644 3,153,105
------------ ------------
Property and equipment - cost 1,419,447 1,383,123
Accumulated depreciation (483,465) (405,212)
------------ ------------
935,982 977,911
------------ ------------
Patent costs, net of accumulated
amortization of $487,143 and
$430,057 in 1997 and 1996,
respectively 1,552,941 1,494,880
Other assets 77,177 96,056
------------ ------------
Total assets $ 8,601,744 $ 5,721,952
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations $ 10,744 $ 10,744
Accounts payable 349,916 367,754
Accrued payroll 89,148 196,593
Payable to former parent -- 6,176
------------ ------------
Total current liabilities 449,808 581,267
------------ ------------
Capital lease obligations,
less current maturities 17,520 23,607
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized -- --
Common stock, $.01 par value,
30,000,000 shares authorized,
11,898,507 and 10,660,710 shares
issued and outstanding in 1997 and
1996, respectively 118,985 106,607
Additional paid-in capital 37,469,600 32,409,899
Accumulated deficit (29,139,727) (26,796,164)
Deferred compensation on stock
options granted (314,442) (603,264)
------------ ------------
Total stockholders equity 8,134,416 5,117,078
------------ ------------
Total liabilities and
stockholders equity $ 8,601,744 $ 5,721,952
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE> 4
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,343,563) $(2,596,017)
Reconciliation of net loss to net cash
used by operating activities:
Non-cash compensation expense 288,822 705,322
Depreciation and amortization 135,339 153,728
Issuance of stock to 401(k) plan 2,499 --
Provision for deferred taxes -- (100,000)
Changes in operating assets and liabilities:
Prepaid expenses and other assets 93,414 25,973
Accounts receivable (92,654) --
Payable to/receivable from former parent (6,176) 230,474
Accounts payable and accrued expenses (125,283) (36,002)
----------- -----------
Net cash used by operating activities (2,047,601) 1,616,522)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of marketable securities 500,820 --
Capital expenditures (36,324) (24,259)
Deferred patent costs (115,147) (206,305)
----------- -----------
Net cash provided (used) by investing activities 349,349 (230,564)
----------- -----------
Cash flows from financing activities:
Payment of capital lease obligations (6,087) --
Proceeds from the private placement of
common stock, net 5,002,718 --
Proceeds from exercise of common
stock options 66,862 214,691
----------- -----------
Net cash provided by financing activities 5,063,493 214,691
----------- -----------
Net change in cash and cash equivalents 3,365,241 (1,632,395)
Cash and cash equivalents at beginning of year 2,481,258 4,634,236
----------- -----------
Cash and cash equivalents at June 30, 1997 and 1996 $ 5,846,499 $ 3,001,841
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 5
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Novavax its wholly-owned subsidiaries Micro-Pak, Inc. and Micro Vesicular
Systems, Inc., and Lipovax, Inc. All significant intercompany accounts and
transactions have been eliminated. These statements have been prepared by
Novavax, Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. Transactions with Former Parent
On December 12, 1995 IGI distributed to the holders of record of IGI's
common stock, at the close of business on the Record Date, November 28, 1995
one share of the Company's common stock for every one share of IGI common stock
outstanding (the "Distribution").
Under a Transition Services Agreement, established at the time of the
Distribution, IGI continued to provide certain administrative services to
Novavax, including services relating to human resources, purchasing and
accounting, data processing and payroll services from the Distribution until
June 30, 1996. Novavax paid IGI a fee for all services provided by IGI
employees, based on IGI's costs. For the six month period ended June 30, 1996,
$230,474 of such costs were incurred.
3. Financing Transactions
On February 10, 1997, Novavax signed a definitive agreement to privately
place 1,200,000 common shares with Anaconda Opportunity Fund L.P. Novavax also
granted warrants to purchase an additional 600,000 shares at a price of $6.00
per share and 600,000 shares at a price of $8.00 per share. The warrants have a
three year term. The transaction was closed on March 14, 1997 at an aggregate
price of $5,100,000. Upon closing, the Company received $4,100,000 in cash and
a $1,000,000 promissory note. The note became due on March 27, 1997 and the
Company has received all proceeds thereof.
4
<PAGE> 6
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion may contain "forward-looking" statements, as that
term is defined by (i) the Private Securities Litigation Reform Act of 1995
(the "Reform Act") and (ii) in releases made by the Securities and Exchange
Commission from time to time. Such statements should be read in conjunction
with the cautionary factors described in Exhibit 99 attached to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated into this discussion by this reference and the consolidated
financial statements and related notes. The Company's future operating results
may be affected by various trends and factors that are beyond the Company's
control. These include among other factors, changes in general economic
conditions, rapid or unexpected changes in technologies and uncertain business
conditions that affect the pharmaceutical and vaccine industries. Accordingly,
past results and trends should not be used by investors to anticipate future
results or trends.
RESULTS OF OPERATIONS
The Company has incurred net losses since its inception from the
development of its technologies for human pharmaceuticals, vaccines and vaccine
adjuvants. Novavax expects the losses to increase in the near-term as it
conducts additional human clinical trials and seeks regulatory approval for its
product candidates. The Company also expects to continue to incur substantial
operating losses over the extensive time period required to develop the
Company's products, or until such time as revenues, to offset the losses, are
sufficient to fund its continuing operations.
5
<PAGE> 7
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
Three months ended June 30, 1997 compared to 1996
The net loss of $1,133,941 for the quarter ended June 30, 1997, was
$250,894 less than the net loss of $1,384,835 in the quarter ended June 30,
1996.
Revenues of $149,733, for services related to vaccine and adjuvant
technologies were recognized during the three months ended June 30, 1997
compared to revenues of $26,997 during the three months ended June 30, 1996.
General and administrative expenses were $601,567 for the three months
ended June 1997 compared to $540,744 incurred in the three months ended June
1996. An increase in the non-cash compensation expense related to non-employee
options and warrants granted during 1996, increased staffing, facility
expansion and an increase in shareholder services contributed to most of the
$60,823 increase. Non-recurring expenses incurred in 1996, associated with the
Transition Services Agreement were offset by infrastructure growth to provide
those functions internally.
Research and development expenses were $760,833 and $909,912 for the three
months ended June 30, 1997 and 1996, respectively. The decrease in these
expenses was a direct result of the non-cash charges related to the
below-market priced stock options issued at the time of the Distribution, of
$116,718 in the second quarter 1997, compared to $345,000 in the second quarter
1996. Net expenses exclusive of these costs, totaled $644,115 and $564,912 for
the periods ended June 30, 1997 and 1996, respectively. This increase of
$79,203 is related to the number of products in clinical trials and facility
expansion.
Net interest income of $78,726 was recorded in the three months ended June
30, 1997 compared with net interest income of $38,824 in the three months ended
June 30, 1996. The $39,902 increase is due to higher average cash balances
during the second quarter 1997, when compared to average cash balances during
the same period in 1996.
Six months ended June 30, 1997 compared to 1996
The net loss of $2,343,563 for the six months ended June 30, 1997, was
$252,454 lower than the net loss of $2,596,017 in the six months ended June 30,
1996.
Revenues of $149,733 were recognized during the six months ended June 30,
1997, for services related to vaccine and adjuvant technologies compared with
revenues of $26,997 during the six months ended June 30, 1996.
6
<PAGE> 8
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
Six months ended June 30, 1997 compared to 1996 (continued)
General and administrative expenses were $1,243,820 for the first six
months of 1997, as compared to the $976,483 incurred for general and
administrative expenses for the same period in 1996. Increased staffing in
administration and accounting in the latter part of 1996, including the
addition of a Chief Financial Officer and a Chief Executive Officer, was a
significant part of the variance between the first six months of 1996 and the
first six months of 1997. Non-recurring expenses incurred in 1996, associated
with the Transition Services Agreement were offset by infrastructure growth to
provide those functions internally. Additionally, facility expansion and costs
associated with financing and industry collaboration efforts, together with an
increase in the non-cash compensation expense related to non-employee options
and warrants granted during 1996, also contributed to the $267,337 increase.
Research and development expenses were $1,362,456 and $1,735,985 for the
six months ended June 30, 1997 and 1996, respectively. The decrease in these
expenses was a direct result of the non-cash charges related to the
below-market priced stock options issued at the time of the Distribution, of
$233,436 in the first six months of 1997, compared to $697,500 in the first six
months of 1996. Expenses exclusive of these totaled $1,129,020 and $1,038,485
for the six month periods ended June 30, 1997 and 1996, respectively. The
increase of $98,035 in the net expenses is related to the number of products in
clinical trials and facility expansion.
Net interest income of $112,980 was recorded in the six months ended June
30, 1997 compared with net interest income of $89,454 in the six months ended
June 30, 1996 due to an increase in average cash balances during the first six
months of 1997 when compared to the average cash balances during the same
period in 1996.
Liquidity and Capital Resources
Novavax's capital requirements depend on numerous factors, including but
not limited to the progress of its research and development programs, the
progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the costs of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, and changes in Novavax's development of
commercialization activities and arrangements. In less than one year the
Company has moved three product candidates into clinical trials. This rapid
development prompted the need for expansion in late 1996. Further expansion
necessary to establish commercial-scale manufacturing capabilities and the
future purchases of capital equipment are subject to the Company's ability to
raise funds through equity financing, or collaborative arrangements with
corporate partners.
7
<PAGE> 9
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company used $2,205,159 of its cash resources during the six month
period ended June 30, 1997 to fund the activities of its research and
development programs, costs associated with obtaining regulatory approvals and
preclinical and clinical testing. In addition to revenues of $149,733, Novavax
received proceeds of $66,862 from the exercise of stock options and $5,002,718,
net of all transaction costs, from the sale of 1,200,000 common shares and
warrants to purchase an additional 1,200,000 common shares that were privately
placed with Anaconda Opportunity Fund, L.P. in March 1997. Cash and cash
equivalents on June 30, 1997 totaled $5,846,499. Novavax estimates that
existing cash resources will be sufficient to finance its operations for
approximately 14 to 16 months from June 30, 1997. This estimate considers the
current level of development activity along with anticipated increases in
spending associated with certain clinical testing and development activities.
Past spending levels are not necessarily indicative of future spending.
Future expenditures for product development, especially relating to outside
testing and human clinical trials, are discretionary and, accordingly, can be
adjusted to available cash. Moreover, the Company will seek to establish one or
more collaborations with industry partners to defray the costs of clinical
trials and other related activities. Novavax will also seek to obtain
additional funds through public or private equity or debt financings,
collaborative arrangements with pharmaceutical companies or from other sources.
There can be no assurance that additional funding or bank financing will be
available at all or on acceptable terms to permit successful commercialization
of Novavax or Novavax's technology and products. If adequate funds are not
available, Novavax may be required to significantly delay, reduce the scope of
or eliminate one or more of its research or development programs, or seek
alternative measures including arrangements with collaborative partners or
others that may require Novavax to relinquish rights to certain of its
technologies, product candidates or products.
New Accounting Pronouncement: Financial Accounting Standards No. 128
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share, which
is effective for years ending after December 15, 1997. The impact of this
statement on loss per share amounts is not material for the periods presented.
8
<PAGE> 10
NOVAVAX, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 15, 1997, the
following proposals were adopted by the vote specified below:
1. PROPOSAL I
Election of Directors
Number of Shares/Votes
----------------------
For Authority Withheld
--- ------------------
J. Michael Lazarus 10,113,467 167,896
John O. Marsh, Jr. 10,111,117 170,246
Jane E. Hager 10,102,109 179,254
2. PROPOSAL II
To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors of the company for the current fiscal year ending December 31,
1997.
For 10,135,452
Against 136,958
Abstain 8,953
Broker non-votes 0
9
<PAGE> 11
NOVAVAX, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION (continued)
Item 5 - Other information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Net loss Per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
10
<PAGE> 12
NOVAVAX, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
NOVAVAX, INC.
(Registrant)
Date: August 8, 1997
By: /s/ BRENDA L. FUGAGLI
--------------------------------------------
Brenda L. Fugagli
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE> 1
EXHIBIT 11
NOVAVAX, INC. AND SUBSIDIARIE
COMPUTATION OF NET LOSS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $(1,133,941) $(1,384,835) $(2,343,563) $(2,596,017)
============ ============ ============ ============
Weighted average of common
shares outstanding 11,891,507 9,992,987 11,389,929 9,967,962
============ ============ ============ ============
Net loss per common
share outstanding $ (.10) $ (.14) $ (.21) $ (.26)
============ ============ ============ ============
</TABLE>
Common stock equivalents were not included in the above as they are
antidilutive.
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,846,499
<SECURITIES> 0
<RECEIVABLES> 92,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,035,644
<PP&E> 1,419,447
<DEPRECIATION> (483,465)
<TOTAL-ASSETS> 8,601,744
<CURRENT-LIABILITIES> 449,808
<BONDS> 0
0
0
<COMMON> 118,985
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,601,744
<SALES> 149,733
<TOTAL-REVENUES> 149,733
<CGS> 0
<TOTAL-COSTS> 2,606,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,343,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,343,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,343,563)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
