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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 2006
Or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______________ to
______________
Commission File No. 0-23047
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 13-3864870
incorporation or organization) (IRS Employer Identification. No.)
420 Lexington Avenue, Suite 408
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
common stock, $.0001 par value Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes |_| No |X|.
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act Yes |_| No |X|.
Note--Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one): Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer
|X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|.
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant, based upon the closing sale price of the
common stock on March 8, 2007 as reported on the Nasdaq SmallCap Market was
approximately $140,000,000.
As of March 8, 2007 the registrant had outstanding 32,674,394 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated herein by reference:
Document Parts Into Which Incorporated
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Proxy Statement for the Company's 2007 Annual Part III
Meeting of Stockholders
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SIGA Technologies, Inc.
Form 10-K
Table of Contents
Page No.
PART I
Item 1. Business.............................................................2
Item 1A. Risk Factors........................................................11
Item 1B. Unresolved Staff Comments...........................................19
Item 2. Properties..........................................................20
Item 3. Legal Proceedings...................................................20
Item 4. Submission of Matters to a Vote of Security Holders.................20
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities...................21
Item 6. Selected Financial Data.............................................22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........33
Item 8. Financial Statements and Supplementary Data.........................34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................56
Item 9A. Controls and Procedures.............................................56
Item 9B. Other Information...................................................56
PART III
Item 10. Directors, Executive Officers and Corporate Governance..............57
Item 11. Executive Compensation..............................................57
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.....................................57
Item 13. Certain Relationships and Related Transactions, and
Director Independence...............................................58
Item 14. Principal Accountant Fees and Services..............................58
PART IV
Item 15. Exhibits, Financial Statements and Schedules........................59
SIGNATURES....................................................................63
Item 1. Business
Certain statements in this Annual Report on Form 10-K, including certain
statements contained in "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words or phrases "can be," "expects," "may affect," "may depend," "believes,"
"estimate," "project" and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and SIGA cautions you that any
forward-looking information provided by or on behalf of SIGA is not a guarantee
of future performance. SIGA's actual results could differ materially from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond SIGA's control, including (i) the risk that potential
products that appear promising to SIGA or its collaborators cannot be shown to
be efficacious or safe in subsequent pre-clinical or clinical trials, (ii) the
risk that SIGA or its collaborators will not obtain appropriate or necessary
governmental approvals to market these or other potential products, (iii) the
risk that SIGA may not be able to obtain anticipated funding for its development
projects or other needed funding, (iv) the risk that SIGA may not be able to
secure funding from anticipated government contracts and grants, (v) the risk
that SIGA may not be able to secure or enforce adequate legal protection,
including patent protection for its products, (vi) the risk that regulatory
approval for SIGA's products may require further or additional testing that will
delay or prevent approval, (vii) the volatile and competitive nature of the
biotechnology industry, (viii) changes in domestic and foreign economic and
market conditions, and (ix) the effect of federal, state and foreign regulation
on SIGA's businesses. All such forward-looking statements are current only as of
the date on which such statements were made. SIGA does not undertake any
obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
Introduction
SIGA Technologies, Inc. is referred to throughout this report as "SIGA,"
"the Company," "we" or "us."
SIGA is a biotechnology corporation incorporated in Delaware on December
28, 1995. We aim to discover, develop and commercialize novel anti-infectives,
antibiotics and vaccines for serious infectious diseases. The major focus of our
developmental and commercialization activities is on products for use in defense
against biological warfare agents such as Smallpox and Arenaviruses (hemorrhagic
fevers). Our lead product, SIGA-246, is an orally administered anti-viral drug
that targets the smallpox virus. In December 2005 the Food and Drug
Administration (FDA) accepted our Investigational New Drug (IND) application for
SIGA-246 and granted the program "Fast-Track" status. In December 2006 the FDA
granted Orphan Drug designation to SIGA-246 for the prevention and treatment of
smallpox. Our anti-viral programs are designed to prevent or limit the
replication of the viral pathogen. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance. We are also developing a
technology for the mucosal delivery of our vaccines which may allow the vaccines
to activate the immune system at the mucus lined surfaces of the body -- the
mouth, the nose, the lungs and the gastrointestinal and urogenital tracts -- the
sites of entry for most infectious agents. As a result of the success of our
efforts to develop products for use against agents of biological warfare, we
have not spent significant resources to further the development of our
anti-infective and vaccine technologies.
Product Candidates and Market Potential
SIGA Biological Warfare Defense Product Portfolio
Anti-Smallpox Drug: Smallpox virus is classified as a Category A agent by the
Center for Disease Control and Prevention (CDC) and is considered one of the
most significant threats for use as a biowarfare agent. While deliberate
introduction of any pathogenic agent would be devastating, we believe the one
that holds the greatest potential for harming the general U.S. population is
Smallpox. At present there is no effective drug with which to treat or prevent
Smallpox infections. To address this serious risk, SIGA scientists have
identified a lead drug candidate, SIGA-246, which inhibits vaccinia, cowpox,
ectromelia (mousepox), monkeypox, camelpox, and variola replication in cell
culture but not other unrelated viruses. Given the safety concerns with the
current smallpox
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vaccine, there should be several uses for an effective smallpox antiviral drug:
prophylactically, to protect the non-immune who are at risk to exposure;
therapeutically, to prevent disease or death in those exposed to smallpox; and
lastly, as an adjunct treatment to the immunocompromised. SIGA scientists are
also working on several other smallpox drug targets, including the viral
proteinases, to develop additional drug candidates for use in combination
therapy if necessary. In December 2005, the FDA approved our IND application for
SIGA-246. In June 2006 we successfully completed the first human clinical safety
study of SIGA-246. The trial showed the drug to be well-tolerated in healthy
human volunteers at all tested orally administered doses. In addition, data from
blood level exposure was sufficient to support once a day dosing. The Phase I
clinical trial was performed at Advanced Biomedical Research, Inc. Clinical
Research Center in Hackensack, NJ. The study was a double-blind, randomized,
placebo controlled, and ascending single dose study. We started an additional
Phase I clinical trial in February 2007, to assess the safety, tolerability, and
pharmacokenitics of SIGA-246 administered as a single daily oral dose for 21
days in healthy human volunteers. This Phase I human trial is being performed at
the Orlando Clinical Research Center in Orlando, Florida. In 2006, SIGA-246
became the first drug ever to demonstrate 100% protection against human smallpox
virus in a primate trial conducted at the federal Centers for Disease Control
and Prevention (CDC). Later in 2006, in two non-human primate trials the drug
demonstrated 100% protection to animals injected with high doses of monkeypox
virus. One study was sponsored by the National Institute of Allergy and
Infectious Diseases (NIAID) at the National Institutes (NIH). The second study
was conducted by the U.S. Army Medical Research Institute of Infectious Diseases
(USAMRIID) and was funded by the Department of Defense's Threat Reduction
Agency. In late 2006, SIGA-246 received Orphan Drug designation for both the
treatment and prevention of smallpox. During 2006, SIGA received grants from the
NIH totaling approximately $21 million for the continued development of the
drug.
Anti-Arenavirus Drug: Arenaviruses are hemorrhagic fever viruses that have
been classified as Category A agents by the CDC due to the great risk that they
pose to public health and national safety. Among the Category A viruses
recognized by the CDC, there are four hemorrhagic fever arenaviruses (Junin,
Machupo, Guanarito and Sabia viruses) for which there are no FDA approved
treatments available. In order to meet this threat, SIGA scientists have
identified a lead drug candidate, ST-294, which has demonstrated significant
antiviral activity in cell culture assays against arenavirus pathogens. We have
also demonstrated the therapeutic efficacy of ST-294 in a preliminary animal
challenge study. SIGA also has programs against other hemorrhagic fever viruses
including Lassa virus, Lymphocytic choriomeningitis virus (LCMV), and Ebola in
development. We believe that the availability of hemorrhagic fever virus
antiviral drugs will address national and global security needs by acting as a
significant deterrent and defense against the use of arenaviruses as weapons of
bioterrorism. In 2006, SIGA received a three year grant of $6.0 million from the
NIH to support the development of antiviral drugs for Lassa fever virus.
Bacterial Commensal Vectors: Our scientists have developed methods that
allow essentially any gene sequence to be expressed in Generally Regarded As
Safe (GRAS) gram-positive bacteria, with the foreign protein being displayed on
the surface of the live recombinant organisms. Since these organisms are
inexpensive to grow and are very stable, this technology affords the possibility
of rapidly producing live recombinant vaccines against any variety of biological
agents that might be encountered, such as Bacillus anthracis (anthrax) or
Smallpox. SIGA scientists are working to develop an alternative vaccine with
improved safety for use in preventing human disease caused by pathogenic
orthopoxviruses such as variola virus. To accomplish this goal we are utilizing
our newly-developed BCV (bacterial commensal vector) technology. BCV utilizes
gram-positive commensal bacteria, such as Streptococcus gordonii, (S. Gordonii)
to express heterologous antigens of interest, either in secreted form or
attached to its external surface. Phase I human clinical trials indicate that
this S. gordonii strain is safe and well-tolerated in humans. In several
different animal model systems S. gordonii has been shown to efficiently express
various antigens and elicit protective immune responses (cellular, humoral and
mucosal). We believe that the delivery of selected vaccinia virus antigens via
this live bacterial vector system will provide an effective and safe method for
prevention of smallpox in humans.
Surface Protein Expression (SPEX/PLEX) System: Our scientists have
harnessed the protein expression pathways of gram-positive bacteria and turned
them into protein production factories. Using our proprietary SPEX or PLEX
systems, we can produce foreign proteins at high levels in the laboratory for
use in subunit vaccine formulations or other therapeutic applications.
Furthermore, we can envision engineering these bacteria to colonize the mucosal
surfaces of soldiers and/or civilians and secrete therapeutic molecules - e.g.
anti-toxins that protect against aerosolized botulism toxin.
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Antibiotics: To combat the problems associated with emerging antibiotic
resistance, our scientists are developing drugs designed to address a new target
- - the bacterial adhesion organelles. Specifically, by using novel enzymes
required for the transport and/or assembly of the proteins and structures that
bacteria require for adhesion or colonization, we are developing new classes of
broad spectrum antibiotics. This may prove invaluable in providing prompt
treatment to individuals encountering an unknown bacterial pathogen in the air
or food supply.
Market for Biological Defense Programs
From 2001 through 2007, the Federal Government has allocated over $16
billion in State and local terrorism preparedness funding from the Department of
Homeland Security, Health and Human Services and Justice. In 2006, approximately
$5.0 billion was allocated for emergency, preparedness and response funding. A
similar amount was enacted for 2007 with a slight increase projected for 2008.
The Federal budget for defending against catastrophic threats funding includes
not only stockpiling countermeasures that are currently available, but funding
to develop new countermeasures for agents that currently have none, and next
generation countermeasures that are safer and more effective than those that
presently exist. Current BioShield legislation allows the Federal Government to
buy critically needed vaccines and medications as soon as experts agree that
they are safe and effective enough to be added to the Strategic National
Stockpile (http://www.whitehouse.gov/omb/budget/ fy2008/pdf/). One of the major
concerns in the field of biological warfare agents is Smallpox - although
declared extinct in 1980 by the World Health Organization (WHO), there is a
threat that a rogue nation or a terrorist group may have an illegal inventory of
the virus that causes Smallpox. The only legal inventories of the virus are held
under extremely tight security at the CDC in Atlanta, Georgia and at a
laboratory in Russia. As a result of this threat, the U.S. government has
announced its intent to make significant expenditures on finding a way to
counteract the virus if turned loose by terrorists or on a battlefield. The
Congressional Budget Office (the "CBO") reported that the DHS projects the
acquisition of 60 million doses of new Smallpox vaccines over a three year
period, commencing in 2005. Further the CBO reports that the DHS will spend an
additional $1 billion to replace expired stocks in 2007-2013. The market
opportunity for our biological warfare defense products has not been quantified
as yet beyond the potential to obtain a share of the approximately $9 billion
the federal government is committing to support research in the coming year.
The FDA amended its regulations, effective June 30, 2002, so that certain
new drug and biological products used to reduce or prevent the toxicity of
chemical, biological, radiological, or nuclear substances may be approved for
use in humans based on evidence of effectiveness derived only from appropriate
animal studies and any additional supporting data. We believe that this change
could make it possible for us to have our products which have been proven
effective in animal studies to be approved for sale within a relatively short
time.
SIGA Antivirals Product Portfolio
SIGA currently has the following antiviral programs which are in various
stages of development ranging from initial research and screening to Phase I
human clinical trials: Smallpox antiviral, New World Arenavirus antiviral, Old
World Arenavirus antiviral, Filovirus (Ebola & Marburg) antivirals, Dengue Fever
virus antiviral, and Bunyavirus antivirals. Currently there are no approved
antivirals available against any of these viruses.
SIGA Antibiotics Product Portfolio
Our anti-infectives program is targeted principally toward drug-resistant
bacteria and hospital-acquired infections. According to estimates from the CDC,
approximately two million hospital-acquired infections occur each year in the
United States. Our anti-infectives approaches aim to block the ability of
bacteria to attach to and colonize human tissue, thereby blocking infection at
the first stage in the infection process. By comparison, antibiotics available
today act by interfering with either the structure or the metabolism of a
bacterial cell, affecting its ability to survive and to reproduce. No currently
available antibiotics target the attachment of a bacterium to its target tissue.
We believe that, by preventing attachment, the bacteria should be readily
cleared by the body's immune system. SIGA has Gram-positive, Gram-negative and
broad spectrum antibiotic technologies.
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Market for Anti-infective Programs
There are currently approximately 83 million prescriptions written for
antibiotics annually in the U.S (www.iatrogenic.org/library/antibioticlib.html)
and it is estimated that the worldwide market for antibiotics was worth
approximately 23.7 billion in 2004 (www.pharmaprojectsplus.com). Although our
products are too early in development to make accurate assessments of how well
they might compete, if successfully developed and marketed against other
products currently existing or in development at this time, the successful
capture of even a relatively small global market share could lead to a large
dollar volume of sales. Some of the antivirals that SIGA is developing are for
biowarfare agents and the market for that area is currently unknown, however,
there is funding available to purchase these drugs in Project Bioshield as well
as through the Department of Defense. Markets for the other antiviral programs
at SIGA vary widely depending on the virus and where they are endemic. Each of
these programs will be assessed on an individual basis as they approach the New
Drug Application stage.
Technology
Antiviral Technology: Two Approaches
SIGA has two approaches to the discovery and development of new antiviral
compounds: rational drug design and high-throughput screening (HTS). For
rational drug design SIGA applies advanced receptor structure-based Virtual
Ligand Screening technology for ligand/inhibitor discovery. The analysis of the
structure reveals potentially "drugable" pockets. The technology allows us to
utilize the three-dimensional structure of the target receptor to screen large
virtual compound collections as well as databases of commercially available
compounds and prioritize them for subsequent experimental validation. Rational
drug design is also used to develop structure activity relationships and lead
optimization.
For HTS SIGA uses whole cell virus inhibition assays, pseudotype virus
inhibition assays, as well as validated target biochemical assays. SIGA
currently has a 200,000 small molecule compound library in-house that is
utilized for screening in these various assays. This strategy allows for both
target specific and target neutral screening and identification of novel
antiviral compounds. Compounds are also screened for toxicity in various cell
lines to develop a therapeutic index (TI) which is the concentration that the
compound is toxic to 50% of the cells (CC50) divided by the concentration of
compound required to inhibit 50% of the virus (EC50) (TI= CC50/EC50). Once hits
are identified with an acceptable TI they are selected for chemical optimization
and proceed in to the antiviral drug development pipeline.
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from Rockefeller University
(Rockefeller), SIGA has done work toward developing specific commensal bacteria
("commensals") as a means to deliver mucosal vaccines. Commensals are harmless
bacteria that naturally occupy the body's surfaces with different commensals
inhabiting different surfaces, particularly the mucosal surfaces. By activating
a local mucosal immune response, our vaccine candidates are designed to prevent
infection and disease at the earliest possible stage, as opposed to most
conventional vaccines which are designed to act after infection has already
occurred.
We believe that mucosal vaccines developed using our proprietary commensal
delivery technology could provide a number of advantages, including:
o More complete protection than conventional vaccines:
o Safety advantage over other live vectors: Commensals, by virtue of
their substantially harmless nature, may offer a safer delivery
vehicle without fear of genetic reversion to the infectious state
inherent in attenuated pathogens.
o Non-injection administration: Oral, nasal, rectal or vaginal
administration of the vaccine eliminates the need for painful
injections with their potential adverse reactions.
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o Potential for combined vaccine delivery: The Children's Vaccine
Initiative, a worldwide effort to improve vaccination of children
sponsored by the WHO, has called for the development of combined
vaccines, specifically to reduce the number of needle sticks per
child, by combining several vaccines into one injection, thereby
increasing compliance and decreasing disease.
o Eliminating need for refrigeration: A critical consideration,
especially for the delivery of vaccines in developing countries.
o Low cost production: By using a live bacterial vector, extensive
downstream processing is eliminated, leading to considerable cost
savings in the production of the vaccine.
Surface Protein Expression Systems ("SPEX" & "PLEX")
The ability to overproduce many bacterial and human proteins has been made
possible through the use of recombinant DNA technology. SIGA has added to this
field by taking advantage of our knowledge of Gram-positive bacterial protein
expression and anchoring pathways. This pathway has evolved to handle the
transport of surface proteins that vary widely in size, structure and function.
Modifying the approach used to create bacterial commensal mucosal vaccines, we
have developed methods which, instead of anchoring the foreign protein to the
surface of the recombinant Gram-positive bacteria, result in it being secreted
into the surrounding medium in a manner which is readily amenable to simple
batch purification. We believe the advantages of this approach include the ease
and lower cost of Gram-positive bacterial growth, the likelihood that secreted
recombinant proteins will be folded properly, and the ability to purify
recombinant proteins from the culture medium without having to disrupt the
bacterial cells and liberating cellular contaminants. Gram-positive bacteria may
be grown simply in scales from those required for laboratory research up to
commercial mass production. Recent developments in the construction of these
recombinant bacteria have resulted in a plasmid-based expression system (PLEX),
in which engineered genetic elements (plasmids) are cloned into commensal
bacteria for protein production. This system allows for higher protein
production levels than the original SPEX constructs. In addition, the PLEX and
SPEX systems may be used in concert, enabling greater flexibility in protein
secretion for purification or for surface expression of multiple proteins - e.g.
for multi-component combination vaccines. We believe this technology overcomes
many of the issues encountered in more traditional bacterial expression systems
- - e.g. Escherichia coli - in which proteins may sometimes prove insoluble or run
the risk of toxic contamination from natural bacterial products (e.g.
endotoxin).
Collaborative Research and Licenses
We have entered into the following license agreements, collaborative
research arrangements and contracts:
National Institutes of Health. In October and August 2006, the NIH awarded
us a $16.5 million, 3 year contract and a $4.8 million, 3 year, Small Business
Innovation Research (SBIR) grant, respectively, both to advance the development
of our lead drug candidate, SIGA-246. In September 2006, the NIH awarded us a
$6.0 million, 3 year SBIR grant for the continued development of our arena
viruses drug candidates. In August 2004, we were awarded two Phase I and two
Phase II SBIR grants totaling approximately $11.1 million to support our work on
Smallpox and Arenaviruses. The grants were acquired as part of our acquisition
of certain assets from ViroPharma Incorporated ("Viropharma"). For the years
ending December 31, 2006, 2005, and 2004, we have recognized revenue from the
SBIR grants of $3,723,000, $6,596,000, and $1,415,000, respectively. In 2006, we
recognized $171,000 in revenue from our October 2006 contract with the NIH.
Prior to 2003, we received grants amounting to approximately $1.1 million
to support our antibiotic and vaccine development programs including a Phase II
SBIR grant for approximately $865,000 that began in 2002 and was completed in
May 2004.
SIGA receives cash payments from the NIH under its SBIR grants on a
semi-monthly basis, and under its contract on a monthly basis, as the work is
performed and the related revenue is recognized. SIGA's current NIH SBIR grants
and contract do not include milestone payments. The agreements can be cancelled
for non-performance and if cancelled, the Company will not receive additional
funds under the agreements.
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As part of our operational strategy we routinely submit grants to the NIH.
However, there is no assurance that we will receive additional grants.
United States Army Medical Research and Material Command. In September
2005, we entered into a $3.2 million, one year contract with the United States
Army Medical Research and Material Command (USAMRMC). The agreement, for the
rapid identification and treatment of anti-viral diseases, is funded through the
United States Air Force (USAF). It is anticipated that our efforts will aid the
USAF Special Operations Command in its use of computational biology to design
and develop specific countermeasures against biological threat agents Smallpox
and Adenovirus. As of December 31, 2006, SIGA received cash payments of $3.2
million under this contract and recognized total revenue of approximately $3.1
million. SIGA completed its work under the contract under-budget and will repay
the USAF approximately $92,000 which was not recognized as revenue by the
Company.
United States Air Force. In November 2006, we received a $1.4 million, one
year contract with the Air Force Medical Service for the development of
counter-measures against Dengue viruses and other water-related viral agents. In
November 2006 we also received a one-year, $900,000 contract to aid the USAF
Special Operations Command (USAFSOC) in its development of specific anti-viral
agents. For the year ended December 31, 2006 we recognized revenues of $247,000
from these contracts. SIGA receives cash payments from the USAF on a monthly
basis, as the work is performed and the related revenue is recognized. SIGA's
current contracts with the USAF do not include milestone payments. The
agreements can be cancelled for non-performance and if cancelled, the Company
will not receive additional funds under the agreements.
United States Army Medical Research Acquisition Activity. In December
2002, we entered into a four year contract with the U.S. Army Medical Research
Acquisition Activity (USAMRAA) to develop a drug to treat Smallpox. The contract
start date was January 1, 2003 for the total amount of $1.6 million. Annual
payments over the term of the agreement were approximately $400,000. In the
years ended December 31, 2006, 2005, and 2004 we recognized revenue of $412,000,
$427,000, and $425,000, respectively. SIGA received cash payments from USAMRAA
under this contract on a monthly basis, as the work is performed and the related
revenue was recognized. The agreement with USAMRAA did not include milestone
payments. As of December 31, 2006, SIGA completed its obligations under this
agreement and expects to receive all of the related funding.
Saint Louis University. On September 1, 2005, we entered into an agreement
with Saint Louis University for the continued development of one of our Smallpox
drugs. The agreement is funded through the NIH. Under the agreement, SIGA
received $1.0 million during the term of September 1, 2005 to February 28, 2006.
Revenues were recognized as services were performed. In 2006 and 2005, we
recognized revenues of $225,000 and $775,000 from the agreement.
Oregon State University. Oregon State University (OSU) is also a party to
our license agreement with Rockefeller (discussed below), whereby we have
obtained the right and license to make, use and sell products for the therapy,
prevention and diagnosis of diseases caused by streptococcus. Pursuant to a
separate research support agreement with OSU, we provided funding for sponsored
research through December 31, 1999, with exclusive license rights to all
inventions and discoveries resulting from this research. At this time, no
additional funding is contemplated under this agreement, however, we retain the
exclusive licensing rights to the inventions and discoveries that may arise from
this collaboration. The term of the agreement is for the duration of the patents
licensed. As we do not currently know when any patents pending or future patents
will expire, we cannot at this time determine the term of this agreement. The
agreement can be terminated earlier if we are in breach of the provisions of the
agreement and do not cure the breach in the allowed cure period. We are
compliant in all our obligations under the agreement.
Regents of the University of California. In December 2000, we entered into
an exclusive license agreement and a sponsored research agreement with the
Regents of the University of California ("Regents"). Under the license agreement
we obtained rights for the exclusive commercial development, use and sale of
products related to certain inventions in exchange for a non-refundable license
issuance fee of $15,000 and an annual maintenance fee of $10,000. As of December
31, 2006 we have made payments of approximately $111,000 under the license. In
the event that we sub-license our rights, we must pay Regents 15% of all royalty
payments made to SIGA. We have
7
currently met all our obligations under this agreement. SIGA does not expect
receipt or disbursement of funds under the agreement with the Regents of the
University of California for the next three to five years.
Rockefeller University. In accordance with an exclusive worldwide license
agreement with Rockefeller, we have obtained the right and license to make, use
and sell mucosal vaccines based on gram-positive organisms and products for the
therapy, prevention and diagnosis of diseases caused by streptococcus,
staphylococcus and other organisms. The license covers eight issued U.S. patents
and three issued European patents, as well as one pending U.S. patent
application and one pending European application. The issued United States
patents expire in 2008, 2014 (4), 2015 (2), and 2016, respectively. The
agreement generally requires us to pay royalties on sales of products developed
from the licensed technologies, and fees on revenues from sub-licensees, where
applicable, and we are responsible for the costs of filing and prosecuting
patent applications. Under the agreement, we paid Rockefeller approximately
$850,000 to support research at Rockefeller. The agreement to fund research has
ended and no payments have been made to the university since the year ended
December 31, 1999. Under the agreement we are obligated to pay Rockefeller a
royalty on net sales by SIGA at rates between 2.5% and 5% depending on product
and amount of sales. On sales by any sub-licensee, we will pay Rockefeller a
royalty of 15% of anything we receive. The term of the agreement is for the
duration of the patents licensed. As we do not currently know when any patents
pending or future patents will expire, we cannot at this time determine the term
of this agreement. At the end of that term of the agreement, we have the right
to continue to practice the then existing technical information as a fully paid,
perpetual license. The agreement can be terminated earlier if we are in breach
of the provisions of the agreement and do not cure the breach in the allowed
cure period. We are compliant in all our obligations under the agreement. SIGA
does not expect receipt or disbursement of funds under the agreement with
Rockefeller University for the next three to five years.
TransTech Pharma, Inc. In October 2002, we entered into a drug discovery
collaboration agreement with TransTech Pharma, Inc., a related party ("TransTech
Pharma"). Under the agreement, SIGA and TransTech Pharma collaborate on the
discovery, optimization and development of lead compounds to certain therapeutic
agents. The costs of development are shared. SIGA and TransTech Pharma would
share revenues generated from licensing and profits from any commercialized
product sales. The agreement will be in effect until terminated by the parties
or upon cessation of research or sales of all products developed under the
agreement. If the agreement is terminated, relinquished or expires for any
reason certain rights and benefits will survive the termination. Obligations not
expressly indicated to survive the agreement will terminate with the agreement.
No revenues were recognized in 2006, 2005, and 2004 from this collaboration.
SIGA does not expect receipt or disbursement of funds under the agreement with
TransTech Pharma for the next three to five years.
Intellectual Property and Proprietary Rights
Our commercial success will depend in part on our and our collaborators'
ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve
our trade secrets. Because of the substantial length of time and expense
associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the type and breadth
of claims allowed in these patents.
We have licensed the rights to eight issued U.S. patents and three issued
European patents. These patents have varying lives and they are related to the
technology licensed from Rockefeller for the strep and Gram-positive products.
We have one additional patent application in the U.S. and one application in
Europe relating to this technology. We are joint owner with Washington
University of seven issued patents in the U.S. and one in Europe. In addition,
there are four co-owned U.S. patent applications. These patents are for the
technology used for the Gram-negative product opportunities. We are also
exclusive owner of two U.S. patent and two U.S. utility patent applications. One
of these U.S. utility applications relates to our DegP product opportunities. We
are also exclusive owner of three U.S. provisional patent applications.
8
The following are our patent positions as of December 31, 2006.
- --------------------------------------------------------------------------------------------------------------------------------
Number Number Number
Exclusively Co-Exclusively Exclusively Number
Licensed Licensed Licensed Exclusively Number
PATENTS from with from Oregon Licensed Owned by Patent Expiration Dates
Rockefeller Washington State from UCLA SIGA
Univ. Univ. University
- --------------------------------------------------------------------------------------------------------------------------------
2008, 2013(2), 2014 (6),
U.S. 8 7 1 2 2015 (2), 2016 (2), 2017,
2019, 2020 (2)
- --------------------------------------------------------------------------------------------------------------------------------
Australia 5 2 1 2009, 2013, 2014 (2), 2015,
2016, 2019,2020
- --------------------------------------------------------------------------------------------------------------------------------
Canada 2 2010, 2019
- --------------------------------------------------------------------------------------------------------------------------------
Europe 3 1 1 2009, 2010, 2013, 2019,
2020
- --------------------------------------------------------------------------------------------------------------------------------
Hungary 1 2013
- --------------------------------------------------------------------------------------------------------------------------------
Japan 2 2010, 2012
- --------------------------------------------------------------------------------------------------------------------------------
Mexico 1 2016
- --------------------------------------------------------------------------------------------------------------------------------
New Zealand 1 2016
- --------------------------------------------------------------------------------------------------------------------------------
China 1 2016
- --------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Number Number Number
Exclusively Co-Exclusively Exclusively Number
Licensed Licensed Licensed Exclusively Number
APPLICATIONS from with from Oregon Licensed Owned by
Rockefeller Washington State from UCLA SIGA
Univ. Univ. University
- -----------------------------------------------------------------------------------------------
U.S. applications 1 4 2 2
- -----------------------------------------------------------------------------------------------
U.S. provisionals 3
- -----------------------------------------------------------------------------------------------
PCT 3
- -----------------------------------------------------------------------------------------------
Australia 1 1 2
- -----------------------------------------------------------------------------------------------
Canada 3 2 2 1 2
- -----------------------------------------------------------------------------------------------
Europe 1 1 1 1 3
- -----------------------------------------------------------------------------------------------
Finland 1
- -----------------------------------------------------------------------------------------------
Japan 3 2 1 1 3
- -----------------------------------------------------------------------------------------------
Hungary 1
- -----------------------------------------------------------------------------------------------
We also rely upon trade secret protection for our confidential and
proprietary information. No assurance can be given that other companies will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or that we can
meaningfully protect our trade secrets.
Government Regulation
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
biopharmaceutical products that we may develop. The nature and the extent to
which such regulations may apply to us will vary depending on the nature of any
such products. Virtually all of our potential biopharmaceutical products will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous pre-clinical
and clinical testing and other approval procedures by the FDA and similar health
authorities in foreign countries. Various federal
9
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The process of
obtaining these approvals and the subsequent compliance with appropriate federal
and foreign statutes and regulations requires the expenditure of substantial
resources.
In order to test clinically, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug in the United
States, a company must file an IND and receive clearance from the FDA. This
application is a summary of the pre-clinical studies that were conducted to
characterize the drug, including toxicity and safety studies, as well as an
in-depth discussion of the human clinical studies that are being proposed.
The pre-marketing program required for approval by the FDA of a new drug
typically involves a time-consuming and costly three-phase process. In Phase I,
trials are conducted with a small number of healthy patients to determine the
early safety profile, the pattern of drug distribution and metabolism. In Phase
II, trials are conducted with small groups of patients afflicted with a target
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others.
The FDA amended its regulations, effective June 30, 2002, so that certain
new drug and biological products used to reduce or prevent the toxicity of
chemical, biological, radiological, or nuclear substances may be approved for
use in humans based on evidence of effectiveness derived only from appropriate
animal studies and any additional supporting data.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits
a New Drug Application ("NDA") or Product License Application ("PLA") to the FDA
that summarizes the results and observations of the drug during the clinical
testing. Based on its review of the NDA or PLA, the FDA will decide whether to
approve the drug. This review process can be quite lengthy, and approval for the
production and marketing of a new pharmaceutical product can require a number of
years and substantial funding; there can be no assurance that any approvals will
be granted on a timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and its effects. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained. Other countries in which any products
developed by us may be marketed could impose a similar regulatory process.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
most of the major pharmaceutical companies, which have financial, technical and
marketing resources significantly greater than ours. Biotechnology and other
pharmaceutical competitors include Acambis, Achillion Pharmaceuticals, Arrow
Therapeutics, Avant Immuno-therapeutics, Inc., Bavarian Nordic AS, Chimerix
Inc., Bioport, Pharmathene and Vaxgen. Academic institutions, governmental
agencies and other public and private research organizations are also conducting
research activities and seeking patent protection and may commercialize products
on their own or through joint venture. There is a possibility that our
competitors will succeed in developing products that are more effective or less
costly than any which are being developed by us or which would render our
technology and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 8, 2007 we had 44 full time employees. None of our employees
are covered by a collective bargaining agreement and we consider our employee
relations to be good.
10
Availability of Reports and Other Information
We file annual, quarterly, and current reports, proxy statements, and
other documents with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "Exchange Act"). The public may read and
copy any materials that we file with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Also, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including us, that file electronically with the SEC. The public can
obtain any documents that we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at
www.siga.com. The website contains information about us and our operations.
Copies of each of our filings with the SEC on Form 10-K, Form 10-KSB, Form 10-Q,
Form 10-QSB and Form 8-K, and all amendments to those reports, can be viewed and
downloaded free of charge as soon as reasonably practicable after the reports
and amendments are electronically filed with or furnished to the SEC. To view
the reports, access www.siga.com/investor.html and click on "SEC Filing".
The following corporate governance related documents are also available on
our website:
o Code of Ethics and Business Conduct
o Amended and Restated Audit Committee Charter
o Compensation Committee Charter
o Nominating and Corporate Governance Committee Charter
o Procedure for Sending Communications to the Board of Directors
o Procedures for Security Holder Submission of Nominating
Recommendations
o 2004 Policy on Confidentiality of Information and Securities Trading
To review these documents, access www.siga.com/investor.html and click on
"Corporate Governance."
Any of the above documents can also be obtained in print by any shareholder upon
request to the Secretary, SIGA Technologies, Inc., 420 Lexington Avenue, Suite
408, New York, New York 10170.
Item 1A. Risk Factors
This report contains forward-looking statements and other prospective
information relating to future events. These forward-looking statements and
other information are subject to risks and uncertainties that could cause our
actual results to differ materially from our historical results or currently
anticipated results including the following:
We have incurred operating losses since our inception and expect to incur net
losses and negative cash flow for the foreseeable future.
We incurred net losses of approximately $9.9 million, $2.3 million, and
$9.4 million for the years ended December 31, 2006, 2005, and 2004,
respectively. As of December 31, 2006, 2005, and 2004, our accumulated deficit
was approximately $56.4 million, $46.5 million, and $44.2 million, respectively.
We expect to continue to incur significant operating expenditures. We will need
to generate significant revenues to achieve and maintain profitability.
We cannot guarantee that we will achieve sufficient revenues for
profitability. Even if we do achieve profitability, we cannot guarantee that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenues grow slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, then our business,
results of operations, financial condition and cash flows will be materially and
adversely affected. Because our strategy might include acquisitions of other
businesses, acquisition expenses and any cash used to make these acquisitions
will reduce our available cash.
11
Our business will suffer if we are unable to raise additional equity funding.
We continue to be dependent on our ability to raise money in the equity
markets. There is no guarantee that we will continue to be successful in raising
such funds. If we are unable to raise additional equity funds, we may be forced
to discontinue or cease certain operations. We currently have sufficient
operating capital to finance our operations beyond the next twelve months. Our
annual operating needs vary from year to year depending upon the amount of
revenue generated through grants, contracts and licenses and the amount of
projects we undertake, as well as the amount of resources we expend, in
connection with acquisitions all of which may materially differ from year to
year and may adversely affect our business.
Our stock price is, and we expect it to remain, volatile, which could limit
investors' ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. A variety of factors may affect
the market price of our common stock. These include, but are not limited to:
o publicity regarding actual or potential clinical results relating to
products under development by our competitors or us;
o delay or failure in initiating, completing or analyzing pre-clinical or
clinical trials or the unsatisfactory design or results of these trials;
o achievement or rejection of regulatory approvals by our competitors or us;
o announcements of technological innovations or new commercial products by
our competitors or us;
o developments concerning proprietary rights, including patents;
o developments concerning our collaborations;
o regulatory developments in the United States and foreign countries;
o economic or other crises and other external factors;
o period-to-period fluctuations in our revenues and other results of
operations;
o changes in financial estimates by securities analysts; and
o sales and short selling activity of our common stock.
Additionally, because there is not a high volume of trading in our stock,
any information about SIGA in the media may result in significant volatility in
our stock price.
We will not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance.
In addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance of
individual companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
We are in various stages of product development and there can be no assurance of
successful commercialization.
In general, our research and development programs are at an early stage of
development. To obtain FDA approval for our biological warfare defense products
we will be required to perform at least two animal models and provide animal and
human safety data. Our other products will be subject to the approval guidelines
under FDA regulatory requirements which include a number of phases of testing in
humans.
12
The FDA has not approved any of our biopharmaceutical product candidates.
Any drug candidates developed by us will require significant additional research
and development efforts, including extensive pre-clinical and clinical testing
and regulatory approval, prior to commercial sale. We cannot be sure our
approach to drug discovery will be effective or will result in the development
of any drug. We cannot expect that any drugs resulting from our research and
development efforts will be commercially available for many years, if at all.
We have limited experience in conducting pre-clinical testing and clinical
trials. Even if we receive initially positive pre-clinical or clinical results,
such results do not mean that similar results will be obtained in the later
stages of drug development, such as additional pre-clinical testing or human
clinical trials. All of our potential drug candidates are prone to the risks of
failure inherent in pharmaceutical product development, including the
possibility that none of our drug candidates will or can:
o be safe, non-toxic and effective;
o otherwise meet applicable regulatory standards;
o receive the necessary regulatory approvals;
o develop into commercially viable drugs;
o be manufactured or produced economically and on a large scale;
o be successfully marketed;
o be reimbursed by government and private insurers; and
o achieve customer acceptance.
In addition, third parties may preclude us from marketing our drugs
through enforcement of their proprietary rights that we are not aware of, or
third parties may succeed in marketing equivalent or superior drug products. Our
failure to develop safe, commercially viable drugs would have a material adverse
effect on our business, financial condition and results of operations.
Most of our immediately foreseeable future revenues are contingent upon grants
and contracts from the United States government and collaborative and license
agreements and we may not achieve sufficient revenues from these agreements to
attain profitability.
Until and unless we successfully make a product, our ability to generate
revenues will largely depend on our ability to enter into additional research
grants, collaborative agreements, strategic alliances, contracts and license
agreements with third parties and maintain the agreements we currently have in
place. Substantially all of our revenues for the years ended December 31, 2006,
2005, and 2004, respectively, were derived from revenues related to grants,
contracts and license agreements. Our current revenue is derived from contract
work being performed for the NIH under two major grants and a contract which are
scheduled to expire in September 2009 and contracts with the U.S. Air force
which expire in October and November 2007. These agreements are for specific
work to be performed under the agreements and could only be canceled by the
other party thereto for non-performance. We may not earn significant milestone
payments under our existing collaborative agreements until our collaborators
have advanced products into clinical testing, which may not occur for many
years, if at all.
We have material agreements with the following collaborators:
o National Institutes of Health. In October 2006 we received a 3 year,
$16.5 million contract from the NIH to advance the development of
our lead drug SIGA-246. In September 2006, we received a $6.0
million, 3 year SBIR grant from the NIH to develop antiviral drugs
for the Lassa fever virus. In August 2006, the NIH awarded us a 3
year SBIR grant for $4.8 million to continue the development of our
smallpox drug candidate, SIGA-246. In 2004, we have received SBIR
Grants totaling
13
approximately $11.1 million which expired in 2006. SIGA receives
cash payments from the NIH on a monthly or semi-monthly basis, as
the work is performed and the related revenue is recognized. SIGA's
current NIH contract and SBIR grants do not include milestone
payments. As of December 31, 2006, SIGA recognized approximately
$11.0 million from these grants for work it had performed. The
agreements can be cancelled for non-performance and if cancelled,
the Company will not receive additional funds under the agreements.
SIGA also has an agreement whereby the NIH is required to conduct
and pay for the clinical trials of our strep vaccine product through
phase II human trials. The NIH can terminate the agreement on 60
days written notice. If terminated, we receive copies of all data,
reports and other information related to the trials. If terminated,
we would have to find another source of funds to continue to conduct
the trials. As of December 31, 2006, SIGA has not performed any
clinical trials related to its strep vaccine program and does not
expect to perform any during the next three to five years.
o United States Air Force. In November 2006, we received a $1.4
million, one year contract with the Air Force Medical Service for
the development of counter-measures against Dengue viruses and other
water-related viral agents. In November 2006 we also received a
one-year, $900,000 contract to aid the USAF Special Operations
Command (USAFSOC) in its development of specific anti-viral agents.
For the year ended December 31, 2006 we recognized revenues of
$247,000 from these contracts. SIGA receives cash payments from the
USAF on a monthly basis, as the work is performed and the related
revenue is recognized. SIGA's current contracts with the USAF do not
include milestone payments. The agreements can be cancelled for
non-performance and if cancelled, the Company will not receive
additional funds under the agreements.
o United States Army Medical Research and Material Command. In
September 2005 we entered into a $3.2 million, one year contract
with the USAMRMC. The agreement, for the rapid identification and
treatment of anti-viral diseases, is funded through the USAF. It is
anticipated that our efforts will aid the USAF Special Operations
Command in its use of computational biology to design and develop
specific countermeasures against biological threat agents Smallpox
and Adenovirus. As of December 31, 2006, SIGA received cash payments
of $3.2 million under this contract and recognized total revenue of
approximately $3.1 million. SIGA completed its work under the
contract under-budget and will repay the USAF approximately $92,000
which was not recognized as revenue by the Company.
o Saint Louis University. On September 1, 2005, we entered into an
agreement with Saint Louis University for the continued development
of one of our Smallpox drugs. The agreement is funded through the
NIH. Under the agreement, SIGA received approximately $1.0 million
during the term of September 1, 2005 to February 28, 2006 for work
performed under the agreement.
o United States Army Medical Research Acquisition Activity. In
December 2002, we entered into a four year contract with USAMRAA to
develop a drug to treat Smallpox. SIGA received cash payments from
USAMRAA under this contract on a monthly basis, as the work was
performed and the related revenue was recognized. The agreement with
USAMRAA did not include milestone payments. As of December 31, 2006,
SIGA completed its obligations under this agreement.
o Rockefeller University. The term of our agreement with Rockefeller
is for the duration of the patents and a number of pending patents.
As we do not currently know when any patents pending or future
patents will expire, we cannot at this time definitively determine
the term of this agreement. The agreement can be terminated earlier
if we are in breach of the provisions of the agreement and do not
cure the breach in the allowed cure period. We are current in all
obligations under the contract. SIGA does not expect receipt or
disbursement of funds under the agreement with Rockefeller for the
next three to five years.
o Oregon State University. OSU is a signatory of our agreement with
Rockefeller. The term of this agreement is for the duration of the
patents and a number of pending patents. As we do not currently know
when any patents pending or future patents will expire, we cannot at
this time definitively determine the term of this agreement. The
agreement can be terminated earlier if we are in breach of
14
the provisions of the agreement and do not cure the breach in the
allowed cure period. We are current in all obligations under the
contract. SIGA does not expect receipt or disbursement of funds
under the agreement with OSU for the next three to five years.
o Washington University. We have licensed certain technology from
Washington under a non-exclusive license agreement. The term of our
agreement with Washington is for the duration of the patents and a
number of pending patents. As we do not currently know when any
patents pending or future patents will expire, we cannot at this
time definitively determine the term of this agreement. The
agreement cannot be terminated unless we fail to pay our share of
the joint patent costs for the technology licensed. SIGA does not
expect receipt or disbursement of funds under the agreement with
Washington University for the next three to five years.
o Regents of the University of California. We have licensed certain
technology from Regents under an exclusive license agreement. We are
required to pay minimum royalties under this agreement. SIGA does
not expect receipt or disbursement of funds under the agreement with
the Regents of the University of California for the next three to
five years.
o TransTech Pharma, Inc. Under our collaborative agreement with
TransTech Pharma, a related party, TransTech Pharma is collaborating
with us on the discovery, optimization and development of lead
compounds to certain therapeutic agents. We and TransTech Pharma
have agreed to share the costs of development and revenues generated
from licensing and profits from any commercialized products sales.
The agreement will be in effect until terminated by the parties or
upon cessation of research or sales of all products developed under
the agreement. SIGA does not expect receipt or disbursement of funds
under the agreement with TransTech Pharma for the next three to five
years.
The biopharmaceutical market in which we compete and will compete is highly
competitive.
The biopharmaceutical industry is characterized by rapid and significant
technological change. Our success will depend on our ability to develop and
apply our technologies in the design and development of our product candidates
and to establish and maintain a market for our product candidates. There also
are many companies, both public and private, including major pharmaceutical and
chemical companies, specialized biotechnology firms, universities and other
research institutions engaged in developing pharmaceutical and biotechnology
products. Many of these companies have substantially greater financial,
technical, research and development, and human resources than us. Competitors
may develop products or other technologies that are more effective than any that
are being developed by us or may obtain FDA approval for products more rapidly
than us. If we commence commercial sales of products, we still must compete in
the manufacturing and marketing of such products, areas in which we have no
experience. Many of these companies also have manufacturing facilities and
established marketing capabilities that would enable such companies to market
competing products through existing channels of distribution. Two companies with
similar profiles are VaxGen, Inc., which is developing vaccines against anthrax,
Smallpox and HIV/AIDS; and Avant Immunotherapeutics, Inc., which has vaccine
programs for agents of biological warfare.
Because we must obtain regulatory clearance to test and market our products in
the United States, we cannot predict whether or when we will be permitted to
commercialize our products.
A pharmaceutical product cannot be marketed in the U.S. until it has
completed rigorous pre-clinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Pharmaceutical products
typically take many years to satisfy regulatory requirements and require the
expenditure of substantial resources depending on the type, complexity and
novelty of the product.
Before commencing clinical trials in humans, we must submit and receive
clearance from the FDA by means of an IND application. Institutional review
boards and the FDA oversee clinical trials and such trials:
o must be conducted in conformance with the FDA's good laboratory
practice regulations;
o must meet requirements for institutional review board oversight;
15
o must meet requirements for informed consent;
o must meet requirements for good clinical and manufacturing
practices;
o are subject to continuing FDA oversight;
o may require large numbers of test subjects; and
o may be suspended by us or the FDA at any time if it is believed that
the subjects participating in these trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in any of
the Company's IND applications or the conduct of these trials.
Before receiving FDA clearance to market a product, we must demonstrate
that the product is safe and effective on the patient population that will be
treated. Data we obtain from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. Additionally, we have limited experience in conducting and managing
the clinical trials and manufacturing processes necessary to obtain regulatory
clearance.
If regulatory clearance of a product is granted, this clearance will be
limited only to those states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance.
If our technologies or those of our collaborators are alleged or found to
infringe the patents or proprietary rights of others, we may be sued or have to
license those rights from others on unfavorable terms.
Our commercial success will depend significantly on our ability to operate
without infringing the patents and proprietary rights of third parties. Our
technologies, along with our licensors' and our collaborators' technologies, may
infringe the patents or proprietary rights of others. If there is an adverse
outcome in litigation or an interference to determine priority or other
proceeding in a court or patent office, then we, or our collaborators and
licensors, could be subjected to significant liabilities, required to license
disputed rights from or to other parties and/or required to cease using a
technology necessary to carry out research, development and commercialization.
At present we are unaware of any or potential infringement claims against our
patent portfolio.
The costs to establish the validity of patents, to defend against patent
infringement claims of others and to assert infringement claims against others
can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to us or one
of our licensors or collaborators may have a material adverse effect on us. We
could incur substantial costs if we are required to defend ourselves in patent
suits brought by third parties, if we participate in patent suits brought
against or initiated by our licensors or collaborators or if we initiate such
suits. We may not have sufficient funds or resources in the event of litigation.
Additionally, we may not prevail in any such action.
Any conflicts resulting from third-party patent applications and patents
could significantly reduce the coverage of the patents owned, optioned by or
licensed to us or our collaborators and limit our ability or that of our
collaborators to obtain meaningful patent protection. If patents are issued to
third parties that contain competitive or conflicting claims, we, our licensors
or our collaborators may be legally prohibited from researching, developing or
commercializing of potential products or be required to obtain licenses to these
patents or to develop or obtain alternative technology. We, our licensors and/or
our collaborators may be legally prohibited from using patented technology, may
not be able to obtain any license to the patents and technologies of third
parties on acceptable terms, if at all, or may not be able to obtain or develop
alternative technologies.
In addition, like many biopharmaceutical companies, we may from time to
time hire scientific personnel formerly employed by other companies involved in
one or more areas similar to the activities conducted by us. We and/or these
individuals may be subject to allegations of trade secret misappropriation or
other similar claims as a result of their prior affiliations.
16
Our ability to compete may decrease if we do not adequately protect our
intellectual property rights.
Our commercial success will depend in part on our and our collaborators'
ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve
our trade secrets. Because of the substantial length of time and expense
associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the type and breadth
of claims allowed in these patents.
We have licensed the rights to eight issued U.S. patents and three issued
European patents. These patents have varying lives and they are related to the
technology licensed from Rockefeller University for the Strep and Gram-positive
products. We have one additional patent application in the U.S. and one
application in Europe relating to this technology. We are joint owner with
Washington University of seven issued patents in the U.S. and one in Europe. In
addition, there are four co-owned U.S. patent applications. These patents are
for the technology used for the Gram-negative product opportunities. We are also
exclusive owner of one U.S. patent and three U.S. patent applications. One of
these U.S. patent applications relates to our DegP product opportunities.
We included a summary of our patent positions as of December 31, 2006 in
Part I, Item 1 of this document.
We also rely on copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities. In an effort to maintain
the confidentiality and ownership of trade secrets and proprietary information,
we require our employees, consultants and some collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These agreements may not provide meaningful protection for
our trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information, and adequate remedies may
not exist in the event of such unauthorized use or disclosure.
We may have difficulty managing our growth.
We expect to experience growth in the number of our employees and the
scope of our operations. This future growth could place a significant strain on
our management and operations. Our ability to manage this growth will depend
upon our ability to broaden our management team and our ability to attract, hire
and retain skilled employees. Our success will also depend on the ability of our
officers and key employees to continue to implement and improve our operational
and other systems and to hire, train and manage our employees.
Our activities involve hazardous materials and may subject us to environmental
regulatory liabilities.
Our biopharmaceutical research and development involves the controlled use
of hazardous and radioactive materials and biological waste. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials and certain waste products.
Although we believe that our safety procedures for handling and disposing of
these materials comply with legally prescribed standards, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, we could be held liable for damages, and this
liability could exceed our resources. The research and development activities of
our company do not produce any unusual hazardous products. We do use small
amounts of 32P, 35S and 3H, which are stored, used and disposed of in accordance
with Nuclear Regulatory Commission ("NRC") regulations. We maintain liability
insurance in the amount of approximately $3,000,000 and we believe this should
be sufficient to cover any contingent losses.
We believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently do not expect to
make material additional capital expenditures for environmental control
facilities in the near term. However, we may have to incur significant costs to
comply with current or future environmental laws and regulations.
17
Our potential products may not be acceptable in the market or eligible for third
party reimbursement resulting in a negative impact on our future financial
results.
Any products successfully developed by us or our collaborative partners
may not achieve market acceptance. The antibiotic products which we are
attempting to develop will compete with a number of well-established traditional
antibiotic drugs manufactured and marketed by major pharmaceutical companies.
The degree of market acceptance of any of our products will depend on a number
of factors, including:
o the establishment and demonstration in the medical community of the
clinical efficacy and safety of such products,
o the potential advantage of such products over existing treatment
methods, and
o reimbursement policies of government and third-party payors.
Physicians, patients or the medical community in general may not accept or
utilize any products that we or our collaborative partners may develop. Our
ability to receive revenues and income with respect to drugs, if any, developed
through the use of our technology will depend, in part, upon the extent to which
reimbursement for the cost of such drugs will be available from third-party
payors, such as government health administration authorities, private health
care insurers, health maintenance organizations, pharmacy benefits management
companies and other organizations. Third-party payors are increasingly disputing
the prices charged for pharmaceutical products. If third-party reimbursement was
not available or sufficient to allow profitable price levels to be maintained
for drugs developed by us or our collaborative partners, it could adversely
affect our business.
If our products harm people, we may experience product liability claims that may
not be covered by insurance.
We face an inherent business risk of exposure to potential product
liability claims in the event that drugs we develop are alleged to cause adverse
effects on patients. Such risk exists for products being tested in human
clinical trials, as well as products that receive regulatory approval for
commercial sale. We may seek to obtain product liability insurance with respect
to drugs we and/or our collaborative partners develop. However, we may not be
able to obtain such insurance. Even if such insurance is obtainable, it may not
be available at a reasonable cost or in a sufficient amount to protect us
against liability.
We may be required to perform additional clinical trials or change the labeling
of our products if we or others identify side effects after our products are on
the market, which could harm sales of the affected products.
If we or others identify side effects after any of our products are on the
market, or if manufacturing problems occur:
o regulatory approval may be withdrawn;
o reformulation of our products, additional clinical trials, changes
in labeling of our products may be required;
o changes to or re-approvals of our manufacturing facilities may be
required;
o sales of the affected products may drop significantly;
o our reputation in the marketplace may suffer; and
o lawsuits, including class action suits, may be brought against us.
Any of the above occurrences could harm or prevent sales of the affected
products or could increase the costs and expenses of commercializing and
marketing these products.
18
The manufacture of biotechnology products can be a time-consuming and complex
process which may delay or prevent commercialization of our products, or may
prevent our ability to produce an adequate volume for the successful
commercialization of our products.
Our management believes that we have the ability to acquire or produce
quantities of products sufficient to support our present needs for research and
our projected needs for our initial clinical development programs. The
manufacture of all of our products will be subject to current Good Manufacturing
Practices (GMP) requirements prescribed by the FDA or other standards prescribed
by the appropriate regulatory agency in the country of use. There can be no
assurance that we will be able to manufacture products, or have products
manufactured for us, in a timely fashion at acceptable quality and prices, that
we or third party manufacturers can comply with GMP, or that we or third party
manufacturers will be able to manufacture an adequate supply of product.
Healthcare reform and controls on healthcare spending may limit the price we
charge for any products and the amounts thereof that we can sell.
The U.S. federal government and private insurers have considered ways to
change, and have changed, the manner in which healthcare services are provided
in the U.S. Potential approaches and changes in recent years include controls on
healthcare spending and the creation of large purchasing groups. In the future,
the U.S. government may institute further controls and limits on Medicare and
Medicaid spending. These controls and limits might affect the payments we could
collect from sales of any products. Uncertainties regarding future healthcare
reform and private market practices could adversely affect our ability to sell
any products profitably in the U.S. At present, we do not foresee any changes in
FDA regulatory policies that would adversely affect our development programs.
The future issuance of preferred stock may adversely affect the rights of the
holders of our common stock.
Our certificate of incorporation allows our Board of Directors to issue up
to 10,000,000 shares of preferred stock and to fix the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of these shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
could be adversely affected by, the rights of the holders of any preferred stock
that we may issue in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control.
Concentration of ownership of our capital stock could delay or prevent change of
control.
Our directors, executive officers and principal stockholders beneficially
own a significant percentage of our common stock. They also have, through the
exercise or conversion of certain securities, the right to acquire additional
common stock. As a result, these stockholders, if acting together, have the
ability to significantly influence the outcome of corporate actions requiring
shareholder approval. Additionally, this concentration of ownership may have the
effect of delaying or preventing a change in control of SIGA. At December 31,
2006, Directors, Officers and principal stockholders beneficially owned
approximately 41.5% of our stock.
Item 1B. Unresolved Staff Comments
Not applicable.
19
Item 2. Properties
Our headquarters are located in New York City and our research and
development facilities are located in Corvallis, Oregon. In New York, we lease
approximately 3,000 square feet under a lease that expires in November 2007. In
Corvallis, we lease approximately 18,100 square feet under an amended lease
agreement signed in January 2007, which expires in December 2011. Our facility
in Oregon has been improved to meet the special requirements necessary for the
operation of our research and development activities. In the opinion of the
management, these facilities are sufficient to meet the current and anticipated
future requirements of SIGA.
Item 3. Legal Proceedings
On December 20, 2006, PharmAthene, Inc. ("PharmAthene") filed an action
against us in the Court of Chancery in the State of Delaware, captioned
PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-N. In its Complaint,
PharmAthene asks the Court to order the Company to enter into a license
agreement with PharmAthene with respect to SIGA-246, as well as issue a
declaration that we are obliged to execute such a license agreement, and award
damages resulting from our supposed breach of that obligation. PharmAthene also
alleges that we breached an obligation to negotiate such a license agreement in
good faith, as well as seeks damages for promissory estoppel and unjust
enrichment based on supposed information, capital and assistance that
PharmAthene allegedly provided to us during the negotiation process. On January
9, 2007, we filed a motion to dismiss the Complaint in its entirety for failure
to state a claim upon which relief can be granted. The Court approved the
parties' briefing schedule, with all briefing to be completed by April 13, 2007.
SIGA believes that the claims are without merit and plans to defend itself
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on December 19, 2006, our
stockholders elected our Board of Directors and ratified our selection of
independent registered public accounting firm:
The following nominees were elected to our Board of Directors upon the
following votes:
Director Votes For Withheld
-------- --------- --------
Donald G. Drapkin 26,158,641 804,656
Thomas E. Constance 26,907,435 55,862
Adnan M. Mjalli, Ph.D. 26,904,336 58,961
Mehmet C. Oz, M.D. 26,164,681 798,616
Eric A. Rose, M.D. 26,176,331 786,966
Paul G. Savas 26,899,776 63,521
Michael A. Weiner, M.D. 26,266,481 696,816
Judy S. Slotkin 26,896,786 66,511
James J. Antal 26,910,076 53,221
Scott M. Hammer, M.D. 26,197,261 766,036
Our stockholders ratified the selection of PricewaterhouseCoopers LLP as
our independent registered public accounting firm for the fiscal year ending
December 31, 2006 by casting 26,340,016 votes in favor of this proposal, 617,171
votes against the proposal and 6,110 abstained.
20
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock has been traded on the Nasdaq Capital Market since
September 9, 1997 and trades under the symbol "SIGA." Prior to that time there
was no public market for our common stock. The following table sets forth, for
the periods indicated, the high and low closing sales prices for the common
stock, as reported on the Nasdaq Capital Market.
Price Range
2005 High Low
First Quarter ...................................... $ 1.69 $ 1.28
Second Quarter ..................................... $ 1.44 $ 0.99
Third Quarter ...................................... $ 1.10 $ 0.70
Fourth Quarter ..................................... $ 1.35 $ 0.87
2006 High Low
First Quarter ...................................... $ 1.56 $ 0.90
Second Quarter ..................................... $ 1.65 $ 1.22
Third Quarter ...................................... $ 1.63 $ 1.01
Fourth Quarter ..................................... $ 4.95 $ 1.49
The following line graph compares the cumulative total stockholder return
through December 31, 2006, assuming reinvestment of dividends, by an investor
who invested $100 on December 31, 2001 in each of (i) the Common Stock, (ii) the
NASDAQ National Market-US; and (iii) the NASDAQ Pharmaceutical Index.
[LINE CHART OMITTED]
21
Value of Initial Investment 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
SIGA Technologies, Inc. $ 100.00 $ 49.31 $ 78.97 $ 57.24 $ 32.76 $ 129.31
NASDAQ Composite Index $ 100.00 $ 68.47 $ 102.72 $ 111.54 $ 113.07 $ 123.84
NASDAQ Biotech Composite Index $ 100.00 $ 54.67 $ 79.68 $ 84.57 $ 86.96 $ 87.85
As of March 8, 2007, the closing bid price of our common stock was $4.28 per
share. There were 75 holders of record as of March 8, 2007. We believe that the
number of beneficial owners of our common stock is substantially greater than
the number of record holders, because a large portion of common stock is held in
broker "street names."
We have paid no dividends on our common stock and we do not expect to pay
cash dividends in the foreseeable future. We are not under any restriction as to
our present or future ability to pay dividends. We currently intend to retain
any future earnings to finance the growth and development of our business.
Item 6. Selected Financial Data (in thousands, except share and per share data)
The following table sets forth selected financial information derived from our
audited consolidated financial statements as of and for the years ended December
31, 2006, 2005, 2004, 2003, and 2002.
The year In-process
ended Selling, general Research and Patent research and Impairment of
December 31, Revenues & administrative development preparation fees development intangible assets
- ------------ --------------- ------------------ --------------- ------------------ ---------------- -------------------
2006 $ 7,258 $ 4,624 $ 9,149 $ 295 $ -- $ --
2005 $ 8,477 $ 2,481 $ 8,295 $ 232 $ -- $ --
2004 $ 1,839 $ 4,042 $ 4,166 $ 393 $ 568 $ 2,118
2003 $ 732 $ 2,646 $ 2,943 $ 300 $ -- $ 137
2002 $ 344 $ 1,838 $ 1,766 $ 105 $ -- $ --
Weighted average
The year ended Net loss per share: shares outstanding:
December 31, Operating loss Net loss basic & diluted basic and diluted
---------------- -------------- -------------------- ---------------------
2006 $ (6,810) $ (9,899) $ (0.35) 28,200,130
2005 $ (2,532) $ (2,288) $ (0.09) 24,824,824
2004 $ (9,448) $ (9,373) $ (0.40) 23,724,026
2003 $ (5,296) $ (5,277) $ (0.34) 15,717,138
2002 $ (3,365) $ (3,331) $ (0.32) 10,450,529
As of and for
the year ended Cash & cash Long term Total stockholders' Net cash used in
December 31, Total assets equivalents obligations equity operating activities
-------------- --------------- --------------- --------------------- ----------------------
2006 $ 14,028 $ 10,640 $ 4,696 $ 7,282 $ (4,438)
2005 $ 6,132 $ 1,772 $ 642 $ 3,231 $ (1,392)
2004 $ 6,111 $ 2,021 $ 4,559 $ (4,890)
2003 $ 6,100 $ 1,441 $ 5,551 $ (5,332)
2002 $ 2,830 $ 2,069 $ 2,173 $ (2,648)
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those statements and other
financial information appearing elsewhere in this Annual Report. In addition to
historical information, the following discussion and other parts of this Annual
Report contain forward-looking information that involves risks and
uncertainties.
Overview
Since our inception in December 1995, SIGA has pursued the research and
development of novel products for the prevention and treatment of serious
infectious diseases, including products for use in the defense against
biological warfare agents such as Smallpox and Arenaviruses. During the third
quarter of 2006 we were awarded a 3 year, $16.5 million contract from the NIH
and an additional 3 year, $4.8 million SBIR Phase II continuation grant from the
NIH. Both awards support the continuing development of our smallpox drug
candidate, SIGA-246. Our efforts to develop SIGA-246 were also supported by
previous SBIR grants from the NIH totaling $5.8 million, a $1.0 million
agreement with Saint Louis University, and a $1.6 million contract with the U.S.
Army. Our initiative to advance SIGA's Arenavirus programs is supported by a 3
year, $6.0 million SBIR grant from the NIH, received in September 2006 and
previous SBIR grants from the NIH totaling $6.3 million.
Our anti-viral programs are designed to prevent or limit the replication
of the viral pathogen. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance. These programs are designed to
block the ability of bacteria to attach to human tissue, the first step in the
infection process. We are also developing a technology for the mucosal delivery
of our vaccines which may allow the vaccines to activate the immune system at
the mucus lined surfaces of the body -- the mouth, the nose, the lungs and the
gastrointestinal and urogenital tracts -- the sites of entry for most infectious
agents.
We do not have commercial biomedical products, and we do not expect to
have such products for one to three years, if at all. We believe that we will
need additional funds to complete the development of our biomedical products.
Our plans with regard to these matters include continued development of our
products as well as seeking additional research support funds and financial
arrangements. Although we continue to pursue these plans, there is no assurance
that we will be successful in obtaining future financing on terms acceptable to
us. Management believes it has sufficient funds and projected cash flows to
support operations beyond the next twelve months.
Our biotechnology operations are based in our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
antiviral, antibiotic and vaccine programs through a combination of government
grants, contracts and strategic alliances. While we have had success in
obtaining strategic alliances, contracts and grants, there is no assurance that
we will continue to be successful in obtaining funds from these sources. Until
additional relationships are established, we expect to continue to incur
significant research and development costs and costs associated with the
manufacturing of product for use in clinical trials and pre-clinical testing. It
is expected that general and administrative costs, including patent and
regulatory costs, necessary to support clinical trials and research and
development will continue to be significant in the future.
To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.
Critical Accounting Estimates
The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our consolidated
financial statements, which we discuss under the heading "Results of Operations"
following this section of our Management's Discussion and Analysis. Some of our
accounting policies require us to make difficult and subjective judgments, often
as a result of the need to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates include the assessment of
recoverability of goodwill,
23
which could impact goodwill impairments; the assessment of recoverability of
long-lived assets, which primarily impacts operating income if impairment
exists. Below, we discuss these policies further, as well as the estimates and
judgments involved. Other key accounting policies, including revenue
recognition, are less subjective and involve a far lower degree of estimates and
judgment.
Significant Accounting Policies
The following is a brief discussion of the more significant accounting
policies and methods used by us in the preparation of our consolidated financial
statements. Note 2 of the Notes to the Consolidated Financial Statements
includes a summary of all of the significant accounting policies.
Share-based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to the Employee Stock
Purchase Plan ("employee stock purchases") based on estimated fair values. SFAS
123(R) supersedes the Company's previous accounting under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
periods beginning on January 1, 2006. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has
applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of January
1, 2006, the first day of the Company's fiscal year 2006. The Company's
Consolidated Financial Statements as of and for the year ended December 31, 2006
reflect the impact of SFAS 123(R). In accordance with the modified prospective
transition method, the Company's Financial Statements for prior periods have not
been restated to reflect, and do not include, the impact of SFAS 123(R).
Share-based compensation related to stock options expense recognized under SFAS
123(R) for the year ended December 31, 2006 was $470,892. No share-based
compensation expense related to employee stock options was recognized during the
year ended December 31, 2005.
SFAS 123(R) requires companies to estimate the fair value of share-based
payment awards on the grant-date using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's Statements of
Operations. Prior to the adoption of SFAS 123(R), the Company accounted for
share-based awards to employees and directors using the intrinsic value method
in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under
the intrinsic value method, no share-based compensation expense related to stock
options had been recognized in the Company's Statements of Operations when the
exercise price of the Company's stock options granted to employees and directors
equaled the fair market value of the underlying stock at the grant-date.
Share-based compensation expense recognized during the current period is
based on the value of the portion of share-based payment awards that is
ultimately expected to vest. SFAS 123(R) requires forfeitures to be estimated at
the time of grant in order to estimate the amount of share-based awards that
will ultimately vest. The forfeiture rate is based on historical rates.
Share-based compensation expense recognized in the Company's Statements of
Operations for the year ended December 31, 2006 includes (i) compensation
expense for share-based payment awards granted prior to, but not yet vested as
of December 31, 2005, based on the grant-date fair value estimated in accordance
with the pro forma provisions of SFAS 123 and (ii) compensation expense for the
share-based payment awards granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). The Company utilizes the Black-Scholes options pricing model for the
valuation of share-based awards. Determining the fair value of these awards at
the grant date requires judgment. It is reasonably likely that forfeiture rates
will change in the future and impact future compensation expense. It is also
reasonably likely that the variables used in the Black Scholes option pricing
model will change in the future and impact the fair value of future options at
the grant date and future compensation expense.
24
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts payable and
accrued expenses approximates fair value due to the relatively short maturity of
these instruments. Common stock rights and warrants which are classified as
assets or liabilities under the provisions of EITF 00-19 are recorded at their
fair market value as of each reporting period. The Company applies the
Black-Scholes pricing model to calculate the fair values of common stock rights
and warrants using the contracted term of the instruments and expected
volatility that is calculated as a combination of the Company's historical
volatility and the volatility of a group of comparable companies.
Revenue Recognition
The Company recognizes revenue from contract research and development and
research progress payments in accordance with SEC Staff Accounting Bulletin No.
104, Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed and determinable, collectibility is reasonably
assured, contractual obligations have been satisfied and title and risk of loss
have been transferred to the customer. The Company recognizes revenue from
non-refundable up-front payments, not tied to achieving a specific performance
milestone, over the period which the Company is obligated to perform services or
based on the percentage of costs incurred to date, estimated costs to complete
and total expected contract revenue. Payments for development activities are
recognized as revenue is earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired.
The Company evaluates goodwill for impairment annually, in the fourth
quarter of each year. In addition, the Company would test goodwill for
recoverability between annual evaluations whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Examples of such events could include a significant adverse change in legal
matters, liquidity or in the business climate, an adverse action or assessment
by a regulator or government organization, loss of key personnel, or new
circumstances that would cause an expectation that it is more likely than not
that we would sell or otherwise dispose of a reporting unit. Goodwill impairment
is determined using a two-step approach in accordance with Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). The impairment review process compares the fair value of the
reporting unit in which goodwill resides to its carrying value. In 2006, the
Company operated as one business and one reporting unit. Therefore, the goodwill
impairment analysis was performed on the basis of the Company as a whole using
the market capitalization of the Company as an estimate of its fair value. In
the past, our market capitalization has been significantly in excess of the
Company's carrying value. It is reasonably likely that the future market
capitalization of SIGA may exceed or fall short of our current market
capitalization, in which case a different amount for potential impairment would
result. The use of the discounted expected future cash flows to evaluate the
fair value of the Company as a whole is reasonably likely to produce different
results than the Company's market capitalization.
Intangible Assets
Acquisition-related intangibles include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 2-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. Our
25
estimates of projected cash flows are dependent on many factors, including
general economic trends, technological developments and projected future
contracts and government grants. It is reasonably likely that future cash flows
associated with our intangible assets may exceed or fall short of our current
projections, in which case a different amount for impairment would result. If
our actual cash flows exceed our estimates of future cash flows, any impairment
charge would be greater than needed. If our actual cash flows are less than our
estimated cash flows, we may need to recognize additional impairment charges in
future periods, which would be limited to the carrying amount of the intangible
assets.
Recent accounting pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires an
entity to recognize the impact of a tax position in its financial statements if
that position is more likely than not to be sustained on audit based on the
technical merits of the position. The provisions of FIN 48 are effective as of
the beginning of fiscal year 2007, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
Early application of FIN 48 is encouraged. The Company is evaluating the timing
of its adoption of FIN 48 and the potential effects of implementing this
Interpretation on its financial condition and results of operations.
In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 provides
guidance for using fair value to measure assets and liabilities and requires
expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. The standard applies whenever
other standards require (or permit) assets or liabilities to be measured at fair
value. The standard does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are in the process of evaluating the adoption of SFAS No.
157.
Results of Operations
The following table sets forth certain consolidated statements of income data as
a percentage of net revenue for the periods indicated:
2006 2005 2004
---------- ---------- ----------
Revenue 100% 100% 100%
---------- ---------- ----------
Selling, general and administrative 64% 29% 220%
Research and development 126% 98% 227%
Patent preparation fees 4% 3% 21%
In-process research and development 0% 0% 31%
Impairment of intangible assets 0% 0% 115%
---------- ---------- ----------
Operating loss 94% 30% 514%
Years ended December 31, 2006, 2005, and 2004
Revenues from research and development contracts and grants for the years
ended December 31, 2006 and 2005 were $7.3 million and $8.5 million,
respectively. Revenues recorded for the year ended December 31, 2006 declined
$1.2 million or 14% from the prior year. For the year ended December 31, 2006 we
recorded $3.7 million from an NIH contract, NIH SBIR grants and an agreement
with Saint Louis University, supporting two of our lead programs. Revenues from
NIH SBIR grants supporting these programs during the year ended December 31,
2005 were $7.2 million. The decline of $3.5 million was partially offset by a
$1.8 million increase in revenues recognized from our $3.2 million, one year
contract with USAMRMC for the rapid identification and treatment of anti-viral
diseases. The agreement was signed in September 2005 and was funded through the
USAF. Revenue recognized in connection with this agreement increased from
$653,000 in 2005 to $2.5 million in 2006. The decline in revenues supporting our
two lead programs was also offset by $409,000 recorded in connection with a
$500,000, one year,
26
Phase I SBIR grant from the NIH to support the development of our Bacterial
Commensal Vector technology for the delivery of smallpox vaccine, ending on
February 28, 2007. In November 2006, we received a $1.4 million, one year
contract with the Air Force Medical Service for the development of
counter-measures against Dengue viruses and other water-related viral agents. In
November 2006 we also received a one-year, $900,000 contract to aid the USAF
Special Operations Command (USAFSOC) in its development of specific anti-viral
agents. For the year ended December 31, 2006 we recognized revenues of $247,000
from these contracts.
In August 2006, we received a three year, $6.0 million award from the NIH
to support the development of our antiviral drugs for Lassa fever virus, and a
three year, $4.8 million SBIR Phase II continuation grant from the NIH to
support the development of our smallpox drug candidate, SIGA-246. In September
2006, we entered into a three year, $16.5 million contract with the National
Institute of Allergy and Infectious Diseases of the NIH, to further advance the
development of our smallpox drug candidate. Revenues from these new grants and
contracts are recognized as services are performed.
Revenues for the years ended December 31, 2005 and 2004 were $8.5 million
and $1.8 million, respectively. The increase of $6.6 million or 361% from the
year ended December 31, 2004 related to the award of two Phase I and two Phase
II SBIR grants by the NIH during the third quarter of 2004, an agreement with
Saint Louis University entered into in September 2005, and an agreement with
USAMRMC entered into in September 2005. The grants awarded by the NIH during the
third quarter of 2004 for a total amount of $11.1 million, supported our
Smallpox and Arenaviruses programs and expired in the third quarter of 2006. For
the years ended December 31, 2005 and 2004 we recorded revenues of $6.4 million
and $1.0 million, respectively, from these grants, mainly reflecting the
continued development of our Smallpox oral antiviral drug. In 2004, we also
received a one year SBIR grant from the NIH for $252,000 to support our Strep
vaccine program. In 2005 and 2004 we recorded revenue of $156,000 and $86,000,
respectively, from this grant. In September 2005, we entered into an agreement
with Saint Louis University for the continued development of one of our Smallpox
drugs. The agreement was funded through the NIH. Under the agreement, SIGA
received approximately $1.0 million during the term of September 1, 2005 to
February 28, 2006. Revenues were recognized as services were performed. In 2005,
we recognized revenues of $775,000 from the agreement. In September 2005, we
also entered into a $3.2 million, one year contract with USAMRMC and for the
year ended December 31, 2005, recognized revenues of $653,000 from this
agreement.
For the years ended December 31, 2005 and 2004 revenue from our contract
with the U.S. Army was $427,000 and $425,000. In 2004 we recognized revenue of
$255,000 from an SBIR grant for our DegP anti infective that we completed in the
second quarter of 2004.
Selling, general and administrative expenses ("SG&A") for the years ended
December 31, 2006 and 2005 were $4.6 million and $2.5 million, respectively. The
increase of $2.1 million or 84% is mainly attributed to $1.2 million of
professional fees and $530,000 of non-cash share base compensation and
consulting charges recorded for the year ended December 31, 2006, and a credit
of $303,000 in legal expenses recorded in 2005. During the year ended December
31, 2006 we recorded legal, accounting and consulting expenses of $861,000,
$183,000 and $132,000, respectively, for due diligence services, fairness
opinion and legal advice related to our proposed merger with PharmAthene, Inc.
("PHTN"), which was terminated in October 2006. In 2006, we recorded $156,000 of
non-cash consulting charge reflecting the fair market value of 400,000 warrants
issued under a February 2003 consulting agreement. For the year ended December
31, 2006, we also recorded a $376,000 non-cash charge for share based
compensation following the adoption of FAS 123(R) on January 1, 2006.
SG&A were $2.5 million and $4.0 million for the years ended December 31,
2005 and 2004. SG&A declined $1.6 million or 39% primarily due to $1.0 million
decline in legal fees and $401,000 decline in consulting fees. In 2005, upon the
re-negotiation of certain legal invoices, we received and recorded credits of
$303,000 in legal expenses. In addition to the credits received by SIGA, legal
fees declined by approximately $711,000 from the year ended December 31, 2004
reflecting higher legal fees during the 2004 period due to the acquisition of
certain assets from ViroPharma, the review and amendment of our corporate
governance policies and procedures to ensure compliance with Sarbanes Oxley Act
of 2002 and NASDAQ requirements. Legal expenses in 2004 were also incurred in
connection with the sale of certain non-core vaccine assets and a legal action
that the Company initiated against a former founder. In 2004, we incurred higher
consulting expenses in connection with our efforts to secure certain government
contracts. Our agreement with the consulting group was terminated in October
2004.
27
Research and Development (R&D) expenses for the years ended December 31,
2006 and 2005 were $9.1 million and $8.3 million, respectively. On April 1,
2006, we completed the renovation of a new laboratory space in Corvallis,
Oregon. Depreciation expense, lab supplies expenditures and rent expense for the
year ended December 31, 2006, increased by $637,000, $354,000, and $381,000,
respectively, from the same period in 2005. During the year ended December 31,
2006, we expanded our R&D work force from 35 full time employees to 41 full time
employees. R&D payroll and related expenses increased by $743,000 as a result of
this expansion and bonuses paid in 2006 to our R&D employees. In addition, R&D
expenditures related to our contract with USAMRMC and two contracts with the
U.S. Air Force received in 2006 increased $646,000 from $249,000 in 2005 to
$895,000 in 2006. These increases were partially offset by a decline of $1.9
million in R&D expenditures related to two of our lead programs.
During the years ended December 31, 2006, and 2005 we spent $2.3 million
and $3.9 million, respectively, on the development of our lead drug candidate,
SIGA-246, an orally administered anti-viral drug that targets the smallpox
virus. For the year ended December 31, 2006, we spent $716,000 on internal human
resources and $1.6 million mainly on clinical testing. For the year ended
December 31, 2005, we spent $708,000 on internal human resources and $3.2
million on pre-clinical testing of SIGA-246. From inception of the SIGA-246
development program to-date, we expended a total of $6.5 million related to the
program, of which $1.6 million and $4.9 million were spent on internal human
resources, and clinical and pre-clinical work, respectively. These resources
reflect SIGA's research and development expenses directly related to the
program. They exclude additional expenditures such as the cost to acquire the
program, patent costs, allocation of indirect expenses, and the value of other
services received from the NIH and the DoD.
R&D expenses of $1.0 million and $1.6 million during the year ended
December 31, 2006 and 2005, respectively, were used to support the development
of ST-294, a drug candidate which has demonstrated significant antiviral
activity in cell culture assays against arenavirus pathogens, as well as other
drug candidates for hemorrhagic fevers. For the year ended December 31, 2006, we
spent $536,000 on internal human resources and $484,000 mainly on pre-clinical
testing. For the year ended December 31, 2005, we spent $777,000 on internal
human resources and $787,000 on pre-clinical testing of ST-294. From inception
of our program to develop ST-294 and other drug candidates for hemorrhagic
fevers, to-date, we spent a total of $3.1 million related to the program, of
which $1.5 million and $1.3 million were expended on internal human resources
and pre-clinical work, respectively. These resources reflect SIGA's research and
development expenses directly related to the program. They exclude additional
expenditures such as the cost to acquire the program, patent costs, allocation
of indirect expenses, and the value of other services received from the NIH and
the DoD.
R&D expenses related to our USAF Agreements were $548,000 and $895,000 for
internal human resources and external R&D services, respectively, during the
year ended December 31, 2006. During the same period in 2005, we spent $132,000
and $249,000 on internal human resources and external R&D services,
respectively. Costs related to our work on the USAF Agreements, during the term
of the agreements to-date were $2.0 million, of which we spent $825,000 and $1.1
million on internal human resources and external R&D services, respectively.
These resources reflect SIGA's research and development expenses directly
related to this agreement. They exclude additional expenditures such as patent
costs and allocation of indirect expenses.
Research and development (R&D) expenses for the years ended December 31,
2005 and 2004 were $8.3 million and 4.2 million, respectively. R&D expenses
increased $4.1 million or 99% primarily due to preclinical development work in
connection with our two lead product programs, work performed to support our
recent agreements with Saint Louis University and the USAF, the hiring of new
employees and the increase in amortization expense. In 2005, we incurred
approximately $3.0 million to support preclinical development work in connection
with our Smallpox and Arenaviruses programs. Our research staff increased from
23 scientists at December 31, 2004 to 33 scientists at December 31, 2005,
resulting in an increase of $705,000 in payroll and related expenses.
Amortization of intangible assets in the amount of $1,097,000 and $636,000 for
the years ended December 31, 2005 and 2004, respectively, represented
approximately 11% of the increase.
During the years ended December 31, 2005 and 2004, we spent approximately
$3.9 million and $363,000, respectively, on the development of our lead drug
candidate, SIGA-246, an orally administered anti-viral drug that targets the
smallpox virus. For the year ended December 31, 2005, we spent approximately
$708,000 on internal
28
human resources and $3.2 million mainly on pre-clinical testing. For the year
ended December 31, 2004, we spent approximately $136,000 on internal human
resources and $227,000 on pre-clinical testing of SIGA-246.
R&D expenses of $1.6 million and $431,000 during the years ended December
31, 2005 and 2004, respectively, were used to support the development of ST-294,
a drug candidate which has demonstrated significant antiviral activity in cell
culture assays against arenavirus pathogens, as well as other drug candidates
for hemorrhagic fevers. For the year ended December 31, 2005, we spent
approximately $777,000 on internal human resources and $787,000 mainly on
pre-clinical testing. For the year ended December 31, 2004, we spent
approximately $258,000 on internal human resources and $173,000 on pre-clinical
testing of ST-294. We incurred no costs related to this program during the year
ended December 31, 2003.
R&D expenses related to our USAF Agreement were approximately $132,000 and
$249,000 for internal human resources and external R&D services, respectively,
during the year ended December 31, 2005. We incurred no costs related to this
program during the years ended December 31, 2004 and 2003.
Our product programs are in the early stage of development. At this stage
of development, we cannot make reasonable estimates of the potential cost for
most of our programs to be completed or the time it will take to complete the
project. Our lead product, SIGA-246, is an orally administered anti-viral drug
that targets the smallpox virus. In December 2005 the FDA accepted our IND
application for SIGA-246 and granted it Fast-Track status. In December 2006, the
FDA granted Orphan Drug designation to SIGA-246, for the prevention and
treatment of smallpox. We expect that costs to complete the program will
approximate $15 million to $20 million, and that the project could be completed
in 24 months to 36 months. There is a high risk of non-completion of any
program, including SIGA-246, because of the lead time to program completion and
uncertainty of the costs. Net cash inflows from any products developed from our
programs is at least one to three years away. However, we could receive
additional grants, contracts or technology licenses in the short-term. The
potential cash and timing is not known and we cannot be certain if they will
ever occur.
The risk of failure to complete any program is high, as each, other than
our smallpox program which began phase I clinical trials in 2006, is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the SIGA-246 Smallpox anti-viral, could generate
revenues in one to three years. We believe the products directed toward this
market are on schedule. We expect the future research and development cost of
our biological warfare defense programs to increase as the potential products
enter animal studies and safety testing, including human safety trials. Funds
for future development will be partially paid for by NIH contracts and SBIR
grants, additional government funding and from future financing. If we are
unable to obtain additional federal grants and contracts or funding in the
required amounts, the development timeline for these products would slow or
possibly be suspended. Delay or suspension of any of our programs could have an
adverse impact on our ability to raise funds in the future, enter into
collaborations with corporate partners or obtain additional federal funding from
contracts or grants.
Patent preparation expenses for the year ended December 31, 2006 were
$295,000 compared to $232,000 for the year ended December 31, 2005. The increase
of 63,000 or 27% is mainly due to a refund of $83,000 received in 2005 from our
patent legal counsel.
Patent preparation expenses for the years ended December 31, 2005 and 2004
were $232,000 and $393,000, respectively. The decline of $161,000 or 41% relates
to the termination of our relations with Plexus and Pecos Labs Inc. (Pecos), and
the reduction in the number of patents supported by SIGA, in addition to a
refund of $83,000 received in 2005 from our patent legal counsel.
For the year ended December 31, 2004, as a result of the acquisition of
certain government grants and two early stage antiviral programs, Smallpox and
Arenavirus, targeting certain agents of biological warfare, from ViroPharma,
$568,329 was immediately expensed as purchased in-process research and
development ("IPRD"). The amount expensed as IPRD was attributed to technology
that has not reached technological feasibility and has no alternate future use.
The value allocated to IPRD was determined using the income approach that
included an excess earnings analysis reflecting the appropriate costs of capital
for the purchase. Estimates of future cash flows related to the IPRD were made
for both the Smallpox and Arenavirus programs. The aggregate discount rate of
approximately 55% utilized to discount the programs' cash flows were based on
consideration of the Company's
29
weighted average cost of capital, as well as other factors, including the stage
of completion and the uncertainty of technology advances for these programs. If
the programs are not successful or completed in a timely manner, the Company's
product pricing and growth rates may not be achieved and the Company may not
realize the financial benefits expected from the programs.
For the year ended December 31, 2004 we recorded a $2,118,200 non-cash
loss on impairment of assets. In December 2004, upon completion of the
ViroPharma transaction, integration of the related acquired programs into the
Company's operations, and the demonstrated antiviral activity of the Company's
lead smallpox compound against several mouse models of poxvirus disease, we
commenced an application process for additional government grants to support our
continued efforts under the Smallpox and Arenavirus antiviral programs. We
determined that significant efforts and resources will be necessary to
successfully continue the development efforts under these programs and decided
to allocate the necessary resources to support its commitment. As a result,
limited resources were available for the development of future product
candidates that utilize the technology acquired from Plexus in May 2003. These
factors resulted in a significant reduction in forecasted revenues related to
that technology and a reduction in the future remaining useful life, and
triggered the related intangible asset impairment. The amount of impairment
recorded by us in December 2004 was determined using the two-step process
impairment review as required by SFAS 144. In the first step, we compared the
projected undiscounted net cash flows associated with the technology acquired
from Plexus over its remaining life against its carrying amount. We determined
that the carrying amount of the technology acquired from Plexus exceeded its
projected undiscounted cash flows. In the second step, we estimated the fair
value of the technology using the income method of valuation, which included the
use of estimated discounted cash flows. Based on our assessment, we recorded a
non-cash impairment charge of approximately $1.5 million in December 2004, which
was included as a component of our operating loss. In May 2004, we performed an
impairment review of our intangible assets in accordance with SFAS 144 in
connection with the sale of certain intangible assets from our immunological
bioinformatics technology and certain non-core vaccine development to a
privately-held company, Pecos. We recorded an impairment charge of $307,000 to
the grants transferred to Pecos and $303,000 to the covenant not to compete with
our President who was terminated during the current year period.
Total operating loss for the year ended December 31, 2006 was $6.8 million
compared with $2.5 million for 2005. The increase of $4.2 million in operating
loss relates mainly to $1.2 million of professional fees incurred in connection
with our merger agreement with PHTN, which was terminated in October 2006, a
decline of $1.2 million in revenues generated in 2006, and an increase of
$870,000 in non-cash expenses recorded for depreciation, amortization and
non-cash compensation.
Total operating loss for the years ended December 31, 2005 and 2004 was
$2,532,000 and $9,448,000, respectively. Operating loss in 2004, excluding
non-cash charges recorded for the impairment of assets and recognition of
in-process R&D was $6,763,000. The decline in total operating loss is primarily
related to the increase in revenues generated during 2005 and the decline in our
SG&A expenses which was partially off-set by the increase in R&D expenses to
support our programs.
A loss of $3.1 million from the increase in fair market value of common
stock rights and common stock warrants was recorded in connection with the sale
of common stock and warrants in October 2006, and the sale of common stock,
warrants and rights in November 2005. The warrants and rights to purchase common
stock of SIGA were recorded at fair market value and classified as liabilities
at the time of the transaction. In 2006 we recorded losses for the increase in
the fair value of the warrants sold in October 2006, during the period from
October 19, 2006 to December 31, 2006. We also recorded losses reflecting the
increase in the fair value of warrants and rights sold in November 2005, during
the period of January 1, 2006 to December 31, 2006.
A gain from the decrease in common stock rights and common stock warrants
was recorded in connection with the sale and issuance of common stock, warrants
and rights in 2005. The warrants and rights to purchase additional common stock
of SIGA were recorded at fair market value and classified as liabilities at the
time of the transaction. A gain of $253,000 was recorded by us, reflecting the
decline in the fair value of the warrants and the rights to acquire additional
shares of our common stock, from the time of the transaction to December 31,
2005.
Other income for the years ended December 31, 2006, 2005, and 2004 was
$1,600, $9,000, and $75,000, respectively. Other income in 2004 was higher than
2006 and 2005 mainly due to net interest income received on
30
higher cash balances during that year. In 2004 we also received other income of
$15,000 as the result of the settlement of a legal action with a former founder.
For the year ended December 31, 2006, we recorded interest charges of $114,000
relating to loans payable in the amount of $3.0 million which we paid in full in
October 2006. The charges were offset by interest income of $147,000 generated
from higher cash balance subsequent to the October 2006 sale of SIGA common
stock and warrants.
Liquidity and Capital Resources
On December 31, 2006, we had $10.6 million in cash and cash equivalents.
On October 18, 2006, we entered into a Securities Purchase Agreement for the
issuance and sale of 2,000,000 shares of the Company's common stock at $4.54 per
share and warrants to purchase 1,000,000 shares of the Company's common stock.
The warrants are exercisable at $4.99 per share at any time and from time to
time through and including the seventh anniversary of the closing date. With
respect to the transaction, we also entered into a Finder's Agreements. The
finders fee under the agreement includes cash compensation of 3% of the gross
amount financed and warrants to acquire 136,200 shares of the Company's common
stock at terms equal to the investors' warrants. Also in connection with the
transaction, pursuant to our existing Exclusive Finder's Agreement, we paid a
finder's fee consisting of cash compensation of 4% of the amount financed and
warrants to acquire 136,200 shares of our common stock, at terms equal to the
investors' warrants. We received net proceeds of $8.4 million from the
transaction.
During the forth quarter of 2006, we received net proceeds of $4.3 million
from exercises of warrants and options to purchase shares of the Company's
Common stock.
In November 2006, we received a $1.4 million, one year contract with the
Air Force Medical Service for the development of counter-measures against Dengue
viruses and other water-related viral agents. In November 2006 we also received
a one-year, $900,000 contract to aid the USAF Special Operations Command
(USAFSOC) in its development of specific anti-viral agents.
On August 30, 2006, we received a three year, $6.0 million award from the
NIH to support the development of our antiviral drugs for Lassa fever virus. On
August 1, 2006, we received a three year, $4.8 million SBIR Phase II
continuation grant from the NIH to support the development of our smallpox drug
candidate, SIGA-246. On September 26, 2006, we entered into a three year, $16.5
million contract with the National Institute of Allergy and Infectious Diseases
of the NIH, to further advance the development of our smallpox drug candidate.
Revenues from these new grants and contracts will be recognized as services are
performed.
On October 4, 2006, SIGA exercised its right, pursuant to its Agreement
and Plan of Merger, dated June 8, 2006, with PHTN (the "Merger Agreement"), to
terminate the transaction pursuant to which a subsidiary of SIGA was going to
merge with PHTN. Pursuant to Section 12.1(a) of the Merger Agreement, SIGA had
an obligation to exclusively negotiate with PHTN the terms of a license
agreement relating to SIGA-246. On December 20, 2006, PharmAthene filed a
complaint against us with respect to, among other matters, this provision. See
"Legal Proceedings".
On March 20, 2006, in connection with the transaction, we entered into a
Bridge Note Purchase Agreement ("Notes Purchase Agreement") with PHTN for the
sale of three 8% Notes by SIGA, for $1,000,000 each. The first, second and third
Notes were issued on March 20, 2006, April 19, 2006, and June 19, 2006,
respectively. The proceeds of the Notes were used by the Company for (i)
expenses directly related to the development of SIGA's lead product, SIGA-246,
(ii) expenses related to the Company's planned merger with PHTN and (iii)
corporate overhead. Pursuant to a Security Agreement between SIGA and PHTN also
entered into on March 20, 2006, the Notes were secured by a first priority
security interest in the Company's assets (other than assets subject to the
security interest granted to General Electric Capital Corporation). On October
23, 2006, we paid PHTN $3,114,400 in full repayment of the three notes and
interest accrued thereon.
We believe that our existing cash combined with anticipated cash flows,
including receipt of future funding from government contracts and grants will be
sufficient to support our operations beyond the next twelve months, and that
sufficient cash flows will be available to meet our business objectives during
that period.
31
Operating activities
Net cash used in operations during the year ended December 31, 2006 was
$4.4 million compared to $1.4 million used during the year ended December 31,
2005. The increase in cash used in operations is mainly due to professional fees
of $1.2 million incurred in connection with the terminated merger with PHTN,
development expenses of $660,000 incurred in connection with human clinical
trials of SIGA-246, bonuses paid to management and employees in 2006 and
supplies and materials purchased for our laboratory in Oregon.
Investing activities
Capital expenditures during the years ended December 31, 2006 and 2005
were $884,000 and $861,000, respectively, and mainly supported the renovation of
our research facility in Oregon.
Financing activities
Cash provided by financing activities was $14.2 million and $2.0 million
during the years ended December 31, 2006 and 2005, respectively. During the year
ended December 31, 2006 we received $8.4 from the sale of common stock and
warrants to acquire common stock, $4.3 million from the exercise of options and
warrants to purchase shares of common stock, and $1.5 million from exercises of
rights to purchase 1,500,000 shares of our common stock for $1.10 per share.
During the year ended December 31, 2005 we received $276,000, net, from the
issuance of a promissory note payable to General Electric Capital Corporation
(GE). The note is payable in 36 monthly installments of principal and interest
of 10.31% per annum. During the years ended December 31, 2006 and 2005 we made
payments of $108,000 and $35,000 to GE.
Other
As of December 31, 2006, we do not expect receipt of up-front and
milestone payments from any of our current collaborative and other agreements.
We have incurred cumulative net losses and expect to incur additional
losses to perform further research and development activities. We do not have
commercial products and have limited capital resources. Our plans with regard to
these matters include continued development of our products as well as seeking
additional working capital through a combination of collaborative agreements,
strategic alliances, research grants, equity and debt financing. Although we
continue to pursue these plans, there is no assurance that we will be successful
in obtaining future financing on commercially reasonable terms.
Our working capital and capital requirements will depend upon numerous
factors, including pharmaceutical research and development programs;
pre-clinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that we devote to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and our ability to establish collaborative arrangements with other
organizations.
Contractual Obligations, Commercial Commitments and Purchase Obligations
As of December 31, 2006, our purchase obligations are not material. We
lease certain facilities and office space under operating leases. Minimum future
rental commitments under operating leases having non-cancelable lease terms in
excess of one year, are as follows:
Loans and related
Year ended December 31, Lease obligations interest payable Total commitments
2007 $ 576,948 $ 107,521 $ 684,469
2008 576,948 22,809 599,757
2009 579,648 -- 579,648
2010 466,448 -- 466,448
2011 443,748 -- 443,748
------------ ------------ ------------
Total $ 2,643,740 $ 130,330 $ 2,774,070
============ ============ ============
32
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
33
Item 8. Financial Statements and Supplementary Data
Index to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm.......................35
Consolidated Balance Sheets as of December 31, 2006 and 2005..................36
Consolidated Statements of Operations for the years ended December 31,
2006, 2005 and 2004...........................................................37
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2006, 2005 and 2004..................................38
Consolidated Statements of Cash Flows for the years ended December 31,
2006, 2005 and 2004...........................................................40
Notes to Consolidated Financial Statements....................................41
34
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of SIGA Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
SIGA Technologies, Inc. and its subsidiary at December 31, 2006 and 2005, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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 our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for share-based compensation in 2006.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 8, 2007
35
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2006 and 2005
December 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets
Cash and cash equivalents ..................................................... $ 10,639,530 $ 1,772,489
Accounts receivable ........................................................... 617,032 883,054
Prepaid expenses .............................................................. 141,032 160,144
------------ ------------
Total current assets ........................................................ 11,397,594 2,815,687
Property, plant and equipment, net ............................................ 1,320,315 1,224,147
Goodwill ...................................................................... 898,334 898,334
Intangible assets, net ........................................................ 165,243 932,735
Other assets .................................................................. 246,201 234,126
------------ ------------
Total assets ................................................................ $ 14,027,687 $ 6,105,029
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................................................. $ 1,357,906 $ 1,251,854
Accrued expenses and other .................................................... 382,679 452,082
Accrued bonuses ............................................................... 201,825 --
Deferred revenue .............................................................. -- 347,319
Common stock rights ........................................................... -- 73,400
Notes payable ................................................................. 107,520 107,520
------------ ------------
Total current liabilities ................................................... 2,049,930 2,232,175
Non-current portion of notes payable ............................................. 22,809 106,705
Common stock warrants ............................................................ 4,673,098 535,119
------------ ------------
Total liabilities ........................................................... 6,745,837 2,873,999
Commitments and contingencies .................................................... -- --
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, none and 68,038 issued and outstanding at December
31, 2006 and December 31, 2005, respectively) ............................... -- 58,672
Common stock ($.0001 par value, 50,000,000 shares authorized,
32,452,210 and 26,500,648 issued and outstanding at December 31, 2006
and December 31, 2005, respectively) ........................................ 3,245 2,650
Additional paid-in capital .................................................... 63,646,224 49,638,619
Accumulated deficit ........................................................... (56,367,619) (46,468,911)
------------ ------------
Total stockholders' equity .................................................. 7,281,850 3,231,030
------------ ------------
Total liabilities and stockholders' equity .................................. $ 14,027,687 $ 6,105,029
============ ============
The accompanying notes are an integral part of these financial statements.
36
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005 and 2004
2006 2005 2004
------------ ------------ ------------
Revenues
Research and development .......................................... $ 7,257,532 $ 8,476,741 $ 1,839,182
------------ ------------ ------------
Operating expenses
Selling, general and administrative (include $376,295
of non-cash share based compensation for the
year ended December 31, 2006) .............................. 4,623,577 2,481,489 4,041,973
Research and development (include $94,597
of non-cash share based compensation for the
year ended December 31, 2006) .............................. 9,149,327 8,295,262 4,165,849
Patent preparation fees ........................................... 295,006 232,329 393,100
In-process research and development ............................... -- -- 568,329
Impairment of intangible assets ................................... -- -- 2,118,219
------------ ------------ ------------
Total operating expenses ........................................ 14,067,910 11,009,080 11,287,470
------------ ------------ ------------
Operating loss .................................................. (6,810,378) (2,532,339) (9,448,288)
Decrease (increase) in fair market value of common stock rights
and common stock warrants ......................................... (3,089,997) 235,730 --
Other income (expense), net ......................................... 1,667 9,059 74,969
------------ ------------ ------------
Net loss ........................................................ $ (9,898,708) $ (2,287,550) $ (9,373,319)
============ ============ ============
Weighted average shares outstanding: basic and diluted .............. 28,200,130 24,824,824 23,724,026
============ ============ ============
Net loss per share: basic and diluted ............................... $ (0.35) $ (0.09) $ (0.40)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
37
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2006, 2005 and 2004
Series A Convertible
Preferred Stock Common Stock
--------------------------- --------------------------
Shares Amount Shares Amount
Balance at January 1, 2004 81,366 $ 72,666 18,676,851 $ 1,868
Net proceeds from issuance of common stock
($1.44 per share) 4,750,413 475
Issuance of common stock upon exercise of stock
options and warrants 70,994 7
Conversion of preferred stock for common stock (13,328) (13,994) 13,328 1
Stock issued in acquisition of intangible assets 1,000,000 100
Common stock retired upon settlement agreement
with former founder (40,938) (4)
Stock issued for services 30,000 3
Net loss
----------- ----------- ----------- -----------
Balance at December 31, 2004 68,038 $ 58,672 24,500,648 $ 2,450
----------- ----------- ----------- -----------
Net proceeds allocated to the issuance of common
stock ($1.00 per share) 2,000,000 $ 200
Stock options issued to members of the Board
of Directors
Net loss
----------- ----------- ----------- -----------
Balance at December 31, 2005 68,038 $ 58,672 26,500,648 $ 2,650
----------- ----------- ----------- -----------
Net proceeds allocated to the issuance of common
stock ($4.54 per share) 2,000,000 $ 200
Conversion of preferred stock for common stock (68,038) (58,672) 68,038 7
Stock based compensation
Stock issued for services
Issuance of common stock upon exercise of stock
options and warrants 2,383,524 238
Issuance of common stock upon exercise of common
stock rights 1,500,000 150
Fair value of exercised common stock rights and warrants
Net loss
----------- ----------- ----------- -----------
Balance at December 31, 2006 -- $ -- 32,452,210 $ 3,245
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
(Continued)
38
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2006, 2005 and 2004
Total
Additional Accumulated Stockholders'
Paid-in Capital Deficit Equity
--------------- ------------- -------------
Balance at January 1, 2004 $ 40,284,856 $ (34,808,042) $ 5,551,348
Net proceeds from issuance of common stock
($1.44 per share) 6,784,131 6,784,606
Issuance of common stock upon exercise of stock
options and warrants 69,369 69,376
Conversion of preferred stock for common stock 13,993 --
Stock issued in acquisition of intangible assets 1,479,900 1,480,000
Common stock retired upon settlement agreement
with former founder 4 --
Stock issued for services 47,397 47,400
Net loss (9,373,319) (9,373,319)
------------- ------------- -------------
Balance at December 31, 2004 $ 48,679,650 $ (44,181,361) $ 4,559,411
------------- ------------- -------------
Net proceeds allocated to the issuance of common
stock ($1.00 per share) $ 947,269 947,469
Stock options issued to members of the Board
of Directors 11,700 11,700
Net loss (2,287,550) (2,287,550)
------------- ------------- -------------
Balance at December 31, 2005 $ 49,638,619 $ (46,468,911) $ 3,231,030
------------- ------------- -------------
Net proceeds allocated to the issuance of common
stock ($4.54 per share) $ 5,948,328 5,948,528
Conversion of preferred stock for common stock 58,665 --
Stock based compensation 470,892 470,892
Stock issued for services 156,470 156,470
Issuance of common stock upon exercise of stock
options and warrants 4,337,604 4,337,842
Issuance of common stock upon exercise of common
stock rights 1,534,350 1,534,500
Fair value of exercised common stock rights and warrants 1,501,296 1,501,296
Net loss (9,898,708) (9,898,708)
------------- ------------- -------------
Balance at December 31, 2006 $ 63,646,224 $ (56,367,619) $ 7,281,850
============= ============= =============
The accompanying notes are an integral part of these financial statements.
39
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 and 2004
2006 2005 2004
------------ ------------ ------------
Cash flows from operating activities:
Net loss ................................................................ $ (9,898,708) $ (2,287,550) $ (9,373,319)
Adjustments to reconcile net loss to net
cash used in operating activities:
Purchase of in-process research & development ........................ -- -- 568,329
Loss on impairment of intangible assets .............................. -- -- 2,118,219
Depreciation ......................................................... 788,014 145,809 221,719
Amortization of intangible assets .................................... 767,492 1,181,562 832,534
Decrease (increase) in fair market value of rights and warrants ...... 3,089,997 (235,730) --
Stock based compensation ............................................. 470,892 11,700 47,400
Non-cash stock based consulting expense .............................. 156,470 -- --
Loss on impairment of investments .................................... -- 15,000 --
Loss on write-off of prepaid investments ............................. -- 116,243 --
Changes in assets and liabilities:
Accounts receivable ............................................... 266,022 (774,150) (70,118)
Prepaid expenses .................................................. 19,112 2,160 (231,210)
Other assets ...................................................... (12,075) (67,401) (6,729)
Deferred revenue .................................................. (347,319) 347,319 --
Accounts payable and accrued expenses ............................. 262,098 152,587 1,003,117
------------ ------------ ------------
Net cash used in operating activities ............................. (4,438,005) (1,392,451) (4,890,058)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of intangible assets ..................................... -- -- (1,033,022)
Capital expenditures ................................................. (884,182) (861,941) (350,688)
------------ ------------ ------------
Net cash used in investing activities ............................. (884,182) (861,941) (1,383,710)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and derivatives ........... 8,424,406 1,791,718 6,784,606
Proceeds from issuance of notes payable .............................. 3,000,000 276,434 --
Net proceeds from exercise of common stock rights .................... 1,534,500 -- --
Net proceeds from exercise of warrants and options ................... 4,337,842 -- 69,376
Repayment of notes payable ........................................... (3,107,520) (62,209) --
------------ ------------ ------------
Net cash provided by financing activities ......................... 14,189,228 2,005,943 6,853,982
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .................... 8,867,041 (248,449) 580,214
Cash and cash equivalents at beginning of period ........................ 1,772,489 2,020,938 1,440,724
------------ ------------ ------------
Cash and cash equivalents at end of period .............................. $ 10,639,530 $ 1,772,489 $ 2,020,938
============ ============ ============
Cash paid for interest on notes payable ................................. $ 135,055 11,105 $ --
Non-cash supplemental information:
Conversion of preferred stock to common stock ........................ $ 58,672 -- $ 13,994
Transfer of intangible assets for investment in Pecos Labs, Inc. ..... $ -- -- $ 15,000
Shares issued for acquisition of assets from ViroPharma Inc. ......... $ -- -- $ 1,480,000
The accompanying notes are an integral part of these financial statements.
40
SIGA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") is a bio-defense company
engaged in the discovery, development and commercialization of products for use
in defense against biological warfare agents such as Smallpox and Arenaviruses.
The Company is also engaged in the discovery and development of other novel
anti-infectives, vaccines, and antibiotics for the prevention and treatment of
serious infectious diseases. The Company's anti-viral programs are designed to
prevent or limit the replication of viral pathogens. SIGA's anti-infectives
programs target the increasingly serious problem of drug resistant bacteria and
emerging pathogens.
Basis of presentation
The accompanying consolidated financial statements have been prepared on a basis
which assumes that the Company will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company has incurred
cumulative net losses and expects to incur additional losses to perform further
research and development activities. The Company does not have commercial
products and has limited capital resources. Management's plans with regard to
these matters include continued development of its products as well as seeking
additional research support funds and future financial arrangements. Although
management will continue to pursue these plans, there is no assurance that the
Company will be successful in obtaining sufficient future financing on
commercially reasonable terms or that the Company will be able to secure funding
from anticipated government contracts and grants. Management believes that
existing cash balances combined with anticipated cash flows will be sufficient
to support its operations beyond the next twelve months, and will fund the
Company's business objectives during that period.
2. Summary of Significant Accounting Policies
Use of Estimates
The consolidated financial statements and related disclosures are prepared in
conformity with accounting principles generally accepted in the United States of
America. Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and revenue and
expenses during the period reported. These estimates include the realization of
deferred tax assets, useful lives and impairment of tangible and intangible
assets, and the value of options and warrants granted or issued by the Company.
Estimates and assumptions are reviewed periodically and the effects of revisions
are reflected in the financial statements in the period they are determined to
be necessary. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid investments, with
original maturities of less than three months when purchased and are stated at
cost. Interest is accrued as earned.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the various asset classes. Estimated lives are 5 years for laboratory
equipment; 3 years for computer equipment; 7 years for furniture and fixtures;
and the life of the lease for leasehold improvements. Maintenance, repairs and
minor replacements are charged to expense as incurred. Upon retirement or
disposal of assets, the cost and related accumulated depreciation are removed
from the Balance Sheet and any gain or loss is reflected in the Statement of
Operations.
Revenue Recognition
The Company recognizes revenue from contract research and development and
research payments in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or
41
determinable, collectibility is reasonably assured, contractual obligations have
been satisfied and title and risk of loss have been transferred to the customer.
The Company recognizes revenue from non-refundable up-front payments, not tied
to achieving a specific performance milestone, over the period which the Company
is obligated to perform services or based on the percentage of costs incurred to
date, estimated costs to complete and total expected contract revenue. Payments
for development activities are recognized as revenue as earned, over the period
of effort. Substantive at-risk milestone payments, which are based on achieving
a specific performance milestone, are recognized as revenue when the milestone
is achieved and the related payment is due, providing there is no future service
obligation associated with that milestone. In situations where the Company
receives payment in advance of the performance of services, such amounts are
deferred and recognized as revenue as the related services are performed.
For the years ended December 31, 2006, 2005, and 2004, revenues from National
Institutes of Health ("NIH") contracts and Small Business Innovation Research
("SBIR") grants was 53%, 87%, and 77%, respectively, of total revenues
recognized by the Company.
Accounts Receivable
Accounts receivable are recorded net of provisions for doubtful accounts. An
allowance for doubtful accounts is based on specific analysis of the
receivables. At December 31, 2006, 2005, and 2004, the Company had no allowance
for doubtful accounts.
Research and development
Research and development expenses include costs directly attributable to the
conduct of research and development programs, including employee related costs,
materials, supplies, depreciation on and maintenance of research equipment, the
cost of services provided by outside contractors, and facility costs, such as
rent, utilities, and general support services. All costs associated with
research and development are expensed as incurred. Costs related to the
acquisition of technology rights, for which development work is still in
process, and that have no alternative future uses, are expensed as incurred.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired.
The Company evaluates goodwill for impairment annually, in the fourth quarter of
each year. In addition, the Company would test goodwill for recoverability
between annual evaluations whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. Examples of such events could
include a significant adverse change in legal matters, liquidity or in the
business climate, an adverse action or assessment by a regulator or government
organization, loss of key personnel, or new circumstances that would cause an
expectation that it is more likely than not that we would sell or otherwise
dispose of a reporting unit. Goodwill impairment is determined using a two-step
approach in accordance with Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142"). The impairment review
process compares the fair value of the reporting unit in which goodwill resides
to its carrying value. In 2006, the Company operated as one business and one
reporting unit. Therefore, the goodwill impairment analysis was performed on the
basis of the Company as a whole using the market capitalization of the Company
as an estimate of its fair value.
Identified Intangible Assets
Acquisition-related intangibles include acquired technology, customer contracts,
grants and covenants not to compete, and are amortized on a straight line basis
over periods ranging from 2-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. Our estimates of projected cash flows are dependent on
many factors, including general economic trends, technological
42
developments and projected future contracts and government grants. It is
reasonably likely that future cash flows associated with our intangible assets
may exceed or fall short of our current projections, in which case a different
amount for impairment would result.
Income taxes
Income taxes are accounted for under the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or the
entire deferred tax asset will not be realized.
Net loss per common share
The Company computes, presents and discloses earnings per share in accordance
with SFAS 128 "Earnings Per Share" ("EPS") which specifies the computation,
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock. The statement defines two
earnings per share calculations, basic and diluted. The objective of basic EPS
is to measure the performance of an entity over the reporting period by dividing
income (loss) by the weighted average shares outstanding. The objective of
diluted EPS is consistent with that of basic EPS, that is to measure the
performance of an entity over the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period. The
calculation of diluted EPS is similar to basic EPS except the denominator is
increased for the conversion of potential common shares.
The Company incurred losses for the years ended December 31, 2006, 2005, and
2004, and as a result, certain equity instruments are excluded from the
calculation of diluted loss per share. At December 31, 2005, 68,038 shares of
the Company's Series A convertible preferred stock have been excluded from the
computation of diluted loss per share as they were anti-dilutive. These shares
were converted into shares of the Company's common stock in 2006. At December
31, 2006, 2005, and 2004, outstanding options to purchase 7,736,145, 9,399,561,
and 9,762,061, shares, respectively, of the Company's common stock with exercise
prices ranging from $0.94 to $5.50 have been excluded from the computation of
diluted loss per share as they are anti-dilutive. At December 31, 2006, 2005,
and 2004, outstanding warrants to purchase 9,441,915, 9,378,794, and 8,469,594,
shares, respectively, of the Company's common stock, with exercise prices
ranging from $1.18 to $4.99 have been excluded from the computation of diluted
loss per share as they are anti-dilutive.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts payable and accrued
expenses approximates fair value due to the relatively short maturity of these
instruments. Common stock rights and warrants which are classified as assets or
liabilities under the provisions of EITF 00-19, are recorded at their fair
market value as of each reporting period.
Concentration of credit risk
The Company has cash in bank accounts that exceed the Federal Deposit Insurance
Corporation insured limits. The Company has not experienced any losses on its
cash accounts. No allowance has been provided for potential credit losses
because management believes that any such losses would be minimal.
Share-based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to the Employee Stock
Purchase Plan ("employee stock purchases") based on estimated fair values. SFAS
123(R) supersedes the Company's previous accounting under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
periods beginning on January 1, 2006. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has
applied the provisions of SAB 107 in its adoption of SFAS 123(R).
43
The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of January
1, 2006, the first day of the Company's fiscal year 2006. The Company's
Consolidated Financial Statements as of and for the year ended December 31, 2006
reflect the impact of SFAS 123(R). In accordance with the modified prospective
transition method, the Company's Financial Statements for prior periods have not
been restated to reflect, and do not include, the impact of SFAS 123(R).
Share-based compensation related to stock options expense recognized under SFAS
123(R) for the year ended December 31, 2006 was $470,892. No share-based
compensation expense related to employee stock options was recognized during the
year ended December 31, 2005.
SFAS 123(R) requires companies to estimate the fair value of share-based payment
awards on the grant-date using an option-pricing model. The value of the portion
of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in the Company's Statements of Operations. Prior
to the adoption of SFAS 123(R), the Company accounted for share-based awards to
employees and directors using the intrinsic value method in accordance with APB
25 as allowed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Under the intrinsic
value method, no share-based compensation expense related to stock options had
been recognized in the Company's Statements of Operations when the exercise
price of the Company's stock options granted to employees and directors equaled
the fair market value of the underlying stock at the grant-date.
Share-based compensation expense recognized during the current period is based
on the value of the portion of share-based payment awards that is ultimately
expected to vest. SFAS 123(R) requires forfeitures to be estimated at the time
of grant in order to estimate the amount of share-based awards that will
ultimately vest. The forfeiture rate is based on historical rates. Share-based
compensation expense recognized in the Company's Statements of Operations for
the year ended December 31, 2006 includes (i) compensation expense for
share-based payment awards granted prior to, but not yet vested as of December
31, 2005, based on the grant-date fair value estimated in accordance with the
pro forma provisions of SFAS 123 and (ii) compensation expense for the
share-based payment awards granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). The Company utilizes the Black-Scholes options pricing model for the
valuation of share-based awards. Determining the fair value of these awards at
the grant date requires judgment.
Share-based compensation expense reduced the Company's results of operations for
the year ended December 31, 2006 by $470,893, or $0.02 per share, and had no
impact on the Company's cash flow.
The following table illustrates the effect on net loss and net loss per share as
if the Company had applied the fair value recognition provisions of SFAS No.
123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosures" ("SFAS 148") during the years ended December 31,
2005 and 2004.
Year Ended December 31,
2005 2004
-------------- --------------
Net loss available to common stockholders, as reported ........ ($2,287,550) ($9,373,319)
============== ==============
Add: Stock-based employee compensation expense included
in reported net loss ........................................ 11,700 --
Deduct: Total stock based compensation expense determined
under the fair value based method ........................... (709,285) (1,105,330)
-------------- --------------
Net loss available to common stockholders, pro forma .......... ($2,985,135) ($10,478,649)
============== ==============
Loss per common share - basic and diluted:
As reported ................................................. $ (0.09) $ (0.40)
Pro forma ................................................... $ (0.12) $ (0.44)
44
Segment information
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
The Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Accordingly, the Company
does not prepare discrete financial information with respect to separate product
areas or by location and only has one reportable segment as defined by SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information".
Recent accounting pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires an
entity to recognize the impact of a tax position in its financial statements if
that position is more likely than not to be sustained on audit based on the
technical merits of the position. The provisions of FIN 48 are effective as of
the beginning of fiscal year 2007, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
Early application of FIN 48 is encouraged. The Company is evaluating the timing
of its adoption of FIN 48 and the potential effects of implementing this
Interpretation on its financial condition and results of operations.
In September 2006, the FASB issued SFAS No. 157. SFAS No. 157 provides guidance
for using fair value to measure assets and liabilities and requires expanded
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurements on earnings. The standard applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value. The standard does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are in the process of evaluating the adoption of SFAS No.
157.
3. Research Agreements
On August 30, 2006, the Company received a three-year, $6.0 million award from
the NIH to support the development of its antiviral drugs for the Lassa fever
virus. Revenues will be recognized as services are performed.
On August 1, 2006, SIGA received a three-year, $4.8 million SBIR Phase II
continuation grant from the NIH to support the Company's development of its
smallpox drug candidate, SIGA-246. Revenues will be recognized as services are
performed.
On September 26, 2006, the Company entered into a three-year, $16.5 million
contract with the National Institute of Allergy and Infectious Diseases of the
NIH, to further advance the development of SIGA-246, the Company's smallpox drug
candidate. Revenues will be recognized as services are performed.
In November 2006, SIGA received a $1.4 million, one year contract with the Air
Force Medical Service for the development of counter-measures against Dengue
viruses and other water-related viral agents. In November 2006 SIGA also
received a one-year, $900,000 contract to aid the USAF Special Operations
Command (USAFSOC) in its development of specific anti-viral agents. Revenues
from these contracts will be recognized as services are performed.
4. Business Acquisitions and Other Transactions
Purchase of Intangible Assets
In August 2004, the Company acquired certain government grants and two early
stage antiviral programs, Smallpox and Arenavirus, targeting certain agenda of
biological warfare for a purchase price of $1,000,000 in cash and 1,000,000
shares of the Company's common stock from ViroPharma Incorporated ("ViroPharma")
(the "ViroPharma Transaction"). The shares issued to ViroPharma were valued at
the closing date price.
The total purchase price of approximately $2.5 million was allocated to the
acquired government grants ($1.9 million) and to purchased in-process research
and development ($464,000 allocated to the Smallpox program and
45
approximately $104,000 to the Arenavirus program) ("IPRD"). The grants were
amortized over 2 years, the contractual life of each. The amount expensed as
IPRD was attributed to technology that has not reached technological feasibility
and has no alternate future use. The value allocated to IPRD was determined
using the income approach that included an excess earnings analysis reflecting
the appropriate costs of capital for the purchase. Estimates of future cash
flows related to the IPRD were made for both the Smallpox and Arenavirus
programs. The aggregate discount rate of approximately 55% utilized to discount
the programs' cash flows were based on consideration of the Company's weighted
average cost of capital as well as other factors, including the stage of
completion and the uncertainty of technology advances for these programs. If the
programs are not successful or completed in a timely manner, the Company's
product pricing and growth rates may not be achieved and the Company may not
realize the financial benefits expected from the programs.
5. Intangible Assets
The following table presents the components of the Company's acquired intangible
assets with finite lives:
December 31, 2006 December 31, 2005
--------------------------------------------- ---------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Net Amount Amortization Net
-------------- ------------ ------------ -------------- ------------ ------------
Acquired Grants $ 1,962,693 $ 1,962,693 $ -- $ 1,962,693 $ 1,308,465 $ 654,228
Customer contract and grants 83,571 83,571 -- 83,571 52,927 30,644
Covenants not to compete 202,000 202,000 -- 202,000 202,000 --
Acquired technology 330,483 165,240 165,243 330,483 82,620 247,863
------------ ------------ ------------ ------------ ------------ ------------
$ 2,578,747 $ 2,413,504 $ 165,243 $ 2,578,747 $ 1,646,012 $ 932,735
------------ ------------ ------------ ------------ ------------ ------------
Amortization expense for intangible assets and costs included the following:
Year Ended December 31,
2006 2005
------------ ------------
Amortization of acquired grants $ 654,228 $ 981,347
Amortization of customer contract and grants 30,644 33,428
Amortization of covenants not to compete -- 84,167
Amortization of acquired technology 82,620 82,620
------------ ------------
$ 767,492 $ 1,181,562
------------ ------------
The Company anticipates amortization expense to approximate $82,600 for each of
the years ending December 31, 2007, and 2008.
Impairment of Intangible Assets
In December 2004, upon completion of the ViroPharma Transaction, integration of
the related acquired programs into the Company's operations, and the
demonstrated antiviral activity of the Company's lead smallpox compound against
several mouse models of poxvirus disease; management commenced an application
process for additional government grants to support its continued efforts under
the Smallpox and Arenavirus antiviral programs. Management determined that
significant efforts and resources will be necessary to successfully continue the
development efforts under these programs and decided to allocate the necessary
resources to support its commitment. As a result, limited resources will be
available for the development of future product candidates that utilize the
technology acquired from Plexus in May 2003. These factors resulted in a
significant reduction in forecasted revenues related to that technology and a
reduction in the future remaining useful life, and triggered the related
intangible asset impairment. The amount of impairment recorded by management in
December 2004 was determined using the two-step process impairment review as
required by SFAS 144. In the first step, management compared the projected
undiscounted net cash flows associated with the technology acquired from Plexus
over its
46
remaining life against its carrying amount. Management determined that the
carrying amount of the technology acquired from Plexus exceeded its projected
undiscounted cash flows. In the second step, management estimated the fair value
of the technology using the income method of valuation, which included the use
of estimated discounted cash flows using a discount rate of 28.5%. Based on
management's assessment, the Company recorded a non-cash impairment charge of
approximately $1.5 million in December 2004, which was included as a component
of the Company's operating loss.
Transfer of Intangible Assets to Pecos Labs, Inc.
In May 2004, the Company sold intangible assets from its immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos Labs, Inc. ("Pecos") in exchange for 150,000
shares of Pecos common stock. In addition, concurrent with the asset transfer,
the Company terminated its employment agreement with the President of the
Company. The Company paid approximately $270,000 in severance to the President
as well as accelerated vesting on 100,000 stock options that were due to vest in
May 2004. No compensation charge was recorded as the exercise price of the
options was above the fair value market price on the date of termination. In
addition, the Company reduced the covenant not to compete with the President to
one year from the date of termination.
As a result of the Pecos transaction in the second quarter of 2004, the Company
performed an impairment review of the intangible assets in accordance with SFAS
144. The impairment of intangible assets consists of $322,063 of impairments to
unamortized intangible assets related to the grants transferred to Pecos and
$303,000 of impairment to the unamortized covenant not to compete with the
President of the Company due to the reduction of the covenant to one year from
the date of termination.
During the year ended December 31, 2005, Pecos terminated its operations. As a
result, the Company recorded a loss of $15,000 to write-off its investment in
Pecos.
6. Stockholders' Equity
At December 31, 2006, the Company's authorized share capital consisted of
60,000,000 shares, of which 50,000,000 are designated common shares and
10,000,000 are designated preferred shares. The Company's Board of Directors is
authorized to issue preferred shares in series with rights, privileges and
qualifications of each series determined by the Board.
2006 Placement
On October 19, 2006, the Company entered into a Securities Purchase Agreement
for the issuance and sale of 2,000,000 shares of the Company's common stock at
$4.54 per share and warrants to purchase 1,000,000 shares of the Company's
common stock. The warrants are exercisable at $4.99 per share at any time and
from time to time through and including the seventh anniversary of the closing
date. With respect to the transaction, the Company also entered into a Finders
Agreement. The Company paid finders' fee of 3% of the amount financed, or
$272,400, and issued the finders warrants to acquire 136,200 shares of the
Company's common stock at terms equal to the investors' warrants. Also in
connection with the transaction, pursuant to the Company's existing Exclusive
Finders Agreement, the Company paid finders fee consisting of cash consideration
of 4% of the amount financed, or $363,200, and issued warrants acquiring 136,200
shares of the Company's common stock at terms equal to the investors' warrants.
The Company received net proceeds of $8.4 million from the transaction.
The Company accounted for the transaction under the provisions of EITF 00-19
which requires that free standing derivative financial instruments that require
net cash settlement be classified as assets or liabilities at the time of the
transaction, and recorded at their fair value. On October 19, 2006, the Company
recorded the warrants to acquire common stock as liabilities with an estimated
fair value of $2.5 million. EITF 00-19 also requires that any changes in the
fair value of the derivative instruments be reported in earnings or loss as long
as the derivative contracts are classified as assets or liabilities. At December
31, 2006, the fair market value of the warrants to acquire common stock was $2.4
million. The Company applied the Black-Scholes model to calculate the fair
values of the respective derivative instruments using the contracted term of the
warrants. Management estimates the expected volatility using a combination of
the Company's historical volatility and the volatility of a group of comparable
companies. SIGA recorded a gain of $100,000 for the decline in the instruments'
fair value from the date of the transaction to December 31, 2006.
47
2005 Placement
In November 2005, the Company entered into a Securities Purchase Agreement for
the issuance and sale of 2,000,000 shares of the Company's common stock at $1.00
per share and warrants to purchase 1,000,000 shares of the Company's common
stock. The warrants are initially exercisable at 110% of the closing price on
the closing date of the transaction ($1.18 per share) at any time and from time
to time through and including the seventh anniversary of the closing date. The
investors are also entitled to purchase additional shares of the Company's
common stock for a gross amount of $2.0 million at an initial price of $1.10 per
share for a period of 90 trading days following the effectiveness of a
registration statement. An initial registration statement relating to the common
stock sold and the stock underlying the warrants became effective on December 2,
2005. With respect to the transaction, the Company entered into an Exclusive
Finder's Agreement. Finder's fees under the agreement include cash compensation
of 7% of the gross amount financed and a warrant to acquire 60,000 shares of the
Company's common stock at terms equal to the investors' warrants. The Company
received gross proceeds of $2.0 million from the transaction on November 3,
2005. Net proceeds from were $1.8 million.
The Company accounted for the transaction under the provisions of EITF 00-19. On
November 2, 2005, the Company recorded the warrants to acquire common stock and
the option to acquire common stock as liabilities with estimated fair value of
$631,000 and $213,000, respectively. At December 31, 2005, the fair market value
of the warrants to acquire common stock and the option to acquire additional
shares of common stock was $535,000 and $73,000, respectively. SIGA recorded a
gain of $236,000 for the decline in the instruments' fair value from the date of
the transaction to December 31, 2005. In 2006, holders of 275,000 warrants and
1,500,000 rights to acquire shares of the Company's common stock exercised their
warrants and rights. Net proceeds from the exercise of the warrants and rights
were $324,000 and $1,534,500, respectively. On August 25, 2006, 500,000 rights
to acquire common stock expired unexercised. At December 31, 2006, the fair
market value of the outstanding 725,000 warrants to acquire common stock was
$2.4 million. In 2006, management recognized non-cash loss of $3.2 million
related to changes in the instruments' fair market value from December 31, 2005
to December 31, 2006.
2004 Placements
In August 2003, the Company entered into a securities purchase agreement with
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"). Pursuant to the
agreement, the Company raised gross proceeds of $1.0 million from MacAndrews &
Forbes and certain of its employees, in exchange for 694,444 shares of the
Company's common stock at a price of $1.44 per share and warrants to purchase
347,222 shares of the Company's common stock at an exercise price of $2.00 per
share. In addition, MacAndrews & Forbes and certain of its employees were
granted an option, exercisable through October 13, 2003, to invest up to an
additional $9.0 million in the Company on the same terms.
In October 2003, MacAndrews & Forbes, certain of its employees and TransTech
Pharma, Inc., a related party to the Company and an affiliate of MacAndrews &
Forbes ("TransTech Pharma"), exercised their option to invest $9.0 million in
the Company, in exchange for an aggregate of 6,250,000 shares of common stock of
the Company's common stock, and warrants to purchase up to an aggregate of
3,125,000 shares of the Company's common stock at an exercise price of $2.00 per
share. Immediately prior to the exercise of such option, MacAndrews & Forbes
assigned the right to invest up to $5.0 million in the Company to TransTech
Pharma. The Company and TransTech Pharma are parties to a drug discovery
collaboration agreement signed in October 2002.
In accordance with and subject to the terms and conditions of the securities
purchase agreement, MacAndrews & Forbes and certain of its employees invested
$2.2 million in exchange for 1,499,587 shares of the Company's common stock at a
price of $1.44 per share and received warrants to purchase up to an additional
749,794 shares of common stock at an exercise price of $2.00 per share.
In January 2004, following the approval of the Company's stockholders,
MacAndrews & Forbes and TransTech Pharma completed the final portion of their
investment. MacAndrews & Forbes invested $1,840,595 in exchange for 1,278,191
shares of common stock at a price of $1.44 per share, and warrants to purchase
up to an additional 639,095 shares of common stock at an exercise price of $2.00
per share; and TransTech Pharma invested $5,000,000 in exchange for 3,472,222
shares of common stock and warrants to purchase up to an additional 1,736,111
shares of common stock on the same terms. In addition, as part of the
investment, MacAndrews & Forbes and TransTech Pharma each were given the right
to appoint one board member to the Board of Directors, subject to certain terms
48
and conditions. On January 8, 2004, in accordance with the terms of the
investment, the respective designees of MacAndrews & Forbes and TransTech Pharma
were appointed to serve on SIGA's board of directors.
Other Transactions
In 2004, the Company reached a settlement agreement for breach of contract with
a founder of the Company, whereby the founder returned 40,938 common shares,
150,000 warrants and $15,000 to the Company. The common shares were retired by
the Company. The Company recorded the settlement amount as other income.
Preferred Stock
Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at an annual rate of 6% payable when and if declared by the
Company's board of directors; (ii) in the event of liquidation of the Company,
each holder is entitled to receive $1.4375 per share (subject to certain
adjustments) plus all accrued but unpaid dividends; (iii) convert each share of
Series A to a number of fully paid and non-assessable shares of common stock as
calculated by dividing $1.4375 by the Series A Conversion Price (shall initially
be $1.4375); and (iv) vote with the holders of other classes of shares on an
as-converted basis.
During the years ended December 31, 2006 and 2004 certain preferred stockholders
converted 68,038 and 13,328 Series A convertible preferred stock, respectively,
into 68,038 and 13,328 shares of common stock.
On December 31, 2006, no shares of Series A Convertible Preferred Stock were
outstanding.
7. Stock option plan and warrants
Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan
In January 1996, the Company implemented its 1996 Incentive and Non-Qualified
Stock Option Plan (the "Plan"). The Plan as amended provides for the granting of
up to 11,000,000 shares of the Company's common stock to employees, consultants
and outside directors of the Company. The exercise period for options granted
under the Plan, except those granted to outside directors, is determined by a
committee of the Board of Directors. Stock options granted to outside directors
pursuant to the Plan must have an exercise price equal to or in excess of the
fair market value of the Company's common stock at the date of grant.
For the year ended December 31, 2006, the Company recorded compensation expense
of $470,892 related to stock options. The total fair value of options vested
during the year was $782,157. The total compensation cost not yet recognized
related to non-vested awards at December 31, 2006 is $332,651. The weighted
average period over which total compensation cost is expected to be recognized
is 2.50 years.
SIGA calculated the fair value of options awarded during the three years ended
December 31, 2006, 2005 and 2004 using the Black-Scholes model with the
following weighted average assumptions:
Weighted Average Assumptions 2006 2005 2004
------------ ------------- -------------
Expected volatility 59.91% 60% - 75% 74% - 107%
Dividend Yield 0.00% 0.00% 0.00%
Risk-free interest rate 4.49% 3.00% - 4.00% 2.75% - 3.80%
Expected holding period 5 Yrs 2 - 5 Yrs 2 - 5 Yrs
The Company calculates the expected volatility using a combination of SIGA's
historical volatility and the volatility of a group of comparable companies. The
risk-free interest rate assumption is based upon observed interest rate
appropriate for the term of the Company's employee stock options. The dividend
yield assumption is based on the Company's intent not to issue a dividend in the
foreseeable future. The expected holding period assumption was estimated based
on historical experience and expectation of employee exercise behavior in the
future giving consideration to the contractual terms of the award.
49
Stock options activity of the Company is summarized as follows:
Number of Average Exercise
Shares Price ($)
Options outstanding at December 31, 2004 9,767,061 $ 1.99
Granted 90,000 1.22
Forfeited (452,500) 1.60
Exercised -- --
------------
Options outstanding at December 31, 2005 9,404,561 2.00
Granted 337,500 2.26
Forfeited (1,265,167) 1.30
Expired (33,334) 1.50
Exercised (897,415) 1.74
------------ ------------
Options outstanding at December 31, 2006 7,546,145 $ 2.07
============
Weighted
Number of Average Intrinsic
Shares Value ($)
Nonvested options at December 31, 2005 1,987,500 --
Nonvested options at December 31, 2006 343,982 1.92
Options vested during 2006 730,733 2.03
Options available for future grant at December 31, 2006 2,341,399
Weighted average fair value of options granted during 2006 $ 1.24
Weighted average fair value of options granted during 2005 $ 0.64
Weighted average fair value of options granted during 2004 $ 0.98
Weighted average fair value of options forfeited during 2006 $ 1.02
The following table summarizes information about options outstanding at December
31, 2006:
Number of Weighted Number Fully
Options Average Vested & Aggregate
Range of Outstanding at Remaining Weighted Exercisable at Weighted Intrinsic Value at
Exercise December 31, Contractual Life Average Exercise December 31, Average Exercise December 31,
Price($) 2006 (Years) Price ($) 2006 Price ($) 2006
0.94 - 1.85 2,670,668 7.29 1.38 2,426,686 1.40 $ 5,709,344
2.00 - 2.75 4,437,250 4.47 2.36 4,437,250 2.36 5,838,038
3.94 - 5.50 438,227 3.95 3.36 338,227 4.36 --
------------- ------------- -------------
7,546,145 7,202,163 $ 11,547,382
============= ============= =============
In February 2003, the Company entered into an agreement with an outside
consultant for its support in obtaining certain government contracts. Under the
terms of the agreement, upon meeting certain criteria, the Company was obligated
to issue 400,000 fully vested warrants with an exercise price of $1.32 and a 3
year term. In 2006, upon meeting such criteria, SIGA recorded a non-cash
consulting charge of $156,470 representing the fair market value of the warrants
on the issuance date.
50
The following tables summarize information about warrants outstanding at
December 31, 2006:
Weighted Average
Number of Warrants Exercise Price Expiration Dates
------------------ ---------------
Outstanding at January 1, 2004 6,389,844 $ 2.50
Granted 2,375,206 2.00 08/10/2010
Exercised (85,228) 1.08
Canceled / Expired (150,000) 1.50
------------------ ---------------
Outstanding at December 31, 2004 8,529,822 $ 2.39
Granted 1,060,000 1.18 11/2/2012
Exercised -- --
Canceled / Expired (150,800) 2.38
------------------ ---------------
Outstanding at December 31, 2005 9,439,022 $ 2.26
Granted 1,949,002 3.81 10/19/2013
Exercised (1,421,109) 1.88
Canceled / Expired (525,000) 3.60
------------------ ---------------
Outstanding at December 31, 2006 9,441,915 $ 2.52
------------------ ---------------
Number of Warrants
Outstanding Exercise Price
5,204,262 1.18 - 1.90
1,660,458 2.00 - 3.00
2,577,195 3.00 - 4.99
--------------
9,441,915
==============
8. Related Parties
In January 2004, TransTech Pharma invested $5.0 million in SIGA (See Note 5).
Furthermore, four directors of the Company are also directors of TransTech
Pharma. During the year ended December 31, 2006, the Company incurred costs of
$148,000 related to work performed by an affiliate of TransTech Pharma, Inc., a
related party, in connection with one of the Company's lead product programs. On
December 31, 2006, the Company's outstanding payables included $62,109 payable
to the related party and its affiliates. Accounts receivable as of December 31,
2006, included $46,883 outstanding from TransTech Pharma, Inc.
Additionally, a director of the Company is a member of the Company's outside
counsel.
51
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 2006
and 2005:
Laboratory equipment $ 1,555,763 $ 1,358,489
Leasehold improvements 2,089,293 649,211
Computer equipment 357,949 306,527
Furniture and fixtures 205,628 205,628
Construction in-progress -- 804,596
------------ ------------
4,208,633 3,324,451
Less - accumulated depreciation (2,888,318) (2,100,304)
------------ ------------
Property, plant and equipment, net $ 1,320,315 $ 1,224,147
============ ============
10. Notes Payable
On March 20, 2006, SIGA entered into a Bridge Note Purchase Agreement ("Note
Purchase Agreement") with PHTN for the sale of three 8% Notes by SIGA, for
$1,000,000 each. The first, second and third Notes were issued on March 20,
2006, April 19, 2006, and June 19, 2006, respectively. The proceeds of the Notes
were used by the Company for (i) expenses directly related to the development of
SIGA's lead product, SIGA-246, (ii) expenses related to the Company's planned
merger with PHTN and (iii) corporate overhead. Pursuant to a Security Agreement
between the Company and PHTN, also entered into on March 20, 2006, the Notes
were secured by a first priority security interest in the Company's assets
(other than assets subject to the security interest granted to General Electric
Capital Corporation). On October 23, 2006, the Company paid PHTN $3,114,400 in
full repayment of the three notes and interest accrued thereon.
On May 20, 2005, the Company borrowed approximately $276,000 under a Promissory
Note payable to General Electric Capital Corporation. The note is payable in 36
monthly installments of principal and interest of 10.31% per annum. The note is
collateralized by a master security agreement dated as of April 29, 2005 and by
specific property listed under the master security agreement. Total balance
outstanding at December 31, 2006 was $130,329. Scheduled payments for 2007 and
2008 are $107,520 and $22,809, respectively.
11. Income Taxes
The Company has incurred losses since inception, which have generated net
operating loss carryforwards of approximately $34,286,000 at December 31, 2006
for federal and state income tax purposes. These carryforwards are available to
offset future taxable income and begin expiring in 2010 for federal income tax
purposes. As a result of a previous change in stock ownership, the annual
utilization of the net operating loss carryforwards is subject to limitation.
The net operating loss carryforwards and temporary differences, arising
primarily from deferred research and development expenses and differences in the
treatment of intangible assets, result in a noncurrent deferred tax asset at
December 31, 2006 and 2005 of approximately 19,057,000 and $16,411,000,
respectively. In consideration of the Company's accumulated losses and the
uncertainty of its ability to utilize this deferred tax asset in the future, the
Company has recorded a valuation allowance of an equal amount on such date to
fully offset the deferred tax asset.
52
At December 31, 2005 and 2004, the Company's deferred tax assets are comprised
of the following:
2006 2005
Net Operating Losses 13,372 12,121
Deferred Research and Development Costs 4,195 3,455
Amortization of Acquired Assets 818 623
Stock Based Compensation 184 --
Depreciation of Property Plant and Equipment 488 212
---------- ----------
Total Deferred Tax Asset 19,057 16,411
Valuation Allowance (19,057) (16,411)
---------- ----------
Net Deferred Tax Assets $ -- $ --
========== ==========
Following is a summary of changes in our valuation allowance for deferred tax
assets as of and for the years ended December 31, 2006, 2005 and 2004 (in
thousands):
Additions Charged
Balance at to Costs and Balance at End of
December 31, Beginning of Year Expenses Deductions Year
------------------- ------------------- -------------- -------------------
2006 $ 16,411 $ 2,646 $ -- $ 19,057
2005 $ 16,090 $ 321 $ -- $ 16,411
2004 $ 13,030 $ 3,060 $ -- $ 16,090
2003 $ 11,144 $ 1,886 $ -- $ 13,030
For the years ended December 31, 2006 and 2005, the Company's effective tax rate
differs from the federal statutory rate principally due to net operating losses
and other temporary differences for which no benefit was recorded, state taxes
and other permanent differences.
The Company's effective tax rate differs from the U.S. Federal Statutory income
tax rate of 34% as follows:
2006 2005
Statutory federal income tax rate -34.00% -34.00%
State tax benefit, net of federal taxes -3.91% -5.52%
Other 10.61% -3.50%
Valuation allowance on deferred tax assets 27.30% 43.02%
------------ ------------
Effective tax rate 0.00% 0.00%
============ ============
12. Commitments and Contingencies
Operating lease commitments
As of December 31, 2006, our purchase obligations are not material. The Company
leases certain facilities and office space under operating leases. Minimum
future rental commitments under operating leases having non-cancelable lease
terms in excess of one year and future minimum payments under notes payable are
as follows:
53
Loans and related
Year ended December 31, Lease obligations interest payable Total commitments
2007 $ 576,948 $ 107,521 $ 684,469
2008 576,948 22,809 599,757
2009 579,648 -- 579,648
2010 466,448 -- 466,448
2011 443,748 -- 443,748
------------ ------------ ------------
Total $ 2,643,740 $ 130,330 $ 2,774,070
============ ============ ============
Other
On October 4, 2006, SIGA exercised its right, pursuant to its Agreement and Plan
of Merger, dated June 8, 2006, with PharmAthene, Inc. ("PHTN") (the "Merger
Agreement"), to terminate the transaction pursuant to which a subsidiary of SIGA
was going to merge with PHTN. Pursuant to Section 12.1(a) of the Merger
Agreement, SIGA had an obligation to exclusively negotiate with PHTN the terms
of a license agreement relating to SIGA-246. On December 20, 2006, PHTN filed an
action against the Company with respect to, among other matters, this contract
provision. In its Complaint, PHTN asks the Court to order SIGA to enter into a
license agreement with PHTN with respect to SIGA-246, as well as issue a
declaration that SIGA is obliged to execute such a license agreement, and award
damages resulting from SIGA's supposed breach of that obligation. PHTN also
alleges that SIGA breached an obligation to negotiate such a license agreement
in good faith, as well as seeks damages for promissory estoppel and unjust
enrichment based on supposed information, capital and assistance that PHTN
allegedly provided to SIGA during the negotiation process. On January 9, 2007,
SIGA filed a motion to dismiss the Complaint in its entirety for failure to
state a claim upon which relief can be granted. The Court approved the parties'
briefing schedule, with all briefing to be completed by April 13, 2007.
From time to time, the Company is involved in disputes or legal proceedings
arising in the ordinary course of business. The Company believes that there is
no dispute or litigation pending that could have, individually or in the
aggregate, a material adverse effect on its financial position, results of
operations or cash flows.
54
13. Financial Information By Quarter (Unaudited) (in thousands, except for per
share data)
2006 For The Quarter Ended March 31, June 30, September 30, December 31, Total
------------- ------------- --------------- -------------- -------------
Revenues $ 1,394 $ 1,459 $ 2,036 $ 2,369 $ 7,258
Selling, general & administrative $ 942 $ 1,493 $ 802 $ 1,387 $ 4,624
Research and development $ 1,658 $ 2,431 $ 2,156 $ 2,904 $ 9,149
Patent preparation fees $ 109 $ 113 $ 36 $ 37 $ 295
Operating loss $ (1,314) $ (2,579) $ (960) $ (1,957) $ (6,810)
Net loss $ (2,834) $ (2,157) $ (657) $ (4,251) $ (9,899)
Net loss per share: basic and diluted $ (0.11) $ (0.08) $ (0.02) $ (0.14) $ (0.35)
Market price range for common stock
High $ 1.56 $ 1.65 $ 1.63 $ 4.95 $ 4.95
Low $ 0.90 $ 1.22 $ 1.01 $ 1.49 $ 0.90
2005 For The Quarter Ended March 31, June 30, September 30, December 31, Total
------------- ------------- --------------- -------------- -------------
Revenues $ 1,459 $ 1,864 $ 2,910 $ 2,244 $ 8,477
Selling, general & administrative $ 845 $ 811 $ 415 $ 410 $ 2,481
Research and development $ 1,552 $ 2,583 $ 1,765 $ 2,395 $ 8,295
Patent preparation fees $ 175 $ 91 $ 8 $ (42) $ 232
Operating income (loss) $ (1,113) $ (1,621) $ 722 $ (520) $ (2,532)
Net income (loss) $ (1,107) $ (1,630) $ 724 $ (275) $ (2,288)
Net loss per share: basic and diluted $ (0.05) $ (0.07) $ 0.03 $ (0.00) $ (0.09)
Market price range for common stock
High $ 1.69 $ 1.44 $ 1.10 $ 1.35 $ 1.69
Low $ 1.28 $ 0.99 $ 0.70 $ 0.87 $ 0.70
55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K,
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective.
There have been no changes in the Company's internal controls over
financial reporting identified in connection with the evaluation by the Chief
Executive Officer and Chief Financial Officer that occurred during the Company's
fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
None.
56
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated by reference from our
Proxy Statement for the 2007 Annual Meeting of Shareholders.
Item 11. Executive Compensation
Information required by this item is incorporated by reference from our
Proxy Statement for the 2007 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information required by this item is incorporated by reference from our
Proxy Statement for the 2007 Annual Meeting of Shareholders.
Equity Compensation Plan Information
The following table sets forth certain compensation plan information with
respect to both equity compensation plans approved by security holders and
equity compensation plans not approved by security holders as of December 31,
2006:
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) ( c )
Equity compensation plans
approved by security holders (1) 7,546,145 $ 2.07 2,341,399
Equity compensation plans not
approved by security holders 190,000 $ 2.00 --
Total 7,736,145 $ 2.07 2,341,399
(1) SIGA Technologies, inc., Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan.
On December 31, 2006, options awarded outside of the Company's equity
compensation plan included 125,000 options awarded to an employee and 65,000
options awarded to consultants. In May 2000, the Company awarded its Chief
Scientific Officer options to acquire 125,000 shares of the Company's common
stock at an exercise price of $2.00 per share. In July 2000, the Company entered
into an agreement with a consultant to serve as the Company's public relations
agent and awarded the consultant options to acquire shares of the Company's
common stock. On December 31, 2006, the consultant holds 27,500 options and
37,500 options with an exercise price of $1.50 per share and $1.75 per share,
respectively.
57
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference from our
Proxy Statement for the 2007 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
Information required by this item is incorporated by reference from our
Proxy Statement for the 2007 Annual Meeting of Shareholders.
58
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) and (2). Financial Statements and Financial Statements Schedule.
See Index to Financial Statements under Item 8 in Part II hereof where these
documents are listed.
(a) (3). Exhibits.
The following is a list of exhibits:
Exhibit
No. Description
- ------- -----------
3(a) Restated Articles of Incorporation of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
May 10, 2000 (No. 333-36682)).
3(b) Bylaws of the Company (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(a) Form of Common Stock Certificate (Incorporated by reference to Form
SB-2 Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(b) Warrant Agreement dated as of September 15, 1996 between the Company
and Vincent A. Fischetti (1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(c) Warrant Agreement dated as of November 18, 1996 between the Company
and David de Weese (1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(d) Warrant Agreement between the Company and Stefan Capital, dated
September 9, 1999 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999).
4(e) Registration Rights Agreement, dated as of May 23, 2003, between the
Company and Plexus Vaccine Inc. (Incorporated by reference to Form
8-K of the Company filed June 9, 2003).
4(f) Registration Rights Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(a) License and Research Support Agreement between the Company and The
Rockefeller University, dated as of January 31, 1996; and Amendment
to License and Research Support Agreement between the Company and
The Rockefeller University, dated as of October 1, 1996(2)
(Incorporated by reference to Form SB-2 Registration Statement of
the Company dated March 10, 1997 (No. 333-23037)).
10(b) Research Agreement between the Company and Emory University, dated
as of January 31, 1996(2) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(c) Research Support Agreement between the Company and Oregon State
University, dated as of January 31, 1996(2) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated
March 10, 1997 (No. 333-23037)). Letter Agreement dated as of March
5, 1999 to continue the Research Support Agreement (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
59
10(d) Option Agreement between the Company and Oregon State University,
dated as of November 30, 1999 and related Amendments to the
Agreement (Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1999).
10(h) Clinical Trials Agreement between the Company and National Institute
of Allergy and Infectious Diseases, dated as of July 1, 1997
(Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(i) Research Agreement between the Company and The Research Foundation
of State University of New York, dated as of July 1, 1997(2)
(Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(j) Collaborative Research and License Agreement between the Company and
Wyeth, dated as of July 1, 1997(2) (Incorporated by reference to
Amendment No. 3 to Form SB-2 Registration Statement of the Company
dated September 2, 1997 (No. 333-23037)).
10(k) Research Collaboration and License Agreement between the Company and
The Washington University, dated as of February 6, 1998 (2)
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997).
10(l) Settlement Agreement and Mutual Release between the Company and The
Washington University, dated as of February 17, 2000 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999).
10(m) Technology Transfer Agreement between the Company and MedImmune,
Inc., dated as of February 10, 1998 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10(p) Option Agreement between the Company and Ross Products Division of
Abbott Laboratories, dated February 28, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(q) Agreement between the Company and Oregon State University for the
Company to provide contract research services to the University
dated September 24, 2000 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10(r) License and Research Agreements between the Company and the Regents
of the University of California dated December 6, 2000 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000).
10(s) Amended and Restated 1996 Incentive and Non-Qualified Stock Option
Plan dated August 15, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001), as amended (as set forth in the Form 8-K of the Company
filed May 27, 2005).
10(u) Research and License Agreement between the Company and TransTech
Pharma, Inc. dated October 1, 2002 (Filed with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002 initially
filed with the Securities and Exchange Commission on March 31,
2003).
10(x) Contract between the Company and the Department of the US Army dated
December 12, 2002 (Filed with the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002 initially filed with the
Securities and Exchange Commission on March 31, 2003).
10(y) Contract between the Company and Four Star Group dated February 5,
2003 (Filed with the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002 initially filed with the Securities and
Exchange Commission on March 31, 2003).
60
10(aa) Securities Purchase Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(bb) Letter Agreement dated October 8, 2003 among the Company, MacAndrews
& Forbes Holdings Inc. and TransTech Pharma, Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(dd) Non-Employee Director Compensation Summary Sheet (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005).
10(ee) Director Compensation Program, effective April 21, 2005 (as set
forth in the Form 8-K of the Company filed April 26, 2005).
10(ff) Service Agreement, dated as of April 27, 2005, between the Company
and TransTech Pharma, Inc. (Incorporated by reference to Form 8-K of
the Company filed May 3, 2005).
10(gg) Master Security Agreement, dated as of April 29, 2005, between
General Electric Capital Corporation and the Company (Incorporated
by reference to Form 8-K of the Company filed May 3, 2005).
10(hh) Letter Agreement, dated as of August 5, 2005, between the Company
and John Odden (Incorporated by reference to Form 8-K of the Company
filed August 11, 2005).
10(ii) Agreement, dated as of September 14, 2005, between Saint Louis
University and the Company (Incorporated by reference to Form 8-K of
the Company filed September 20, 2005).
10(jj) Agreement, dated as of September 22, 2005, between the United States
Army Medical Research and Material Command and the Company
(Incorporated by reference to Form 8-K of the Company filed
September 27, 2005).
10(kk) Securities Purchase Agreement, dated as of November 2, 2005, between
Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master
Trust, Smithfield Fiduciary LLC and the Company (Incorporated by
reference to Form 8-K of the Company filed November 4, 2005).
10(ll) Exclusive Finder's Agreement, dated as of November 1, 2005, between
the Shemano Group, Inc. and the Company (Incorporated by reference
to Form 8-K of the Company filed November 4, 2005).
10(mm) Letter Agreement, dated as of February 1, 2006, between the Company
and Thomas N. Konatich (Incorporated by reference to Form 8-K of the
Company filed February 7, 2006).
10(oo) Bridge Note Purchase Agreement, dated as of March 20, 2006, between
the Company and PharmAthene, Inc. (Incorporated by reference to Form
8-K of the Company filed March 22, 2006).
10(pp) Security Agreement, dated as of March 20, 2006, between the Company
and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed March 22, 2006).
10(qq) 8% Note, dated as of March 20, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed March 22, 2006).
10(rr) Separation Agreement, dated as of March 31, 2006, between the
Company and Bernard Kasten (Incorporated by reference to Form 8-K of
the Company filed April 3, 2006).
10(ss) 8% Note, dated as of April 19, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed April 20, 2006).
10(tt) Voting Agreement, dated as of June 8, 2006, among the Company,
TransTech Pharma, Inc., MacAndrews & Forbes, Inc., Howard Gittis,
Donald G. Drapkin, James J. Antal, Thomas E. Constance, Mehmet C.
Oz,
61
Eric A. Rose and Paul G. Savas (Incorporated by reference to Form
8-K of the Company filed June 13, 2006).
10(uu) Agreement and Plan of Merger, dated as of June 8, 2006, among the
Company, SIGA Acquisition Corp. and PharmAthene, Inc. (Incorporated
by reference to Form 8-K of the Company filed June 13, 2006).
10(vv) 8% Note, dated as of June 19, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed June 20, 2006).
10(ww) Agreement, dated as of September 29, 2006, between SIGA
Technologies, Inc. and the National Institute of Allergy and
Infectious Diseases of the National Institutes for Health
(Incorporated by reference to Form 10-Q/A of the Company filed
November 13, 2006).
10(xx) Finder's Agreement, dated as of October 18, 2006, between the
Company and Empire Financial Group, Inc. (Incorporated by reference
to Form 8-K of the Company filed October 20, 2006).
10(yy) Securities Purchase Agreement, dated as of October 18, 2006, between
the Company, Iroquois Master Fund Ltd., Cranshire Capital, L.P.,
Omicron Master Trust, Rockmore Investment Master Fund, Ltd., and
Smithfield Fiduciary LLC (Incorporated by reference to Form 8-K of
the Company filed October 20, 2006).
10(zz) Amended and Restated Employment Agreement, dated as of January 22,
2007, between the Company and Dennis E. Hruby (Incorporated by
reference to Form 8-K of the Company filed January 22, 2007).
10(aaa) Amended and Restated Employment Agreement, dated as of January 22,
2007, between the Company and Thomas N. Konatich (Incorporated by
reference to Form 8-K of the Company filed January 22, 2007).
10(bbb) Amended and Restated Employment Agreement, dated as of January 31,
2007, between the Company and Eric A. Rose (Incorporated by
reference to Form 8-K of the Company filed January 31, 2007).
14 The Company's Code of Ethics and Business Conduct (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2003).
21 Subsidiaries of the Registrant
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer.
31.2 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Executive Officer.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Financial Officer.
- ----------
(1) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(2) Confidential information is omitted and identified by an * and filed
separately with the SEC with a request for Confidential Treatment.
62
SIGNATURES
Pursuant to the requirements of Section 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.
SIGA TECHNOLOGIES, INC.
(Registrant)
Date: March 15, 2007 By: /s/ Eric A. Rose
-----------------------
Eric A. Rose, M.D.
Chief Executive Officer
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 and in the capacities and on the dates indicated.
Signature Title of Capacities Date
/s/ Eric A. Rose, M.D Chief Executive Officer and March 13, 2007
- ------------------------------ Chairman of the Board
Eric A. Rose, M.D. (Principal Executive Officer)
/s/ Thomas N. Konatich Chief Financial Officer March 12, 2007
- ------------------------------ (Principal Financial Officer and
Thomas N. Konatich Principal Accounting Officer)
/s/ Donald G. Drapkin Director March 12, 2007
- ------------------------------
Donald G. Drapkin
/s/ James J. Antal Director March 14, 2007
- ------------------------------
James J. Antal
/s/ Thomas E. Constance Director March 12, 2007
- ------------------------------
Thomas E. Constance
/s/ Adnan M. Mjalli, Ph.D. Director March 15, 2007
- ------------------------------
Adnan M. Mjalli, Ph.D.
/s/ Mehmet C. Oz, M.D. Director March 13, 2007
- ------------------------------
Mehmet C. Oz, M.D.
/s/ Scott Hammer, M.D Director March 13, 2007
- ------------------------------
Scott Hammer, M.D.
/s/ Paul G. Savas Director March 13, 2007
- ------------------------------
Paul G. Savas
/s/ Judy S. Slotkin Director March 12, 2007
- ------------------------------
Judy S. Slotkin
/s/ Michael Weiner, M.D. Director March 12, 2007
- ------------------------------
Michael Weiner, M.D.
63
This Page Intentionally left Blank
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3(a) Restated Articles of Incorporation of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
May 10, 2000 (No. 333-36682)).
3(b) Bylaws of the Company (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(a) Form of Common Stock Certificate (Incorporated by reference to Form
SB-2 Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(b) Warrant Agreement dated as of September 15, 1996 between the Company
and Vincent A. Fischetti (1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(c) Warrant Agreement dated as of November 18, 1996 between the Company
and David de Weese (1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(d) Warrant Agreement between the Company and Stefan Capital, dated
September 9, 1999 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999).
4(e) Registration Rights Agreement, dated as of May 23, 2003, between the
Company and Plexus Vaccine Inc. (Incorporated by reference to Form
8-K of the Company filed June 9, 2003).
4(f) Registration Rights Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(a) License and Research Support Agreement between the Company and The
Rockefeller University, dated as of January 31, 1996; and Amendment
to License and Research Support Agreement between the Company and
The Rockefeller University, dated as of October 1, 1996(2)
(Incorporated by reference to Form SB-2 Registration Statement of
the Company dated March 10, 1997 (No. 333-23037)).
10(b) Research Agreement between the Company and Emory University, dated
as of January 31, 1996(2) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(c) Research Support Agreement between the Company and Oregon State
University, dated as of January 31, 1996(2) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated
March 10, 1997 (No. 333-23037)). Letter Agreement dated as of March
5, 1999 to continue the Research Support Agreement (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(d) Option Agreement between the Company and Oregon State University,
dated as of November 30, 1999 and related Amendments to the
Agreement (Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1999).
10(h) Clinical Trials Agreement between the Company and National Institute
of Allergy and Infectious Diseases, dated as of July 1, 1997
(Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(i) Research Agreement between the Company and The Research Foundation
of State University of New York, dated as of July 1, 1997(2)
(Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(j) Collaborative Research and License Agreement between the Company and
Wyeth, dated as of July 1, 1997(2) (Incorporated by reference to
Amendment No. 3 to Form SB-2 Registration Statement of the Company
dated September 2, 1997 (No. 333-23037)).
10(k) Research Collaboration and License Agreement between the Company and
The Washington University, dated as of February 6, 1998 (2)
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997).
10(l) Settlement Agreement and Mutual Release between the Company and The
Washington University, dated as of February 17, 2000 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999).
10(m) Technology Transfer Agreement between the Company and MedImmune,
Inc., dated as of February 10, 1998 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10(p) Option Agreement between the Company and Ross Products Division of
Abbott Laboratories, dated February 28, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(q) Agreement between the Company and Oregon State University for the
Company to provide contract research services to the University
dated September 24, 2000 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10(r) License and Research Agreements between the Company and the Regents
of the University of California dated December 6, 2000 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000).
10(s) Amended and Restated 1996 Incentive and Non-Qualified Stock Option
Plan dated August 15, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001), as amended (as set forth in the Form 8-K of the Company
filed May 27, 2005).
10(u) Research and License Agreement between the Company and TransTech
Pharma, Inc. dated October 1, 2002 (Filed with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002 initially
filed with the Securities and Exchange Commission on March 31,
2003).
10(x) Contract between the Company and the Department of the US Army dated
December 12, 2002 (Filed with the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002 initially filed with the
Securities and Exchange Commission on March 31, 2003).
10(y) Contract between the Company and Four Star Group dated February 5,
2003 (Filed with the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002 initially filed with the Securities and
Exchange Commission on March 31, 2003).
10(aa) Securities Purchase Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(bb) Letter Agreement dated October 8, 2003 among the Company, MacAndrews
& Forbes Holdings Inc. and TransTech Pharma, Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(dd) Non-Employee Director Compensation Summary Sheet (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005).
10(ee) Director Compensation Program, effective April 21, 2005 (as set
forth in the Form 8-K of the Company filed April 26, 2005).
10(ff) Service Agreement, dated as of April 27, 2005, between the Company
and TransTech Pharma, Inc. (Incorporated by reference to Form 8-K of
the Company filed May 3, 2005).
10(gg) Master Security Agreement, dated as of April 29, 2005, between
General Electric Capital Corporation and the Company (Incorporated
by reference to Form 8-K of the Company filed May 3, 2005).
10(hh) Letter Agreement, dated as of August 5, 2005, between the Company
and John Odden (Incorporated by reference to Form 8-K of the Company
filed August 11, 2005).
10(ii) Agreement, dated as of September 14, 2005, between Saint Louis
University and the Company (Incorporated by reference to Form 8-K of
the Company filed September 20, 2005).
10(jj) Agreement, dated as of September 22, 2005, between the United States
Army Medical Research and Material Command and the Company
(Incorporated by reference to Form 8-K of the Company filed
September 27, 2005).
10(kk) Securities Purchase Agreement, dated as of November 2, 2005, between
Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master
Trust, Smithfield Fiduciary LLC and the Company (Incorporated by
reference to Form 8-K of the Company filed November 4, 2005).
10(ll) Exclusive Finder's Agreement, dated as of November 1, 2005, between
the Shemano Group, Inc. and the Company (Incorporated by reference
to Form 8-K of the Company filed November 4, 2005).
10(mm) Letter Agreement, dated as of February 1, 2006, between the Company
and Thomas N. Konatich (Incorporated by reference to Form 8-K of the
Company filed February 7, 2006).
10(oo) Bridge Note Purchase Agreement, dated as of March 20, 2006, between
the Company and PharmAthene, Inc. (Incorporated by reference to Form
8-K of the Company filed March 22, 2006).
10(pp) Security Agreement, dated as of March 20, 2006, between the Company
and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed March 22, 2006).
10(qq) 8% Note, dated as of March 20, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed March 22, 2006).
10(rr) Separation Agreement, dated as of March 31, 2006, between the
Company and Bernard Kasten (Incorporated by reference to Form 8-K of
the Company filed April 3, 2006).
10(ss) 8% Note, dated as of April 19, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed April 20, 2006).
10(tt) Voting Agreement, dated as of June 8, 2006, among the Company,
TransTech Pharma, Inc., MacAndrews & Forbes, Inc., Howard Gittis,
Donald G. Drapkin, James J. Antal, Thomas E. Constance, Mehmet C.
Oz, Eric A. Rose and Paul G. Savas (Incorporated by reference to
Form 8-K of the Company filed June 13, 2006).
10(uu) Agreement and Plan of Merger, dated as of June 8, 2006, among the
Company, SIGA Acquisition Corp. and PharmAthene, Inc. (Incorporated
by reference to Form 8-K of the Company filed June 13, 2006).
10(vv) 8% Note, dated as of June 19, 2006, between the Company and
PharmAthene, Inc. (Incorporated by reference to Form 8-K of the
Company filed June 20, 2006).
10(ww) Agreement, dated as of September 29, 2006, between SIGA
Technologies, Inc. and the National Institute of Allergy and
Infectious Diseases of the National Institutes for Health
(Incorporated by reference to Form 10-Q/A of the Company filed
November 13, 2006).
10(xx) Finder's Agreement, dated as of October 18, 2006, between the
Company and Empire Financial Group, Inc. (Incorporated by reference
to Form 8-K of the Company filed October 20, 2006).
10(yy) Securities Purchase Agreement, dated as of October 18, 2006, between
the Company, Iroquois Master Fund Ltd., Cranshire Capital, L.P.,
Omicron Master Trust, Rockmore Investment Master Fund, Ltd., and
Smithfield Fiduciary LLC (Incorporated by reference to Form 8-K of
the Company filed October 20, 2006).
10(zz) Amended and Restated Employment Agreement, dated as of January 22,
2007, between the Company and Dennis E. Hruby (Incorporated by
reference to Form 8-K of the Company filed January 22, 2007).
10(aaa) Amended and Restated Employment Agreement, dated as of January 22,
2007, between the Company and Thomas N. Konatich (Incorporated by
reference to Form 8-K of the Company filed January 22, 2007).
10(bbb) Amended and Restated Employment Agreement, dated as of January 31,
2007, between the Company and Eric A. Rose (Incorporated by
reference to Form 8-K of the Company filed January 31, 2007).
14 The Company's Code of Ethics and Business Conduct (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2003).
21 Subsidiaries of the Registrant
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer.
31.2 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Executive Officer.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Financial Officer.
- ----------
(1) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(2) Confidential information is omitted and identified by an * and filed
separately with the SEC with a request for Confidential Treatment.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Siga Acquisition Corp. Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (Nos. 333-139082, 333-138796, 333-129756, 333-132886,
333-129756, 333-36682, 333-43750, 333-64414, 333-72553, 333-74390, 333-103231,
333-120742 and 333-112356) and Forms S-8 (Nos. 333-35992, 333-56216 and
333-112935) of SIGA Technologies, Inc. of our report dated March 8, 2007
relating to the financial statements, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 13, 2007
Exhibit 31.1
Certification by Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Dr. Eric A. Rose, M.D., certify that:
1. I have reviewed this annual report on Form 10-K of SIGA Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 13, 2007
/s/ Eric A. Rose
- ----------------------------------
Dr. Eric A. Rose, M.D.
Chief Executive Officer
Exhibit 31.2
Certification by Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas N. Konatich, certify that:
1. I have reviewed this annual report on Form 10-K of SIGA Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2007
/s/ Thomas N. Konatich
- ----------------------------------
Thomas N. Konatich
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SIGA Technologies, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dr.
Eric A. Rose, M.D., Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
/s/ Eric A. Rose
-----------------------
Dr. Eric A. Rose, M.D.
Chief Executive Officer
March 13, 2007
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SIGA Technologies, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
N. Konatich, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
/s/ Thomas N. Konatich
-----------------------
Thomas N. Konatich
Chief Financial Officer
March 15, 2007