-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BA9Hnh4VjMzuhwI8xmSCUe3s54OBNvpkC5U18wnm4fU4ZHS+FKmqIqeqG+6SVzV4 QZhfRVGD1JthKD+UCdmC/Q== 0000950133-99-003509.txt : 19991115 0000950133-99-003509.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950133-99-003509 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVAVAX INC CENTRAL INDEX KEY: 0001000694 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 222816046 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26770 FILM NUMBER: 99748002 BUSINESS ADDRESS: STREET 1: 8320 GUILFORD RD STREET 2: SUITE C CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 3078543900 MAIL ADDRESS: STREET 1: 8320 GUILFORD ROAD SUITE C CITY: COLUMBIA STATE: MD ZIP: 21046 10-Q 1 FORM 10-Q 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 2 NOVAVAX, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 INDEX
PART I. FINANCIAL INFORMATION PAGE NO. 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
2 3 ITEM 1 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998* 1999 1998* ---- ----- ---- ----- 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 ============= ============ ============== ============
*As restated, see Note 5 The accompanying notes are an integral part of the consolidated financial statements. 3 4 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------------ ------------------ ASSETS (UNAUDITED) 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 ================== ==================
The accompanying notes are an integral part of the consolidated financial statements. 4 5 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998* ----------- ---------- 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 =========== ==========
*As restated, see Note 5 The accompanying notes are an integral part of the consolidated financial statements. 5 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 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.
(Amounts in thousands, except per share information.) Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues $ 143 $ 785 $3,240 $2,374 Net loss $(1,959) $(1,289) $(3,740) $(5,055) Loss per share $(.13) $(.10) $(.26) $(.42)
7 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 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):
THREE MONTHS ENDED AS PREVIOUSLY AS RESTATED INCREASE SEPTEMBER 30, 1998 REPORTED (DECREASE) 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) $-
NINE MONTHS ENDED AS PREVIOUSLY AS RESTATED INCREASE SEPTEMBER 30, 1998 REPORTED (DECREASE) 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
9 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 SEP-30-1999 1,048 0 66 0 0 1,143 1,905 (825) 4,473 909 0 0 0 150 0 4,473 471 471 0 4,005 0 0 0 (3,534) 0 (3,534) 0 0 0 (3,534) $(0.25) $(0.25)
-----END PRIVACY-ENHANCED MESSAGE-----