<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.
SEPTEMBER 30, 1999 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 November 5, 1999
15,007,889
1
<PAGE> 2
NOVAVAX, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Statements of Operations for the three-month and nine-month
periods ended September 30, 1999 and 1998..........................................3
Balance Sheets as of September 30, 1999 and December 31, 1998......................4
Statements of Cash Flows for the nine-month periods
ended September 30, 1999 and 1998..................................................5
Notes to Financial Statements......................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................16
Signatures.......................................................................................17
</TABLE>
2
<PAGE> 3
ITEM 1
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998* 1999 1998*
---- ----- ---- -----
<S> <C> <C> <C> <C>
Revenues $ 143 $ 198 $ 471 $ 523
------------- ------------ -------------- ------------
Operating expenses:
General and administrative 807 627 1,806 1,889
Research and development 1,119 857 2,243 2,124
------------- ------------ -------------- ------------
Total operating expenses 1,926 1,484 4,049 4,013
------------- ------------ -------------- ------------
Loss from operations (1,783) (1,286) (3,578) (3,490)
Interest income, net 14 142 44 364
------------- ------------ -------------- ------------
Net loss (1,769) (1,144) (3,534) (3,126)
Dividend on preferred stock - (78) - (214)
Deemed dividend on preferred stock - - - (1,583)
Accretion of offering costs - (58) - (160)
------------- ------------ -------------- ------------
Loss applicable to common stockholders $ (1,769) $ (1,280) $ (3,534) $ (5,083)
============= ============ ============== ============
Per share information (basic and diluted):
Loss applicable to common stockholders $ (.12) $ (.10) $ (.25) $ (.42)
============= ============ ============== ============
Weighted average number of common
Shares outstanding (basic and diluted) 14,980,410 12,337,366 14,333,446 12,157,128
============= ============ ============== ============
</TABLE>
*As restated, see Note 5
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ ------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,048 $ 1,031
Accounts receivable 66 138
Prepaid expenses and other current assets 29 38
------------------ ------------------
Total current assets 1,143 1,207
Property and equipment, net 1,080 1,020
Patent costs, net 1,568 1,590
Goodwill and other intangible assets, net 682 2
------------------ ------------------
Total assets $ 4,473 $ 3,819
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Non-compete and lease obligations, current maturities $ 156 $ 36
Accounts payable 704 793
Accrued payroll 86 29
------------------ ------------------
Total current liabilities 946 858
------------------ ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value, 30,000,000 shares authorized;
14,998,889 and 13,253,118 issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 150 133
Additional paid-in capital 45,307 41,231
Accumulated deficit (41,922) (38,388)
Deferred compensation on stock options granted (8) (15)
------------------ ------------------
Total stockholders' equity 3,527 2,961
------------------ ------------------
Total liabilities and stockholders' equity $ 4,473 $ 3,819
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998*
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,534) $(3,126)
Reconciliation of net loss to net cash used by
Operating activities:
Non-cash compensation expense 7 8
Depreciation and amortization 254 198
Issuance of stock to 401(k) plan - 15
Changes in operating assets and liabilities:
Accounts receivable 72 131
Prepaid expenses and other assets (4) 210
Accounts payable and accrued expenses (152) (98)
----------- ----------
Net cash used by operating activities (3,357) (2,662)
----------- ----------
Cash flows from investing activities:
Acquisition of business (592) -
Capital expenditures (24) (198)
Deferred patent costs (75) (81)
----------- ----------
Net cash used by investing activities (691) (279)
----------- ----------
Cash flows from financing activities:
Payment of capital lease obligations (28) (24)
Issuance of common stock 4,128 50
Issuance of preferred stock - 6,500
Dividend on preferred stock - (48)
Offering costs (174) (502)
Proceeds from the exercise of stock options 139 335
----------- ----------
Net cash provided by financing activities 4,065 6,311
----------- ----------
Net change in cash and cash equivalents 17 3,370
Cash and cash equivalents at beginning of period 1,031 3,847
----------- ----------
Cash and cash equivalents at end of period $ 1,048 $ 7,217
=========== ==========
</TABLE>
*As restated, see Note 5
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Novavax and its wholly owned subsidiaries, Micro-Pak, Inc., Micro Vesicular
Systems, Inc. and Lipovax, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation. 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 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 consolidated financial
statements be read in conjunction with the consolidated financial statements
and the notes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
2. FINANCING REQUIREMENTS
Past spending levels are not necessarily indicative of future spending. 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. 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. As
of November 1, 1999, Novavax had approximately $1,590,000 in cash which the
Company estimates will be sufficient to finance its operations at current and
projected levels of development activity for the next 5 to 6 months.
6
<PAGE> 7
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITION OF BIOMEDICAL SERVICES LABORATORIES
On August 10, 1999, the Company acquired substantially all of the assets
(excluding cash and accounts receivable) of the Biomedical Services Laboratory
("BSD") division of DynCorp of Reston, Virginia for $592,000 in cash and
assumed liabilities of approximately $60,000. In addition, DynCorp entered into
a five-year non-competition agreement, for which Novavax will make four
quarterly payments of $37,000 each, commencing on November 10, 1999. The
research and development activities of BSD are conducted in a leased 12,000
square foot facility located in Rockville, Maryland. BSD is engaged in contract
research, development and pilot manufacturing of human vaccines for government
laboratories and other vaccine companies.
The acquisition has been accounted for under the purchase method of accounting
for business combinations. The total consideration and direct costs (which
include legal and accounting fees of approximately $60,000) for the acquisition
was $860,000. The following summarizes management's preliminary allocation of
the purchase price based on estimated fair value as of the acquisition date.
Cost ($000) Estimated lives
----------- ---------------
Property and equipment $170 3-7 years
Goodwill and other intangible assets $690 5 years
Property and equipment consists primarily of laboratory equipment that the
Company believes will continue to be used in the operations of the Division.
Goodwill and other intangible assets are being amortized over their preliminary
useful lives of five years.
The operating results of BSD have been included in the consolidated statement
of operations from the acquisition date. The following summary represents pro
forma results of operations if the acquisition had occurred at the beginning of
1998. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations that would
have actually resulted had the combination been in effect and are not intended
to be indicative of future results.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share information.)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 143 $ 785 $3,240 $2,374
Net loss $(1,959) $(1,289) $(3,740) $(5,055)
Loss per share $(.13) $(.10) $(.26) $(.42)
</TABLE>
7
<PAGE> 8
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCING TRANSACTION
In April 1999, the Company entered into Stock and Warrant Purchase Agreements
for the private placement of 1,651,100 shares of its Common Stock to accredited
investors (the "Private Placement"). One of the principals of one of the
investors is also a director of the Company. The issuance price of the Common
Stock was $2.50 per share. Each share was sold together with a non-transferable
warrant for the purchase of .25 additional shares at an exercise price of
$3.75. The warrants have a three-year term. Gross proceeds from the Private
Placement were $4,128,000. Placement agent fees were paid with cash of $107,000
and 42,933 shares of the Company's Common Stock, which were issued together
with non-transferable warrants for the purchase of 10,733 shares of the
Company's Common Stock at an exercise price of $3.75. These warrants have a
three-year term. Additionally, non-transferable warrants for the purchase of
143,000 shares of the Company's Common Stock, with an exercise price of $3.00
per share and a three-year term, were issued to the placement agent. The fair
market value of these warrants was approximately $211,000. Other costs
connected with the Private Placement, including legal, accounting, stock
exchange listing and registration fees, were approximately $67,000. Net
proceeds to the Company from the Private Placement were approximately
$4,000,000.
5. QUARTERLY RESULTS OF OPERATIONS
The consolidated results of operations included in the Company's 1998 Forms
10-Q for the periods ended March 31, June 30 and September 30, 1998, were
restated at December 31, 1998, to account for, in accordance with Topic D-60,
the beneficial conversion feature relating to the Preferred Stock issued in
January 1998. In Topic D-60 the SEC staff addressed the issuance of convertible
preferred stock with a non-detachable conversion feature that is "in the money"
at the date of issue (a "beneficial conversion feature"). Topic D-60 requires
the beneficial conversion feature be recognized and measured by allocating a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. For convertible preferred securities, the SEC staff
believes that any discount resulting from an allocation of proceeds to the
beneficial conversion feature is analogous to a dividend and should be
recognized as a return to the preferred stockholders over the minimum period in
which the preferred stockholders can realize the return of the beneficial
conversion. The original amount of $455,000 allocable to the beneficial
conversion feature recorded as a charge to accumulated deficit by the Company
in its September 30, 1998 Form 10-Q was in error. The correct amount is
$1,957,000, which has been recorded to additional paid-in capital and
recognized as a charge to accumulated deficit. The original amount attributable
to the beneficial conversion was recognized as a return to the preferred
stockholders in the first quarter of 1998. The restated amount has been
recognized over 180 days, the minimum period in which the preferred
stockholders can realize the maximum beneficial conversion. In addition, with
respect to the preferred stock the Company did not properly accrue the related
dividends or accrete the offering costs in the appropriate quarters during
1998. The restated amounts recognize the dividends as earned and offering cost
have been accreted.
8
<PAGE> 9
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. QUARTERLY RESULTS OF OPERATIONS, CONTINUED
Results of operations, as previously reported and as restated, for the three
and nine month periods ended September 30, 1998, with the respective effect of
the restatements, are as follows (in thousands, except per share information):
<TABLE>
<CAPTION>
THREE MONTHS ENDED AS PREVIOUSLY AS RESTATED INCREASE
SEPTEMBER 30, 1998 REPORTED (DECREASE)
<S> <C> <C> <C>
Revenues $ 198 $ 198 $ -
Loss from operations (1,286) (1,286) -
Net loss (1,181) (1,144) (37)
Dividend on preferred stock - (78) 78
Deemed dividend on preferred
stock - - -
Accretion of preferred stock
offering costs - (58) 58
Loss applicable to common
stockholders $ (1,181) $( 1,280) $ 99
Basic and diluted loss per
share $ (.10) $ (.10) $-
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED AS PREVIOUSLY AS RESTATED INCREASE
SEPTEMBER 30, 1998 REPORTED (DECREASE)
<S> <C> <C> <C>
Revenues $ 523 $ 523 $ -
Loss from operations (3,490) (3,490) -
Net loss (3,173) (3,126) (47)
Dividend on preferred stock - ( 214) 214
Deemed dividend on preferred
stock (455) (1,583) 1,128
Accretion of preferred stock
offering costs - (160) 160
Loss applicable to common
stockholders $(3,628) $(5,083) $1,455
Basic and diluted loss per
share $ (.30) $ (.42) $ .12
</TABLE>
9
<PAGE> 10
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. SUBSEQUENT EVENT
On October 21, 1999, the Company entered into a licensing agreement with
Parkedale Pharmaceuticals, a wholly owned subsidiary of King Pharmaceuticals,
Inc. for the rights to Novavax's Novasome adjuvants to be used with Parkedale's
U.S. Food and Drug Administration licensed influenza virus vaccine. Under the
terms of the agreement, Novavax received a licensing fee of $1 million.
Additional payments due under the agreement include milestone payments,
research support and royalties on future product sales.
10
<PAGE> 11
ITEM 2
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion may contain statements that are not purely historical.
Certain statements contained herein or as may otherwise be incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include but are not limited to statements regarding future product
development and related clinical trials and statements regarding future
research and development. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Such factors include, among other things, the following: general economic and
business conditions; competition; unexpected changes in technologies and
technological advances; ability to obtain rights to technology; ability to
obtain and enforce patents; ability to commercialize and manufacture products;
statements regarding establishment of commercial-scale manufacturing
capabilities; statements regarding future collaboration with industry partners;
results of pre-clinical studies; research and development activities; business
abilities and judgment of personnel; availability of qualified personnel;
changes in, or failure to comply with, governmental regulations; ability to
obtain adequate financing in the future; and other factors referenced herein.
All forward-looking statements contained 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.
Accordingly, past results and trends should not be used to anticipate future
results or trends.
The following is a discussion of the historical consolidated financial
condition and results of operations of Novavax, Inc. and its subsidiaries and
should be read in conjunction with the consolidated financial statements and
notes thereto set forth in this Form 10-Q. Additional information concerning
factors that could cause actual results to differ materially from those in the
forward-looking statements is contained from time to time in the Company's SEC
filings, including, but not limited to, the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
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 costs, are sufficient
to fund its operations.
11
<PAGE> 12
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
On August 10, 1999, the Company acquired substantially all of the assets
(excluding cash and accounts receivable) of the Biomedical Services Laboratory
("BSD") division of DynCorp of Reston, Virginia for $592,000 in cash and
assumed liabilities of approximately $60,000. In addition, DynCorp entered into
a five-year non-competition agreement, for which Novavax will make four
quarterly payments of $37,000 each, commencing on November 10, 1999. Also, the
Company incurred approximately $60,000 in direct costs (legal, accounting,
etc.) associated with the acquisition. The total consideration and direct costs
for the acquisition was $860,000. The research and development activities of
BSD are conducted in a leased 12,000 square foot facility located in Rockville,
Maryland. BSD is engaged in contract research, development and pilot
manufacturing of human vaccines for government laboratories and other vaccine
companies. The acquisition has been accounted for under the purchase method of
accounting for business combinations.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
The net loss was $1,769,000, compared to $1,144,000 for 1998. In 1998, charges
for a dividend, a deemed dividend and offering costs totaling $136,000, related
to the mandatorily-redeemable convertible preferred stock, resulted in a loss
applicable to common stockholders for the three months ended September 30, 1998
of $1,280,000. There were no similar charges for the three months ended
September 30, 1999.
Revenues of $143,000 were recognized during the three months ended September
30, 1999, compared to $198,000 for the same period in the prior year. Revenues
include payments made under ongoing research contracts, principally with the
University of Michigan for microbicides. Quarterly fluctuations in revenues
result from numerous factors including the timing of contracts with industry
partners and completion of research and products due under these contracts.
General and administrative expenses were $807,000 for the three months ended
September 30, 1999, compared to $627,000 incurred for the same period in 1998.
The $180,000 or 29% increase in these expenses related principally to fees
incurred for three of the Company's directors for interim services performed by
these individuals. These services included serving as Chief Executive Officer
for eight months and assisting in the private placement process. The
compensation, which amounts to $115,000, will be paid through the issuance of
Novavax common stock. Additionally, the Company recognized expenses related to
the recruiting and relocation of its new president.
Research and development expenses were $1,119,000 and $857,000 for the three
months ended September 30, 1999 and 1998, respectively. This $262,000 or 31%
increase in these expenses relates principally to research costs incurred at
the Company's recently acquired Biomedical Services Laboratory (see Note 5 of
the Notes to the Consolidated Financial Statements). Additionally, the Company
incurred costs related to the Phase III clinical trial of its Estrasorb
product, which commenced in September 1999.
12
<PAGE> 13
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Net interest income was $14,000 and $142,000 for the three months ended
September 30, 1999 and 1998, respectively. The reduction in the interest income
relates to lower average cash balances during the third quarter of 1999
compared to the same period in the prior year.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 1998
The net loss was $3,534,000, compared to $3,126,000 for 1998. In 1998, charges
for a dividend, a deemed dividend and offering costs totaling $1,957,000,
related to the mandatorily-convertible preferred stock, resulted in a loss
applicable to common stockholders for the nine months ended September 30, 1998
of $5,083,000. There were no similar charges for the nine months ended
September 30, 1999.
Revenues of $471,000 were recognized during the nine months ended September 30,
1999, compared to $523,000 for the same period in the prior year. Revenues
include an initial payment made under a vaccine adjuvant license agreement and
payments made under ongoing research contracts.
General and administrative expenses were $1,806,000 for the nine months ended
September 30, 1999, compared to $1,889,000 incurred for the same period in
1998. The $83,000 or 4% decrease in these expenses related to reduced salary
expense due to a reduction in the number of administrative employees. As a
result of the acquisition of BSD, headcount increased from 15 to 40 employees,
and the Company expects the number of employees to increase in future periods
to meet its requirements.
Research and development expenses were $2,243,000 and $2,124,000 for the nine
months ended September 30, 1999 and 1998, respectively. This $119,000 or 6%
increase in these expenses related principally to research costs associated
with the newly acquired BSD operation. In September 1999, the Company commenced
a Phase III clinical trial for its Estrasorb product.
Net interest income was $44,000 and $364,000 for the nine months ended
September 30, 1999 and 1998, respectively. The reduction in the interest income
relates to lower average cash balances during the first nine months of 1999
compared to the same period in the prior year.
13
<PAGE> 14
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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 pre-clinical 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 and
commercialization activities and arrangements. The Company has three products
in clinical trials. Future activities including clinical development and the
establishment of commercial-scale manufacturing capabilities are subject to the
Company's ability to raise funds through equity financing or collaborative
arrangements with industry partners.
The Company used $3,237,000 during the nine month period ended September 30,
1999 to fund the activities of its research and development programs and costs
associated with obtaining regulatory approvals, pre-clinical and clinical
testing. Cash balances available to the Company funded these amounts.
Cash and cash equivalents on November 1, 1999 totaled $1,590,000. Novavax
estimates that based on historical levels of spending and revenues, existing
cash resources will be sufficient to finance its operations for approximately 5
to 6 months. 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. As the Company continues to progress in its
clinical development activities and commercial scale-up of product
manufacturing, it anticipates increases in spending associated with these
activities. 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 consider sources of additional
funds through public or private equity or debt financing, 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's
technologies 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.
14
<PAGE> 15
NOVAVAX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
On October 21, 1999, the Company entered into a licensing agreement with
Parkedale Pharmaceuticals, Inc., a wholly owned subsidiary of King
Pharmaceuticals, Inc. for the rights to Novavax's technologies, including the
Novasome adjuvants to be used with Parkedale's U.S. Food and Drug
Administration licensed influenza virus vaccine. Under the terms of the
agreement, Novavax received a licensing fee of $1 million. Additional payments
due under the agreement include milestone payments, research support and
royalties on future product sales.
YEAR 2000
The Company has evaluated and worked to resolve the potential impact of the
Year 2000 on the Company's computerized information systems ability to
accurately process information that may be date-sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the year
2000, could result in errors or system failures. The Company primarily uses
personal computers for administrative and accounting systems. In addition, the
Company has certain laboratory equipment with microprocessors.
Along with a review of the hardware and software employed by the Company, our
business partners and suppliers have been surveyed to determine their Year 2000
readiness. A list of such business partners and suppliers that have a material
relationship with the Company has been compiled. The Company is currently in
the process of seeking information from these third parties regarding their
state of readiness for Year 2000 compliance. The Company considers many of its
relationships with these third parties to be of a material nature, such that if
these third parties were unable to become Year 2000 compliant, the Company
would be adversely affected. These relationships encompass many areas that
affect the Company's ability to do business including, but not limited to,
financial institutions, utility companies and contract manufacturers.
The Company does not believe that it will incur material incremental costs in
its efforts to address this issue and has not incurred incremental costs to
date. The Company has not been given any indication that its business partners
and suppliers will not be Year 2000 compliant by the Year 2000. The Company
plans to continue, on a timely basis, to monitor and address any significant
Year 2000 issues and will update estimates accordingly.
15
<PAGE> 16
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 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on August 25,
1999 to report under Item 2 its acquisition of DynCorp's
Biomedical Services Laboratory division. In addition, the
Company filed an amendment to the Form 8-K on October 12, 1999
to include under Item 7 the following financial information:
Financial statements of DynCorp Biomedical Services Laboratory.
(1) Report of Independent Accountants dated October 6, 1999.
(2) Statement of Assets Acquired and Liabilities Assumed as of December 31,
1998 and June 30, 1999 (unaudited).
(3) Statement of Operating Revenue and Expenses for the year ended December
31, 1998 and for the six months ended June 30, 1999 (unaudited) and
1998 (unaudited).
(4) Notes to Financial Statements.
Unaudited Pro Forma Combined Financial Information of Novavax, Inc.
(1) Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1998.
(2) Unaudited Pro Forma Combined Statement of Operations for the six months
ended June 30, 1999.
(3) Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1999.
(4) Notes to the Unaudited Pro Forma Combined Financial Information
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,048
<SECURITIES> 0
<RECEIVABLES> 66
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,143
<PP&E> 1,905
<DEPRECIATION> (825)
<TOTAL-ASSETS> 4,473
<CURRENT-LIABILITIES> 909
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,473
<SALES> 471
<TOTAL-REVENUES> 471
<CGS> 0
<TOTAL-COSTS> 4,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,534)
<EPS-BASIC> $(0.25)
<EPS-DILUTED> $(0.25)
</TABLE>
