Novavax
NVAX
#4908
Rank
S$2.55 B
Marketcap
S$15.51
Share price
9.95%
Change (1 day)
34.13%
Change (1 year)
Text size:
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<HR size="1" width="100%" align="center">
</DIV>

<DIV align="center">
<HR size="1" width="100%" align="center">
</DIV>

<P align="center">
<B><FONT size="5"> UNITED STATES</FONT></B>

<DIV align="center">
<B><FONT size="5">SECURITIES AND EXCHANGE COMMISSION</FONT></B>
</DIV>

<DIV align="center">
<B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center">
<B>FORM 10-K</B>
</DIV>

<P align="center">
<B>ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)</B>

<DIV align="center">
<B>OF THE SECURITIES EXCHANGE ACT OF 1934</B>
</DIV>

<P align="center">
<B>For the Fiscal Year Ended December&nbsp;31, 1999</B>

<P align="center">
<B>Commission File No.&nbsp;0-26770</B>

<P align="center">
<B><FONT size="6">NOVAVAX, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="52%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="45%">&nbsp;</TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="center" valign="top"><FONT size="2">
<B>Delaware<BR>
</B>(State or other jurisdiction of incorporation or
organization)</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
<B>22-2816046<BR>
</B>(I.R.S. Employer Identification No.)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="center" valign="top"><FONT size="2">
<B>8320 Guilford Road, Columbia, Maryland</B></FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
<B>21046</B></FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
(Address of principal executive offices)</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
(Zip code)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
Registrant&#146;s telephone number, including area code: <B>
(301)&nbsp;854-3900</B>

<P align="center">
Securities registered pursuant to Section&nbsp;12(b) of the Act:

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="50%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="47%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Title of each class:</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Name of each exchange on which registered</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap><HR size="1"></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
<B>Common Stock ($.01 par value)</B></FONT></TD>
<TD></TD>
<TD align="center" valign="bottom"><FONT size="2">
<B>American Stock Exchange</B></FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
Securities registered pursuant to Section&nbsp;12(g) of the Act:
<B>NONE</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant (1)&nbsp;has filed
all reports required to be filed by Section&nbsp;13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12&nbsp;months (or for such shorter period that the registrant
was required to file such reports), and (2)&nbsp;has been subject
to such filing requirements for the past 90&nbsp;days. Yes&nbsp;
&nbsp; [X]&nbsp;&nbsp;No&nbsp; [&nbsp;&nbsp;&nbsp;]

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation&nbsp;S-K is not contained
herein, and will not be contained, to the best of the
registrant&#146;s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form&nbsp;10-K or any amendment to this Form&nbsp;10-K.&nbsp; [X]

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The aggregate market value of 16,437,216 shares of the
registrant&#146;s Common Stock, par value $.01 per share, held by
non-affiliates of the registrant at March&nbsp;3, 2000, as
computed by reference to the closing price of such stock, was
approximately $164,372,160.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The number of shares of the registrant&#146;s Common Stock, par
value $.01&nbsp;per share, outstanding at March&nbsp;3, 2000 was
18,100,716&nbsp;shares.

<P align="center">
<B>Documents Incorporated By Reference</B>

<P align="center">
Portions of the 2000 Novavax, Inc. Proxy Statement are
incorporated by reference into Part III of this Report.

<P align="center">
<HR size="1" width="100%" align="center">

<DIV align="center">
<HR size="1" width="100%" align="center">
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>

<!-- TOC -->
<A name="toc"><DIV align="CENTER"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="3%"></TD>
<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">Item 1. Business</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">Item 2. Properties</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">Item 3. Legal Proceedings</A></TD></TR>
<TR><TD colspan="9"><A HREF="#003">Item 4. Submission of Matters to a Vote of Security Holders</A></TD></TR>
<TR><TD colspan="9"><A HREF="#004">Item 5. Market For Registrant&#146;s Common Equity and Related Stockholder Matters</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">Item 6. Selected Financial Data</A></TD></TR>
<TR><TD colspan="9"><A HREF="#006">Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></TD></TR>
<TR><TD colspan="9"><A HREF="#007">Item 7a. Quantitative and Qualitative Disclosures about Market Risks</A></TD></TR>
<TR><TD colspan="9"><A HREF="#008">Item 8. Financial Statements and Supplementary Data</A></TD></TR>
<TR><TD colspan="9"><A HREF="#009">Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure</A></TD></TR>
<TR><TD colspan="9"><A HREF="#010">Item 10. Directors and Executive Officers of the Registrant</A></TD></TR>
<TR><TD colspan="9"><A HREF="#011">Item 11. Executive Compensation</A></TD></TR>
<TR><TD colspan="9"><A HREF="#012">Item 12. Security Ownership of Certain Beneficial Owners and Management</A></TD></TR>
<TR><TD colspan="9"><A HREF="#013">Item 13. Certain Relationships and Related Transactions</A></TD></TR>
<TR><TD colspan="9"><A HREF="#014">Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>

<P align="center"><B>PART I</B>

<!-- link1 "Item 1. Business" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P align="left"><B>Item&nbsp;1.&nbsp;&nbsp;<I>Business</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax, Inc. (&#147;Novavax&#148; or the &#147;Company&#148;) is
a biopharmaceutical company focused on the research and
development of proprietary drug delivery and vaccine technologies
and the applications of those technologies. The Company&#146;s
technology platforms involve the use of proprietary, microscopic,
organized, non-phospholipid structures as vehicles for the
delivery of a wide variety of drugs and other therapeutic
products, including certain hormones, anti-bacterial and
anti-viral products and vaccine adjuvants. These technology
platforms support three product development programs: hormone
replacement therapies, third party drug delivery and vaccine
adjuvant applications and anti-microbial agents. Novavax&#146;s
recently acquired Biomedical Services Division is engaged in
contract research and development and Phase I and Phase II
vaccine manufacturing of human vaccines for the Company&#146;s
own use and for government laboratories and other vaccine
companies.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax, Inc. was incorporated in Delaware in 1987. On
December&nbsp;12, 1995, the Company&#146;s former parent, IGI,
Inc. (&#147;IGI&#148;) distributed its majority interest in
Novavax to the IGI stockholders (the &#147;Distribution&#148;).
The Company&#146;s principal executive offices are located at
8320 Guilford Road, Columbia, Maryland 21046.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the Distribution, IGI paid Novavax $5,000,000
in return for a fully paid-up, ten-year license (the
&#147;License Agreement&#148;) entitling it to the exclusive use
of the Company&#146;s technologies in the fields of
(i)&nbsp;animal pharmaceuticals, biologicals and other animal
care products; (ii)&nbsp;foods, food applications, nutrients and
flavorings (except to the extent used in human pharmaceuticals
and vaccines); (iii)&nbsp;cosmetics, consumer products and
topical dermatological products for localized usage at the
delivery zone, (specifically excluding dermatologically
administered pharmaceuticals which are delivered systemically
through the skin, anti-infectives for treating infectious
pathogens, replacement hormone therapy, spermicides and
viracides); (iv) fragrances; and (v)&nbsp;chemicals, including
herbicides, insecticides, pesticides, paints and coatings,
photographic chemicals and other specialty chemicals including
blood substitutes containing hemoglobin and other oxygen carrying
materials; and the processes for making the same. IGI has the
option, exercisable within the last year of the ten-year term, to
extend the License Agreement for an additional ten-year period
for $1,000,000. Novavax retains the right to use its technologies
for all other applications, including but not limited to, human
vaccines and pharmaceuticals.

<P align="left"><B>Novavax Product Development Programs</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Hormone Replacement Therapies. </I>The Company&#146;s hormone
replacement therapy program includes its two lead product
candidates: ESTRASORB&#153;, topical estrogen cream, and
ANDROSORB&#153;, a topical testosterone cream. The Company has
completed various preclinical and human safety studies for both
ESTRASORB and ANDROSORB. In addition, the Company initiated a
multicenter Phase III study of ESTRASORB, during the third
quarter of 1999. The study is designed to measure
ESTRASORB&#146;s ability to deliver estradiol through the skin,
when applied as a topical lotion. The Company has completed Phase
I safety study in men of ANDROSORB; Phase II trials in
testosterone deficient women are to begin in the first quarter of
2000. In addition, the Company is undergoing preclinical
development of Andro-Ject&#153;, a depot delivery of testosterone
for testosterone deficient men. The Investigational New Drug
application (&#147;IND&#148;) for Andro-Ject is expected to be
filed in the fourth quarter of 2000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Third Party Drug Delivery and Vaccine Adjuvant Applications.
</I>Formulations of the Company&#146;s lipid technologies are
expected to have broad application as vehicles for the
encapsulation and delivery of drugs developed by other companies.
Moreover, the Company believes that certain of its organized
lipid structures may provide effective and safe adjuvant carrier
systems for a variety of vaccines. The Company plans to leverage
these technologies by licensing its drug delivery, encapsulation
and adjuvant technologies to third parties for specific
therapeutic indications.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company currently has several research contracts in place to
provide anti-microbial products, vaccine products, services and
adjuvant technologies. One of these contracts is for the
development of an adjuvant for an immunotherapeutic vaccine for
cervical dysplasia, a precancerous disease of the cervix, for a
British vaccine company, Cantab Pharmaceuticals. The Company also
has a licensing agreement with Parkedale Pharmaceuticals,

<P align="center">2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
Inc., a wholly owned subsidiary of King Pharmaceuticals, Inc.,
for the right to a series of Novavax Novasome adjuvants to be
used with Parkedale&#146;s FLUOGEN&#174;, an influenza virus
vaccine.
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In August&nbsp;1999, the Company acquired substantially all of
the assets of DynCorp&#146;s vaccine manufacturing and
development division, which is now called the Novavax Biomedical
Services Division (&#147;BSD&#148;). Established in 1964, the BSD
is engaged in contract research, development and pilot
manufacturing of human vaccines for the Company&#146;s own use
and for government laboratories and other vaccine companies. The
Director of this division is Louis Potash, Ph.D., one of the
original scientists to work on both the Salk-type inactivated
polio vaccines and inactivated whole influenza virus vaccines
during the 1950s. This acquisition significantly expands
Novavax&#146;s internal vaccine developmental capabilities and
allows the Company to combine its adjuvant technology with
BSD&#146;s 35&nbsp;years of experience in developing and
manufacturing vaccines.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Anti-Microbial Agents. </I>The Company is also applying its
lipid technologies to develop anti-microbial agents that are
capable of acting on viruses, bacteria, spores and sperm.
Potential product candidates include Helicore&#174;, an oral
anti-bacterial preparation for the treatment of <I>Helicobacter
pylori </I>(<I>&#147;H. Pylori&#148;</I>) infection, and two
anti-microbial agents targeting biological threat agents such as
Bacillus anthracis and influenza A, respectively, as well as a
spermicide product candidate.

<P align="left"><B>Novavax Product Technology Platforms</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax has developed proprietary topical, oral and injectable
drug delivery technologies using microscopic, organized,
non-phospholipid structures, including Novasome non-phospholipid
vesicles (&#147;Novasomes&#148;), micellar nanoparticles
(&#147;MNPs&#148;) and non-antibiotic, anti-microbial lipid
emulsions. The Company believes these structures may be useful
for targeted delivery and controlled release of certain drugs,
along with inactivation of bacteria, enveloped viruses, spores
and sperm. Moreover, the Company believes that certain of its
organized lipid structures may provide effective and safe
adjuvant carrier systems for a variety of vaccines.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although other companies have developed liposome technologies,
most commercial liposomes are composed of delicate phospholipids.
Due to their inherent lack of stability and carrying capacity,
only a limited number of drugs may be used with these
phospholipid liposomes. While capable of encapsulating certain
(principally water-soluble) drugs, phospholipid liposomes have a
number of other significant disadvantages including their expense
and the need to use potentially hazardous organic solvents in
their manufacture. In addition, the standard, multi-step
phospholipid manufacturing process is relatively expensive.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company believes its non-phospholipid technologies may allow
for a more cost-effective delivery of a wider variety of drugs
and other therapeutics than commercially available phospholipid
liposomes and other delivery vehicles. Its technologies may also
be preferred over other available transdermal delivery systems
because its technologies may reduce side effects such as skin
irritation. Future applications may show advantages over
injectable delivery technologies, which are invasive,
inconvenient and sometimes painful. In addition, the
Company&#146;s anti-microbial lipid emulsions may avoid the
problem of pathogen mutation and resistance because of their
non-antibiotic method of action.

<P align="left"><B>Novasome Non-Phospholipid Vesicles</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novasomes are proprietary structures in which drugs or other
materials can be encapsulated for delivery into the body
topically or orally. Novasomes are made using the Company&#146;s
patented manufacturing processes from a variety of readily
available chemicals called amphiphiles, which include fatty
alcohols and acids, ethoxylated fatty alcohols and acids, glycol
esters of fatty acids, glycerol fatty acid mono and diesters,
ethoxylated glycerol fatty acid esters, glyceryl ethers, fatty
acid diethanolamides and dimethyl amides, fatty acyl
sarcosinates, &#147;alkyds&#148; and phospholipids.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company plans to commercialize its Novasome technology in
part through products it develops itself and in part through
third party drug delivery application licenses. The Company
believes that certain of its organized lipid structures may
provide effective and safe adjuvant carrier systems for a variety
of vaccines. In addition, the Company has developed structures
for delivery of biologically active molecules like antisense,
genes and proteins.

<P align="center">3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company currently has several research contracts in place to
provide vaccine products, services and adjuvant technologies.
These contracts include, but are not limited to, the development
of an adjuvant for an immunotherapeutic vaccine for cervical
dysplasia, a precancerous disease of the cervix for a British
vaccine company, Cantab Pharmaceuticals. Novasomes are also
currently licensed to King Pharmaceuticals as an adjuvant for its
marketed influenza vaccine, Fluogen&#174;.

<P align="left"><B>Micellar Nanoparticle Emulsion</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
MNPs are proprietary, submicron-sized, water miscible,
non-phospholipid structures that have different structural
characteristics and are generally smaller than Novasome
non-phospholipid vesicles. MNPs, like Novasome non-phospholipid
vesicles, are derived from amphiphilic molecules.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax scientists have demonstrated that MNPs are able to
incorporate alcohol soluble drugs, pesticides, vaccine adjuvants,
proteins, whole viruses, flavors, fragrances and colors. MNPs
also have the ability to entrap ethanol or methanol soluble
drugs, and to deliver certain of these drugs transdermally
through intact skin. The MNP formulations used by Novavax for the
transdermal delivery of drugs have cosmetic properties similar
to creams and lotions. These transdermal formulations have the
advantage over injectable delivery systems of being less invasive
and/or inconvenient and the may also cause less skin irritation
than patch transdermal delivery systems. MNPs are the fundamental
technology platform for Novavax&#146;s hormone replacement
therapies.

<P align="left"><B>Non-Antibiotic Lipid Emulsions</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has developed proprietary lipid structures that it is
using in the development of a non-antibiotic, anti-bacterial
preparation for the treatment of <I>H. pylori </I>infection in
humans. In addition, the Company has developed a proprietary
non-antibiotic lipid emulsion called BCTP that may inactivate
enveloped viruses that cause human disease, as well as certain
spores, bacteria and sperm. BCTP is a highly effective
microbe-killing agent. Preclinical studies indicate that BCTP has
a low toxicity profile. The emulsion seems to act on various
microbials, including viruses, bacteria, sperm and spores, by
first fusing or merging with the lipid envelope of the virus.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because BCTP is not an antibiotic, it is not associated with
microbe mutation and resistance caused by antibiotic use, which
is now recognized as an important public health problem. Novavax
expects that BCTP-based products may be preferred in many
circumstances as an alternative to conventional antibiotics. The
Company currently has several research contracts in place to
provide non-antibiotic lipid emulsion products and services.
These contracts include, but are not limited to, a subcontract
from the University of Michigan, which is developing
anti-infective defense systems against biological warfare agents
for the U.S. military.

<P align="left"><B>Vaccines</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
BSD is involved in three areas of vaccine development: virology,
tissue culture and molecular virology. BSD&#146;s experimental
virology research and development may lead to live virus vaccine
production in the embryonated hens&#146; eggs and in designated
tissue culture systems. Tissue culture involves the growth,
maintenance and characterization of cell systems as potential
substrates for virus growth and vaccine production as well as
cell systems for safety testing, plaque-purification and virus
titers. BSD&#146;s work in molecular virology involves
recombinant DNA cloning of viral and human genes, protein
expression of these genes in prokaryotic and eukaryotic systems
including baculoviruses, protein purification of the recombinant
protein products, and biophysical characterization of recombinant
proteins leading to vaccine and related product development.

<P align="left"><B>Novavax Product Candidates</B>

<P align="left"><B>&nbsp;&nbsp;</B><I>Hormone Replacement Therapy</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is using its MNP technology in the development of
ESTRASORB, a cream designed for the delivery of 17b estradiol
(estrogen hormone) through the skin. Estrogen replacement therapy
is currently used worldwide by menopausal (and post-menopausal)
women to prevent osteoporosis, cardiovascular disease and other
menopausal symptoms (such as &#147;hot flashes&#148;). The
hormone replacement market in the US is approximately

<P align="center">4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
$1.7&nbsp;billion. This market is believed to represent only
15-20% of the estimated 60.3&nbsp;million women over
40&nbsp;years of age in the US who could potentially benefit from
hormone replacement therapy.
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current estrogen replacement products include oral tablets and,
more recently, transdermal patches. Oral estrogen tablets,
however, have been associated with side effects primarily
resulting from blood hormone level fluctuations. Because of these
side effects, transdermal patches for estrogen replacement were
developed. While these patches help reduce blood hormone
fluctuations, they may cause skin irritation and patient
inconvenience associated with wearing and changing an external
patch.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company believes that ESTRASORB may offer several advantages
over existing therapies used for estrogen replacement. ESTRASORB
may be applied to the skin much like a typical cosmetic lotion.
The Company believes ESTRASORB will be able to deliver a
continuous amount of estrogen to the patient without the
fluctuations in blood hormone levels associated with oral
tablets. In addition, ESTRASORB does not contain materials that
may cause the skin irritation associated with transdermal
patches.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has completed four clinical studies with ESTRASORB.
The first was a multiple-dose, dose ranging, pharmacokinetic
study completed in the third quarter of 1997 involving 20
subjects. The second was a multiple-dose, pharmacokinetic,
placebo-controlled study completed in the fourth quarter of 1997
involving 20 subjects. The third study was a single versus dual
site application study completed in the third quarter of 1998
involving 10 subjects. These studies demonstrated transdermal
delivery of the drug and no skin irritation was noted. A Phase
II, randomized, double blind, placebo-controlled, dose-ranging
ESTRASORB study was completed in the first quarter of 1999. This
study involved a 35&nbsp;day dosing protocol and included 120
patients at six clinical sites located in the United States. This
study indicated that ESTRASORB, administered daily to menopausal
women, significantly reduced the number of hot flashes per day
and significantly increased their trough serum estradiol levels.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the third quarter of 1999, Novavax initiated a
multi-center Phase III study of ESTRASORB in symptomatic
menopausal women. The study, initiated ahead of schedule, will
involve 200 subjects in at least 12 centers nationwide. The study
is designed to measure ESTRASORB&#146;s ability to deliver 17b
estradiol through the skin, when applied as a topical lotion. The
clinical endpoint is reduction of hot flashes associated with
menopause.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The positive reactions of the women in the Phase II study coupled
with the Company&#146;s promising clinical results indicate that
estrogen replacement therapy is an excellent initial target for
the Company&#146;s topical drug delivery system, representing a
multi-billion dollar worldwide market opportunity. As the Company
begins the final stages of clinical development with ESTRASORB,
the Company will continue to investigate its topical delivery
system to other products.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Testosterone replacement therapy is currently used by males who
are testosterone deficient as a result of either primary or
secondary hypogonadism. It is believed that testosterone in males
is required to maintain sexual function and libido, maintain
lean body mass, increase hemoglobin synthesis and maintain bone
density. There are estimated to be one million testosterone
deficient men in the US. It is further estimated that only
100,000 to 150,000 men are currently being treated for
testosterone deficiency. These numbers are expected to grow with
the aging of the population and the increasing awareness of the
benefits of hormone replacement therapy.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current testosterone replacement therapy products include deep
intramuscular injections or transdermal patches. The injections
require frequent visits to a physician and may be associated with
pain at the injection site and abscess. The transdermal patches
may cause skin irritation and patient inconvenience associated
with wearing and changing external patches.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company believes that ANDROSORB (its testosterone hormone
replacement therapy product) may offer several advantages over
current testosterone replacement therapies. ANDROSORB is a lotion
that may be applied to the skin, thus eliminating the need for
intramuscular injections. In addition, ANDROSORB does not contain
materials that may cause the skin irritation associated with
transdermal patches.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In September&nbsp;1996, the Company completed the animal testing
of ANDROSORB in its MNP transdermal drug delivery platform. In
these tests, peak blood levels of testosterone were approximately
three times higher than testosterone dissolved in ethanol alone.
The Company completed human safety studies involving 10 subjects
and

<P align="center">5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
submitted the results to the FDA in the third quarter of 1997. A
multiple-dose, pharmacokinetic study involving 9 subjects was
completed in the fourth quarter of 1997, and a dose-ranging
pharmacokinetic study involving 8 subjects was completed in the
second quarter of 1998. The Company completed Phase I testing of
ANDROSORB in 1999, with results that indicated ANDROSORB did not
cause skin irritation in the patients tested, some of whom
received daily dosages for 28 consecutive days at the same site.
These studies have also all demonstrated delivery of the drug
successfully results in elevated blood hormone levels. The
Company plans to initiate a Phase II dose ranging study in
testosterone deficient women in the first quarter of 2000.
</DIV>

<P align="left"><I>&nbsp;&nbsp;Andro-Ject</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Andro-Ject is a new oil-free, cholesterol-free depot drug
delivery system delivery for testosterone, which is in
preclinical development. Andro-Ject is delivered subcutaneously
with a small 25 gauge needle. In animal studies supra-therapeutic
levels of testosterone were maintained for two weeks after one
subcutaneous injection.

<P align="left"><I>&nbsp;&nbsp;Microbicides</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has developed proprietary lipid structures that it is
using in the development of a non-antibiotic, anti-bacterial
preparation, Helicore, for the treatment of <I>H. pylori </I>
infection in humans. <I>H. pylori </I>was recognized in 1994 by
the National Institutes of Health as a causative agent of peptic
ulcer disease, antral gastritis and certain types of gastric
cancer. Current therapies for the treatment of <I>H. pylori </I>
include the use of antibiotics alone or antibiotics in
combination with drugs that inhibit acid production in the
stomach. Problems associated with such therapies include, but are
not limited to, cost, toxicity, failure to sufficiently
eradicate all the bacteria, and acquired resistance to the
antibiotic. In 1995, the Company began to test formulations of
Helicore in both animal studies and Phase I human safety studies.
Results from clinical studies completed in 1996 were submitted
to the FDA. Novavax is not currently conducting preclinical or
clinical studies on Helicore.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has also developed BCTP, a lipid emulsion that acts
on various microbials, including enveloped viruses, as well as
spores and bacteria. The product has also demonstrated
spermicidal action. The Company believes that the emulsion acts
on the target by first fusing or merging with the lipid envelope
or outer membrane of the target. The Company believes that BCTP
has many potential applications. Preclinical studies indicate
that viruses and spores vulnerable to BCTP include influenza A
and bacillus anthracis, but it may also be appropriate for
herpes, measles, mumps, rubella and many other microbes and
pathogens. While influenza vaccines are relatively effective at
preventing the flu, BCTP unlike vaccines, does not appear to
promote mutation and resistance. Other advantages of BCTP appear
to include a low toxicity profile, inexpensive scale-up and
manufacturing costs, and a rapid and broad spectrum of killing.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company currently has several anti-microbial agents in
preclinical studies pursuant to a research collaboration with the
University of Michigan. The studies are being performed at the
University of Michigan and are being funded by Defense Advance
Research Projects Agency&#146;s (&#147;DARPA&#148;)
Unconventional Pathogen Countermeasures Program. In
August&nbsp;1999, the Company received an extension on its
subcontract with The University of Michigan to continue supplying
the University with the Company&#146;s proprietary microbial
products against certain biologic warfare agents.

<P align="left"><I>&nbsp;&nbsp;Vaccine Adjuvants</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Adjuvants are substances that make vaccines more effective. The
Company believes that its Novasome lipid vesicles may provide
effective and safe adjuvant carrier systems for a variety of
vaccines in a variety of circumstances, including:
(i)&nbsp;encapsulation and protection from destruction by the
body&#146;s normal enzymatic processes of delicate antigenic
materials; (ii) encapsulation of toxic materials, such as
endotoxins and other potent toxins, for gradual release, thereby
providing protection of the body from the toxin while generating
an immune response to the toxic antigen; and (iii) presentation
of small peptide antigens or proteins to elicit both heightened
antibody and cellular immune responses.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has recently entered into a licensing agreement with
Parkedale Pharmaceuticals, Inc., a wholly owned subsidiary of
King Pharmaceuticals, Inc. for the rights to Novavax&#146;s
adjuvants to be used in Parkedale&#146;s US FDA licensed
FLUOGEN&#174; influenza virus vaccine, trivalent, type A and B.
Under the terms of the agreement, the

<P align="center">6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
Company has granted Parkedale an exclusive license to all
Novasome adjuvants for use with influenza vaccine therapies,
including worldwide development and marketing rights, with the
exception of six Pacific Rim countries. In return, Novavax
received an upfront licensing fee of $1&nbsp;million, milestone
payments, research support and royalties on future product sales.
In 1998, the total influenza market was valued at over $240
million. Novasome adjuvanted FLUOGEN is expected to enter
clinical trials in 2000.
</DIV>

<P align="left"><I>&nbsp;&nbsp;Vaccine Projects</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s BSD operation currently has two products in
clinical trials with collaborators at NIH. The first, an HPV-16
virus-like particle (VLP) vaccine is in Phase II clinical trials
and is intended to prevent HPV-16 infection. The second product,
a Hepatitis E vaccine, will be tested in a Phase II trial in
Nepal.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In October&nbsp;1999, Novavax signed its first contract since the
acquisition of BSD with the National Cancer Institute (NCI),
which awarded the Company the contract to manufacture recombinant
chimeric virus-like particle vaccines (VLP) against Human
papilloma virus (HPV<B><I>)</I></B>. The novel recombinant
chimeric virus-like particles are non-infectious vaccine
candidates designed to either treat or prevent HPV infections
that cause genital warts and cervical cancer. The HPV vaccines
were developed by research and development teams lead by Robin
Robinson, Ph.D., Associate Director of BSD and Douglas Lowy, M.D.
of the Laboratory of Cellular Oncology at NCI. Dr.&nbsp;Robinson
will serve as Principal Investigator on this new HPV vaccine
project.

<P align="left"><B>Manufacturing</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The development and manufacture of the Company&#146;s products
are subject to good laboratory practices (&#147;GLP&#148;) and
good manufacturing practices (&#147;GMP&#148;) requirements
prescribed by the FDA and to other standards prescribed by the
appropriate regulatory agency in the country of use. The Company
has the ability to produce quantities of Novasome lipid vesicles
and MNPs sufficient to support its needs for early-stage clinical
trials. It does not presently have FDA-certified facilities
capable of producing the larger quantities of pharmaceutical
products required for larger scale clinical trials or commercial
production. The Company will need to rely on collaborators,
licensees or contract manufacturers or acquire such manufacturing
facilities for later stage clinical trials and commercial
production of its own pharmaceuticals. There can be no assurance
that the Company will be able to obtain such facilities or
manufacture such products in a timely fashion at acceptable
quality and prices, that it or its suppliers will be able to
comply with GLP or GMP, as applicable, or that it or its
suppliers will be able to manufacture an adequate supply of
product.

<P align="left"><B>Marketing</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company plans to market the pharmaceuticals for which it
obtains regulatory approvals either through joint ventures or
corporate partnering arrangements. The Company expects that such
arrangements could include technology licenses, research funding,
milestone payments, collaborative product development, royalties
and equity investments in Novavax. Implementation of this
strategy will depend on many factors, including the market
potential of its products and technologies, the success in
developing relationships with distributors or marketing partners
for the Company&#146;s products and the financial resources
available to the Company.

<P align="left"><B>Competition</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A number of large companies, such as Novartis, Procter &#38;
Gamble, American Home Products, Parke-Davis, Solvay
Pharmaceuticals, SmithKline Beecham, Abbott Laboratories, Ortho
Pharmaceuticals and Mead Johnson Laboratories, produce and sell
estrogen preparations for clinical indications identical to those
the Company proposes to target. SmithKline Beecham currently
markets a transdermal testosterone patch and Novartis markets an
estrogen transdermal patch. The competition to develop
FDA-approved hormone replacement therapies is intense and no
assurance can be given that the Company&#146;s product candidates
will be developed into commercially successful products.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A number of other companies have been working on vaccine
adjuvants for use in human vaccines. These include, but are not
limited to, Chiron, Ribi Immunochem Research, Aquila, Iscotec,
Proteus International and

<P align="center">7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
Biomira. The competition to develop FDA-approved human vaccine
adjuvants is intense and no assurance can be given that the
Company&#146;s adjuvant product candidates will be developed into
commercially successful products.
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Primary competitors in the development of lipid structure and
vesicle encapsulation technologies are The Liposome Company,
Sequus Pharmaceuticals, Nexstar Pharmaceuticals and L&#146;Oreal,
as well as other pharmaceutical, vaccine and chemical companies.
The Company believes that, except for L&#146;Oreal, these
companies have focused their development efforts on
pharmaceutical carrier systems for the treatment of infections
and certain cancers. To the Company&#146;s knowledge, The
Liposome Company, Sequus and Nexstar all base their lipid vesicle
technologies on phospholipids.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Most of the Company&#146;s competitors are larger than the
Company and have substantially greater financial, marketing and
technical resources. In addition, many of these competitors have
substantially greater experience than the Company in developing,
testing and obtaining FDA and other approvals of pharmaceuticals.
Furthermore, if the Company commences commercial sales of
pharmaceuticals, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience. If any of the competitors
develop new encapsulation technologies that are superior to the
Company&#146;s Novasome and MNP technologies, the ability of the
Company to expand into the pharmaceutical and vaccine adjuvant
markets will be materially and adversely affected.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Competition among products will be based, among other things, on
product efficacy, safety, reliability, availability, price and
patent position. An important factor will be the timing of market
introduction of the Company&#146;s or competitors&#146;
products. Accordingly, the relative speed with which the Company
can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to the
market is expected to be an important competitive factor. The
Company&#146;s competitive position will also depend upon its
ability to attract and retain qualified personnel, to obtain
patent protection or otherwise develop proprietary products or
processes and to secure sufficient capital resources for the
often substantial period between technological conception and
commercial sales.

<P align="left"><B>Research And Development</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s research is focused principally on the
development and commercialization of formulations for topical
drug delivery and therapeutic products, including anti-bacterial
and anti-viral products and adjuvants for vaccines. The Company
intends to use third party funding when available, through
collaborations, joint ventures or strategic alliances with other
companies, particularly potential distributors of the
Company&#146;s products. Because of the substantial funds
required for clinical trials, the Company will have to obtain
additional financing for its future human clinical trials. No
assurance can be given that such financing will be available on
terms attractive to the Company, if at all.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company bases its development decisions on costs and
potential return on investment, regulatory considerations, and
the interest, sponsorship and availability of funding from third
parties. As of December&nbsp;31, 1999, the Company&#146;s
research and development staff numbered 29 individuals. In
addition to its internal research and development efforts, the
Company encourages the development of product candidates in areas
related to its present lines by working with universities and
government agencies. Novavax&#146;s research and development
expenditures approximated $3,354,000, $3,361,000 and $2,874,000
and in the years ended December&nbsp;31, 1999, 1998 and 1997,
respectively.

<P align="left"><B>Patents And Proprietary Information</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company, through a wholly-owned subsidiary, holds 50 U.S.
patents and has 125 foreign patents and patent applications
covering its technologies (which include a wide variety of
component materials, its continuous flow vesicle production
process and its NovamixR production equipment). The Company
believes that these patents are important for the protection of
its technology as well as certain of the development processes
that underlie that technology. In addition, three U.S. patent
applications are pending covering the composition, manufacture
and use of its organized lipid structures and related
technologies.

<P align="center">8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company expects to engage in collaborations, sponsored
research agreements and preclinical testing agreements in
connection with its future pharmaceutical products and vaccine
adjuvants, as well as clinical testing agreements with academic
and research institutions and U.S. government agencies, such as
the NIH, to take advantage of the technical expertise and staff
of these institutions and to gain access to clinical evaluation
models, patients and related technologies. Consistent with
pharmaceutical industry and academic standards, and the rules and
regulations promulgated under the federal Technology Transfer
Act of 1986, these agreements may provide that developments and
results will be freely published, that information or materials
supplied by the Company will not be treated as confidential and
that the Company will be required to negotiate a license to any
such developments and results in order to commercialize products
incorporating them. There can be no assurance that the Company
will be able to successfully obtain any such license at a
reasonable cost or that such developments and results will not be
made available to competitors of the Company on an exclusive or
nonexclusive basis.

<P align="left"><B>Government Regulation</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s research and development activities are
subject to regulation for safety, efficacy and quality by
numerous governmental authorities in the United States and other
countries. The development, manufacturing and marketing of human
pharmaceuticals are subject to regulation in the United States
for safety and efficacy by the FDA in accordance with the Food,
Drug and Cosmetic Act.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the United States, human pharmaceuticals are subject to
rigorous FDA regulation including preclinical and clinical
testing. The process of completing clinical trials and obtaining
FDA approvals for a new drug is likely to take a number of years,
requires the expenditure of substantial resources and is often
subject to unanticipated delays. There can be no assurance that
any product will receive such approval on a timely basis, if at
all.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The steps required before new products for use in humans may be
marketed in the United States include (i)&nbsp;preclinical tests,
(ii)&nbsp;submission to the FDA of an Investigational New Drug
application (IND), which must be approved before human clinical
trials commence, (iii)&nbsp;adequate and well-controlled human
clinical trials to establish the safety and efficacy of the
product, (iv) submission of a New Drug Application
(&#147;NDA&#148;) for a new drug or a Product License Application
(&#147;PLA&#148;) for a new biologic to the FDA and (v)&nbsp;FDA
approval of the NDA or PLA prior to any commercial sale or
shipment of the product.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Preclinical tests include laboratory evaluation of product
formulation, as well as animal studies (if an appropriate animal
model is available) to assess the potential safety and efficacy
of the product. Formulations must be manufactured according to
GMP and preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding GLP. The
results of the preclinical tests, are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the
commencement of human clinical trials. There can be no assurance
that submission of an IND will result in FDA authorization to
commence clinical trials. Clinical trials involve the
administration of the investigational new drug to healthy
volunteers and to patients under the supervision of a qualified
principal investigator and are typically conducted in three
sequential phases, although the phases may overlap. The Company
or the FDA may suspend clinical trials at any time if the
participants are being exposed to an unacceptable health risk.
The FDA may deny an NDA or PLA if applicable regulatory criteria
are not satisfied, require additional testing or information, or
require post marketing testing and surveillance to monitor the
safety of the Company&#146;s products.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to obtaining FDA approval for each PLA, an
Establishment License Application (&#147;ELA&#148;) must be filed
and approved by the FDA for the manufacturing facilities of a
biologic product before commercial marketing of the biologic
product is permitted. The regulatory process may take many years
and requires the expenditure of substantial resources.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to regulations enforced by the FDA, the Company also
is subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other
present and potential future federal, state or local
regulations. The Company&#146;s research and development involves
the controlled use of hazardous materials, chemicals and
viruses. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk
of accidental contamination or injury

<P align="center">9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
from these materials cannot be completely eliminated. In the
event of such an accident, the Company could be held liable for
any damages that result, and any such liability could exceed the
resources of the Company.
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In both domestic and foreign markets, the ability of the Company
to commercialize its product candidates will depend, in part, on
the availability of reimbursement from third-party payers, such
as government health administration authorities, private health
insurers and other organizations. If adequate coverage and
reimbursement levels are not provided by government and
third-party payers for uses of the Company&#146;s therapeutic
products, the market acceptance of these products would be
adversely affected.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There have been a number of federal and state proposals during
the last few years to subject the pricing of pharmaceuticals to
government control and to make other changes to the medical care
system of the United States. It is uncertain what legislative
proposals will be adopted or what actions federal, state or
private payers for medical goods and services may take in
response to any medical reform proposals or legislation. The
Company cannot predict the effect medical reforms may have on its
business, and no assurance can be given that any such reforms
will not have a material adverse effect on the Company.

<P align="left"><B>Employees</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company had 35 full-time employees as of December&nbsp;31,
1999, of whom 29 are in research and development. The Company has
no collective bargaining agreement with its employees and
believes that its employee relations are good.

<!-- link1 "Item 2. Properties" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P align="left"><B>Item&nbsp;2.&nbsp;&nbsp;<I>Properties</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases approximately 12,000 square feet of
administrative offices and laboratory space for its corporate
headquarters, analytical laboratories and pharmaceutical product
storage at 8320 Guilford Road, Columbia, Maryland. The Company
also leases 2,700 square feet of space located in Rockville,
Maryland. This space contains the Company&#146;s certified animal
facility and laboratories for its drug research and biologics
development, which includes the vaccine adjuvant product and
services group. The Company&#146;s Biomedical Services Division
also leases 12,000 square feet of space located in Rockville,
Maryland. This space is for contract vaccine research,
development and manufacturing of Phase I and II products.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company believes its facilities are adequate to produce
quantities of Novasome lipid vesicles, micellar nanoparticles,
vaccines and adjuvants to support Phase I and Phase II clinical
trials. It does not presently have FDA certified facilities
capable of producing the larger quantities of pharmaceutical
products required for commercial production. The Company
presently relies on collaborators, licensees or contract
manufacturers for Phase III clinical trial materials and
commercial production of its own pharmaceuticals.

<!-- link1 "Item 3. Legal Proceedings" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="left"><B>Item&nbsp;3.&nbsp;&nbsp;<I>Legal Proceedings</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is not a party to any legal proceedings.

<!-- link1 "Item 4. Submission of Matters to a Vote of Security Holders" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="left"><B>Item&nbsp;4.&nbsp;&nbsp;<I>Submission of Matters to a Vote of
Security Holders</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December&nbsp;31,
1999.

<P align="left"><B>Executive Officers Of The Registrant</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s executive officers hold office until the first
meeting of the Board of Directors following the annual meeting
of stockholders and until their successors are duly chosen and
qualified, or until they resign or are removed from office in
accordance with the Company&#146;s By-laws.

<P align="center">10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table provides certain information with respect to
the Company&#146;s executive officers.

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="45%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="45%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Principal Occupation and Other Business</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Name</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Age</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Experience During the Past Five Years</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
John A. Spears</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="top" nowrap><FONT size="2">50</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
President, Chief Executive Officer and Director since
May&nbsp;1999. President and Chief Executive Officer of Vion
Pharmaceuticals, Inc. from 1995 to May&nbsp;1999. President and
Chief Executive Officer of MelaRx Pharmaceuticals, Inc. from 1993
to 1995. Senior Vice President of Immunex Corp from 1989 to
1993.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
D. Craig Wright, M.D.</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="top" nowrap><FONT size="2">49</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
President&nbsp;&#151; Research Division of Novavax since 1998 and
Chief Scientific Officer of Novavax since 1993. Founder and
Senior Director of Medical Research of Univax Biologics, Inc., a
biopharmaceutical company, from 1988 to 1992.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Donald J. MacPhee</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="top" nowrap><FONT size="2">48</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Vice President, Chief Financial Officer and Treasurer since
February&nbsp;1999. Corporate Controller of Environmental
Tectonics Corporation from 1997 to 1998. Vice President of IGI,
Inc., from 1990 to 1997 and Chief Financial Officer of IGI, Inc.,
from 1987 to 1997.</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>PART II</B>

<!-- link1 "Item 5. Market For Registrant&#146;s Common Equity and Related Stockholder Matters" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="left"><B>Item&nbsp;5.&nbsp;&nbsp;<I>Market For Registrant&#146;s Common
Equity and Related Stockholder Matters</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Common Stock was held by 904 stockholders of
record as of March&nbsp;3, 2000. The Company has never paid cash
dividends on its Common Stock. The Company currently anticipates
that it will retain all of its earnings for use in the
development of its business and does not anticipate paying any
cash dividends in the foreseeable future.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Common Stock ($.01 par value) is traded on the
American Stock Exchange under the symbol &#147;NOX&#148;. The
following table sets forth, for the periods presented, the high
and low sales prices for the Company&#146;s Common Stock.

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="75%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Quarter Ended</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>High</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Low</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
December&nbsp;31, 1999</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.1875</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.6250</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
September&nbsp;30, 1999</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4.5000</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.1250</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
June&nbsp;30, 1999</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4.1875</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.0625</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
March&nbsp;31, 1999</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4.0000</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.8750</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
December&nbsp;31, 1998</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.2500</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.2500</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
September&nbsp;30, 1998</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.8750</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.2500</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
June&nbsp;30, 1998</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4.7500</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2.8125</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
March&nbsp;31, 1998</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.1250</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.7500</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="left"><B>Recent Sales of Unregistered Securities</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April&nbsp;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 &#147;Private
Placement&#148;). 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 agents&#146; fees were approximately
$215,000, which was paid with cash of $107,000 and 42,933 shares
of the Company&#146;s Common Stock, which were issued together
with non-transferable warrants for the purchase of 10,733 shares
of the Company&#146;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&#146;s Common Stock, with an exercise price of $3.00
per share and a three-year term, were issued to the placement
agents. Other costs connected with the Private Placement,
including legal, stock exchange listing and registration fees,
were approximately $67,000. Net proceeds to the Company from the
Private Placement were approximately $4,000,000.

<P align="center">12
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "Item 6. Selected Financial Data" -->
<DIV align="left"><A NAME="005"></A></DIV>

<P align="left"><B>Item&nbsp;6.&nbsp;&nbsp;<I>Selected Financial Data</I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="33%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD colspan="19"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="19"><FONT size="2"><B>For the years ended December 31,</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="19"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1995</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1996</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD colspan="19"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="19"><FONT size="2"><B>(amounts in thousands, except share and per share information)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
<B>Statement of Operations Data:</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Revenues</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">268</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">520</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">681</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,181</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Loss from operations</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(6,744</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,534</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,791</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,152</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,566</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(8,494</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,495</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,817</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Loss applicable to common stockholders</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(8,494</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,495</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(7,045</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Per share information:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(basic and diluted)</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Loss applicable to common stockholders</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.85</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.54</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.39</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.57</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.31</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Weighted average number of shares outstanding</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">9,937,936</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10,132,896</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">11,667,428</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">12,428,426</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">14,511,081</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="36%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="19"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="19"><FONT size="2"><B>As of December 31,</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="19"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1995</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1996</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
<B>Balance Sheet Data:</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Total current assets</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,761</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,221</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,303</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,207</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,143</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Working capital</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,330</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,640</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,014</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">349</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">270</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Total assets</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7,530</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,722</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6,823</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,819</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,463</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Stockholders&#146; equity</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7,099</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,117</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6,522</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,961</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,840</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<!-- link1 "Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->
<DIV align="left"><A NAME="006"></A></DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
<TD width="6%"></TD>
<TD width="94%"></TD>
</TR>

<TR valign="top">
<TD><B>Item&nbsp;7.&nbsp;&nbsp;</B></TD>
<TD>
<B><I>Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations</I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain statements under Item&nbsp;1 and Item&nbsp;7 contained
herein or as may otherwise be incorporated by reference herein
constitute &#147;forward-looking statements&#148; 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; technological advances; ability to obtain rights to
technology; ability to obtain and enforce patents; ability to
commercialize and manufacture products; results of preclinical
studies; results of 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 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. Accordingly, past results and trends should not be
used by investors to anticipate future results or trends.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a discussion of the historical consolidated
financial condition and results of operations of Novavax and its
subsidiaries. The discussion should be read in conjunction with
the consolidated financial statements and notes thereto set forth
in Item&nbsp;8 to this Report.

<P align="left"><B>Results of Operations</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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
continue and to most likely 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&#146;s products, or
until such time as revenues, to offset the losses, are sufficient
to fund its continuing operations.

<P align="center">13
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In August&nbsp;1999, the Company acquired substantially all of
the assets (excluding cash and accounts receivable) of the
Biomedical Services Laboratory (&#147;BSD&#148;) division of
DynCorp of Reston, Virginia for $592,000 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, which commenced in
November&nbsp;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 were $860,000. The research and development
activities of BSD are conducted in a 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. (See Note 5 of the Notes to
the Consolidated Financial Statements).

<P align="left"><B>1999 Compared to 1998</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net loss of $4,506,000 for the year ended December&nbsp;31,
1999 was $311,000 or 6% lower than the net loss for the year
ended December&nbsp;31, 1998. In 1998, charges for a dividend, a
deemed dividend and offering costs totaling $2,228,000, related
to the mandatorily-redeemable convertible preferred stock,
resulted in a loss applicable to common stockholders for the year
ended December&nbsp;31, 1998 of $7,045,000. There were no
similar charges for the year ended December&nbsp;31, 1999.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenues of $1,181,000 were recognized during 1999, compared to
$681,000 in 1998. This $500,000 or 73% increase relates to
payments made under license and research contracts for vaccines,
vaccine adjuvants and microbicides. The Company&#146;s Biomedical
Services division, which was acquired in August&nbsp;1999,
accounted for $370,000 or 31% of the 1999 total. In
October&nbsp;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&#146;s
technologies, including the Novasome adjuvants to be used with
Parkedale&#146;s U.S. Food and Drug Administration licensed
influenza vaccine. Under the terms of the agreement, Novavax
received a non-refundable license payment of $1,000,000. Novavax
has recognized $250,000 under this agreement as revenue for the
year ended December&nbsp;31, 1999. The remaining $750,000 has
been recorded in the accompanying balance sheet at
December&nbsp;31, 1999 as Deferred Revenue and will be recognized
as revenue over the next year. Additional payments due under
this agreement include milestone payments, research support and
royalties on future product sales.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
General and administrative expenses were $2,393,000 for the year
ended December&nbsp;31, 1999, compared to $2,472,000 for 1998.
The $79,000 or 3% decrease in these expenses related to reduced
salary expense due to a reduction in the number of administrative
employees. As a result of the BSD acquisition, headcount
increased from 15 to 38 employees, and the Company expects the
number of employees to increase in future periods to meet its
requirements.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development expenses were $3,354,000 and $3,361,000
for the years ended December&nbsp;31, 1999 and 1998,
respectively. Research costs of the newly acquired BSD operation
accounted for $704,000 or 21% of Novavax&#146;s research
expenditures for 1999. This additional cost was offset by
reductions in the number of products in clinical development
programs. The Company expects these efforts to resume during
2000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest income was $60,000 and $335,000 for the years ended
December&nbsp;31, 1999 and 1998, respectively. The reduction in
interest income relates to lower average cash balances during
1999 compared to 1998.

<P align="left"><B>1998 Compared to 1997</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net loss of $4,817,000 for the year ended December&nbsp;31,
1998 was $271,000 or 6% higher than the net loss of $4,547,000
for the year ended December&nbsp;31, 1997. The 1997 net loss
includes non-cash compensation expense of $578,000 compared to
$11,000 included in the 1998 net loss. This compensation expense
relates to the amortization of below-market priced stock options
granted in 1995. Other 1998 non-cash charges include $281,000 of
depreciation and patent amortization expense, compared to
$254,000 of similar expenses in 1997. The dividend on preferred
stock of $225,000 and the accretion of offering costs of $420,000
relate to dividends paid and fees incurred with the placement
and subsequent conversion and repurchase of preferred stock. The
deemed dividend on preferred stock of $1,583,000 relates to the
beneficial conversion feature of the preferred stock which
allowed for conversion into common stock at a price per share
discounted to the then-quoted market price of the common stock.

<P align="center">14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenues of $681,000 were recognized during 1998, principally
from contracts related to vaccine and adjuvant technologies
services as well as supplying new chemical structures designed to
inactivate viruses, bacteria and bacterial spores. This reflects
a $161,000 or 31% increase over revenues in 1997.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
General and administrative expenses include all costs associated
with the marketing of the Company&#146;s technology to potential
industry partners and those activities associated with
identifying additional sources of capital. It also includes costs
associated with management and administrative activities.
General and administrative expenses were approximately $2,472,000
and $2,437,000 for the years ended December&nbsp;31, 1998 and
1997, respectively. The increase of $35,000 was attributable to
increased costs associated with securing strategic alliances and
potential sources of financing.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development expenses include scientific staffing,
supplies and other costs related to the ongoing development of
the Novavax technologies as well as the development of the
Company&#146;s product candidates. Research and development
expenses were approximately $3,361,000 and $2,874,000 for the
years ended December&nbsp;31, 1998 and 1997, respectively. The
$487,000 or 17% increase in these expenses was due principally to
costs associated with the Company&#146;s Phase II clinical
trials.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest income was approximately $335,000 and $245,000 for the
years ended December&nbsp;31, 1998 and 1997, respectively. These
amounts reflect interest earned on the average cash balances on
hand throughout the year.

<P align="left"><B>Liquidity and Capital Resources</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax&#146;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&#146;s development of commercialization
activities and arrangements. The Company currently has three
product candidates in development. Future activities including
clinical development and the establishment of commercial-scale
manufacturing capabilities are subject to the Company&#146;s
ability to raise funds through equity financing, or collaborative
arrangements with corporate partners. Novavax&#146;s future
growth will depend on its ability to commercialize its Novavax
technologies for human pharmaceutical applications.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In February&nbsp;1997, Novavax received $5,003,000, net of fees
and expenses, from the private placement of 1,200,000 shares of
its Common Stock with an accredited institutional investor, a
principal of which has subsequently become a director of Novavax.
In connection with this transaction, Novavax granted warrants to
purchase an additional 600,000 shares of the Company&#146;s
Common Stock at a price of $6.00 per share and 600,000 shares at
$8.00 per share. These warrants have a three-year term, expiring
in March&nbsp;2000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January&nbsp;1998, the Company entered into Subscription
Agreements to effectuate the private placement of 6,500 shares of
Series&nbsp;A Custom Convertible Preferred Stock, $1,000 par
value (the &#147;Preferred Stock&#148;). The closing occurred on
January&nbsp;28, 1998 (the &#147;Issuance Date&#148;) at an
aggregate purchase price of $6,500,000. The Company paid a
placement agent fee of $425,000 in connection with this
financing.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Preferred Stock was convertible into shares of Common Stock
at a conversion price equal to (i)&nbsp;during a period of
90&nbsp;days following the Issuance Date, 100% of the average of
the two lowest consecutive trade prices of the Common Stock as
reported on the American Stock Exchange for the 25 trading days
immediately preceding the conversion date (the &#147;Two Day
Average Trading Price&#148;) or (ii)&nbsp;during the period on
and after the date which is 91&nbsp;days after the Issuance Date,
94% of the Two Day Average Trading Price (the &#147;Conversion
Price&#148;). From the Issuance Date, there was a ceiling price
of $6.33 and within the first 180&nbsp;days after the Issuance
Date, the Conversion Price had applicable floor prices, based on
conversion dates.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the subsequent repurchase of all the outstanding
Preferred Stock, $1,522,000 of the original issue had been
converted into 1,043,956 shares of Common Stock, pursuant to the
terms and conditions of the Preferred Stock. In
October&nbsp;1998, the Company entered into agreements to
repurchase the remaining Preferred Stock. The Company repurchased
the remaining outstanding $4,979,000 of Preferred Stock plus
accrued dividends at the annual rate of five percent. The
repurchase was funded with cash balances on hand. The terms of
the Preferred Stock required the Company to pay the holders of
the Preferred Stock $225,000 in dividends. This amount was paid

<P align="center">15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
in cash of $179,000 and through the issuance of 32,492 shares of
the Company&#146;s Common Stock, valued at $46,000. The Company
incurred transaction fees associated with the placement,
conversion and repurchase of the Preferred Stock of $502,000
which are included in the accompanying financial statements as
accretion of Preferred Stock.
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April&nbsp;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 &#147;Private
Placement&#148;). 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 agents&#146; fees were approximately
$215,000, which was paid with cash of $107,000 and 42,933 shares
of the Company&#146;s Common Stock, which were issued together
with non-transferable warrants for the purchase of 10,733 shares
of the Company&#146;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&#146;s Common Stock, with an exercise price of $3.00
per share and a three-year term, were issued to the placement
agents. Other costs connected with the Private Placement,
including legal, stock exchange listing and registration fees,
were approximately $67,000. Net proceeds to the Company from the
Private Placement were approximately $4,000,000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January&nbsp;2000, the Company closed a private placement of
2,813,850 shares of its Common Stock to accredited investors (the
&#147;2000 Private Placement&#148;). The issuance price of the
Common Stock was $4.00 per share. Each share was sold together
with a non-transferable warrant for the purchase of .25
additional shares at an exercise price of $6.75. The warrants
have a three-year term. Gross proceeds from the 2000 Private
Placement were $11,255,400. Placement agent fees were
approximately $675,000, which was paid in cash. Additionally,
non-transferable warrants for the purchase of 281,385 shares of
the Company&#146;s Common Stock, with an exercise price of $6.75
per share and a three-year term, were issued to the placement
agent. Other costs connected with the 2000 Private Placement,
including legal, stock exchange listing and registration fees,
were approximately $67,000. Net proceeds to the Company from the
2000 Private Placement were approximately $10,530,000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company used $3,700,000 during the year ended
December&nbsp;31, 1999 to fund the activities of its research and
development programs and costs associated with obtaining
regulatory approvals, preclinical and clinical testing. In
addition, Novavax acquired the Biomedical Services Laboratories
division of DynCorp for $592,000 in cash. Funding for these
transactions was available from the private placement of the
Company&#146;s Common Stock in April 1999 and from the $1,000,000
license payment due under the Parkedale agreement. On
December&nbsp;31, 1999, the Company had $732,000 in cash.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash, cash equivalents and marketable securities on March&nbsp;3,
2000, totaled $10,800,000. Novavax estimates that the money
received from the most recent sale of Common Stock and its
existing cash resources will be sufficient to finance its
operations at current and projected levels of development
activity for approximately 24&nbsp;months.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 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&#146;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.

<!-- link1 "Item 7a. Quantitative and Qualitative Disclosures about Market Risks" -->
<DIV align="left"><A NAME="007"></A></DIV>

<P align="left"><B>Item&nbsp;7a.<I>&nbsp;&nbsp;Quantitative and Qualitative
Disclosures about Market Risks</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Not applicable.

<P align="center">16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "Item 8. Financial Statements and Supplementary Data" -->
<DIV align="left"><A NAME="008"></A></DIV>

<P align="left"><B>Item&nbsp;8.<I>&nbsp;&nbsp;Financial Statements and
Supplementary Data</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financial statements and notes thereto listed in the
accompanying index to financial statements (Item&nbsp;14) are
filed as part of this Annual Report and are incorporated herein
by this reference.

<!-- link1 "Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure" -->
<DIV align="left"><A NAME="009"></A></DIV>

<P align="left"><B>Item&nbsp;9.<I>&nbsp;&nbsp;Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
None.

<P align="center"><B>PART III</B>

<!-- link1 "Item 10. Directors and Executive Officers of the Registrant" -->
<DIV align="left"><A NAME="010"></A></DIV>

<P align="left"><B>Item&nbsp;10.<I>&nbsp;&nbsp;Directors and Executive Officers
of the Registrant</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information required by this item is contained in part under
the caption &#147;Executive Officers of the Registrant&#148; in
Part I hereof, and the remainder is contained in the
Company&#146;s Proxy Statement for the Company&#146;s Annual
Meeting of Stockholders to be held on May&nbsp;9, 2000 (the
&#147;2000 Proxy Statement&#148;) under the captions
&#147;Proposal 1&nbsp;&#151; Election of Directors&#148; and
&#147;Beneficial Ownership of Common Stock&#148; and is
incorporated herein by this reference. The Company expects to
file the 2000 Proxy Statement within 120 days after the close of
the fiscal year ended December&nbsp;31, 1999.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Officers are elected on an annual basis and serve at the
discretion of the Board of Directors.

<!-- link1 "Item 11. Executive Compensation" -->
<DIV align="left"><A NAME="011"></A></DIV>

<P align="left"><B>Item&nbsp;11.<I>&nbsp;&nbsp;Executive Compensation</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information required by this item is contained in the
Company&#146;s 2000 Proxy Statement under the captions
&#147;Executive Compensation&#148; and &#147;Director
Compensation&#148; and is incorporated herein by reference.

<!-- link1 "Item 12. Security Ownership of Certain Beneficial Owners and Management" -->
<DIV align="left"><A NAME="012"></A></DIV>

<P align="left"><B>Item&nbsp;12.<I>&nbsp;&nbsp;Security Ownership of Certain
Beneficial Owners and Management</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information required by this item is contained in the
Company&#146;s 2000 Proxy Statement under the caption
&#147;Beneficial Ownership of Common Stock&#148; and is
incorporated herein by reference.

<!-- link1 "Item 13. Certain Relationships and Related Transactions" -->
<DIV align="left"><A NAME="013"></A></DIV>

<P align="left"><B>Item&nbsp;13.<I>&nbsp;&nbsp;Certain Relationships and Related
Transactions</I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information required by this item is contained in the
Company&#146;s 2000 Proxy Statement under the caption
&#147;Certain Relationships and Related Transactions&#148; and is
incorporated herein by reference.

<P align="center">17
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>PART IV</B>

<!-- link1 "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K" -->
<DIV align="left"><A NAME="014"></A></DIV>

<P align="left"><B>Item&nbsp;14.&nbsp;&nbsp;<I>Exhibits, Financial Statement
Schedules, and Reports on Form&nbsp;8-K</I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="12%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="85%">&nbsp;</TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
(a)(1)</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Financial Statements:</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Report of Independent Accountants; Consolidated Balance Sheets as
of December&nbsp;31, 1999 and 1998; Consolidated Statements of
Operations for the years ended December&nbsp;31, 1999, 1998 and
1997; Consolidated Statements of Cash Flows for the years ended
December&nbsp;31, 1999, 1998 and 1997; Consolidated Statements of
Stockholders&#146; Equity for the years ended December&nbsp;31,
1999, 1998 and 1997; Notes to Consolidated Financial Statements.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
(a)(2)</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Financial Statement Schedules:</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Schedules are either not applicable or not required because the
information required is contained in the financial statements or
notes thereto. Condensed financial information of the Registrant
is omitted since there are no substantial amounts of restricted
net assets applicable to the Company&#146;s consolidated
subsidiaries.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
(a)(3)</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Exhibits Required to be Filed by Item&nbsp;601 of
Regulation&nbsp; S-K:</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Exhibits marked with a single asterisk are filed herewith, and
exhibits marked with a double plus sign reference management
contracts, compensatory plans or arrangements, filed in response
to Item&nbsp;14 (a)(3) of the instructions to Form&nbsp;10-K. The
other exhibits listed have previously been filed with the
Commission and are incorporated herein by reference.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
3.1</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Amended and Restated Certificate of Incorporation of Novavax,
Inc. [Incorporated by reference to Exhibit&nbsp;3.1 to the
Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended December&nbsp;31, 1996, File No.&nbsp;0-26770, filed
March&nbsp;21, 1997 (the &#147;1996 Form&nbsp;10-K&#148;).]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
3.2</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Amended and Restated By-laws of Novavax, Inc. [Incorporated by
reference to Exhibit&nbsp;3.2 to the 1996 Form&nbsp;10-K.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
3.3</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Certificate of Designations of Series&nbsp;A Custom Convertible
Preferred Stock dated January&nbsp;28, 1998. [Incorporated by
reference to Exhibit&nbsp;4.2 to the Company&#146;s Registration
Statement on Form&nbsp;S-3, File No.&nbsp;333-46409, filed
February&nbsp; 17, 1998.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
4.</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Specimen stock certificate for shares of Common Stock, par value
$.01 per share. [Incorporated by reference to Exhibit&nbsp; 4.1
to the Company&#146;s Registration Statement on Form&nbsp;10,
File No.&nbsp;0-26770, filed September&nbsp;14, 1995 (the
&#147;Form&nbsp; 10&#148;).]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.1</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
License Agreement between IGEN, Inc. and Micro-Pak, Inc.
[Incorporated by reference to Exhibit&nbsp;10.3 to the
Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended December&nbsp;31, 1995, File No.&nbsp;0-26770, filed
April&nbsp;1, 1996, (the &#147;1995 Form&nbsp;10-K&#148;).]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
&#134;&#134;10.2</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
1995 Stock Option Plan. [Incorporated by reference to
Exhibit&nbsp;10.4 to the Form&nbsp;10.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
&#134;&#134;10.3</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
First Amendment to Novavax, Inc. 1995 Stock Option Plan approved
by the stockholders of the Company on May&nbsp;14, 1998, and by
the Board of Directors on March&nbsp;16, 1998. [Incorporated by
reference to Exhibit&nbsp;10.3 to the Company&#146;s Annual
Report on Form&nbsp;10-K for the fiscal year ended
December&nbsp;31, 1998, File No.&nbsp;0-26770, filed
April&nbsp;15, 1999. (the &#147;1998 Form&nbsp;10-K&#148;).]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
&#134;&#134;10.4</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director Stock Option Plan. [Incorporated by reference to Exhibit
10.5 to the Form&nbsp;10.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.5</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Agreement of Lease by and between the Company and Rivers Center
Associates Limited Partnership, dated September&nbsp;25, 1996.
[Incorporated by reference to Exhibit&nbsp;10.7 to the 1996
Form&nbsp;10-K.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.6</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Stock and Warrant Purchase Agreement dated February&nbsp;10, 1997
by and between the Company and Anaconda Opportunity Fund, L.P.
[Incorporated by reference to Exhibit&nbsp;4.4 to the
Company&#146;s Registration Statement on Form&nbsp;S-3, File
No.&nbsp; 333-22685, filed March&nbsp;4, 1997 (the
&#147;Anaconda&nbsp;S-3&#148;).]</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">18
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="12%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="85%">&nbsp;</TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.7</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Form of Warrant issued by the Company to Anaconda Opportunity
Fund, L.P. [Incorporated by reference to Exhibit&nbsp;4.5 to the
Anaconda S-3.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.8</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Forms of Subscription Agreement dated January&nbsp;23, 1998 and
Letter Agreement dated February&nbsp;19, 1998, by and between the
Company and each of the four purchasers, Delta Opportunity Fund,
Ltd., Olympus Securities, Ltd., Nelson Partners, OTATO Limited
Partnership. [Incorporated by reference to Exhibit&nbsp;4.5 to
the Company&#146;s Registration Statement on Form&nbsp;S-3, File
No.&nbsp;333-46409, filed February&nbsp; 17, 1998.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
&#134;&#134;10.9</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Employment Agreement dated March&nbsp;31, 1998, by and between
the Company and D. Craig Wright [Incorporated by reference to
Exhibit&nbsp;10.14 to the 1998 Form&nbsp;10-K]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*&#134;&#134;10.10</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Employment Agreement dated May&nbsp;13, 1999, by and between the
Company and John A. Spears.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*&#134;&#134;10.11</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Employment Agreement dated March&nbsp;5, 1999, by and between the
Company and Richard J. Harwood.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
10.12</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Form of Stock and Warrant Purchase Agreement dated April&nbsp;
14, 1999, by and between the Company and the purchasers named
therein [Incorporated by reference to Exhibit&nbsp;10.16 to the
1998 Form&nbsp;10-K]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*10.13</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
License Agreement by and between the Company and Parkedale
Pharmaceuticals, Inc. dated October&nbsp;21, 1999.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*10.14</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
License Agreement by and between the Company and Cantab
Pharmaceuitcals Research Limited, dated April&nbsp;22, 1999.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*10.15</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Form of Stock and Warrant Purchase Agreement dated January&nbsp;
28, 2000, by and between the Company and the purchasers named
therein.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
21</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
List of Subsidiaries [Incorporated by reference to Exhibit&nbsp;
21 to the 1995 Form&nbsp;10-K.]</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*23</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Consent of PricewaterhouseCoopers LLP, Independent Accountants.</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
*27</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Financial Data Schedule</FONT></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
(b)</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Reports on Form&nbsp;8-K:</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
The Company filed a current report on Form&nbsp;8-K on
August&nbsp; 25, 1999 to report under Item&nbsp;2 its acquisition
of DynCorp&#146;s Biomedical Services Laboratory division. In
addition, the Company filed an amendment to the Form&nbsp;8-K on
October&nbsp;12, 1999 to include under Item&nbsp;7 the following
financial information:</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Financial statements of DynCorp Biomedical Services Laboratory.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(1)&nbsp;Report of Independent Accountants dated October&nbsp;6,
1999.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(2)&nbsp;Statement of Assets Acquired and Liabilities Assumed as
of December&nbsp;31, 1998 and June&nbsp;30, 1999 (unaudited)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(3)&nbsp;Statement of Operating Revenue and Expenses for the year
ended December&nbsp;31, 1998 and for the six months ended
June&nbsp;30, 1999 (unaudited)&nbsp;and 1998 (unaudited).</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(4)&nbsp;Notes to Financial Statements.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Unaudited Pro Forma Combined Financial Information of Novavax,
Inc.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(1)&nbsp;Unaudited Pro Forma Combined Statement of Operations for
the year ended December&nbsp;31, 1998.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(2)&nbsp;Unaudited Pro Forma Combined Statement of Operations for
the six months ended June&nbsp;30, 1999.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(3)&nbsp;Unaudited Pro Forma Combined Condensed Balance Sheet as
of June&nbsp;30, 1999.</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
(4)&nbsp;Notes to the Unaudited Pro Forma Combined Financial
Information</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>SIGNATURES</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of Section&nbsp;13 or 15(d) 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.

<P align="left">
Date: March&nbsp;7, 2000
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
<TD width="38%"></TD>
<TD width="62%"></TD>
</TR>

<TR valign="top">
<TD>&nbsp;</TD>
<TD align="left">
NOVAVAX, INC.</TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
<TD width="38%"></TD>
<TD width="2%"></TD>
<TD width="60%"></TD>
</TR>

<TR valign="top">
<TD>&nbsp;</TD>
<TD>By:&nbsp;</TD>
<TD align="center">
/s/ JOHN A. SPEARS</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
<TD width="38%"></TD>
<TD width="62%"></TD>
</TR>

<TR valign="top">
<TD>&nbsp;</TD>
<TD align="left">
<HR size="1" align="left"></TD>
</TR>

<TR valign="top">
<TD>&nbsp;</TD>
<TD align="left">
John A. Spears, <BR>
President and Chief Executive Officer</TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacity and on the date
indicated.

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="50%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="29%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="15%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Name</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Title</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Date</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap><HR size="1"></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ JOHN A. SPEARS<BR>
<HR size="1">John A. Spears</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
President and Chief Executive Officer and Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD colspan="5">&nbsp;</TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ DONALD J. MACPHEE<BR>
<HR size="1">Donald J. MacPhee</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Vice President and Chief Financial Officer (Principal Financial
and Accounting Officer)</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ GARY C. EVANS<BR>
<HR size="1">Gary C. Evans</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ MITCHELL J. KELLY<BR>
<HR size="1">Mitchell J. Kelly</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ J. MICHAEL LAZARUS<BR>
<HR size="1">J. Michael Lazarus, M.D.</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ JOHN O. MARSH, JR.<BR>
<HR size="1">John O. Marsh, Jr.</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ MICHAEL A. MCMANUS<BR>
<HR size="1">Michael A. McManus</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ DENIS M. O&#146;DONNELL<BR>
<HR size="1">Denis M. O&#146;Donnell, M.D.</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

<TR>
<TD align="center" valign="top"><FONT size="2">
/s/ RONALD H. WALKER<BR>
<HR size="1">Ronald H. Walker</FONT></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
<TD></TD>
<TD align="center" valign="top"><FONT size="2">
March&nbsp;7, 2000</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="90%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="7%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Description</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap><FONT size="2"><B>Page</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
Report of Independent Accountants</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-2</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Consolidated Statements of Operations for each of the three years
in the period ended December&nbsp;31, 1999</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-3</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Consolidated Balance Sheets as of December&nbsp;31, 1999 and 1998</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-4</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Consolidated Statements of Cash Flows for each of the three years
in the period ended December&nbsp;31, 1999</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-5</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Consolidated Statements of Changes in Stockholders&#146; Equity
for each of the three years in the period ended December&nbsp;
31, 1999</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-6</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Notes to the Consolidated Financial Statements</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
F-7</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">F-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>REPORT OF INDEPENDENT ACCOUNTANTS</B>

<P align="left">
To the Board of Directors and Stockholders of Novavax, Inc.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the accompanying consolidated balance sheets and
related consolidated statements of operations, of cash flows and
of changes in stockholders&#146; equity, present fairly, in all
material respects, the consolidated financial position of
Novavax, Inc. and subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December&nbsp;31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial
statements are the responsibility of the Company&#146;s
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards
generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.

<P align="left">
PricewaterhouseCoopers LLP

<P align="left">
McLean, Virginia

<DIV align="left">
February&nbsp;26, 2000
</DIV>

<P align="center">F-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>

<DIV align="center">
<B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>
</DIV>

<DIV align="center">
<B>(amounts in thousands, except share and per share information)
</B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="52%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="11"></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>For the years ended December 31,</B></FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Revenues</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,181</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">681</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">520</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Operating expenses:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
General and administrative</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,393</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,472</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,437</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Research and development</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,354</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,361</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,874</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total operating expenses</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,747</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,833</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,311</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Loss from operations</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,566</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,152</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,791</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Interest income, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">335</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">244</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,817</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,457</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Dividend on preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Deemed dividend on preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1,583</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Accretion of offering cost</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(420</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Loss applicable to common stockholders</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(7,045</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Per share information: (basic and diluted) Loss applicable to
common stockholders</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.31</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.57</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(0.39</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Weighted average number of common shares outstanding (basic and
diluted)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">14,511,081</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">12,428,426</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">11,667,428</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">The accompanying notes are an integral part of the consolidated
financial statements.

<P align="center">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>

<DIV align="center">
<B>CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<DIV align="center">
<B>(amounts in thousands, except share and per share information)
</B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="69%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="7"></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>As of December 31,</B></FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
<B>ASSETS</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Current assets:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Cash and cash equivalents</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">732</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,031</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Accounts receivable</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">341</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">138</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Prepaid expenses and other current assets</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">70</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total current assets</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,143</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,207</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Property and equipment, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,053</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,020</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Patent costs, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,619</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,590</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Other assets, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">648</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total assets</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,463</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,819</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="7" align="left" valign="top"><FONT size="2"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Current liabilities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Debt obligations</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">111</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">36</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Accounts payable</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">637</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">793</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Accrued payroll</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">125</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">29</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total current liabilities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">873</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">858</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Deferred revenue</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">750</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total liabilities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,623</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">858</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Commitments and contingencies</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="11">&nbsp;</TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Stockholders&#146; equity:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Preferred stock, $.01 par value, 2,000,000 shares authorized; no
shares issued and outstanding</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Common stock, $.01 par value, 30,000,000 shares authorized;
15,173,688 issued and 15,167,166 outstanding at December 31,
1999, and 13,253,118 issued and outstanding at December&nbsp;31,
1998</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">152</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">133</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Additional paid-in capital</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">45,622</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">41,231</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Accumulated deficit</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(42,894</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(38,388</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Deferred compensation on stock options granted</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(15</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Treasury stock, 6,522 shares, cost basis at December&nbsp;31,
1999</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(35</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total stockholders&#146; equity</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,840</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,961</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total liabilities and stockholders&#146; equity</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,463</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,819</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="3"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">The accompanying notes are an integral part of the consolidated
financial statements.

<P align="center">F-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>

<DIV align="center">
<B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<DIV align="center">
<B>(amounts in thousands)</B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="55%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD colspan="11"></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>For the years ended December 31,</B></FONT></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Cash flows from operating activities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,817</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD colspan="3" align="left" valign="top"><FONT size="2">
Reconciliation of net loss to net cash used by operating
activities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Gain on sale of asset</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(23</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Non-cash compensation expense</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">577</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Depreciation and amortization</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">382</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">281</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">254</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Issuance of stock to 401(k) plan</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Issuance of stock as compensation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">115</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Changes in operating assets and liabilities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Accounts receivable</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(203</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">112</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(257</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Prepaid expenses and other assets</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(45</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">224</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Accounts payable and accrued expenses</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(180</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">544</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(286</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Deferred revenue</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">750</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Net cash used by operating activities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(3,700</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(3,624</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,245</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Cash flows from investing activities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Proceeds from the sale of marketable securities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">501</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Acquisition of business</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(592</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Capital expenditures</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(48</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(231</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(45</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Deferred patent costs</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(171</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(146</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(198</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Proceeds from sale of asset</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Net cash (used)&nbsp;provided by investing activities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(786</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(377</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">258</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Cash flows from financing activities:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Payment of capital lease obligations</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(73</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(38</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(11</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Issuance of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6,500</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Dividend on preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(179</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Offering costs of preferred and common stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(173</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(502</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Repurchase of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,979</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Proceeds from private placements of common stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,128</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,003</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Proceeds from the exercise of stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">305</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">333</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">361</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Net cash provided by financing activities</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,187</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,185</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,353</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Net change in cash and cash equivalents</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(299</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(2,816</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,366</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Cash at beginning of period</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,031</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,847</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,481</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="4" align="left" valign="top"><FONT size="2">
Cash and cash equivalents at end of period</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">732</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,031</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,847</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="4"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">The accompanying notes are an integral part of the consolidated
financial statements.

<P align="center">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>

<DIV align="center">
<B>CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY</B>
</DIV>

<DIV align="center">
<B>For the years ended December&nbsp;31, 1999, 1998 and 1997</B>
</DIV>

<DIV align="center">
<B>(amounts in thousands, except share information)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="32%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Deferred</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="7"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Compensation</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>Common Stock</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Additional</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>On Stock</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Total</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Paid-in</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Options</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Treasury</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Stockholders</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Shares</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Dollars</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Capital</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Deficit</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Granted</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Stock</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Equity</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1996</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>10,660,710</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>106</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>32,410</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(26,796</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(603</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>&#151;</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>5,117</B></FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Company contribution to employee 401(k) plan</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">771</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Amortization of deferred compensation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Private sale of common stock, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,200,000</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,991</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5,003</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Exercise of stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">170,276</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">450</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(90</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">362</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1997</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>12,031,757</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>120</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>37,853</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(31,343</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(25</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(83</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>6,522</B></FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Company contribution to employee 401(k) plan</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">42</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(12</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">33</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Amortization of deferred compensation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Private sale of preferred stock, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,583</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,583</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Conversion of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,043,956</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">11</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,475</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,486</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Dividend on preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">32,944</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Deemed dividend on preferred</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1,583</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1,583</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Accretion of offering costs</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(420</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(420</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Private sale of common stock, net</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Exercise of stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">144,419</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">333</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,817</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,817</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1998</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>13,253,118</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>133</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>41,231</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(38,388</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(15</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>&#151;</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>2,961</B></FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Amortization of deferred compensation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Private sale of common stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,651,100</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">17</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,111</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,128</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Offering costs</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">42,933</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(173</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(173</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Stock issued as compensation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(43</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">158</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">115</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Exercise of stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">226,537</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">496</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(193</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">305</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1999</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>15,173,688</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>152</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>45,622</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(42,894</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(5</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>(35</B></FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2"><B>)</B></FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2"><B>$</B></FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2"><B>2,840</B></FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">The accompanying notes are an integral part of the consolidated
financial statements.

<P align="center">F-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<P align="left"><B>1.&nbsp;&nbsp;Description of Business and Basis of
Presentation</B>

<P align="left"><I>&nbsp;&nbsp;Description of Business</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax, Inc., a Delaware corporation (&#147;Novavax&#148; or the
&#147;Company&#148;), is a biopharmaceutical company focused on
the research and development of proprietary topical and oral drug
delivery technologies and applications of those technologies.
The Company&#146;s technology platforms involve the use of
proprietary, microscopic, organized, non-phospholipid structures
as vehicles for the delivery of a wide variety of drugs and other
therapeutic products, including certain hormones, anti-bacterial
and anti-viral products and vaccine adjuvants. These technology
platforms support three product development programs: hormone
replacement therapies, third party drug delivery and vaccine
adjuvant applications and anti-microbial agents. Novavax&#146;s
recently acquired Biomedical Services Division is engaged in
contract research and development and Phase I and Phase II
vaccine manufacturing of human vaccines for the Company&#146;s
own use and for government laboratories and other vaccine
companies. The regulatory process is lengthy, requiring
substantial funds, and the Company cannot predict when approval
of any product or a license to sell any product might occur. In
addition, there can be no assurance the Company will have
sufficient funds necessary or that the additional funds will be
available at all or on acceptable terms. The Company also
recognizes that the commercial launch of any product is subject
to certain risks including but not limited to manufacturing
scale-up and market acceptance.

<P align="left"><I>&nbsp;&nbsp;Basis of Presentation</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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.

<P align="left"><I>&nbsp;&nbsp;Financing Requirements</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 financing, 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.

<P align="left"><I>&nbsp;&nbsp;Subsequent Event</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January&nbsp;2000, the Company closed a private placement of
2,813,850 shares of its Common Stock to accredited investors (the
&#147;2000 Private Placement&#148;). The issuance price of the
Common Stock was $4.00 per share. Each share was sold together
with a non-transferable warrant for the purchase of .25
additional shares at an exercise price of $6.75. The warrants
have a three-year term. Gross proceeds from the 2000 Private
Placement were $11,255,400. Placement agent fees were
approximately $675,000, which was paid in cash. Additionally,
non-transferable warrants for the purchase of 281,385 shares of
the Company&#146;s Common Stock, with an exercise price of $6.75
per share and a three-year term, were issued to the placement
agent. Other costs connected with the 2000 Private Placement,
including legal, stock exchange listing and registration fees,
were approximately $50,000. Net proceeds to the Company from the
2000 Private Placement were approximately $10,530,000.

<P align="left"><B>2.&nbsp;&nbsp;Summary of Significant Accounting Policies</B>

<P align="left"><B>&nbsp;&nbsp;</B><I>Cash and Cash Equivalents</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash equivalents are considered to be short-term highly liquid
investments with original maturities of 90&nbsp;days or less.

<P align="center">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>2.&nbsp;&nbsp;Summary of Significant Accounting
Policies&nbsp;&#151; (Continued)</B>
</DIV>

<P align="left"><I>&nbsp;&nbsp;Property and Equipment</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment are recorded at cost. Depreciation of
furniture, fixtures and equipment is provided under the
straight-line method over the estimated useful lives, generally
five years. Amortization of leasehold improvements is provided
over the estimated useful lives of the improvements or the term
of the lease, which ever is shorter. Furniture and equipment held
under capital leases are amortized under the straight-line
method over the shorter of the lease term or the estimated useful
life of the asset.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Repair and maintenance costs are charged to operations as
incurred while major improvements are capitalized. When assets
are retired or disposed of, the cost and accumulated depreciation
thereon are removed from the accounts and any gains or losses
are included in operations. Accumulated depreciation was $871,000
and $691,000 at December&nbsp;31, 1999 and 1998, respectively.

<P align="left"><I>&nbsp;&nbsp;Patent Cost</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Costs associated with obtaining patents, principally legal costs
and filing fees, are being amortized on a straight-line basis
over the remaining economic lives of the respective patents.
Accumulated amortization of patent costs was $820,000 and
$678,000 at December&nbsp;31, 1999 and 1998, respectively.

<P align="left"><I>&nbsp;&nbsp;Stock Based Compensation</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company measures compensation expense for its employee
stock-based compensation using the intrinsic value method and
provides pro forma disclosures of net loss as if the fair value
method had been applied in measuring compensation expense. Under
the intrinsic value method of accounting for stock-based
compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the underlying
stock on the date of grant, deferred compensation is recognized
and is amortized to compensation expense over the applicable
vesting period.

<P align="left"><I>&nbsp;&nbsp;Impairment of Long-lived Assets</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company evaluates the recoverability of the carrying value of
its long-lived assets periodically. The Company considers
historical performance and anticipated future results in its
evaluation of potential impairment. Accordingly, when indicators
of impairment are present, the Company evaluates the carrying
value of these assets in relation to the operating performance of
the business and future discounted and undiscounted cash flows
expected to result from the use of these assets. Impairment
losses are recognized when the sum of expected future cash flows
are less than the assets&#146; carrying value. No such impairment
losses have been recognized to date.

<P align="left"><I>&nbsp;&nbsp;Research and Development Costs</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development costs are expensed as incurred.

<P align="left"><I>&nbsp;&nbsp;Revenue Recognition</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenues from the sale of scientific prototype vaccines and
adjuvants are recorded as the products are produced and shipped.
Revenues earned under research contracts are recognized when the
related contract provisions are met.

<P align="left"><I>&nbsp;&nbsp;Net Loss Per Share</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Basic earnings per share is computed by dividing the net loss
available to common shareholders by the weighted average number
of common share outstanding during the period. Diluted loss per
share is computed

<P align="center">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>2.&nbsp;&nbsp;Summary of Significant Accounting
Policies&nbsp;&#151; (Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<I>&nbsp;&nbsp;Net Loss Per Share&nbsp;&#151; (Continued)</I>
</DIV>

<P align="left">
by dividing net loss available to common shareholders by the
weighted average number of common shares outstanding after giving
effect to all dilutive potential common shares that were
outstanding during the period.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Potential common shares are not included in the computation of
dilutive earnings per share if they are antidilutive. Net loss
per share as reported was not adjusted for potential common
shares as they are antidilutive.

<P align="left"><I>&nbsp;&nbsp;Income Taxes</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s income taxes are determined in accordance with
the provisions of Statement of Financial Accounting Standards
(SFAS)&nbsp;No.&nbsp;109, which requires the asset and liability
method of accounting for income taxes. Under the asset and
liability method deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The effect on deferred taxes of changes in tax rates is
recognized in income in the period that includes the enactment
date. A valuation allowance is recorded based on
management&#146;s determination of the ultimate realizability of
future deferred tax assets. The Company has provided a full
valuation allowance against its net deferred tax asset as of
December&nbsp;31, 1999 and 1998.

<P align="left"><I>&nbsp;&nbsp;Use of Estimates</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant estimates include valuation of patent costs
and benefits for income taxes and related valuation allowances.
Actual results could differ from those estimates.

<P align="left"><I>&nbsp;&nbsp;Comprehensive Income</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has adopted the accounting treatment prescribed by
SFAS 130, <I>Comprehensive Income. </I>The adoption of this
statement had no impact on the Company&#146;s financial
statements because the Company did not have any other
comprehensive income components.

<P align="left"><I>&nbsp;&nbsp;Concentration of Credit Risk</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Financial instruments, which possibly expose the Company to
concentration of credit risk, consist primarily of cash and cash
equivalents and accounts receivable. The Company maintains its
cash and cash equivalents in bank accounts which, at times, may
exceed federally insured limits. The Company has not experienced
any losses on such accounts. Accounts receivable consist
principally of amounts due from the Federal Government, other
large institutions and credit worthy companies. The Company
monitors the balances of individual accounts to assess any
collectibility issues. The Company has not experienced losses
related to receivables in the past. As of December&nbsp;31, 1999,
three customers accounted for 53%, 11% and 10% of accounts
receivable, which totaled $341,000. As of December&nbsp;31, 1998,
two customers accounted for 65% and 27% of accounts receivable,
which totaled $138,000.

<P align="left"><I>&nbsp;&nbsp;New Accounting Standards</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Financial Accounting Standards Board (&#147;FASB&#148;) has
issued Statement of Accounting Standards No.&nbsp;137 (SFAS 137),
Accounting for Derivative Instruments and Hedging
Activities&nbsp;&#151; Deferral of the

<P align="center">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>2.&nbsp;&nbsp;Summary of Significant Accounting
Policies&nbsp;&#151; (Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<I>&nbsp;&nbsp;New Accounting Standards&nbsp;&#151; (Continued)
</I>
</DIV>

<P align="left">
Effective Date of SFAS No.&nbsp;133. This statement amends SFAS
No.&nbsp;133 to be effective for all fiscal quarters of all
fiscal years beginning after June&nbsp;15, 2000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SFAS No.&nbsp;133, Accounting for Derivative Instruments and
Hedging Activities, requires that every derivative instrument be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes
in the derivatives fair value be recognized in earnings unless
specific hedge accounting criteria are met. The Company will
adopt SFAS No.&nbsp;133 by January&nbsp;1, 2001. Because of the
Company&#146;s minimal use of derivatives, management does not
anticipate that adoption of this statement will have a material
effect on the earnings or financial position of the Company.

<P align="left"><B>3.&nbsp;&nbsp;Supplemental Cash Flow Information</B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="73%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="11"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>(amounts</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Cash paid for:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Interest</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the years ended December&nbsp;31, 1999, 1998 and 1997, the
Company had the following non-cash financing and investing
activities:

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="73%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="11"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>(amounts</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="11"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Capital lease obligation for the purchase of furniture<BR>
and equipment</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="left"><B>4.&nbsp;&nbsp;Property and Equipment</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment, stated at cost, is comprised of the
following:

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="79%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="7"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>(amounts</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Machinery and equipment</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,433</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,249</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Leasehold improvements</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">428</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">329</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Equipment under capital leases</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">87</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Furniture and fixtures</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">63</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,924</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,711</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Less accumulated depreciation</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(871</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(691</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,053</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,020</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation expense of $183,500, $152,000 and $134,000 was
recorded in the years ended December&nbsp;31, 1999, 1998 and
1997, respectively. Accumulated depreciation on equipment under
capital leases was $33,000 at December&nbsp;31, 1998.

<P align="left"><B>5.&nbsp;&nbsp;Acquisition of Biomedical Services Laboratories
</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;10, 1999, the Company acquired substantially all
of the assets (excluding cash and accounts receivable) of the
Biomedical Services Laboratory (&#147;BSD&#148;) division of
DynCorp of Reston, Virginia for

<P align="center">F-10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>5.&nbsp;&nbsp;Acquisition of Biomedical Services
Laboratories&nbsp;&#151; (Continued)</B>
</DIV>

<P align="left">
$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&nbsp;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.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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&#146;s allocation of the purchase
price based on estimated fair value as of the acquisition date.

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="69%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="7%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Estimated</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Cost</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>lives</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>(thousands)</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Property and equipment</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">170</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3-7 years</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Goodwill and other intangible assets</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">690</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;5 years</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment consists primarily of laboratory equipment
that the Company believes will continue to be used in the
operations of the Division. Other intangible assets included
patents, workforce, favorable lease and approved FDA facility.
Goodwill and other intangible assets of $690,000 are included in
non-current other assets at December&nbsp;31, 1999. Goodwill and
other intangible assets are being amortized over their useful
lives of five years. At December&nbsp;31, 1999, accumulated
amortization was $57,500.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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
as 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.

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="70%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="7"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>Year ended</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>December 31,</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="7"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>(amounts in thousands,</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>except per share</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>information)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Revenue</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,597</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,037</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Net loss</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,484</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,798</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Loss per share</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.31</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.57</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left"><B>6.&nbsp;&nbsp;Stock Options and Warrants</B>

<P align="left"><B>&nbsp;&nbsp;</B><I>1995 Stock Option Plan</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the Novavax 1995 Stock Option Plan (the &#147;Plan&#148;),
options may be granted to officers, employees and consultants or
advisors to Novavax and any present or future subsidiary to
purchase a maximum of 4,400,000 shares of Novavax common stock.
Incentive options, having a maximum term of ten years, can be
granted at no less than 100% of the fair market value of
Novavax&#146;s stock at the time of grant and are generally
exercisable in cumulative increments over several years from the
date of grant. Both incentive and non-statutory stock options may
be granted under the Plan. There is no minimum exercise price
for non-statutory stock options.

<P align="center">F-11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>6.&nbsp;&nbsp;Stock Options and Warrants&nbsp;&#151;
(Continued)</B>
</DIV>

<P align="left"><B>&nbsp;&nbsp;</B><I>1995 Director Stock Option Plan</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 1995 Director Stock Option Plan (the &#147;Director
Plan&#148;) provides for the issuance of up to 500,000 shares of
Novavax Common Stock. The exercise price per share is the fair
market value on the date of grant. Options granted to eligible
directors are exercisable in full beginning six months after the
date of grant and terminate ten years after the date of grant.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Such options cease to be exercisable at the earlier of their
expiration or three years after an eligible director ceases to be
a director for any reason. In the event that an eligible
director ceases to be a director on account of his death, his
outstanding options (whether exercisable or not on the date of
death) may be exercised within three years after such date
(subject to the condition that no such option may be exercised
after the expiration of ten years from its date of grant).

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Activity under the 1995 Stock Option Plan and 1995 Director Stock
Option Plan was:

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="61%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1995 Stock</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1995 Director</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Option Plan</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Stock Option Plan</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1996</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,472,861</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Granted at weighted average price of $4.18 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">110,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Exercised at weighted average price of $2.86 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(190,693</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Expired or canceled at weighted average price of $3.58 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(378,610</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1997</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,203,558</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">310,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Granted at weighted average price of $4.03 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">501,000</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">140,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Exercised at weighted average price of $2.06 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(124,419</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Expired or canceled at weighted average price of $3.74 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(465,892</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(10,000</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1998</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,114,247</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">440,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Granted at weighted average price of $3.80 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,078,500</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Exercised at weighted average price of $2.20 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(226,537</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Expired or canceled at weighted average price of $4.28 per share</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(577,757</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
<B>Balance, December&nbsp;31, 1999</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,388,453</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">440,000</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Price range</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">0.01 to 7.00</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.94 to 5.81</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Weighted average exercise price</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.58</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.45</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Exercisable</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,386,499</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">440,000</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Available for grant:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
December&nbsp;31, 1999.</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">202,124</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">F-12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>6.&nbsp;&nbsp;Stock Options and Warrants&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
&nbsp;&nbsp;<I>1995 Director Stock Option Plan&nbsp;&#151;
(Continued)</I>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Information with respect to stock options outstanding at
December&nbsp;31, 1999 is as follows:

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="57%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Weighted</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Number</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Average</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Weighted</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>of</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Remaining</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Average</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Options</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Contractual</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Exercise</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap colspan="2"><FONT size="2"><B>Price Range</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Outstanding</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Life</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Price</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap colspan="2"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Options issued at below market value:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
$0.01</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">447,308</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">0.01</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Options issued at market value:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
$1.21 to 2.50</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">102,811</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">8.7</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.86</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
$2.51 to 3.50</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">793,566</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.18</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
$3.51 to 4.50</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,666,518</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7.6</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.81</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
$4.51 to 7.00</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">818,250</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.2</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.60</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>

</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3,828,453</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.8</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.56</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with its stock option plans, Novavax makes no
charges to operations in connection with stock options granted at
the fair market value at the date of grant. With respect to
options which were granted below fair market value at the date of
grant, the Company records compensation expense for the
difference between the fair market value at the date of grant and
the exercise price, as the options become exercisable. $10,000,
$9,000 and $472,000 related to such options has been included as
compensation expense in 1999, 1998 and 1997, respectively.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has adopted the disclosure-only provisions of SFAS
No.&nbsp;123 as they pertain to financial statement recognition
of compensation expense attributable to option grants. As such,
no compensation cost has been recognized on the Company&#146;s
option plans. If the Company had elected to recognize the
compensation cost for the 1995 Stock Option Plan and the 1995
Director Stock Option Plan consistent with SFAS 123, the
Company&#146;s net loss and loss per share on a pro forma basis
would be:

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="65%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1997</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Net loss applicable to common stockholders (amounts in
thousands):</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
As reported</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,506</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(7,045</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Pro forma</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(6,430</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(7,983</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(5,114</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Basic and diluted loss per share:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
As reported</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.31</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.57</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.39</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Pro forma</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.44</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.64</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(.44</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Risk-free interest rates</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.2%- 7.2</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Expected life in years:</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Employees</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Directors</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Dividend yield</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">0.0</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">0.0</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">0.0</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Volatility</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">69</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">105</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Weighted average remaining contractual life in years</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.8</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.7</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6.9</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Weighted average fair value at date of grant</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.56</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1.21</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.41</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="left"><B>&nbsp;&nbsp;</B><I>Non-Employee Options</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has entered into agreements to receive advisory and
consulting services from several individuals, four of whom serve
on the Novavax Scientific Advisory Board. Non-qualified stock
options have

<P align="center">F-13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>6.&nbsp;&nbsp;Stock Options and Warrants&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<I>&nbsp;&nbsp;Non-Employee Options&nbsp;&#151; (Continued)</I>
</DIV>

<P align="left">
been granted to these individuals under the 1995 Stock Option
Plan. Using the Black-Scholes option-pricing model, charges of
$2,000, $2,000 and $40,000 related to these options have been
recorded in the Consolidated Statements of Operations during
1999, 1998 and 1997, respectively.

<P align="left"><I>&nbsp;&nbsp;Common Stock Warrants</I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the October&nbsp;1996 private stock sale, the
Company provided the underwriter warrants for the purchase of
50,000 shares of common stock. The warrants are fully exercisable
at $3.75 per share and expire in October&nbsp;2001. After giving
effect to the anti-dilution provision of these warrants for the
April&nbsp;1999 private placement of the Company&#146;s common
stock, the warrants have been revised to allow for the purchase
of 51,911 shares at $3.61 per share. In November&nbsp;1996, in
consideration for services performed by a consultant, the Company
also issued warrants for 50,000 shares of common stock. The
warrants are exercisable at $5.00 per share and expire in
November&nbsp;2001. In March&nbsp;1997, Novavax privately placed
1,200,000 shares of common stock. As part of the transaction,
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. After giving effect to the
anti-dilution provision of these warrants for the April&nbsp;1999
private placement of the Company&#146;s common stock, the
warrants have been revised to allow for the purchase of 622,937
shares at $5.77 per share and 622,937 at $7.70 per share. The
warrants have a three-year term and expire in March&nbsp;2000. In
April&nbsp;1999, Novavax privately placed 1,651,100 shares of
common stock. As part of the transaction, Novavax also granted
warrants to purchase 412,775 additional shares at an exercise
price of $3.75. The placement agent for this transaction was
given warrants to purchase 10,733 additional shares at $3.75 and
143,000 additional shares at $3.00. These warrants have a
three-year term and expire in April&nbsp;2002. As of
December&nbsp;31, 1999, no warrants had been exercised. Using the
Black-Scholes option-pricing model, charges related to these
warrants of $66,000 in 1997 are included in the Statement of
Operations.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Information with respect to warrants to purchase the
Company&#146;s common stock at December&nbsp;31, 1999 is as
follows:

<CENTER>
<TABLE width="40%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="32%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="14%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="13%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="17%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="16%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Number of</B></FONT></TD>
<TD></TD>
<TD colspan="3"></TD>
<TD></TD>
<TD colspan="3"></TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Warrants</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Exercise</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Expiration</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Outstanding</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Price</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Date</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
51,911</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.61</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">October&nbsp;2001</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
50,000</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">November&nbsp; 2001</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
622,937</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">5.77</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">March&nbsp;2000</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
622,937</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7.70</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">March&nbsp;2000</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
423,508</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.75</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">April&nbsp;2002</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
143,000</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3.00</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">April&nbsp;2002</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>

</TR>

<TR>
<TD align="right" valign="top"><FONT size="2">
1,914,293</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">F-14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<P align="left"><B>7.&nbsp;&nbsp;Income Taxes</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred tax assets (liabilities)&nbsp;included in the balance
sheets consist of the following:

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="72%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="6%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="5%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="4%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD colspan="7"></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="7"><FONT size="2"><B>(amounts in thousands)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Net operating losses</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">8,420</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6,880</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Research tax credits</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,024</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">826</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Disqualifying stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">671</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">719</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Alternative-minimum tax credit</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Equipment and furniture</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">30</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Intangibles from acquisition</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Deferred patent costs</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(626</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(614</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Accrued vacation pay</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Deferred revenues</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">290</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">9,967</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">7,941</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Less valuation allowance</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(9,967</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(7,941</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
Deferred taxes, net</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The differences between the U.S. federal statutory tax rate and
the Company&#146;s effective tax rate are as follows:

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="81%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="2%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1999</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>1998</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
Statutory federal tax rate</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(34)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(34)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
State income taxes, net of federal benefit</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Disqualifying stock options</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Research and development credit</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(8)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Alt-min credits</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Other</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Change in valuation allowance</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">42</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Realization of net deferred tax assets at the balance sheet dates
is dependent on the Company&#146;s ability to generate future
taxable income, which is uncertain. Accordingly, a full valuation
allowance was recorded against these assets as of
December&nbsp;31, 1999 and 1998.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax has recorded no net provision for income taxes in 1999,
1998 and 1997 in the accompanying financial statements due to the
uncertainty regarding ultimate realization of certain net
operating losses and other tax credit carryforwards.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Federal net operating losses and tax credits available to Novavax
are as follows:

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="80%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>(amounts</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
Federal net operating losses expiring through the year 2019</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">21,235</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
State net operating losses expiring through the year 2014.</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">25,977</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Research tax credits expiring through the year 2019.</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,024</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Alternative-minimum tax credit (no expiration)</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<P align="left"><B>8.&nbsp;&nbsp;Commitments and Contingencies</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax leases laboratory and office space, machinery and
equipment under capital and non-cancelable operating lease
agreements expiring at various dates through 2006. Future minimum
rental commitments under non-cancelable leases as of
December&nbsp;31, 1999 are as follows:

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="3%">&nbsp;</TD>
<TD width="75%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="9%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="9%">&nbsp;</TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Operating</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap colspan="2"><FONT size="2"><B>Year</B></FONT></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>Leases</B></FONT></TD>
</TR>

<TR>
<TD align="center" nowrap colspan="2"><HR size="1"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>(amounts</B></FONT></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
2000</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">393</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
2001</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">347</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
2002</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">356</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
2003</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">366</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
2004</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">364</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD colspan="2" align="left" valign="top"><FONT size="2">
Thereafter</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">537</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD align="left" valign="top"><FONT size="2">
Total lease payments</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">2,363</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD colspan="2"></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aggregate rental expenses approximated $299,000, $219,000 and
$279,000 in 1999, 1998 and 1997, respectively.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In October&nbsp;1996, the Company entered into a 10-year
operating lease for office and laboratory facilities. In
connection with this lease agreement, Novavax is required to
maintain a &#147;Net Asset Value&#148; of $2,000,000. The term
&#147;Net Asset Value&#148; is defined as the difference between
the total assets and the total liabilities. If the Net Asset
Value falls below $2,000,000, the Company is required to provide
other reasonable financial assurances to the landlord within five
days of the landlord&#146;s request. The financial assurances
may be, but without limitation to, the following: a bond for the
landlord&#146;s benefit, an increase in the deposit, or a letter
of credit, as reasonably believed necessary by the landlord or
its lenders.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the BSD acquisition, the Company entered into
a five-year operating lease for office and laboratory facilities,
which extends through March&nbsp;2005.

<P align="left"><B>9.&nbsp;&nbsp;Significant Customers</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Novavax&#146;s revenue includes amounts earned from arrangements
with various industry partners. In the year ended
December&nbsp;31, 1999, three customers accounted for 15%, 23%
and 35% of the Company&#146;s total revenue. For the year ended
December&nbsp;31, 1998, three customers accounted for 56%, 25%
and 11%, compared to 46%, 1% and 43% for the same respective
customers for 1997.

<P align="left"><B>10.&nbsp;&nbsp;Employee Benefits</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has a defined contribution 401(k) retirement plan
(the &#147;Plan&#148;), pursuant to which employees who have
completed ninety days of employment with the Company as of
specified dates may elect to contribute to the Plan, in whole
percentages, up to 15% of their compensation and a maximum
contribution of $10,500 and $10,000 in 1999 and 1998,
respectively. The Company matches 25% of the first 5% of
compensation contributed by the participant and $4.00 per week of
employment during the year. All contributions by the Company are
made quarterly in the form of the Company&#146;s Common Stock
and are immediately vested. The Company has recorded charges to
expenses related to the Plan of approximately $16,000, $23,000
and $16,000 in 1999, 1998 and 1997, respectively.

<P align="left"><B>11.&nbsp;&nbsp;Financing Transactions</B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March&nbsp;1997, the Company received $5,003,000, net of fees
and expenses, from the private placement of 1,200,000 shares of
its Common Stock with an accredited institutional investor, a
principal of which has

<P align="center">F-16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center"><B>NOVAVAX, INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</B>
</DIV>

<DIV>&nbsp;</DIV>

<DIV align="left">
<B>11.&nbsp;&nbsp;Financing Transactions&nbsp;&#151; (Continued)
</B>
</DIV>

<P align="left">
subsequently become a director of Novavax. In connection with
this transaction, Novavax granted warrants to purchase an
additional 600,000 shares of the Company&#146;s Common Stock at
$6.00 per share and 600,000 shares at $8.00 per share. These
warrants have a three-year term, expiring in March&nbsp;2000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On January&nbsp;23, 1998, the Company entered into Subscription
Agreements to effectuate the private placement of 6,500 shares of
Series&nbsp;A Custom Convertible Preferred Stock, $1,000 par
value per share (the &#147;Preferred Stock&#148;). The closing
occurred on January&nbsp;28, 1998 (the &#147;Issuance Date&#148;)
at an aggregate purchase price of $6,500,000.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Preferred Stock was convertible into shares of Common Stock
at a conversion price equal to (i)&nbsp;during a period of
90&nbsp;days following the Issuance Date, 100% of the average of
the two lowest consecutive trade prices of the Common Stock as
reported on the American Stock Exchange for the 25 trading days
immediately preceding the conversion date (the &#147;Two Day
Average Trading Price&#148;) or (ii)&nbsp;during the period on
and after the date which is 91&nbsp;days after the Issuance Date,
94% of the Two Day Average Trading Price.

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the subsequent repurchase of all the outstanding
Preferred Stock, $1,522,000 of the original shares had been
converted into 1,043,956 shares of Common Stock, pursuant to the
terms and conditions of the Preferred Stock. On October&nbsp;1,
1998, the Company entered into agreements to repurchase the
remaining Preferred Stock. This transaction closed on
October&nbsp;16, 1998 and the Company repurchased the outstanding
$4,979,000 of Preferred Stock. The Company incurred placement
agent and other transaction fees relating to the placement,
conversion and repurchase of the Preferred Stock of $502,000,
which are included in the accompanying financial statements as
preferred stock offering costs. The terms of the Preferred Stock
required the Company to pay the holders of the Preferred Stock
$225,000 in dividends. This amount was paid in cash of $179,000
and through the issuance of 32,942 shares of common stock valued
at $46,000. The preferred stock transactions were:

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="80%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
<TD width="1%">&nbsp;</TD>
<TD width="8%">&nbsp;</TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>(amount</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><FONT size="2"><B>in thousands)</B></FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD align="center" nowrap colspan="3"><HR size="1"></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
Private sale of preferred stock, net</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">4,415</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Deemed dividend of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">1,583</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Conversion of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(1,439</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Accretion of offering costs</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">420</FONT></TD>
<TD></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
<TD align="left" valign="top"><FONT size="2">
Repurchase of preferred stock</FONT></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">(4,979</FONT></TD>
<TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="1"></TD>
<TD></TD>

</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
<TD></TD>
</TR>

<TR>
<TD></TD>
<TD></TD>
<TD></TD>
<TD align="left"><HR size="4" noshade></TD>
<TD></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April&nbsp;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 &#147;Private
Placement&#148;). 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 agents&#146; fees were approximately
$215,000, which was paid with cash of $107,000 and 42,933 shares
of the Company&#146;s Common Stock, which were issued together
with non-transferable warrants for the purchase of 10,733 shares
of the Company&#146;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&#146;s Common Stock, with an exercise price of $3.00
per share and a three-year term, were issued to the placement
agents. Other costs connected with the Private Placement,
including legal, stock exchange listing and registration fees,
were approximately $67,000. Net proceeds to the Company from the
Private Placement were approximately $4,000,000.

<P align="center">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="center"><B>EXHIBIT INDEX</B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
<TD width="57%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="20%">&nbsp;</TD>
<TD width="3%">&nbsp;</TD>
<TD width="17%">&nbsp;</TD>
</TR>

<TR>
<TD align="center" nowrap><FONT size="2"><B>Exhibit</B></FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="center" nowrap><HR size="1"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
3.1</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
3.2</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
3.3</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
4</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.1</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.2</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.3</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.4</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.5</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.6</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.7</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.8</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.9</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.10</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.11</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.12</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.13</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.14</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
10.15</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
21</FONT></TD>
<TD></TD>
<TD align="right" valign="bottom"><FONT size="2">
*</FONT></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
23</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

<TR>
<TD align="left" valign="top"><FONT size="2">
27</FONT></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<HR size="1" width="18%" align="left">
</DIV>

<DIV align="left">
*&nbsp; These exhibits are incorporated by reference
</DIV>
</BODY>
</HTML>