<PAGE> 1
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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
<TABLE>
<S> <C>
For Quarter Ended Commission File No.
SEPTEMBER 30, 1997 0-26770
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</TABLE>
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
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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 November 10, 1997
11,962,387
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The accompanying notes are an integral part of the
consolidated financial statements
<PAGE> 2
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total Revenues $ 79,944 $ 11,327 $ 229,678 $ 38,324
----------------- ---------------- ---------------- ----------------
Operating Expenses:
General and Administrative 613,898 286,429 1,857,719 1,262,912
Research and Development 670,669 777,167 2,033,126 2,513,152
----------------- ---------------- ---------------- ----------------
Total Operating Expenses $ 1,284,567 1,063,596 3,890,845 3,776,064
----------------- ---------------- ---------------- ----------------
Operating Loss (1,204,623) (1,052,269) (3,661,167) (3,737,740)
Interest Income, net 65,707 31,653 178,686 121,107
Net Loss $ (1,138,916) $ (1,020,616) $ (3,482,481) $ (3,616,633)
================= ================ ================ ================
Net Loss per Common Share $ (0.10) $ (0.10) $ (0.30) $ (0.36)
================= ================ ================ ================
Weighted Average Number of
Common Shares Outstanding 11,900,529 10,055,661 11,558,594 9,998,028
================= ================ ================ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
2
<PAGE> 3
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,844,024 $ 2,481,258
Marketable securities -- 500,820
Accounts receivable 11,382 --
Prepaid expenses and other current assets 50,710 171,027
------------------ ------------------
Total Current Assets 4,906,116 3,153,105
Property and equipment - cost 1,425,700 1,383,123
Accumulated depreciation (522,784) (405,212)
------------------ ------------------
902,916 977,911
Patent costs, (net of accumulated amortization of $515,189 and 1,517,754 1,494,880
$430,057 in 1997 and 1996, respectively)
Other assets 79,628 96,056
------------------ ------------------
Total Assets $ 7,406,414 $ 5,721,952
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Capital lease obligations $ 10,744 $ 10,744
Accounts payable 138,246 367,754
Accrued payroll 72,783 196,593
Payable to former parent - 6,176
------------------ ------------------
Total current liabilities 221,773 581,267
Capital lease obligations, less current maturities 15,313 23,607
------------------ ------------------
Total Liabilities 237,086 604,874
------------------ ------------------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000 shares -- --
authorized
Common stock, $.01 par value, 30,000,000 shares authorized, 119,085 106,607
11,908,507 and 10,660,710 shares issued and outstanding in 1997
and 1996, respectively
Additional paid-in capital 37,498,920 32,409,899
Accumulated deficit (30,278,645) (26,796,164)
Deferred compensation on stock options granted (170,032) (603,264)
------------------ ------------------
Total stockholders' equity 7,169,328 5,117,078
------------------ ------------------
Total liabilities and stockholders' equity $ 7,406,414 $ 5,721,952
================== ==================
</TABLE>
The accompanying notes are an integral
part of the consolidated
financial statements
3
<PAGE> 4
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(3,482,481) $(3,616,633)
Reconciliation of net loss to net cash used by operating
activities:
Non-cash compensation expense 433,232 1,057,983
Depreciation and amortization 206,234 233,991
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 136,745 (128,251)
Accounts receivable (11,382) --
Payable to/receivable from former parent (6,176) 230,474
Accounts payable and accrued expenses (353,318) (77,831)
----------- -----------
Net cash used by operating activities (3,074,647) (2,400,267)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of marketable securities 500,820 --
Capital expenditures (42,577) (29,545)
Deferred patent costs (111,536) (283,142)
----------- -----------
Net cash provided (used) by investing activities 346,707 (312,687)
----------- -----------
Cash flows from financing activities:
Payment of capital lease obligations (8,294) --
Proceeds from the private placement of common stock, net 5,002,718 --
Proceeds from the exercise of common stock options 96,282 219,856
----------- -----------
Net cash provided by financing activities 5,090,706 219,856
----------- -----------
Net change in cash and cash equivalents 2,362,766 (2,493,098)
Cash and cash equivalents at beginning of year 2,481,258 4,634,236
----------- -----------
Cash and cash equivalents at September 30, 1997 and 1996 $ 4,844,024 $ 2,141,138
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated
financial statements
4
<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,Inc. and its wholly-owned subsidiaries Micro-Pak, Inc., Micro Vesicular
Systems, Inc., and Lipovax, Inc. All significant intercompany accounts and
transactions have been eliminated. These statements have been prepared by
Novavax, Inc. (the Company) 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
presentation 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, Inc., the Company's former parent, 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 nine month period ended September 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 LP. 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.
5
<PAGE> 6
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion may contain statements that are not purely historical
and are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Company's expectations, hopes, beliefs,
intentions or strategies regarding the future. Forward-looking statements
include: statements regarding future product development and related clinical
trials, statements regarding future research and development spending,
statements regarding establishment of commercial-scale manufacturing
capabilities, and statements regarding future collaborations with industry
partners. Such statements may be found under the heading Liquidity and
Capital Resources. All forward-looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
It is important to note that the Company's actual results could differ
materially from such forward-looking statements. Additionally, past results
and trends should not be used by investors to anticipate future results or
trends. Among the factors that could cause the Company's future operating
results to be materially affected are 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.
6
<PAGE> 7
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
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.
Three months ended September 30, 1997 compared to 1996
The net loss of $1,138,916 for the quarter ended September 30, 1997, was
$118,301 more than the net loss of $1,020,616 in the quarter ended September
30, 1996.
Revenues of $79,944, for services related to vaccine products, services and
adjuvant technologies were recognized during the three months ended September
30, 1997 compared to revenues of $11,327 during the three months ended
September 30, 1996.
General and administrative expenses were $613,898 for the three months ended
September 30, 1997 compared to $286,429 incurred for the same period in 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 financing and industry collaboration efforts
contributed to most of the $327,469 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 $670,669 and $777,167 for the three
months ended September 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
$116,717 in the third quarter 1997, compared to $345,099 in the third quarter
1996. Net expenses exclusive of these costs, totaled $553,952 and $432,068 for
the periods ended September 30, 1997 and 1996, respectively. This increase of
$121,884 is related to the number of product candidates in clinical trials and
facility expansion.
Net interest income of $65,707 was recorded in the three months ended September
30, 1997 compared with net interest income of $31,653 in the three months
ended September 30, 1996. The $34,054 increase is due to higher average cash
balances during the third quarter 1997, when compared to average cash balances
during the same period in 1996.
7
<PAGE> 8
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
Nine months ended September 30, 1997 compared to 1996
The net loss of $3,482,481 for the nine months ended September 30, 1997, was
$134,152 lower than the net loss of $3,616,633 in the nine months ended
September 30, 1996.
Revenues of $229,678 were recognized during the nine months ended September 30,
1997, for services related to vaccine products, services and adjuvant
technologies compared with revenues of $38,324 during the nine months ended
September 30, 1996.
General and administrative expenses were $1,857,719 for the nine months ended
September 30, 1997, compared to $1,262,912 incurred for the same period in
1996. Increased staffing including the addition of a new Chief Financial
Officer and a new Chief Executive Officer, 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 also contributed to the $594,807 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 $2,033,126 and $2,513,152 for the nine
months ended September 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
$350,153 in the first nine months of 1997, compared to $1,050,421 in the first
nine months of 1996. Research and development expenses exclusive of these
totaled $1,682,973 and $1,462,731 for the nine month periods ended September
30, 1997 and 1996, respectively. The increase of $220,241 in the net expenses
is related to the number of product candidates in clinical trials and facility
expansion.
Net interest income of $178,686 was recorded in the nine months ended September
30, 1997 compared with net interest income of $121,107 in the nine months ended
September 30, 1996 due to an increase in average cash balances during the first
nine months of 1997, when compared to the average cash balances during the same
period in 1996.
8
<PAGE> 9
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
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 human clinical trials. This
rapid development prompted the need for expansion in late 1996. Future
activities to establish commercial-scale manufacturing capabilities are subject
to the Company's ability to raise funds through equity financing, or
collaborative arrangements with corporate partners.
The Company used $3,237,054 of its cash resources during the nine month period
ended September 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 $229,678, Novavax received
proceeds of $96,282 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, LP in March 1997.
Cash and cash equivalents on September 30, 1997 totaled $4,844,024. Novavax
estimates that based on historical levels of spending, existing cash resources
will be sufficient to finance its operations for approximately 12 to 14 months
from September 30, 1997.
Past spending levels are not necessarily indicative of future spending. Future
expenditures for product development, especially related to outside testing and
human clinical trials, are discretionary and, accordingly, can be adjusted to
available cash.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company is seeking to establish one or more collaborations with industry
partners to defray the costs of clinical trials and other related activities.
Novavax will also continue to consider sources of additional funds through
public or private equity or debt financings. 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'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.
10
<PAGE> 11
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
None
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
11
<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: November 14, 1997
By: /s/ BRENDA L. FUGAGLI
---------------------------------------
Brenda L. Fugagli
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<PAGE> 1
EXHIBIT 11
NOVAVAX, INC. AND SUBSIDIARIE
COMPUTATION OF NET LOSS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (1,138,916) $ (1,020,616) $ (3,482,481) $ (3,616,633)
============= ============= ============= =============
Weighted average of
common shares
outstanding 11,900,529 10,055,661 11,558,594 9,998,028
============= ============= ============= =============
Net loss per common
share outstanding $(0.10) $(0.10) $(0.30) $(0.36)
============= ============= ============= =============
</TABLE>
Common stock equivalents were not included in the above as they are
antidilutive.
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,844,024
<SECURITIES> 0
<RECEIVABLES> 11,382
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,906,116
<PP&E> 1,425,700
<DEPRECIATION> (522,784)
<TOTAL-ASSETS> 7,406,414
<CURRENT-LIABILITIES> 221,773
<BONDS> 0
119,085
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,406,414
<SALES> 229,678
<TOTAL-REVENUES> 229,678
<CGS> 0
<TOTAL-COSTS> 3,890,845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,482,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,482,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,482,481)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
