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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended (Commission File No. 0-23047)
December 31, 2003
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 601 10170
New York, NY (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
common stock, $.0001 par value
(Title of Class)
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-B 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-KSB or any amendment to
this Form 10-KSB. |_|.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on March 22,
2004 as reported on the Nasdaq SmallCap Market was approximately $33,573,348. As
of March 22, 2004 the registrant had outstanding 23,427,264 shares of common
stock. For the year ended December 31, 2003 SIGA had revenues of $731,743.
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SIGA Technologies, Inc.
Form 10-KSB
Table of Contents
Page No.
PART I
Item 1. Business ................................................................................... 2
Item 2. Properties ................................................................................. 15
Item 3. Legal Proceedings .......................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ........................................ 15
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters ...................... 17
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 18
Item 7. Financial Statements and Supplementary Data ................................................ 35
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....... 35
Item 8A. Controls and Procedures..................................................................... 35
PART III
Item 9. Directors and Executive Officers of the Registrant ......................................... 36
Item 10. Executive Compensation ..................................................................... 39
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters .................................................................................... 42
Item 12. Certain Relationships and Related Transactions ............................................. 44
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K ...................................... 45
Item 14. Principal Accountant Fees and Services ..................................................... 48
SIGNATURES ........................................................................................... 50
1
Item 1. Business
Certain statements in this Annual Report on Form 10-KSB, 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 volatile and competitive
nature of the biotechnology industry, (ii) changes in domestic and foreign
economic and market conditions, and (iii) 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.
SIGA Technologies, Inc. is referred to throughout this report as "SIGA,"
"the Company," "we" or "us."
Introduction
SIGA is a biotechnology company incorporated in Delaware on December 9,
1996. We aim to discover, develop and commercialize novel anti-infectives,
antibiotics and vaccines for serious infectious diseases, including products for
use in defense against biological warfare agents such as Smallpox. We are
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. Our anti-infectives
program 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.
Technology
Anti-Infectives Technology: Prevention of Attachment and Infectivity
The bacterial infectious process generally includes three steps:
colonization, invasion and disease. The adherence of bacteria to a host's
surface is crucial to establishing colonization. Bacteria adhere through a
number of mechanisms, but generally by using highly specialized surface
structures which, in turn, bind to specific structures or molecules on the
host's cells or, as discussed below, to inanimate objects residing in the host.
Once adhered, many bacteria will invade the host's cells and either establish
residence or continue invasion into deeper tissues. During any of these stages,
the invading bacteria can cause the outward manifestations of disease, in some
cases through the production and release of toxin molecules. The severity of
disease, while dependent on a large combination of factors, is often the result
of the ability of the bacteria to persist in the host. These bacteria accomplish
this persistence by using surface molecules which can alter the host's
nonspecific mechanisms or its highly specific immune responses to clear or
destroy the organisms.
Unlike conventional antibiotics, our anti-infectives approaches aim to
block the ability of pathogenic bacteria to attach to and colonize human tissue,
thereby preventing infection at its earliest stage. Our scientific strategy is
to inhibit the expression of bacterial surface proteins required for bacterial
infectivity. We believe that this approach has promise in the areas of
hospital-acquired drug-resistant infections and a broad range of other diseases
caused by bacteria.
Many special surface proteins used by bacteria to infect the host are
anchored in the bacterial cell wall. Scientists at The Rockefeller University
("Rockefeller") have identified an amino acid sequence and related enzyme, a
selective protease, that are essential for anchoring proteins to the surface of
most Gram-positive bacteria.
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Published information indicates that this amino acid sequence is shared by more
than 50 different surface proteins found on a variety of Gram-positive bacteria.
This commonality suggests that this protease represents a promising target for
the development of a new class of antibiotic products for the treatment of a
wide range of infectious diseases. Experiments by our founding scientists have
shown that without this sequence, proteins cannot become anchored to the
bacterial surface and thus the bacteria are no longer capable of attachment,
colonization or infection. Such "disarmed" bacteria should be readily cleared by
the body's immune system. Our drug discovery strategy is to use a combination of
structure-based drug design and high throughput screening procedures to identify
compounds that inhibit the protease, thereby blocking the anchoring process. If
successful, this strategy should provide relief from many Gram-positive
bacterial infections, but may prove particularly important in combating diseases
caused by the emerging antibiotic resistance of the Gram-positive organisms S.
aureus, Streptococcus pneumoniae, and the enterococci.
In contrast to the above program, which focuses on Gram-positive bacteria,
our pilicide program, based upon initial research performed at Washington
University in St. Louis ("Washington University"), focuses on a number of new
and novel targets all of which impact on the ability of Gram-negative bacteria
to assemble adhesive pili on their surfaces. Pili are proteins on the surfaces
of Gram-negative bacteria -- such as E. coli, salmonella, and shigella -- that
are required for the attachment of the bacteria to human tissue, the first step
in the infection process. This research program is based upon the
well-characterized interaction between a periplasmic protein -- a chaperone --
and the protein subunits required to form pili. In addition to describing the
process by which chaperones and pili subunits interact, we have developed the
assay systems necessary to screen for potential therapeutic compounds, and have
provided an initial basis for selecting novel antibiotics that work by
interfering with the pili adhesion mechanism.
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from Rockefeller, SIGA is developing
certain commensal bacteria ("commensals") as a means to deliver mucosal
vaccines. Commensals are harmless bacteria that naturally inhabit the body's
surfaces with different commensals inhabiting different surfaces, particularly
the mucosal surfaces. Our vaccine candidates use genetically engineered
commensals to deliver antigens for a variety of pathogens to the mucosal immune
system. When administered, the genetically engineered commensals colonize the
mucosal surface and replicate. By activating a local mucosal immune response,
our vaccine candidates are designed to prevent infection and disease at the
earliest possible stage. By comparison, most conventional vaccines are designed
to act after infection has already occurred.
Our commensal vaccine candidates use Gram-positive bacteria. Rockefeller
scientists have identified a protein region that is used by Gram-positive
bacteria to anchor proteins to their surfaces. We are using the proprietary
technology licensed from Rockefeller to combine antigens from a wide range of
infectious organisms, both viral and bacterial, with the surface protein anchor
region of a variety of commensal organisms. By combining a specific antigen with
a specific commensal, vaccines may be tailored to both the target pathogen and
its mucosal point of entry.
To target an immune response to a particular mucosal surface, a commensal
vaccine would employ a commensal organism that naturally inhabits that surface.
For example, vaccines targeting sexually transmitted diseases might employ
Lactobacillus acidophilus, a commensal colonizing the female urogenital tract.
Vaccines targeting gastrointestinal diseases could employ Lactobacillus casei, a
commensal colonizing the gastrointestinal tract. We have conducted initial
experiments using Streptococcus gordonii ("S. gordonii"), a commensal that
colonizes the oral cavity and which may be used in vaccines targeting pathogens
that enter through the upper respiratory tract, such as the influenza virus.
By using an antigen unique to a given pathogen, the technology may
potentially be applied to any infectious agent that enters the body through a
mucosal surface. Our founding scientists have expressed and anchored a variety
of viral and bacterial antigens on the outside of S. gordonii, including the M6
protein from group A streptococcus, a group of organisms that causes a range of
diseases, including strep throat, necrotizing fasciitis, impetigo and scarlet
fever. In addition, proteins from other infectious agents, such as HIV and human
papilloma virus have also been expressed using this system. We believe this
technology will enable the expression of most antigens regardless of size or
shape. In animal studies, we have shown that the administration of a genetically
3
engineered S. gordonii vaccine prototype induces both a local mucosal immune
response and a systemic immune response.
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: Mucosal vaccines in
general may be more effective than conventional parenteral vaccines, due
to mucosal vaccines' ability to produce both a systemic and local
(mucosal) immune response.
o Safety advantage over other live vectors: A number of bacterial pathogens
have been genetically rendered less infectious, or attenuated, for use as
live vaccine 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.
o Potential for combined vaccine delivery: The Children's Vaccine
Initiative, a worldwide effort to improve vaccination of children
sponsored by the World Health Organization (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. We believe our
commensal delivery technology can be an effective method of delivery of
multi-component vaccines within a single commensal organism that address
multiple diseases or diseases caused by multiple strains of an infectious
agent.
o Eliminating need for refrigeration: One of the problems confronting the
effective delivery of parenteral vaccines is the need for refrigeration at
all stages prior to injection. The stability of the commensal organisms in
a freeze-dried state would, for the most part, eliminate the need for
special climate conditions, 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. The potential for eliminating the need
for refrigeration would add considerably to these savings by reducing the
costs inherent in refrigeration for vaccine delivery.
Surface Protein Expression System ("SPEX")
The ability to overproduce many bacterial and human proteins has been made
possible through the use of recombinant DNA technology. The introduction of DNA
molecules into E. coli has been the method of choice to express a variety of
gene products, because of this bacteria's rapid reproduction and well-understood
genetics. Yet despite the development of many efficient E. coli-based gene
expression systems, the most important concern continues to be associated with
subsequent purification of the product. Recombinant proteins produced in this
manner do not readily cross E. coli's outer membrane, and as a result, proteins
must be purified from the bacterial cytoplasm or periplasmic space. Purification
of proteins from these cellular compartments can be very difficult. Frequently
encountered problems include low product yields, contamination with potentially
toxic cellular material (i.e., endotoxin) and the formation of large amounts of
partially folded polypeptide chains in non-active aggregates termed inclusion
bodies.
To overcome these problems, we have taken 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 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
4
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.
Product Candidates and Market Potential
Biological Defense Program. The U.S. government's proposed budget for the
Department of Homeland Security (the "DHS") for the fiscal year beginning
October 1, 2005 includes $2.5 billion of federal spending on Project BioShield.
In addition to contributing funds to the DHS, the Department of Defense will be
looking for innovative approaches to the prevention and treatment of biological
warfare agents. One of the major concerns is Smallpox -- although declared
extinct in 1980 by the World Health Organization, 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 Centers for Disease Control and Prevention (the
"Centers for Disease Control") 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 2005. At an
estimated $15 per dose, the cost would be approximately $900 million. Further
the CBO reports that the DHS will spend an additional $1 billion to replace
expired stocks in the 2007-2013 period.
The FDA has 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 potential products in animal models
approved for sale within a relatively short time frame if our programs are
successful. Our Chief Scientific Officer, Dennis Hruby, has over 20 years
experience working on Smallpox-related research and has been leading a
SIGA/Oregon State University consortium working on an antiviral drug development
project for the past two years.
SIGA Biological Warfare Defense Product Portfolio
Bacterial Commensal Vectors: Our scientists have developed methods that
allow essentially any gene sequence to be expressed in 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.
Surface Protein Expression (SPEX) System: Our scientists have harnessed
the protein expression pathways of gram-positive bacteria and turned them into
protein productions factories. Using our proprietary SPEX system, we can produce
foreign proteins at high levels in the laboratory for use in subunit vaccine
formulations. Furthermore, we can envision engineering these bacteria to
colonize the mucosal surfaces of soldiers and/or civilians and secrete
anti-toxins that protect against aerosolized botulism toxin.
Antibiotics: To combat the problems associated with emerging antibiotic
resistance, our scientists are developing drugs designed to hit 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.
Anti-Smallpox Drugs: 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, our scientists have identified two key Smallpox proteinases
and are using their expertise in the design of proteinase inhibitors to attempt
to develop an effective antiviral drug that could treat a Smallpox infection.
5
The market potential 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 government's purchase of approximately $800
million worth of Smallpox vaccines to have an inventory on hand if needed is
evidence of such market potential.
Anti-Infectives
Our anti-infectives program is targeted principally toward drug-resistant
bacteria and hospital-acquired infections. According to estimates from the
Centers for Disease Control, 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.
Gram-Positive Antibiotic Technology. Our lead anti-infectives program is
based on a novel target for antibiotic therapy. Our founding scientists have
identified an enzyme, a selective protease, used by most Gram-positive bacteria
to anchor certain proteins to the bacterial cell wall. These surface proteins
are the means by which certain bacteria recognize, adhere to and colonize
specific tissue. Our strategy is to develop protease inhibitors as novel
antibiotics. We believe protease inhibitors will have wide applicability to
Gram-positive bacteria in general, including antibiotic resistant staphylococcus
and a broad range of serious infectious diseases including meningitis and
respiratory tract infections. In 1997, we entered into a collaborative research
and license agreement with Wyeth to identify and develop protease inhibitors as
novel antibiotics. In the first quarter of 2001, we received a milestone payment
from Wyeth for delivery of the first quantities of protease for screening, and
high-throughput screening for protease inhibitors was initiated. In connection
with our effort on this program we have entered into a license agreement with
the University of California at Los Angeles for certain technology that may be
incorporated into our development of products for Wyeth. High throughput
screening of compound libraries has been completed and lead compounds are
currently being evaluated in the laboratory and in animals.
Gram-Negative Antibiotic Technology. In 1998, we entered into a set of
technology transfer and related agreements with MedImmune, Inc., Astra AB and
Washington University, pursuant to which we acquired rights to certain
Gram-negative antibiotic targets, products, screens and services developed at
Washington University. In February 2000, we ended our collaborative research and
development relationship with Washington University on this technology. (See
"Collaborative Research and Licenses"). We maintain a non-exclusive license to
technology acquired through these related agreements. We are using this
technology in the development of antibiotics against Gram-negative pathogens. As
described above, these bacteria use structures called pili to adhere to target
tissue, and we plan to exploit the assembly and export of these essential
infective structures as novel anti-infective targets. We continue to work on
enhancing the intellectual property that we jointly share with Washington
University.
Broad-Spectrum Antibiotic Technology. An initial host response to pathogen
invasion is the release of oxygen radicals, such as superoxide anions and
hydrogen peroxide. The DegP protease is a first-line defense against these toxic
compounds, which are lethal to invading pathogens, and is a demonstrated
virulence factor for several important Gram-negative pathogens: Salmonella
typhimurium, Salmonella typhi, Brucella melitensis and Yersinia enterocolitica.
In all of these pathogens it was demonstrated that organisms lacking a
functional DegP protease were compromised for virulence and showed an increased
sensitivity to oxidative stress. It was also recently demonstrated that in
Pseudomonas aeruginosa conversion to mucoidy, the so-called CF phenotype
involves two DegP homologues.
Our scientists recently demonstrated that the DegP protease is conserved
in Gram-positive pathogens, including S. pyogenes, S. pneumoniae, S. mutans and
S. aureus. Moreover, our investigators have shown a conservation of function of
this important protease in Gram-positive pathogens and believe that DegP
represents a true broad-spectrum anti-infective development target. Our research
has uncovered a virulence-associated target of the DegP protease that will be
used to design an assay for high-throughput screening for the identification of
lead inhibitors of this potentially important anti-infective target.
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There are currently more than 100 million prescriptions written for
antibiotics annually in the U.S. and we estimate the worldwide market for
antibiotics to be more than $26 billion. 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.
One application of our technology is the development of live vaccines that
are delivered to a specific mucosal niche where they can colonize and thereby
present antigens to the immune system and produce local immunity at the site
where the corresponding pathogen may attempt to enter. Since the proprietary
expression pathway that we use is conserved in essentially all Gram-positive
bacteria, this should allow the same strategy to be employed in the development
of veterinary vaccines. A commensal bacterium can be isolated from the mucosa of
the target species, engineered to express a desired antigen and then
reintroduced to the species in order to produce immunity against subsequent
infection by the corresponding pathogen. Examples of potential targets for this
technology in the area of animal health include prevention of salmonid
aquaculture disease problems or canine papilloma virus infections.
Mucosal Vaccines
Development of our mucosal vaccine candidates involves: (i) identifying a
suitable immunizing antigen from a pathogen; (ii) selecting a commensal that
naturally colonizes the mucosal point of entry for that pathogen; and (iii)
genetically engineering the commensal to express the antigen on its surface for
subsequent delivery to the target population.
Strep Throat Vaccine Candidate. Until the age of 15, many children suffer
from recurrent strep throat infections. Up to three percent of ineffectively
treated strep throat cases progress to rheumatic fever, a debilitating heart
disease, which worsens with each succeeding streptococcal infection. Since the
advent of penicillin therapy, rheumatic fever in the United States has
experienced a dramatic decline. However, in the last two decades, rheumatic
fever has experienced a resurgence in the United States. Part of the reason for
this is the latent presence of this organism in children who do not display
symptoms of a sore throat, and, therefore, remain untreated and at risk for
development of rheumatic fever. Based on data from the Centers for Disease
Control and Prevention, there are five to 10 million cases of pharyngitis due to
group A streptococcus in the United States each year. There are over 32 million
children in the principal age group targeted by us for vaccination. Worldwide,
it is estimated that one percent of all school age children in the developing
world have rheumatic heart disease. Additionally, despite the relative ease of
treating strep throat with antibiotics, the specter of antibiotic resistance is
always present. In fact, resistance to erythromycin, the second line antibiotic
in patients allergic to penicillin, has appeared in a number of cases.
We believe that the reason no vaccine for strep throat has been developed
is because of problems associated with identifying an antigen that is common to
the more than 120 different serotypes of group A streptococcus, the bacterium
that causes the disease. We have licensed from Rockefeller a proprietary antigen
which is common to most types of group A streptococcus, including types that
have been associated with rheumatic fever. When this antigen was orally
administered to animals, it was shown to provide protection against multiple
types of group A streptococcal infection. Using this antigen, we are seeking to
develop a mucosal vaccine for strep throat.
SIGA has taken a parallel vaccine development track with two formulations
of the cross-protective streptococcal antigen. One approach expresses the strep
throat antigen on the surface of the commensal bacterium, Streptococcus
gordonii, which lives on the surface of the teeth and gums. Pre-clinical
research in mice and rabbits has established the ability of this vaccine
candidate to colonize and induce both a local and systemic immune response. The
other candidate uses a subunit (purified protein) approach, in which the antigen
is delivered intranasally with a mucosal adjuvant (enhances the immune
response). Like the commensal approach, the subunit approach has provided
significant protection in mice from challenges by multiple serotypes. We are
collaborating with the National Institutes of Health ("NIH") and the University
of Maryland Center for Vaccine Development on the clinical development of this
vaccine candidate. In cooperation with the NIH we filed an Investigational New
Drug Application ("IND") with the United States Food and Drug Administration
(the "FDA") in December 1997. The first stage of these clinical trials, using
the commensal delivery system without the strep throat antigen, were completed
at the University of Maryland in 2000. The study showed the commensal delivery
system to be well-
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tolerated and that it spontaneously eradicated or was easily eradicated by
conventional antibiotics. A second clinical trial of the commensal delivery
system without the strep throat antigen was initiated in 2000 at the University
of Maryland. The study was completed in January 2002 and the results
corroborated the results of the earlier study regarding tolerance and
spontaneous eradication. Further development continues principally on the
subunit approach, which is currently in pre-clinical studies.
In the U.S. there are about 19 million children aged 2 to 6 years who
could be candidates to receive such a vaccine at the time of its introduction
and then around 4 million babies born each year to be protected. Assuming a
charge of $25 per dose and three doses needed for protection, there could be a
potential market for a strep throat vaccine of $1.4 billion to immunize the
entire U.S. population of 2 to 6 year olds and, thereafter, $300 million per
year to maintain immunization in new births.
STD Vaccine Candidates. One of the great challenges in vaccine research
remains the development of effective vaccines to prevent sexually transmitted
diseases ("STDs"). Two principal pathogens that are transmitted via this route
are chlamydia, the most common bacterial STD, and Neisseria, the causative agent
of gonorrhea. To date, a great deal of effort has been expended, without
appreciable success, to develop effective injectable prophylactic vaccines
versus these pathogens. Given that both of these pathogens enter the host
through the mucosa, we believe that induction of a vigorous mucosal response to
certain bacterial antigens may protect against acquisition of the initial
infection. To test this hypothesis, we have expressed newly discovered antigens
from these pathogens in our proprietary mucosal vaccine delivery system. These
live genetically engineered vaccines will be delivered to animals and tested for
local and systemic immune response induction, and whether these responses can
block subsequent bacterial infections. We have licensed technology from Oregon
State University and Washington University in support of our chlamydia and
Neisseria programs, respectively. In February 2000 we entered into an option
agreement with the Ross Products Division of Abbott Laboratories ("Ross"), which
will provide funding for further development of an STD vaccine product. The
original research program was completed in late 2001 and additional work was
performed into 2003, however the additional work could not be completed due to
the inability of one of our sub-contractors to perform. As a result, we gave
Ross notice of termination on January 26, 2004 and all rights to the technology
reverted to us.
Chlamydia is the leading sexually transmitted disease in the U.S., with an
estimated 4 million cases occurring annually. Up to $2.4 billion is spent
annually on the treatment of infections from this pathogen, with the greatest
percentage of this cost directed toward the therapy of chlamydial infection in
women. Vaginal infection with C. trachomatis can progress to pelvic inflammatory
disease, resulting in infertility, or may result in ectopic pregnancies. In
addition, new evidence has linked C. trachomatis infection with an increased
incidence of cervical cancer.
The target population for STD vaccines is likely to be 12 to 18 years of
age. There are currently 27.5 million such individuals in the U.S., with around
4 million entering this age group annually. Once again, assuming $25 per dose
and three doses to complete immunization, there could be a potential market for
a C. trachomatis vaccine of $2 billion to immunize the entire U.S. population of
12 to 18 year olds and, thereafter, $300 million per year to maintain
immunization in those entering this age group.
Mucosal Vaccine Delivery System
We are developing our proprietary mucosal vaccine delivery system, which
is a component of our vaccine program, for license to other vaccine developers.
Our commensal vaccine candidates utilize Gram-positive bacteria to deliver
antigens. We are using proprietary technology to anchor antigens from a wide
range of infectious organisms, both viral and bacterial, to the surface protein
anchor region of a variety of commensal organisms. By combining a specific
antigen with a specific commensal, we believe that vaccines can be tailored to
both the target pathogen and its mucosal point of entry.
We have developed several genetic methods for recombining foreign
sequences into the genome of Gram-positive bacteria at a number of non-essential
sites. Various parameters have been tested and optimized to improve the level of
foreign protein expression and its immunogenicity. In pre-clinical studies,
genetically engineered commensals have been implanted into the oral cavities of
several animal species with no observed deleterious
8
effects. The introduced vaccine strains have taken up residence for prolonged
periods of time and induce both a local mucosal (IgA) as well as a systemic
immune response (IgG and T-cell).
We have completed two early stage clinical evaluations of our mucosal
vaccine delivery system based on the commensal bacterium, S. gordonii. These
clinical studies were designed to test the safety of the formulation, to monitor
the extent and duration of colonization of the nasal and oral cavities and to
determine if the delivery system could be eradicated at the end of the study
with a regimen of conventional antibiotics. A total of 47 volunteers between the
ages of 18 and 40 completed the first study, performed in the United Kingdom, in
which S. gordonii was delivered to the nasal passage and oral cavity. A total of
60 volunteers completed a second study which was conducted at the University of
Maryland as part of our strep throat vaccine program as described above. The
results of the studies indicated the delivery system was well-tolerated and that
the delivery system spontaneously eradicated or was easily eradicated by
conventional antibiotics. The ongoing clinical studies at the University of
Maryland are also designed to evaluate S. gordonii as a commensal bacterial
delivery system for our vaccine targeting strep throat. Experiments are
currently underway to optimize and test the vaccine formulation prior to
initiating Phase I human trials with the recombinant commensal vector based
vaccine.
Surface Protein Expression System
Our proprietary SPEX system uses the protein export and anchoring pathway
of Gram-positive bacteria as a means to facilitate the production and
purification of biopharmaceutical proteins. We have developed vectors which
allow foreign genes to be inserted into the chromosome of Gram-positive bacteria
in a manner such that the encoded protein is synthesized, transported to the
cell surface and secreted into the medium. This system has been used to produce
milligram quantities of soluble antigenically authentic protein that can be
easily purified from the culture medium by affinity chromatography. We have
recently used the SPEX system to obtain large quantities of pure M protein
subunit antigen for preclinical studies. We believe this technology can be
extended to a variety of different antigens and enzymes.
We have commenced yield optimization and process validation of this
system. This program is designed to transfer the method from a laboratory scale
environment to a commercial production facility. Our business strategy is to
license this technology on a non-exclusive basis for a broad range of
applications.
Immunological Bioinformatics
With our acquisition of substantially all the assets of Plexus Vaccine
Inc. a California corporation, on May 23, 2003, we believe that we possess
rational vaccine design capability with which to develop both therapeutic and
prophylactic vaccines against either traditional human health threats or agents
of biological warfare. This capability includes an artificial neural net
algorithm intended for the analysis of genomic sequences and the prediction of
human T-call epitopes, and structural biology modeling intended for the
identification of B-cell epitopes and their delivery in virus like particles. As
proof-of-principle, we are employing these technologies to formulate and test a
vaccine candidate for severe acute respiratory syndrome, or SARS.
Collaborative Research and Licenses
We have entered into the following license agreements and collaborative
research arrangements:
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 two issued U.S. patents
and one issued European patent, as well as 11 pending U.S. patent applications
and corresponding foreign patent applications. The issued United States patents
expire in 2005 and 2014, respectively. The agreement generally requires us to
pay royalties on sales of products developed from the licensed technologies, and
fees on revenues from sublicensees, where applicable, and we are responsible for
the costs of filing and prosecuting patent applications. The agreement also
requires us to pay 15% of certain milestone payments we receive from Wyeth to
Rockefeller, if any, under our collaborative and license agreement with Wyeth.
Accordingly, under the agreement, which is our only agreement that requires us
to make milestone
9
payments, we could be required to make milestone payments to Rockefeller of up
to an aggregate amount of approximately $1.1 million. To date, we have not
received any milestone payments from Wyeth that would require us to make a
payment to Rockefeller. The primary potential products from this collaboration
are the strep vaccine and the broad spectrum antibiotic. Under the agreement, we
paid the university 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.
Oregon State University. Oregon State University ("OSU") is also a party
to our license agreement with Rockefeller, 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.
During 1999, we acquired an option to enter into a license with OSU in
which we will acquire the rights to certain technology pertaining to the
potential development of a chlamydia vaccine. In February 2000, we exercised our
option and pursuant to an exclusive license agreement dated March 2000, we have
made payments to OSU of approximately $25,000 as part of our obligation under
the option.
In September 2000, we entered into a subcontract with OSU. The contract is
for a project which is targeted towards developing novel antiviral drugs capable
of preventing disease and pathology for Smallpox in the event this pathogen were
to be used as an agent of bioterrorism. The project is being funded by a grant
from the NIH. The basic virology aspects of the project will be conducted at OSU
and the drug development will be performed by us under the subcontract. The
budget for the subcontract work will be negotiated on a year by year basis with
OSU depending on the progress of the program and funding available. In the year
ended December 31, 2001 we recognized revenue of $15,000. On October 5, 2001 the
agreement was extended through August 31, 2002. For the period ended December
31, 2002 we recognized $75,000 in revenue. The agreement was extended again
through August 31, 2003. The sub-contract is on a year to year renewal. Through
December 31, 2003 we received a total of $130,000 under the agreement. During
the year ended December 31, 2003 work under the subcontract was completed.
Wyeth. We have entered into a collaborative research and license agreement
with Wyeth in connection with the discovery and development of anti-infectives
for the treatment of gram-positive bacterial infections. Pursuant to the
agreement, Wyeth provided funding for a joint research and development program,
subject to certain milestones, through September 30, 1999 and is responsible for
additional milestone payments. In May 2001, we entered into an amendment to the
July 1, 1997 agreement. The amendment extended the term of the original
agreement to September 30, 2001. The extension provided for Wyeth to continue to
pay us at a rate of $450,000 per year through the term of the amended agreement.
During the term of the agreement as amended, we received $787,500 from Wyeth to
support work performed by SIGA under the agreement and $237,500 for achieving a
research milestone. For the year ended December 31, 2001 we recognized revenue
of $1,025,000. The agreement to fund additional research was not extended beyond
September 30, 2001.
Wyeth is obligated to make milestone payments to us as any product
developed progresses through the FDA approval process under our agreement with
Wyeth, which is the only agreement pursuant to which we are entitled to receive
milestone payments. For product developed we could receive up to approximately
$13 million in
10
milestone payments for approval of the product in the U.S. and Japan. We would
also receive royalty payments of 2% on the first $300,000 of cumulative licensed
product sales, 4% on annual sales up to $100 million, 6% on annual sales between
$100 million and $250 million and 8% on annual sales above $250 million. The
license will expire on the earlier of 10 years or the last to expire issued
patent. Wyeth has the right to terminate the agreement early, on ninety days
written notice. If terminated early, all rights granted to Wyeth revert to SIGA
except with respect to any compound identified by Wyeth as of the date of
termination and subject to the milestone and royalty obligations of the
agreement.
National Institutes of Health. We have entered into a clinical trials
agreement with the NIH pursuant to which the NIH, with our cooperation, will
conduct clinical trials of our strep throat vaccine candidate. The agreement
will fund trials through Phase II of the FDA approval process. To date, two
Phase I clinical trials have been conducted for the strep vaccine delivery
system. We are working to optimize and test the vaccine formulation prior to
initiating Phase I clinical trials with the recombinant commensal vector based
vaccine. The agreement may be terminated unilaterally by the parties upon sixty
days prior notice. If terminated we will receive copies of all data, reports and
other information related to the trials and any unused vaccine.
In May, August and September 2000, we were awarded three Phase I Small
Business Innovation Research ("SBIR") grants from the NIH in the amounts of
$26,000, $96,000 and $125,000 respectively. The grants were for the periods May
3, 2000 to August 31, 2000, August 1, 2000 to January 31, 2001, and September
15, 2000 to March 14, 2001 respectively, and supported our antibiotic and
vaccine development programs. In June 2002, we received a Phase II SBIR grant
for approximately $865,000. The grant was for the two year period beginning
June, 1, 2002 and ending May 31, 2004. For the years ending December 31, 2003
and, 2002, we have recognized revenue from the grants of $388,000 and $270,000,
respectively.
As part of our operational strategy we routinely submit grants to the NIH.
There is no assurance that we will receive additional grants.
Washington University. In February 1998, we entered into a research
collaboration and worldwide license agreement with Washington University
pursuant to which we obtained the right and license to make, use and sell
antibiotic products based on gram-negative technology for all human and
veterinary diagnostic and therapeutic uses. The license covered five pending
United States patent applications and corresponding foreign patent applications.
The agreement generally required us to pay royalties on sales of products
developed from the licensed technologies and fees on revenues from sublicensees,
where applicable, and we were responsible for certain milestone payments and for
the costs of filing and prosecuting patent applications. Pursuant to the
agreement, we agreed to provide funding to Washington University for sponsored
research through February 6, 2001, with exclusive license rights to all
inventions and discoveries resulting from this research. During 1999, a dispute
arose between the parties regarding their respective performance under the
agreement. In February 2000, the parties reached a settlement agreement and
mutual release of their obligations under the research collaboration agreement.
Under the terms of the settlement, we are released from any further payments to
Washington University and have disclaimed any rights to the patents licensed
under the original agreement. As part of the settlement agreement, we entered
into a non-exclusive license to certain patents covered in the original
agreement. SIGA and Washington University will share equally the responsibility
for the administration and the expenses for the prosecution of patent
applications and /or patents in the agreement. The collaboration is for the
gram-negative product opportunity. We will receive licensing revenue from
Washington University that derive from the commercialization of products covered
by patent rights of the agreement. The royalty will be 20% of the first $400,000
received and 10% of the next $1,000,000 received with a total payment of
licensing revenues to us not to exceed $500,000. 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. We have currently met all
our obligations under this agreement.
Abbott Laboratories. In March 2000, we entered into an agreement with the
Ross Products Division of Abbott Laboratories ("Ross"). The agreement grants
Ross an exclusive option to negotiate an exclusive license to certain SIGA
technology and patents in addition to certain research development services. In
exchange for research services and the option, Ross was obligated to pay us
$120,000 in three installments of $40,000. The first payment of $40,000 was
received in March 2000 and was recognized ratably, over the term of the
arrangement. The
11
remaining installments are contingent upon meeting certain milestones under the
agreement and will be recognized as revenue upon completion and acceptance of
such milestones. The first milestone was met, and we received an additional
payment of $40,000 in the quarter ended September 30, 2000. During the years
ended December 31, 2001 and 2000, we recognized revenue in the amount of $45,000
and $80,000, respectively. The development agreement was for the sexually
transmitted disease product opportunity. The research program was completed in
late 2001 and additional work was performed into 2003, however the additional
work could not be completed due to the inability of one of our sub-contractors
to perform. As a result, we gave Ross notice of termination on January 26, 2004
and all rights to the technology reverted to us.
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, 2003 we have made payments of approximately $80,625 under the license. In
the event that we sub-license the license, we must pay Regents 15% of all
royalty payments made to SIGA. Under the agreement, we will also pay Regents 15%
of all royalties received from Wyeth. The agreement applies to the gram positive
product opportunity and our collaborative agreement with Wyeth. The term of the
agreement is until the expiration of the last-to-expire patent licensed under
this agreement. The agreement may be terminated by Regents if we default on any
of our obligations, the agreement with Wyeth is terminated and a substitute
agreement is not entered into or if we give notice that we do not intend to make
product from the licensed technology. We have currently met all our obligations
under this agreement.
TransTech Pharma, Inc. In October 2002, we entered into a drug discovery
collaboration agreement with TransTech Pharma, Inc. ("TransTech Pharma"). Under
the agreement, SIGA and TransTech Pharma collaborate on the discovery,
optimization and development of lead compounds to 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 2003 and 2002 from this collaboration.
Intellectual Property and Proprietary Rights
Protection of our proprietary compounds and technology is essential to our
business. Our policy is to seek, when appropriate, protection for our lead
compounds and certain other proprietary technology by filing patent applications
in the United States and other countries. We have licensed the rights to seven
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 two additional
patent applications in the U.S. and two applications in Europe relating to this
technology. We are joint owner with Washington University of seven issued
patents in the U.S. and two 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 one PCT application that relates to our DegP product opportunities.
The following are our patent positions as of December 31, 2003.
12
- ------------------------------------------------------------------------------------------------------------------
Number
Exclusively
Number Licensed Number
Number Co- from Univ. Exclusively
Exclusively Exclusively of Licensed
Licensed Licensed Copenhagen from Number
from with and Danish Oregon Exclusively Number Patent
Rockefeller Washington Technical State Licensed Owned by Expiration
PATENTS Univ. Univ. University University from UCLA SIGA Dates
- ------------------------------------------------------------------------------------------------------------------
2013,
2014 (3),
2015 (4),
U.S. 7 7 1 2016 (2),
2017,
2019 (2),
2020,2021
- ------------------------------------------------------------------------------------------------------------------
2004,2009
2014 (2),
Australia 5 2 1 2015,2016
2019,2020
- ------------------------------------------------------------------------------------------------------------------
Canada 3 1 2004,2010
2014,2019
- ------------------------------------------------------------------------------------------------------------------
2004,2009
Europe 3 2 2010,2014
2020
- ------------------------------------------------------------------------------------------------------------------
Hungary 2 2013,2016
- ------------------------------------------------------------------------------------------------------------------
2004 (2),
Japan 4 2 2010,2012
2014,2020
- ------------------------------------------------------------------------------------------------------------------
Mexico 1 2016
- ------------------------------------------------------------------------------------------------------------------
New Zealand 1 2016
- ------------------------------------------------------------------------------------------------------------------
APPLICATIONS
- ------------------------------------------------------------------------------------------------------------------
U.S. applications 2 4 1 2 1 3
- ------------------------------------------------------------------------------------------------------------------
U.S. provisionals 5
- ------------------------------------------------------------------------------------------------------------------
Danish 1
provisionals
- ------------------------------------------------------------------------------------------------------------------
PCT 1 3
- ------------------------------------------------------------------------------------------------------------------
Australia 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------
China 1
- ------------------------------------------------------------------------------------------------------------------
Canada 3 1 1 1
- ------------------------------------------------------------------------------------------------------------------
Europe 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------
Finland 1
- ------------------------------------------------------------------------------------------------------------------
Japan 3 1 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.
13
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 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, 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 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 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.
Commercialization of animal health products can be accomplished more
rapidly than human health products. Unlike the human market, potential vaccine
or therapeutic products can be tested directly on the target animal as soon as
the product leaves the research laboratory. The data collected in these trials
is submitted to the U.S. Department of Agriculture for review and eventual
product approval.
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, Bavarian Nordic AS, Corixa
Corporation, Cubist Pharmaceuticals, Inc., Dynport Vaccine Company, Enanta
Pharmaceuticals, Essential Therapeutics, Genesoft Pharmaceuticals, Genome
Therapeutics Corporation, ID Biomedical Corporation, Microbiotix, Inc., Paratek
Pharmaceuticals, Quorex
14
Pharmaceuticals, Theravance, Inc., Vircuron Pharmaceuticals, Inc., and
ViroPharma, Inc. 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 can be no assurance that our competitors will not 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 22, 2004 we had 27 full time employees. None of our employees
are covered by a collective bargaining agreement and we consider our employee
relations to be good.
Availability of Reports and Other Information
Our website is www.siga.com. We make available on this website, free of
charge, our annual, quarterly and current reports, corporate governance
documents, including our code of ethics, and other documents filed by us with
the Securities and Exchange Commission as soon as reasonably practicable after
the filing date.
Item 2. Properties
Our headquarters are located in New York City, our research and
development facilities are located in Corvallis, Oregon and our bioinformatics
operations are located in San Diego, CA. In New York, we lease approximately
1,600 square feet under a lease that expires in November 2007. In Corvallis, we
lease approximately 10,000 square feet under a lease that expires in December
2004. In San Diego we have a sub-lease, renewable monthly for 1,800 feet of
space.
Item 3. Legal Proceedings
SIGA is not a party, nor is its property the subject of, any pending legal
proceedings other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on January 8, 2004, our
stockholders re-elected to our board each member of our board of directors and
ratified our selection of independent auditors:
The following nominees were elected to our board of directors upon the
following votes:
Director Votes For Votes Withheld
Donald G. Drapkin 15,978,957 76,923
Roger Brent, Ph.D 15,978,957 76,923
Charles Cantor, Ph.D 15,978,957 76,923
Thomas E. Constance 15,344,878 711,002
Bernard L. Kasten, Jr., M.D 15,957,957 97,923
Eric A. Rose, M.D 15,019,186 1,036,694
Mehmet C. Oz, M.D 14,774,323 1,281,557
Michael A. Weiner 15,590,741 465,119
Our stockholders ratified the selection of PricewaterhouseCoopers LLP as
our independent auditors for the fiscal year ending December 31, 2003 by casting
15,976,115 votes in favor of this proposal, 45,165 votes against the proposal
and 34,600 abstained.
Our shareholders approved the completion of the sale of our common stock
and warrants to MacAndrews & Forbes Holdings Inc. and approved affiliates by
casting 6,538,691 votes in favor of this proposal, 224,874 votes against the
proposal and 2,287,206 abstained.
15
Our shareholders approved an amendment to the SIGA Technologies, Inc.
Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan to
increase the maximum number of shares of common stock available for issuance
under the Plan from 7,500,000 to 10,000,000 by casting 7,786,536 votes in favor
of this proposal, 1,208,639 votes against the proposal and 55,600 abstained.
16
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock has been traded on the Nasdaq SmallCap 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 SmallCap Market.
Price Range
2002 High Low
----- -----
First Quarter .............................. $2.91 $2.01
Second Quarter ............................. $2.63 $0.81
Third Quarter .............................. $1.39 $0.65
Fourth Quarter ............................. $2.15 $0.65
2003 High Low
----- -----
First Quarter .............................. $1.49 $1.02
Second Quarter ............................. $1.91 $1.09
Third Quarter .............................. $2.13 $1.61
Fourth Quarter ............................. $2.60 $1.80
As of March 22, 2004, the closing bid price of our common stock was $2.28
per share. There were 107 holders of record as of March 22, 2004. 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 contractual
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.
Recent Sales of Unregistered Securities
All of the following sales of unregistered securities were made without
registration under the Securities Act in reliance upon the exemption from
registration afforded under Section 4(6) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder. Accordingly, the transfer of the securities
are subject to substantial restrictions. Securities were only purchased by
"Accredited Investors" as that term is defined under Rule 501 of Regulation D.
Proceeds from the offerings were used for general working capital purposes.
In October 2003, MacAndrews & Forbes Holdings Inc. and its permitted
assignees exercised their option to invest an additional $9,000,000 in us under
the terms of the agreement signed in August 2003, as amended in October 2003.
Upon exercise of the option we received gross proceeds of $2,159,405 in exchange
for 1,499,587 shares of common stock at a price of $1.44 per share and warrants
to purchase 749,794 shares of common stock. The warrants have an initial
exercise price of $2.00 per share and a term of seven years. The sale of the
remaining 4,750,413 shares of common stock and warrants to purchase 2,375,206
shares of common stock at an exercise price of $2.00 per share on the same terms
was subject to shareholder approval. On January 8, 2004, at a meeting of
shareholders, the transaction was approved, the additional $6,840,595 of gross
proceeds were received and the common shares and warrants were issued.
17
In August 2003, we entered into an agreement with MacAndrews & Forbes
whereby MacAndrews & Forbes and its permitted assignees initially invested
$1,000,000 in SIGA. Upon the consummation of the transaction, we received gross
proceeds of $1,000,000 in exchange for 694,444 shares of our common stock at a
price of $1.44 per share and warrants to purchase 347,222 shares of common
stock. The warrants have an initial exercise price of $2.00 per share and have a
term of seven years. MacAndrews & Forbes and its permitted assignees also
received an option, exercisable through October 13, 2003, to invest up to an
additional $9,000,000 in SIGA on the same terms.
In June 2003, the Company raised gross proceeds of $1.5 million in a
private offering of 1,250,000 shares of common stock. In connection with the
offering the Company issued warrants to purchase 625,000 shares of the Company's
common stock to placement agents. The warrants are exercisable at a price of
$2.00 per share and have a term of five years.
In May 2003, we acquired substantially all of the assets of Plexus in
exchange for 1,950,000 shares of our common stock and the assumption of certain
liabilities, including promissory notes for loans we previously made to Plexus
for $50,000 and $20,000.
In December 2002 and January 2003, we completed a private placement of 34
units consisting of 1.7 million shares of common stock to a group of private
investors. The gross proceeds from the offering were $1,865,000 with net
proceeds to SIGA of approximately $1,682,000.
In October 2002, we completed a private placement of units consisting of
an aggregate of 1,037,500 shares of common stock and warrants to purchase
518,750 shares of common stock at an exercise price of $2.25 per share to a
group of private investors. The offering yielded net proceeds of approximately
$935,000.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our 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, we have been principally engaged in
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. The effort to develop a drug
for Smallpox is being aided by a $1.6 million contract with the U.S. Army which
began in January 2003.
We are developing technology for the mucosal delivery of our 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. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance, and they are designed to block
the ability of infectious agents to attach to human tissue, the first step in
the infection process. In May 2003, we acquired substantially all the assets of
Plexus Vaccine Inc. ("Plexus"). Plexus is a bioinformatics company that develops
vaccines using its proprietary technology. The acquisition will expand our
capabilities in biological warfare defense research and allow for the
development of vaccines for Smallpox, anthrax, plague, botulism and other
biological pathogens. The acquisition will also facilitate development of
vaccines for traditional human health targets. This transaction will have an
impact on our cash flows based on our ability to integrate the combined
companies.
We do not have commercial biomedical products, and we do not expect to
have such products for several 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 sufficient financing on terms acceptable to us. The
financial
18
statements do not include any adjustments that might result from the outcome of
this uncertainty. Management believes it has sufficient funds to support
operations for the next 12 months.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon and our bioinformatics activities are carried out at our
office in San Diego, California. We continue to seek to fund a major portion of
our ongoing vaccine and antibiotic programs through a combination of government
grants and strategic alliances. While we have had success in obtaining strategic
alliances and grants, no assurance can be given 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.
Significant Accounting Policies
Financial Reporting Release No. 60, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of the Notes to the Financial Statements includes a
summary of the significant accounting policies and methods used in the
preparation of our Financial Statements. The following is a brief discussion of
the more significant accounting policies and methods used by us. In addition,
Financial Reporting Release No. 67 was recently released by the SEC to require
all companies to include a discussion to address, among other things, liquidity,
off-balance sheet arrangements, contractual obligations and commercial
commitments.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, as amended ("SAB
101"). SAB 101 requires that four basic criteria must be met before revenue can
be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
has occurred or services rendered; (3) the fee is fixed or determinable; and
(4) collectibility is reasonably assured. Under the provisions of SAB 101, the
Company recognizes revenue from government research grants, contract research
and development and progress payments as services are performed, provided a
contractual arrangement exists, the contract price is fixed or determinable, and
the collection of the resulting receivable is probable. Milestones, which
generally are related to substantial scientific or technical achievement, are
recognized as revenue when the milestone is accomplished.
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 all
of the deferred tax asset will not be realized. A full valuation has been taken
on the deferred taxes as the Company has had recurring losses since inception
and expects to have a net loss in the upcoming year.
Business Combinations, Goodwill and Intangible Assets
We account for business combinations in accordance with the provisions of
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141"). SFAS 141 requires business combinations completed after June 30,
2001, to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets required to be recognized and
reported separately from goodwill.
19
We account for the impairment of goodwill in accordance with the
provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142"). Goodwill is not subject to amortization
and is tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset may be impaired. The impairment test
consists of a comparison of the fair value of goodwill with its carrying amount.
If the carrying amount of goodwill exceeds its fair value, a second step of the
goodwill impairment test shall be performed to measure the amount of impairment
loss, if any. After an impairment loss is recognized, the adjusted carrying
amount of goodwill is its new accounting basis. The annual impairment testing
required under SFAS 142 requires management to make assumptions and judgments
regarding the estimated fair value of the Company's goodwill. Such assumptions
include the present value discount factor used to determine the fair value of a
reporting unit, which is ultimately used to identify potential goodwill
impairment. Such estimated fair values might produce significantly different
results if other reasonable assumptions and estimates were to be used.
We account for the impairment of long-lived assets such as non-compete
agreements and research contracts in accordance with the provisions of Statement
of Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The
Company compares the carrying amount of the asset to the estimated undiscounted
future cash flows expected to result from the use of the asset. If the carrying
amount of the asset exceeds estimated expected undiscounted future cash flows,
the Company records an impairment charge for the difference between the carrying
amount of the asset and its fair value. Changes in events or circumstances to
the Company that may affect long-lived assets include cancellations or
terminations of research contracts or pending government research grants.
Contractual Obligations, Commercial Commitments and Purchase Obligations
As of December 31, 2003, our purchase obligations were immaterial. 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:
Year ended December 31,
2004 $ 193,237
2005 86,398
2006 87,737
2007 94,921
2008 19,416
Thereafter --
---------
Total $ 481,709
=========
Recent Accounting Pronouncements
In December of 2003, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition", which
supercedes SAB 101, "Revenue Recognition in Financial Statements". SAB 104's
primary purpose is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, superceded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables".
While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21,
the revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not have a material effect on
the Company's results of operations, financial position or cash flows.
In March of 2003, the Emerging Issues Task Force (EITF) issued EITF No.
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". EITF
No. 00-21 addresses how to determine whether a revenue arrangement involving
multiple deliverables contains more than one unit of accounting for revenue
recognition purposes, and how consideration should be measured and allocated to
the separate accounting units. EITF No. 00-21 applies to all deliverables within
contractually binding arrangements in all industries, except to the
20
extent that a deliverable in a contractual arrangement is subject to other
existing higher-level authoritative literature. EITF No. 00-21 became effective
for revenue arrangements entered into after July 1, 2003. The adoption of EITF
No. 00-21 did not have a material effect on the Company's financial position or
results of operations.
In December of 2003, the FASB revised its FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements". FIN 46R requires that a business enterprise review all of its legal
structures used to conduct its business activities, including those to hold
assets, and its majority-owned subsidiaries, to determine whether those legal
structures are variable interest entities (VIEs) required to be consolidated for
financial reporting purposes by the business enterprise. A VIE is a legal
structure for which the holders of a majority voting interest may not have a
controlling financial interest in the legal structure. FIN 46R provides guidance
for identifying those legal structures and provides guidance for determining
whether a business enterprise shall consolidate a VIE. FIN 46R requires that a
business enterprise that holds a significant variable interest in a VIE make new
disclosures in their financial statements. The Company is required to adopt the
provisions of FIN 46R for its interim period ending March 31, 2004. The Company
does not believe that it holds any interests in VIEs that would require
consolidation or additional disclosures.
In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement applies to certain financial instruments, including mandatorily
redeemable financial instruments that, prior to SFAS No. 150 could have been
accounted for as a component of equity. SFAS No. 150 requires that those
instruments be classified as liabilities in statements of financial position.
SFAS No. 150 also requires disclosures about alternative ways of settling the
instruments and the capital structure of entities whose shares are all
mandatorily redeemable. SFAS No. 150 is effective for these financial
instruments entered into or modified after May 31, 2003. For these financial
instruments entered into before May 31, 2003, SFAS No. 150 became effective for
the interim period beginning July 1, 2003. The Company does not hold any
financial instruments that are within the scope of SFAS No. 150. Accordingly,
SFAS No. 150 did not have a material effect on the Company's results of
operations or financial position.
Results of Operations
Year ended December 31, 2003 and December 31, 2002
Revenues from grants and research and development contracts were $731,743
for the year ended December 31, 2003 compared to $344,450 for the same period of
2002, an approximate 112% increase. The increase for the year ended December 31,
2003 from the prior year reflects $290,000 in revenue from the first year of our
$1.6 million contract with the U.S. Army for our work on the development of a
Smallpox drug. Revenue from our Phase II Small Business Innovation Research
(SBIR) grant also increased. Revenue from the SBIR grant for the year ended
December 31, 2003 was approximately $388,000, an approximate 44% increase over
the year ended December 31, 2002. The SBIR grant, which is a two year grant for
a total of $865,000, will end on May 31, 2004. Through December 31, 2003 a total
of $658,000 of revenue was recognized from the grant.
Selling, general and administrative expenses for the year ended December
31, 2003 were $2,646,586, an increase of approximately 44% from an expense of
$1,838,470 for the year ended December 31, 2002. Of the $808,116 increase,
approximately $553,000 was the result of higher consulting expenses associated
with our marketing program to find additional sources of government grant and
contract funding and increased investor relations efforts. Approximately
$184,000 of the increase was the result of increased payroll expense reflecting
the administrative employees who were added in connection with the acquisition
of substantially all the assets of Plexus Vaccine Inc. ("Plexus"). In addition,
the year ended December 31, 2003 included non-cash expenses of approximately
$123,000 associated with the amortization of certain intangible assets acquired
in the Plexus transaction. These increases were partially offset by lower legal
and accounting fees. For the year ended December 31, 2002 legal and accounting
fees were approximately $176,000 higher than the current year as the result of
work done in the prior year on a proposed merger.
Research and development expenses increased approximately 67% to
$2,942,809 for the year ended December 31, 2003 from $1,766,368 for the same
period in 2002. Approximately $504,000 of the increase was the result of
approximately 64% higher payroll expense caused by the addition of Plexus R&D
personnel as well as
21
additional staffing for our ongoing Smallpox and anti-infectives programs. For
the year ended December 31, 2003 we recognized non-cash charges of approximately
$262,000 for the amortization of certain intangible assets acquired from Plexus;
no similar charges were recognized in the prior year. In addition, lab supply
expenses were approximately $400,000, an increase of approximately 83% in the
year ended December 31, 2003 from the prior year spending level of approximately
$219,000. The increase reflects increased activity on our Smallpox and DegP
programs. Sponsored research increased to approximately $315,000, an 82%
increase from the prior year. The increase was due to payment for work being
performed on former Plexus programs at a Danish University.
All of our product programs are in the early stage of development except
for the strep vaccine which is in Phase I clinical trials. At this stage of
development, we cannot make estimates of the potential cost for any program to
be completed or the time it will take to complete the project. For the year
ended December 31, 2003, excluding non-cash charges, we estimate that we spent a
total of approximately $2,322,000 on all our research programs: approximately
$743,000, or 32% of the total for the development of the Smallpox antiviral;
approximately $395,000, or 17% of the total on the strep vaccine; approximately
$441,000, or 19% of the total on the DegP anti-infective; approximately
$557,000, or 24% of the total on vaccines including those being developed under
agreements acquired from Plexus; and approximately $186,000, or 8% of the total
on other anti-infectives. For the year ended December 31, 2002, excluding
non-cash charges, we estimate we spent a total of approximately $1,470,000 on
all our product programs: approximately $515,000, or 35% of total for the strep
vaccine program; approximately $294,000, or 20% of the total was for the
Smallpox program; approximately $294,000, or 20% of the total was for the DegP
anti-infectives program; approximately $147,000, or 10% of the total for other
anti-infectives; and approximately $220,000, or 15% of the total was for other
vaccine programs. We are working with TransTech Pharma on our Smallpox and SARS
anti-viral products and our DegP broad spectrum anti-biotic. There is a high
risk of non-completion of any program because of the lead time to program
completion and uncertainty of the costs. Net cash inflows from any products
developed from these programs is at least two 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 is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the Smallpox anti-viral, could be available for sale in
two to three years. We believe the products directed toward this market are on
schedule. We expect the future research and development cost of this program to
increase as the potential products enter animal studies and safety testing.
Funds for future development will be partially paid for by the contract we have
with the U.S. Army, 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. The clinical trials for our Strep vaccine through Phase
II are being funded under an agreement with the NIH. The time to market for this
product should be several years from now because of the nature of the FDA
requirements for approval of a pediatric vaccine. We expect to fund the
development of the Strep vaccine beyond the Phase II clinical trials through a
corporate collaboration or from additional funding from debt or equity
financings. We do not yet have a corporate partner for this product and there is
no assurance that we will ever have one or that we will be able to raise the
funds needed to go forward. If the funding is not available or the clinical
trials are not successful, the program could be delayed or cancelled. We believe
this product program is on schedule. 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, 2003 were
$300,494 compared to $104,700 for the year ended December 31, 2002. The 187%
increase was the result of increased costs of patent work required on the
intellectual property acquired in the Plexus transaction, including foreign
patent filings.
For the year ended December 31, 2003, we incurred a loss on impairment of
assets as a result of taking a non-cash charge of $137,000 to the intangible
assets acquired in the Plexus transaction to reflect the termination of a
research agreement. No similar charge was incurred in the prior year.
Total operating loss for the year ended December 31, 2003 was $5,294,896,
an approximate 57% increase from the $3,365,088 loss incurred for the year ended
December 31, 2002. The increase in the loss is the result of higher general and
administration expenses and research and development expenses as described
above, partially
22
offset by higher revenues. Approximately 27% of the increase in the net loss was
the result of non-cash charges incurred in the year ended December 31, 2003.
Net interest income was $18,256 for the year ended December 31, 2003
compared to $34,061 for the year ended December 31, 2002. The approximate 46%
decrease in net interest is the result of lower cash balances and interest
yields in the year ended December 31, 2003 compared to prior year.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly statements of
operations data, in dollar amounts and as percentages of net revenue, for the
four quarters ended December 31, 2002 and for the four quarters ended December
31, 2003. This information has been prepared substantially on the same basis as
the audited financial statements appearing elsewhere in this annual statement,
and all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the unaudited
quarterly results of operations data. The quarterly data should be read with our
financial statements.
2002
($ in 000's) Q1 Q2 Q3 Q4
----- ------- ------- -------
Revenue ........................... $ 0 $ 139 $ 90 $ 115
SG&A ............................ $ 341 $ 668 $ 273 $ 556
% of Revenue .................. NA 481% 303% 483%
R&D ............................... $ 357 $ 414 $ 424 $ 571
% of Revenue .................... NA 298% 471% 497%
Patent Prep. Costs ................ $ 27 $ 18 $ 27 $ 33
% of Revenue .................... NA 13% 30% 29%
Operating Loss .................... $ 725 $ 961 $ 634 $ 1,045
% of Revenue .................... NA 691% 704% 909%
Net Loss .......................... $ 712 $ 951 $ 630 $ 1,038
% of Revenue .................... NA 684% 700% 902%
Basic and diluted loss per share .. (0.07) (0.09) (0.06) (0.10)
2003
($ in 000's) Q1 Q2 Q3 Q4
----- ------- ------- -------
Revenue ........................... $ 205 $ 244 $ 176 $ 107
SG&A .............................. $ 560 $ 748 $ 684 $ 654
% of Revenue ...................... 273% 307% 389% 611%
R&D ............................... $ 477 $ 643 $ 1,001 $ 822
% of Revenue ...................... 233% 264% 569% 768%
Patent Prep. Costs ................ $ 56 $ 66 $ 65 $ 113
% of Revenue ...................... 27% 27% 37% 106%
Operating Loss .................... $ 889 $ 1,214 $ 1,574 $ 1,619
% of Revenue ...................... 434% 498% 894% 1,513%
Net Loss .......................... $ 882 $ 1,211 $ 1,571 $ 1,613
% of Revenue ...................... 430% 496% 892% 1,507%
Basic and diluted loss per share .. (0.07) (0.09) (0.09) (0.09)
Liquidity and Capital Resources
As of December 31, 2003 we had $1,440,724 in cash and cash equivalents.
In October 2003, MacAndrews & Forbes Holdings Inc. and its permitted
assignees exercised their option to invest an additional $9,000,000 in us under
the terms of the agreement signed in August 2003, as amended in October 2003.
Upon exercise of the option, we received gross proceeds of $2,159,405 in
exchange for 1,499,587 shares of common stock at a price of $1.44 per share and
warrants to purchase 749,794 shares of common stock.
23
The warrants have an initial exercise price of $2.00 per share and a term of
seven years. The sale of the remaining 4,750,413 shares of common stock and
warrants to purchase 2,375,206 shares of common stock on the same terms was
subject to shareholder approval. On January 8, 2004, at a meeting of
shareholders, the transaction was approved, the additional $6,840,595 of gross
proceeds were received and the common shares and warrants were issued.
In August 2003, we entered into an agreement with MacAndrews & Forbes,
whereby MacAndrews & Forbes and its permitted assignees initially invested
$1,000,000 in SIGA. Upon consummation of the transaction, we received gross
proceeds of $1,000,000 in exchange for 694,444 shares of our common stock at a
price of $1.44 per share and warrants to purchase 347,222 shares of common
stock. The warrants have an initial exercise price of $2.00 per share and have a
term of seven years. MacAndrews & Forbes and its permitted assignees also
received an option, exercisable through October 13, 2003, to invest up to an
additional $9,000,000 in SIGA on the same terms.
In June 2003, the Company raised gross proceeds of $1.5 million in a
private offering of 1,250,000 shares of common stock. In connection with the
offering, the Company issued warrants to purchase 625,000 shares of the
Company's common stock to placement agents. The warrants are exercisable at a
price of $2.00 per share and have a term of five years.
In May 2003, we acquired substantially all of the assets of Plexus in
exchange for 1,950,000 shares of our common stock and the assumption of certain
liabilities, including promissory notes for loans we previously made to Plexus
for $50,000 and $20,000.
In December 2002 and January 2003, we completed a private placement of 34
units consisting of 1.7 million shares of common stock to a group of private
investors. The gross proceeds from the offering were $1,865,000 with net
proceeds to SIGA of approximately $1,682,000.
We anticipate that our current resources will be sufficient to finance our
currently anticipated needs for operating and capital expenditures approximately
through the first quarter of 2005. In addition, we will attempt to generate
additional working capital through a combination of collaborative agreements,
strategic alliances, research grants, equity and debt financing. However, no
assurance can be provided that additional capital will be obtained through these
sources or, if obtained, will be 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.
SIGA leases certain facilities and office space under operating leases.
Minimum future rental commitments under operating leases having noncancellable
lease terms are $193,237, $86,398 and $87,737 for the years ending December 31,
2004, 2005 and 2006, respectively.
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
Risk Factors That May Affect Results of Operations and Financial Condition
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.
24
We incurred net losses of approximately $5.3 million and approximately
$3.3 million for the years ended December 31, 2003 and 2002, respectively. As of
December 31, 2003 and December 31, 2002, our accumulated deficit was
approximately $34.8 million and approximately $29.5 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 and financial condition will be materially and adversely
affected. Because our strategy includes acquisitions of other businesses,
acquisition expenses and any cash used to make these acquisitions will reduce
our available cash.
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 into approximately the first quarter
of 2005. Our annual operating needs vary from year to year depending upon the
amount of revenue generated through grants 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 of our common stock.
25
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.
The following table presents the high and low bid range of our stock for
the past eight quarters.
Bid Range
2002 High Low
----- -----
First Quarter .............................. $2.91 $2.01
Second Quarter ............................. $2.63 $0.81
Third Quarter .............................. $1.39 $0.65
Fourth Quarter ............................. $2.15 $0.65
2003 High Low
----- -----
First Quarter .............................. $1.49 $1.02
Second Quarter ............................. $1.91 $1.09
Third Quarter .............................. $2.13 $1.61
Fourth Quarter ............................. $2.60 $1.80
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. The strep vaccine program is in Phase I clinical trials. All other
programs are in the pre-clinical stage of development. Our biological warfare
defense products do not need human clinical trials for approval by the FDA. We
will need to perform two animal models and provide safety data for a product to
be approved. Our other products will be subject to the approval guidelines under
FDA regulatory requirements which include a number of phases of testing in
humans.
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;
26
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, 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
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
collaborative 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, 2003 and 2002, respectively, were derived from revenues
related to contracts and license agreements. We will receive little or no
revenues under our collaborative agreements if our collaborators' research,
development or marketing efforts are unsuccessful, or if our agreements are
terminated early. Additionally, if we do not enter into new collaborative
agreements, we will not receive future revenues from new sources. Our future
revenue is substantially dependent on the continuing grant and contract work
being performed for the NIH which expires in May 2004 and the U.S. Army which
expires at the end of December 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 by the other party thereto.
Several factors will affect our future receipt of revenues from
collaborative arrangements, including the amount of time and effort expended by
our collaborators, the timing of the identification of useful drug targets and
the timing of the discovery and development of drug candidates. Under our
existing agreements, we may not earn significant milestone payments 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 The 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.
o Oregon State University ("OSU"). 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 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. We have also entered into a subcontract agreement with
OSU for us to perform work under a grant OSU has from the NIH. The
subcontract agreement was renewable annually and the current terms
expired on August 31, 2003. Work on this agreement was completed in
2003.
27
o Wyeth. Our license agreement expires on the earlier of June 30, 2007
or the last to expire patent that we have sub-licensed to them.
Wyeth has the right to terminate the agreement on 90 days written
notice. If terminated, all rights granted to Wyeth will revert to
us, except for any compound identified by Wyeth prior to the date of
termination and subject to the milestones and royalty obligations of
the agreement.
o National Institutes of Health. Under our collaborative agreement
with the NIH, it 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. We
are party to another collaborative agreement with the NIH under
which we received a grant for approximately $865,000. The term of
this agreement expires in May 2004. We are paid as the work is
performed and the agreement can be cancelled for non-performance. We
are current in all our obligations under our agreements.
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. We have
currently met all our obligations under this agreement.
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. This
agreement is related to our agreement with Wyeth and expires at the
same time as that agreement. It can be cancelled earlier if we
default on our obligations or if Wyeth cancels its agreement with
SIGA and we are not able to find a replacement for Wyeth. We have
currently met all our obligations under this agreement.
o TransTech Pharma, Inc. Under our collaborative agreement with
TransTech Pharma, TransTech Pharma is required to collaborate with
us on the discovery, optimization and development of lead compounds
to 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. We
are current in all obligations under this agreement.
We may face limitations on our ability to attract suitable acquisition
opportunities or to integrate additional acquired businesses and the failure to
consummate an acquisition may significantly drain our resources.
As part of our business strategy we expect to enter into business
combinations and acquisitions. Some of these transactions could be material in
size and scope. While we will continually be searching for additional
acquisition opportunities, we may not be successful in identifying suitable
acquisitions. We compete for acquisition candidates with other entities, some of
which have greater financial and other resources than we have. Increased
competition for acquisition candidates may make fewer acquisition candidates
available to us and may cause acquisitions to be made on less attractive terms,
such as higher purchase prices. Acquisition costs may increase to levels that
are beyond our financial capability or that would adversely affect our results
of operations and financial condition.
Our ability to make acquisitions will depend in part on the relative
attractiveness of shares of our common stock as consideration for potential
acquisition candidates. This attractiveness may depend largely on the relative
market price, our ability to register common stock and capital appreciation
prospects of our common stock. If the market price of our common stock were to
decline materially over a prolonged period of time, our acquisition program
could be materially adversely affected. Failure to making an acquisition will
limit our ability to grow, but will not be central to our continued existence.
Costs associated with failed acquisitions, such as our plans to merge
28
with Allergy Therapeutics and Hypernix, may result in significant operating
costs that may need to be financed from operations or from additional equity
capital. The total costs associated with the failed acquisition in 2002 of
Allergy Therapeutics were approximately $600,000, of which approximately
$127,000 remain unpaid. The costs were associated with professional fees for
attorneys and accountants. Additionally, there was significant time spent by our
management in the contemplated transaction.
We may not be able to consummate potential acquisitions or an acquisition may
not enhance our business or may decrease rather than increase our earnings.
In the future, we may issue additional securities in connection with one
or more acquisitions, which may dilute our existing shareholders. Future
acquisitions could also divert substantial management time and result in short
term reductions in earnings or special transaction or other charges. In
addition, we cannot guarantee that we will be able to successfully integrate the
businesses that we may acquire into our existing business. Our shareholders may
not have the opportunity to review, vote on or evaluate future acquisitions.
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 Investigational New Drug ("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;
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
29
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 the IND application 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.
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
30
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 seven 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 two additional patent applications in the U.S. and two
applications in Europe relating to this technology. We are joint owner with
Washington University of seven issued patents in the U.S. and two 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 one PCT application that relates to our
DegP product opportunities.
The following are our patent positions as of December 31, 2003.
- ------------------------------------------------------------------------------------------------------------------
Number
Exclusively
Number Licensed Number
Number Co- from Univ. Exclusively
Exclusively Exclusively of Licensed
Licensed Licensed Copenhagen from Number
from with and Danish Oregon Exclusively Number Patent
Rockefeller Washington Technical State Licensed Owned by Expiration
PATENTS Univ. Univ. University University from UCLA SIGA Dates
- ------------------------------------------------------------------------------------------------------------------
2013,
2014 (3),
2015 (4),
U.S. 7 7 1 2016 (2),
2017,
2019 (2),
2020,2021
- ------------------------------------------------------------------------------------------------------------------
2004,2009
2014 (2),
Australia 5 2 1 2015,2016
2019,2020
- ------------------------------------------------------------------------------------------------------------------
Canada 3 1 2004,2010
2014,2019
- ------------------------------------------------------------------------------------------------------------------
2004,2009
Europe 3 2 2010,2014
2020
- ------------------------------------------------------------------------------------------------------------------
Hungary 2 2013,2016
- ------------------------------------------------------------------------------------------------------------------
2004 (2),
Japan 4 2 2010,2012
2014,2020
- ------------------------------------------------------------------------------------------------------------------
Mexico 1 2016
- ------------------------------------------------------------------------------------------------------------------
New Zealand 1 2016
- ------------------------------------------------------------------------------------------------------------------
APPLICATIONS
- ------------------------------------------------------------------------------------------------------------------
U.S. applications 2 4 1 2 1 3
- ------------------------------------------------------------------------------------------------------------------
U.S. provisionals 5
- ------------------------------------------------------------------------------------------------------------------
31
- ------------------------------------------------------------------------------------------------------------------
Number
Exclusively
Number Licensed Number
Number Co- from Univ. Exclusively
Exclusively Exclusively of Licensed
Licensed Licensed Copenhagen from Number
from with and Danish Oregon Exclusively Number Patent
Rockefeller Washington Technical State Licensed Owned by Expiration
PATENTS Univ. Univ. University University from UCLA SIGA Dates
- ------------------------------------------------------------------------------------------------------------------
Danish 1
provisionals
- ------------------------------------------------------------------------------------------------------------------
PCT 1 3
- ------------------------------------------------------------------------------------------------------------------
Australia 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------
China 1
- ------------------------------------------------------------------------------------------------------------------
Canada 3 1 1 1
- ------------------------------------------------------------------------------------------------------------------
Europe 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------
Finland 1
- ------------------------------------------------------------------------------------------------------------------
Japan 3 1 1
- ------------------------------------------------------------------------------------------------------------------
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 growth has placed, and may continue to 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.
We depend on a key employee in a competitive market for skilled personnel.
We are highly dependent on Dr. Dennis Hruby, our Chief Scientific Officer.
We currently have an employment agreement which expires on December 31, 2005
with Dr. Hruby who we consider to be a "key employee." The loss of his services
prior to the termination of his employment agreement would have a material
adverse effect on our business. We do not maintain a key person life insurance
policy on the life of any employee.
Our future success also will depend in part on the continued service of
our key scientific, software, bioinformatics and management personnel and our
ability to identify, hire and retain additional personnel, including, when we
have a product for commercialization, customer service, marketing and sales
staff. We experience intense competition for qualified personnel. We may not be
able to continue to attract and retain personnel necessary to develop our
business.
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
32
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
$5,000,000 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.
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 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, if any,
after they are on the market, or if manufacturing problems occur:
o regulatory approval may be withdrawn;
33
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.
The manufacture of genetically engineered commensals is 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.
Although our management believes that we have the ability to acquire or
produce quantities of genetically engineered commensals sufficient to support
our present needs for research and our projected needs for our initial clinical
development programs, management believes that improvements in our manufacturing
technology will be required to enable us to meet the volume and cost
requirements needed for certain commercial applications of commensal products.
Products based on commensals have never been manufactured on a commercial scale.
The manufacture of all of our products will be subject to current 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 effect our development programs.
The future issuance of preferred stock may adversely effect 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 and preferred stock. They also
have, through the exercise or conversion of certain securities, the right
34
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, 2003, Directors, Officers and principal stockholders
beneficially owned approximately 37.6% of our stock.
Item 7. Financial Statements and Supplementary Data
The financial statements required by Item 7 are included in this Annual
Report beginning on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 8A. 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 Acting 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
Acting Chief Executive Officer and Chief Financial Officer has concluded that
the Company's current disclosure controls and procedures are effective. There
have been no changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of the
evaluation by the Acting Chief Executive Officer and Chief Financial Officer.
35
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Position
- ---- --- --------
Donald G. Drapkin 56 Chairman of the Board
Thomas N. Konatich 58 Acting Chief Executive Officer,
Chief Financial Officer,
Secretary and Treasurer
Dennis E. Hruby, Ph.D. 52 Chief Scientific Officer
Susan K. Burgess, Ph.D. 57 President
Roger Brent, Ph.D. 48 Director
Charles Cantor, Ph.D. 62 Director
Thomas E. Constance 67 Director
Bernard L. Kasten Jr. M.D. 57 Director
Adnan M. Mjalli, Ph.D. 40 Director
Mehmet C. Oz, M.D. 43 Director
Eric A. Rose, M.D. 53 Director
Paul G. Savas 41 Director
Michael Weiner, M.D. 57 Director
Donald G. Drapkin has served as Chairman of the Board and a director of
SIGA since April 19, 2001. Mr. Drapkin has been Vice Chairman and a director of
MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987.
Prior to joining MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm
of Skadden, Arps, Slate, Meagher & Flom LLP for more than five years. Mr.
Drapkin is also a director of the following corporations which file reports
pursuant to the Securities Exchange Act of 1934: Anthracite Capital, Inc., The
Molson Companies Limited, Playboy Enterprises, Inc., Revlon Consumer Products
Corporation and Revlon Inc. Mr. Drapkin is also a director of Nephros, Inc.,
Pharmacore, Inc. and TransTech Pharma, Inc.
Thomas N. Konatich has served as Vice President, Chief Financial Officer
and Treasurer since April 1, 1998. He was named Secretary of SIGA on June 29,
2001 and has been our Acting Chief Executive Officer since October 5, 2001. From
November 1996 through March 1998, Mr. Konatich served as Chief Financial Officer
and a Director of Innapharma, Inc., a privately held pharmaceutical development
company. From 1993 through November 1996, Mr. Konatich served as Vice President
and Chief Financial Officer of Seragen, Inc., a publicly traded
biopharmaceutical development company. From 1988 to 1993, he was Treasurer of
Ohmicron Corporation, a venture capital financed environmental biotechnology
firm. Mr. Konatich has an MBA from the Columbia Graduate School of Business.
Dennis F. Hruby, Ph.D. has served as Vice-President - Chief Scientific
Officer since June 2000. From April 1, 1997 through June 2000, Dr. Hruby was our
Vice President of Research. From January 1996 through March 1997, Dr. Hruby
served as a senior scientific advisor to SIGA. Dr. Hruby is a Professor of
Microbiology at Oregon State University, and from 1990 to 1993 was Director of
the Molecular and Cellular Biology Program and Associate Director of the Center
for Gene Research and Biotechnology. Dr. Hruby specializes in virology and cell
biology research, and the use of viral and bacterial vectors to produce
recombinant vaccines. He is a member of the American Society of Virology, the
American Society for Microbiology and a fellow of the American Academy of
Microbiology. Dr. Hruby received a Ph.D. in microbiology from the University of
Colorado Medical Center and a B.S. in microbiology from Oregon State University.
Susan K. Burgess, Ph.D. became SIGA's President in May 2003. Prior to
SIGA's acquisition of Plexus Vaccine Inc.'s assets, she was founder and served
as President and CEO of Plexus Vaccine Inc., a company that
36
creates vaccines for emerging pathogens using immunological bioinformatics and
structural biology. She was founder and principal of The Remuda Group, a biotech
consulting firm, and co-founder and organizer of The Cienaga Forum, a non-profit
educational organization that convenes the "After the Genome" series of
postgenomic cross-disciplinary think-tanks. Dr. Burgess was a co-founder and
Vice President of corporate development for Structural Bioinformatics, Inc.,
from 1995-1999, responsible for enlisting a number of corporate collaborations;
and co-founder in 1994 of MesaGnostics, Inc, a San Diego proteomics company. She
has over twenty years research and business development experience in the
biopharmaceutical industry at The Alza Corporation, Burroughs Wellcome Company,
and Glaxo, Inc., with a Ph.D. (pharmacology and toxicology) from the University
of Kansas, and postdoctoral training (molecular neurobiology) at the University
of North Carolina at Chapel Hill.
Roger Brent, Ph.D. has been a director of SIGA since May 23, 2003. Since
2001, Dr. Brent has served as the President and Director of The Molecular
Sciences Institute in Berkeley California. Dr. Brent was formerly a faculty
member at Harvard Medical School and Massachusetts General Hospital in Boston.
Dr. Brent advises agencies of the US government, including the Defense Advanced
Research Projects Agency, on genomics, and The Wellcome Trust. Dr. Brent founded
Current Protocols in Molecular Biology. Dr. Brent is an inventor on twelve
issued patents and his work is widely known on biological technologies to map
genetic networks and test functions for genes and alleles.
Charles Cantor, Ph.D. has served as a director of SIGA since May 23, 2003.
Since 1998, Dr. Cantor has served as Chief Scientific Officer of Sequenom Inc.,
a discovery genetics company. Dr. Cantor is Director of the Center for Advanced
Biotechnology at Boston University. Dr. Cantor was also the Director of the
Human Genome Center of the Department of Energy at Lawrence Berkley Laboratory
and has held positions at Columbia University and the University of California
Berkeley. Dr. Cantor has been granted 26 patents and published over 400
peer-reviewed articles.
Thomas E. Constance has served as a director of SIGA since April 19, 2001.
Mr. Constance is Chairman and, since 1994, a partner of Kramer Levin Naftalis &
Frankel LLP, a law firm in New York City. Mr. Constance is a director of the
following corporation which files reports pursuant to the Securities Exchange
Act of 1934: Kroll Inc. Mr. Constance serves as a Trustee of the M.D. Sass
Foundation and St. Vincent's Services. He also serves on the Advisory Board of
Directors of Barington Capital, L.P.
Bernard L. Kasten Jr., M.D. has been a director of SIGA since May 23,
2003. Since February 2002, Dr. Kasten has been Vice President, Medical Affairs
of MedPlus Inc., a healthcare information technology company and a wholly-owned
subsidiary of Quest Diagnostics, Inc., a diagnostic testing, information and
services company. Since 1975, Dr. Kasten has been a Diplomat of the American
Board of Pathology with a sub-specialty certification in 1976 in Medical
Microbiology. Dr. Kasten's staff appointments have included service in the
Division of Laboratory Medicine at The Cleveland Clinic; Associate Director of
Pathology and Laboratory Services at the Bethesda Hospital Systems in
Cincinnati, Ohio and Chief Laboratory Officer at Quest Diagnostics Incorporated.
Dr. Kasten was a founder of Plexus Vaccine Inc., a vaccine company of which SIGA
acquired substantially all of the assets in May 2003. Dr. Kasten is an author of
"Infectious Disease Handbook" 5th Edition, 2003, Lexi-Comp Inc.
Adnan M. Mjalli, Ph.D. has served as a director of SIGA since January
2004. Dr. Mjalli is the founder, President and Chief Executive Officer of
TransTech Pharma, Inc., a privately held drug discovery company in High Point,
NC. He also serves as Chairman of the Board of Pharmacore, Inc. where he
previously served as President and CEO from December of 1998 to November 2000.
Dr. Mjalli obtained his Ph.D. in medicinal chemistry in 1989 from the University
of Exeter, UK. His postdoctoral work was carried out at the University of
Rochester. Prior to founding TransTech Pharma, he held various positions of
increasing responsibility in research and senior management at several
pharmaceutical and biotechnology companies including Merck & Co., Inc.
Mehmet C. Oz, M.D. has served as a director of SIGA since April 19, 2001.
Dr. Oz has been a Cardiac Surgeon at Columbia University Presbyterian Hospital
since 1993 and a Professor of Surgery and Vice Chairman for Cardiovascular
Services of the Department of Surgery there since July 2001. Dr. Oz directs the
following programs at New York University Presbyterian Hospital, Columbia
University: the Cardiovascular Institute, the complementary medicine program,
the clinical profusion program and clinical trials of new surgical technology.
Dr. Oz received his undergraduate degree from Harvard University in 1982, and,
in 1986, he received a joint M.D./M.B.A. degree from the University of
Pennsylvania Medical School and the Wharton School of Business.
37
Eric A. Rose, M.D. has served as a director of SIGA since April 19, 2001.
From April 19, 2001 until June 21, 2001, Dr. Rose served as Interim Chief
Executive Officer of SIGA. Dr. Rose is currently Chairman of the Department of
Surgery and Surgeon-in-Chief of the Columbia Presbyterian Center of New York
Presbyterian Hospital, a position he has held since August 1994. Dr. Rose is a
past President of the International Society for Heart and Lung Transplantation.
Dr. Rose was recently appointed as Morris & Rose Milstein Professor of Surgery
at Columbia University's College of Physicians and Surgeons' Department of
Surgery. Dr. Rose is a director of TransTech Pharma, Inc. and a former director
of Nexell Therapeutics Inc. (f/k/a VimRx). Dr. Rose is a graduate of both
Columbia College and Columbia University College of Physicians & Surgeons.
Paul G. Savas has been a Senior Vice President of Finance at MacAndrews &
Forbes Holdings, Inc. and its affiliates since October 2002, and was Vice
President of MacAndrews & Forbes and its affiliates from 1998 until 2002. He was
Director of Corporate Finance at MacAndrews & Forbes from 1994 - 1998. From
December 1988 until April 1997, Mr. Savas served in the Finance Department of
NYNEX Corporation holding the positions of Associate Director of Corporate
Finance and Staff Director of External Reporting.
Michael A. Weiner, M.D. has served as a director of SIGA since April 19,
2001. Dr. Weiner is the Hettinger Professor of Pediatrics at Columbia University
College of Physicians and Surgeons since 1996. Dr. Weiner is also the Director
of Pediatric Oncology at New York Presbyterian Hospital. Dr. Weiner was a
director of Nexell Therapeutics, Inc. (f/k/a VimRx) from March 1996 to February
1999. Dr. Weiner is a 1972 graduate of the New York State Health Sciences Center
at Syracuse, and he was a post graduate student at New York University and Johns
Hopkins University.
Audit Committee Matters
The purpose of the audit committee is to assist our Board of Directors in
the oversight of the integrity of the financial statements of SIGA, SIGA's
compliance with legal and regulatory matters, the independent auditor's
qualifications and independence, and the performance of SIGA's independent
auditors. The primary responsibilities of the audit committee are set forth in
its charter, and include various matters with respect to the oversight of SIGA's
accounting and financial reporting process and audits of the financial
statements of SIGA on behalf of our Board of Directors. The audit committee also
selects the independent certified public accountants to conduct the annual audit
of the financial statements of SIGA; reviews the proposed scope of such audit;
reviews accounting and financial controls of SIGA with the independent public
accountants and our financial accounting staff; and reviews and approves
transactions between us and our directors, officers, and their affiliates.
The current members of SIGA's audit committee are Paul G. Savas, Mehmet C.
Oz and Michael Weiner. The Company's board has determined that Mr. Savas is an
audit committee financial expert and that he is independent as defined in Item
7(d)(B)(iv) of Schedule 14A under the Exchange Act.
The current audit committee charter is filed as an exhibit to this Annual
Report.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports that they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations from certain of the Company's executive
officers and directors that no other such reports were required, the Company
believes that during the fiscal year ended December 31, 2003 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with on a timely basis.
38
Code of Ethics
The Company has adopted a code of ethics that applies to our officers,
directors and employees, including without limitation, our Acting Chief
Executive Officer, President, Chief Financial Officer and Chief Scientific
Officer. A copy of our Code of Ethics is filed as an exhibit to this annual
report.
Item 10. Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 2003, 2002 and 2001, for each person who acted as
SIGA's Chief Executive Officer at any time during the year ended December 31,
2003, and its most highly compensated executive officers, other than its Chief
Executive Officer, whose salary and bonus for the fiscal year ended December 31,
2003 were in excess of $100,000 each.
Summary Compensation Table
Annual Compensation
-----------------------------------------------
Long-Term
Compensation
Other Annual Securities
Compensation Underlying Options
------------ ------------------
Name and Principal Position Year Salary ($) ($) (#)
- --------------------------- ---- ---------- ------------ ------------------
Thomas N. Konatich, 2003 210,000 -- --
Chief Financial Officer and Acting CEO 2002 188,333 -- 200,000
2001 177,542 -- --
Dennis E. Hruby 2003 210,000 -- --
Chief Scientific Officer 2002 195,000 -- 300,000
2001 196,055 -- --
Susan K. Burgess 2003 135,692 -- 300,000
President
- ----------
Option Grants for the Year Ended December 31, 2003
The following table sets forth grants of stock options during the year
ended December 31, 2003 to anyone who served as Chief Executive Officer and its
two highest paid employees. The exercise price at the time of the grant was
equal to or above the fair market value at the time of the grant.
Common Stock % of Total Exercise
Underlying Options Granted Price Per Expiration
Name Options Granted to Employees Share Date
- ---- --------------- --------------- --------- ----------
Susan K. Burgess................ 325,000(1) 80% (2) 5/23/2113
- ----------
(1) Includes 25,000 options to purchase common stock granted as consideration in
SIGA's acquisition of substantially all the assets of Plexus (the "Consideration
Options").
(2) The exercise price per share of the Consideration Options is $1.69; the
exercise price of the remaining options is $1.81.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 2003 by SIGA's Chief Executive Officer and its
two most highly compensated executive officers, other than its Chief Executive
Officer. No options were exercised during fiscal 2003 by any of the officers.
39
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options # at Fiscal Year-End ($) (1)
------------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Thomas N. Konatich 395,000 0 $29,000 0
Dennis E. Hruby 325,000 150,000 $36,250 0
Susan K. Burgess 125,000 200,000 $63,000 $96,000
- ----------
(1) Based upon the closing price on December 31, 2003, as reported on the
Nasdaq SmallCap Market and the exercise price per option.
Long-Term Incentive Plans--Awards in Last Fiscal Year
As of January 1, 1996, we adopted our 1996 Incentive and Non-Qualified
Stock Option Plan. An amendment and restatement of such plan, as amended, was
adopted on May 3, 2001 and was further refined by the Board of Directors on June
29, 2001 (the "Plan"). The Plan was approved by our stockholders at an annual
meeting on August 15, 2001. Stock options may be granted to key employees,
consultants and outside directors pursuant to the Plan. The Plan was amended
again at our annual meeting on January 8, 2004, when our shareholders voted to
increase the maximum number of shares of common stock available for issuance
under the Plan from 7,500,000 to 10,000,000.
The Plan is administered by a committee (the "Committee") comprised of
disinterested directors. The Committee determines persons to be granted stock
options, the amount of stock options to be granted to each such person, and the
terms and conditions of any stock options as permitted under the Plan. The
members of the Committee are Mehmet C. Oz, M.D., Paul G. Savas and Michael
Weiner, M.D.
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Any Incentive Option granted under the Plan will have an
exercise price of not less than 100% of the fair market value of the shares on
the date on which such option is granted. With respect to an Incentive Option
granted to an employee who owns more than 10% of the total combined voting stock
of SIGA or of any parent or subsidiary of SIGA, the exercise price for such
option must be at least 110% of the fair market value of the shares subject to
the option on the date the option is granted.
The Plan, as amended, provides for the granting of options to purchase
10,000,000 shares of common stock, of which 6,460,811 options were outstanding
as of December 31, 2003.
During the fiscal year ending December 31, 2003, the named Directors and
Officers of SIGA received long-term incentive compensation under the Plan as
shown in the following table.
- --------------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price Based Plans
- --------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
- --------------------------------------------------------------------------------------------------------------
Number of Performance or
Shares, Units or Other Period Until
Other Rights Maturation of Threshold Target Maximum
Name (#) Payout ($ or #) ($ or #) ($ or #)
- --------------------------------------------------------------------------------------------------------------
Susan K. Burgess, Ph.D 100,000 5/23/13 N/A N/A N/A
Roger Brent, Ph.D 100,000 5/23/13 N/A N/A N/A
Charles Cantor, Ph.D 100,000 5/23/13 N/A N/A N/A
Bernard L. Kasten, Jr., M.D 100,000 5/23/13 N/A N/A N/A
40
Employment Contracts and Directors Compensation
Employment Contracts
Thomas N. Konatich, SIGA's Vice President, Chief Financial Officer,
Secretary, Treasurer and Acting Chief Executive Officer, is employed by SIGA
under an employment agreement dated April 1, 1998, as amended on January 19,
2000, as amended and restated on October 6, 2000, as amended as of January 31,
2002 and as amended on November 5, 2002. This Agreement expires on September 30,
2004 and is cancelable by SIGA only for cause, as defined in the agreement. Mr.
Konatich receives an annual base salary of $210,000. He received options to
purchase 95,000 shares of common stock, at $4.44 on April 1, 1998. The options
vested on a pro rata basis on the first, second, third and fourth anniversaries
of the agreement. On January 19, 2000, he received an additional grant to
purchase 100,000 shares at an exercise price of $2.00 per share. These options
vest on a pro rata basis each quarter through January 19, 2002. On January 31,
2002, Mr. Konatich was granted an "Incentive Stock Option" to purchase 50,000
shares at an exercise price of $3.94 per share. Such options vest in eight equal
quarterly installments beginning on April 20, 2002. On November 5, 2002, Mr.
Konatich was granted an Incentive Stock Option to purchase 150,000 shares at an
exercise price of $2.50 per share. 75,000 of these options vested immediately
and 75,000 options vested on September 1, 2003. Mr. Konatich is also eligible to
receive additional stock options and bonuses at the discretion of the Board of
Directors.
Dr. Dennis E. Hruby, Chief Scientific Officer ("CSO"), is employed by SIGA
under an employment agreement dated January, 1, 1998, as amended on June 16,
2000, as amended on January 31, 2002, as amended on October 3, 2002. This
Agreement expires on December 31, 2005, except that SIGA may terminate the
agreement upon 180 days written notice. Dr. Hruby receives a base salary of
$210,000 per year. Dr. Hruby received options to purchase 10,000 shares of
common stock at an exercise price of $5.00 per share on April 1, 1997 and 40,000
shares of common stock at an exercise price of $4.63 per share on April 1, 1998.
The options became exercisable on a pro rata basis on the first, second, third
and fourth anniversaries of the agreement. Dr. Hruby is eligible to receive
additional stock options and bonuses at the discretion of the Board of
Directors. Under the June 16, 2000 amendment, Dr. Hruby was granted options to
purchase 125,000 shares of SIGA's common stock at $2.00 per share. The options
vest ratably over the remaining term of the amendment. The January 31, 2002
amendment changed the terms of the lock-up agreed to in the June 16, 2000
amendment to the employment agreement limiting Hruby's ability to sell SIGA
stock. On January 31, 2002, Dr. Hruby was granted and "Incentive Stock Option"
to purchase 50,000 shares at an exercise price of $3.94 per share. Such options
vest in four equal annual installments beginning on August 15, 2002. As part of
the most recent amendment, Dr. Hruby was granted an option to purchase 300,000
shares of common stock. Options with respect to 75,000 shares vested upon the
signing of the amendment and an additional 75,000 shares shall vest on a pro
rata basis on September 1 of each 2003, 2004 and 2005. The options have an
exercise price of $2.50 per share. As part of the amended agreement, Dr. Hruby
surrendered his option to purchase up to 50,000 shares of common stock of SIGA
at an exercise price of $3.94 that he was granted under an earlier amendment.
Dr. Susan K. Burgess is employed as President of SIGA under an employment
agreement, dated May 23, 2003. This agreement expires on December 31, 2005 and
is cancelable by SIGA only for Cause (as defined in the agreement). Dr. Burgess
receives an annual base salary of $216,000. On the date of the agreement, Dr.
Burgess received options to purchase an aggregate of 300,000 shares of our
common stock at an exercise price of $1.81 per share. Options to purchase the
first 100,000 shares vested on the date of the agreement and options to purchase
the remaining shares vest on a pro rata basis on the second and third
anniversaries of the agreement. Dr. Burgess is also eligible to receive
additional stock options and bonuses at the discretion of the Board of
Directors.
Directors' Compensation
SIGA does not pay fees to its directors, nor does it reimburse its
directors for expenses incurred.
41
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters
The following tables set forth certain information regarding the
beneficial ownership of SIGA's voting securities as of March 15, 2004 of (i)
each person known to SIGA to beneficially own more than 5% of the applicable
class of voting securities, (ii) each director and director nominee of SIGA,
(iii) each Named Officer, and (iv) all directors and officers of SIGA as a
group. As of March 15, 2004, a total of 23,427,264 shares of common stock and a
total of 81,366 shares of Series A preferred stock were outstanding. Each share
of common stock and Series A preferred stock is entitled to one vote on matters
on which common stockholders are eligible to vote. The column entitled
"Percentage of Total Voting Stock" shows the percentage of total voting stock
beneficially owned by each listed party.
Percentage of Percentage of
Name and Address of Amount of Beneficial Common Stock Total Voting
Beneficial Owner (1) Ownership (2) Outstanding Stock Outstanding
- ------------------- -------------------- ------------- -----------------
Beneficial Holders
MacAndrews & Forbes Holdings Inc. (3)
35 East 62nd Street
New York, NY 10021 ........................... 5,208,339(4) 21.3 21.2
TransTech Pharma, Inc. ....................... 5,208,333(5) 20.7 20.6
Officers and Directors
Donald G. Drapkin (6)
35 East 62nd Street
New York, NY 10021 ........................... 1,798,326(7) 7.2 7.2
Roger Brent, Ph.D.
2168 Shattuck--Floor 2
Berkeley, CA 94704 ........................... 125,712(8) * *
Charles Cantor, Ph.D.
c/o Sequenom Inc.
3595 John Hopkins Court
San Diego, CA 92121 .......................... 111,250(9) * *
Thomas E. Constance
919 Third Avenue, 41st Floor
New York, NY 10022 ........................... 253,467(10) * *
Bernard L. Kasten Jr., M.D.
4690 Parkway Drive
Cincinnati, OH 45040 ......................... 408,801(11) 1.7 1.7
Adnan M. Mjalli, Ph.D
4170 Mendenhall Oaks Parkway, Suite 110
High Point, NC 27265 ......................... 0(12) - -
Mehmet C. Oz, M.D.
177 Fort Washington Ave
New York, NY 10032 ........................... 125,000(13) * *
Eric A. Rose, M.D. (14)
122 East 78th Street
New York, NY 10021 ........................... 790,090(15) 3.3 3.3
Paul G. Savas
35 East 62nd Street
New York, NY 10021 ........................... 26,042(16) * *
Michael A. Weiner, M.D.
161 Fort Washington Ave.
New York, NY 10032 ........................... 125,000(13) * *
42
Percentage of Percentage of
Name and Address of Amount of Beneficial Common Stock Total Voting
Beneficial Owner (1) Ownership (2) Outstanding Stock Outstanding
- ------------------- -------------------- ------------- -----------------
Named Officers
Susan K. Burgess, Ph.D.(17) .................. 399,783(18) 1.7 1.7
Thomas N. Konatich ........................... 395,000(19) 1.7 1.7
Dennis E. Hruby, Ph.D ........................ 325,000(19) 1.4 1.4
All Executive Officers and Directors as a
group (thirteen persons) ..................... 4,883,471(20) 17.9 17.9
- ----------
* Less than 1%
(1) Unless otherwise indicated the address of each beneficial owner identified
is 420 Lexington Avenue, Suite 601, New York, NY 10170.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(3) MacAndrews & Forbes is a direct wholly-owned subsidiary of Mafco Holdings
Inc., a holding company whose sole stockholder is Ronald O. Perelman.
(4) Includes 1,678,820 shares of common stock issuable upon exercise of
warrants.
(5) Includes 1,736,111 shares of common stock issuable upon exercise of
warrants.
(6) Mr. Drapkin is a director and Vice Chairman of Mafco Holdings Inc. and
MacAndrews & Forbes and a director of TransTech Pharma.
(7) Includes 1,125,000 shares of common stock issuable upon exercise of
options, shares of common stock underlying a warrant to purchase up to
347,826 shares of common stock and shares of common stock underlying a
warrant to purchase up to 30,500 shares of common stock (the "Drapkin
September 2001 Investor Warrant"). However, the Drapkin September 2001
Investor Warrant provides that, with certain limited exceptions, such
warrant is not exercisable if, as a result of such exercise, the number of
shares of common stock beneficially owned by Mr. Drapkin and his
affiliates (other than shares of common stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Drapkin September 2001 Investor Warrant) would exceed 9.99% of the
outstanding shares of common stock. Does not include shares of common
stock that Mr. Drapkin, as a director and Vice Chairman of Mafco Holdings
Inc. and MacAndrews & Forbes or as director of TransTech Pharma, may be
deemed to beneficially own and as to which Mr. Drapkin disclaims
beneficial ownership.
(8) Includes 121,250 shares of common stock issuable upon exercise of options.
(9) Includes 112,250 shares of common stock issuable upon exercise of options.
(10) Includes 12,200 shares issuable upon exercise of warrants and 225,000
shares of common stock issuable upon exercise of options.
(11) Includes 1,350 shares of common stock issuable upon exercise of warrants
and 100,000 shares of common stock issuable upon exercise of options.
(12) Does not include shares of common stock that Dr. Mjalli, as a director of
TransTech Pharma, may be deemed to beneficially own and as to which Dr.
Mjalli disclaims beneficial ownership.
(13) Includes 12,500 shares issuable upon exercise of warrants and 100,000
shares issuable upon exercise of options.
(14) Dr. Rose is a director of TransTech Pharma.
(15) Includes 88,610 shares of common stock issuable upon exercise of warrants
and 600,000 shares of common stock issuable upon exercise of options. Does
not include shares of common stock that Dr. Rose, as a director of
TransTech Pharma, may be deemed to beneficially own and as to which Dr.
Rose disclaims beneficial ownership.
(16) Includes 8,681 shares of common stock issuable upon exercise of warrants.
43
(17) Susan K. Burgess, Ph.D. became SIGA's President on May 23, 2003.
(18) Includes 125,000 shares of common stock issuable upon exercise of options.
Does not include 5,000 shares of common stock that Dr. Burgess' daughter
owns, which Dr. Burgess may be deemed to beneficially own and as to which
Dr. Burgess disclaims beneficial ownership.
(19) Neither of Messrs. Konatich and Hruby own shares of common stock. All
shares listed as beneficially owned by each of Messrs. Konatich and Hruby
are shares issuable upon exercise of stock options.
(20) See footnotes (6)-(19).
Ownership of Series A Preferred Stock
Percentage of Series A
Name and Address of Preferred Shares
Beneficial Owner Amount of Beneficial Ownership Outstanding(1)
Alfons Melhon 13,328 18.3%
Frank J. and Mary Ann Loccisano 56,490 77.4%
J. Jay Lobell 3,174 4.3%
- ----------
(1) Percentage of beneficial ownership of Series A Preferred Stock is
calculated based on the assumption that there were 81,366 shares of Series
A Preferred Stock outstanding on March 15, 2004.
Equity Compensation Plan Information
The following table sets forth certain equity 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, 2003:
- --------------------------------------------------------------------------------------------------------------------
Number of
securities
remaining available
for
Number of future issuance
securities to under
be issued upon equity compensation
exercise Weighted-average plans (excluding
of outstanding exercise price of securities
options, outstanding options, reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
- ------------- ------------------- ------------------- -------------------
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders (1)......................... 6,460,811 $2.33 827,064
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved by
security holders............................. 250,000 $2.00 0
- --------------------------------------------------------------------------------------------------------------------
Total........................................ 6,710,811 $2.32 827,064
- --------------------------------------------------------------------------------------------------------------------
(1) SIGA Technologies, Inc., Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan
Item 12. Certain Relationships and Related Transactions
Thomas E. Constance, a director of SIGA, is Chairman of Kramer Levin
Naftalis & Frankel LLP, a law firm in New York City, which SIGA retained to
provide legal services during fiscal year 2003.
Donald G. Drapkin, Chairman of the Board of Directors of SIGA, and Eric A.
Rose and Adnan M. Mjalli, both directors of SIGA, are also directors with
TransTech Pharma, Inc., a company with which we have a collaborative agreement.
In addition, TransTech Pharma invested $5.0 million in the Company on January 8,
2004.
44
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
2(a) Asset Purchase Agreement, dated as of May 14, 2003, between SIGA
Technologies, Inc. and Plexus Vaccine Inc. (Incorporated by
reference to Form 8-K of the Company filed June 9, 2003).
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)).
3(c) Certificate of Designations of Series and Determination of Rights
and Preferences of Series A Convertible Preferred Stock of the
Company dated July 2, 2001 (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).
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
SIGA Technologies, Inc. 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
SIGA Technologies, Inc. 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
45
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(e) Employment Agreement between the Company and Dr. Kevin F. Jones,
dated as of January 1, 1996 (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(f) Employment Agreement between the Company and David de Weese, dated
as of November 18, 1996(1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(g) Employment Agreement between the Company and Dr. Dennis Hruby, dated
as of April 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(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(n) Employment Agreement between the Company and Dr. Dennis Hruby, dated
as of January 1, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
Amendment to the Agreement, dated as of October 15, 1999
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999). Amendment to the
Agreement dated as of June 12, 2000).
10(o) Employment Agreement between the Company and Thomas Konatich, dated
as of April 1, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
Extension and Amendment of the Agreement, dated as of January 19,
2000 (Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999). Amendment and
Restatement of the Agreement, dated as of October 6, 2000
46
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000).
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).
10(t) Amendment to Employment Agreement between the Company and Dr. Dennis
Hruby dated as of January 31, 2002 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001).
10(u) Amendment and Waiver to Employment Agreement between the Company and
Thomas Konatich dated as of January 31, 2002 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2001).
10(v) Small Business Innovation Grant to the Company from the National
Institutes of Health dated May 17, 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(w) 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) Amendment to Employment Agreement between the Company and Denis
Hruby 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(y) Retainer Agreement between the Company and Saggi Captial, Inc.,
dated November 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(z) Retainer Agreement between the Company and Bridge Ventures, Inc.,
dated November 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(aa) Amendment to Employment Agreement between the Company and Thomas N.
Konatich, dated November 5, 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(bb) 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).
47
10(cc) 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(dd) Employment Agreement, dated as of May 23, 2003, between SIGA
Technologies, Inc. and Susan K. Burgess, Ph.D. (Incorporated by
reference to Form 8-K of the Company filed June 9, 2003).
10(ee) Securities Purchase Agreement, dated as of August 13, 2003, between
SIGA Technologies, Inc. and MacAndrews & Forbes Holdings Inc.
(Incorporated by reference to Form 8-K of the Company filed August
18, 2003).
10(ff) Letter Agreement dated October 8, 2003 among SIGA Technologies,
Inc., MacAndrews & Forbes Holdings Inc. and TransTech Pharma, Inc.
(Incorporated by reference to Form 8-K of the Company filed August
18, 2003).
14 SIGA Technologies, Inc. Code of Ethics and Business Conduct
(filed herewith).
23.1 Consent of Independent Accountants (filed herewith).
31.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
99.1 Charter of Audit Committee (filed herewith).
- ----------
(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.
(b) Reports on Form 8-K
On October 9, 2003, we filed with the SEC a report on Form 8-K, pursuant
to which we reported under Item 5 that, on October 8, 2003, (i) MacAndrews
& Forbes will immediately invest $2,159,405 in SIGA in exchange for
1,499,587 shares of our common stock at a price of $1.44 per share and
warrants to purchase up to an additional 749,794 shares of common stock at
an exercise price of $2.00 per share; and (ii) following approval of our
stockholders, as required under the rules of the Nasdaq SmallCap Market,
MacAndrews & Forbes will invest $1,840,595 in us in exchange for 1,278,191
shares of our common stock and warrants to purchase up to an additional
639,095 shares of common stock on the same terms, and TransTech Pharma
will invest $5,000,000 in us in exchange for 3,472,222 shares of our
common stock and warrants to purchase up to an additional 1,736,111 shares
of our common stock on the same terms.
Item 14. Principal Accountant Fees and Services
Current Year Audit Fees
PricewaterhouseCoopers LLP billed SIGA $203,150 in the aggregate, for
professional services rendered by them for the audit of SIGA's annual financial
statements for the fiscal year ended December 31, 2003, reviews of the interim
financial statements included in SIGA's forms 10-QSB filed during the year ended
December 31, 2003 and consents and reviews of various documents filed with the
SEC during the year ended December 31, 2003.
Audit Related Fees
PricewaterhouseCoopers LLP billed SIGA $62,700 in the aggregate for audit
and related services rendered with regard to its acquisition of substantially
all the assets of Plexus Vaccine Inc. during the fiscal year ended December 31,
2003.
48
Prior Year Proxy Audit Fees
PricewaterhouseCoopers LLP billed SIGA $101,580 in the aggregate, for
professional services rendered by them for the audit of SIGA's annual financial
statements for the fiscal year ended December 31, 2002, and the reviews of the
interim financial statements included in SIGA's forms 10-QSB filed during the
year ended December 31, 2002.
All Other Fees
PricewaterhouseCoopers LLP billed SIGA $255,690 in the aggregate for
assurance and related services rendered primarily with regard to its proposed
acquisition of Allergy Therapeutics Holdings Ltd. during the fiscal year ended
December 31, 2002.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services, and other
services.
49
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 30, 2004 By: /s/ Thomas N. Konatich
------------------------------------
Thomas N. Konatich
Chief Financial Officer & Acting
Chief Executive Officer
Pursuant to the requirements of the Securities 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/ Thomas N. Konatich Acting Chief Executive Officer
- -------------------------------- and Chief Financial Officer March 30, 2004
Thomas N. Konatich
/s/ Donald G. Drapkin
- --------------------------------
Donald G. Drapkin Chairman of the Board March 30, 2004
/s/ Roger Brent, Ph.D.
- --------------------------------
Roger Brent, Ph.D. Director March 30, 2004
/s/ Charles Cantor, Ph.D.
- --------------------------------
Charles Cantor, Ph.D. Director March 30, 2004
/s/ Thomas E. Constance
- --------------------------------
Thomas E. Constance Director March 30, 2004
/s/ Bernard L. Kasten, Jr., M.D.
- --------------------------------
Bernard L. Kasten, Jr., M.D. Director March 30, 2004
/s/ Adnan M. Mjalli, Ph.D.
- --------------------------------
Adnan M. Mjalli, Ph.D. Director March 30, 2004
/s/ Mehmet C. Oz, M.D.
- --------------------------------
Mehmet C. Oz, M.D. Director March 30, 2004
- --------------------------------
Eric A. Rose, M.D. Director March __, 2004
/s/ Paul G. Savas
- --------------------------------
Paul G. Savas Director March 30, 2004
- --------------------------------
Michael Weiner, M.D. Director March __, 2004
50
Table of Contents
Report of Independent Auditors ............................................................... F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002 ................................. F-3
Consolidated Statement of Operations for the years ended December 31, 2003 and 2002 .......... F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31,
2003 and 2002 ........................................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31, 2003 and 2002 .......... F-7
Notes to Financial Statements ................................................................ F-8
F - 1
Report of Independent Auditors
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 cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of SIGA Technologies, Inc. at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2004
New York, New York
F-2
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2003 and 2002
December 31, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents ............................................ $ 1,440,724 $ 2,069,004
Accounts receivable .................................................. 38,786 60,151
Prepaid expenses ..................................................... 50,338 104,227
------------ ------------
Total current assets ............................................... 1,529,848 2,233,382
Equipment, net ....................................................... 379,046 432,442
Goodwill ............................................................. 898,334 --
Intangible assets, net ............................................... 3,117,357 --
Other assets ......................................................... 174,995 164,168
------------ ------------
Total assets ....................................................... $ 6,099,580 $ 2,829,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ..................................................... $ 353,051 $ 461,146
Accrued expenses and other ........................................... 195,181 184,554
Capital lease obligations ............................................ -- 11,206
------------ ------------
Total liabilities .................................................. 548,232 656,906
Commitments and contingencies
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000
shares authorized, 81,366 and 410,760 issued and outstanding at
December 31, 2003 and December 31, 2002, respectively) ............. 72,666 443,674
Common stock ($.0001 par value, 50,000,000 shares authorized,
18,676,851 and 12,902,053 issued and outstanding at December
31, 2003 and December 31, 2002, respectively) ...................... 1,868 1,293
Additional paid-in capital ........................................... 40,284,856 32,051,461
Stock subscriptions outstanding ...................................... -- (791,940)
Accumulated deficit .................................................. (34,808,042) (29,531,402)
------------ ------------
Total stockholders' equity ......................................... 5,551,348 2,173,086
------------ ------------
Total liabilities and stockholders' equity ......................... $ 6,099,580 $ 2,829,992
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 2003 and 2002
Year ended
December 31,
2003 2002
------------ ------------
Revenues
Research and development contracts .................... $ 731,743 $ 344,450
------------ ------------
Operating expenses
Selling, general and administrative ........................ 2,646,586 1,838,470
Research and development .............................. 2,942,809 1,766,368
Patent preparation fees ............................... 300,494 104,700
Loss on impairment of intangible asset ................ 136,750 --
------------ ------------
Total operating expenses .......................... 6,026,639 3,709,538
------------ ------------
Operating loss .................................... (5,294,896) (3,365,088)
Interest income, net ....................................... 18,256 34,061
------------ ------------
Net loss .......................................... $ (5,276,640) $ (3,331,027)
Deemed dividend related to beneficial conversion feature ... -- 29,200
------------ ------------
Net loss applicable to common shareholders ........ $ (5,276,640) $ (3,360,227)
============ ============
Weighted average shares outstanding: basic and diluted ..... 15,717,138 10,450,529
============ ============
Net loss per share: basic and diluted ...................... $ (0.34) $ (0.32)
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2003 and 2002
Series A
Convertible
Preferred Stock Common Stock
-------------------------- -------------------------
Shares Amount Shares Amount
Balance at December 31, 2001 379,294 $ 398,441 10,139,553 $ 1,016
Net proceeds from issuance of common stock 2,737,500 274
($1.00 to $1.09 per share)
Issuance of common shares upon exercise of stock options 25,000 3
Issuance of preferred stock to settle dividends payable 31,466 45,233
Amortization of deferred compensation
Stock options issued to non-employee
Deemed dividend related to beneficial conversion feature
Net loss
-------- ------------ ---------- ----------
Balance at December 31, 2002 410,760 443,674 12,902,053 1,293
======== ============ ========== ==========
Net proceeds from issuance of common stock ($1.20 to 3,444,031 344
$1.44 per share)
Issuance of common stock upon acquisition 1,950,000 195
Issuance of stock options and warrants upon acquisition
Issuance of common stock upon exercise of stock options and warrants 27,582 3
Conversion of preferred stock to common stock (353,185) (371,008) 353,185 33
Issuance of preferred stock for anti-dilution 23,791
Stock options issued to non-employee
Receipt of stock subscriptions outstanding
Net loss
-------- ------------ ---------- ----------
Balance at December 31, 2003 81,366 $ 72,666 18,676,851 $ 1,868
======== ============ ========== ==========
The accompanying notes are an integral part of these financial statements.
(Continued)
F-5
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2003 and 2002
Additional Stock Total
Paid-in Deferred Subscriptions Accumulated Stockholders'
Capital Compensation Outstanding Deficit Equity
Balance at December 31, 2001 $29,348,786 $(35,583) $ -- $ (26,171,175) $ 3,541,485
Net proceeds from issuance of common stock 2,559,924 (791,940) 1,768,258
($1.00 to $1.09 per share)
Issuance of common shares upon exercise of 28,093 28,096
stock options
Issuance of preferred stock to settle 45,233
dividends payable
Amortization of deferred compensation 35,583 35,583
Stock options issued to non-employee 85,458 85,458
Deemed dividend related to beneficial 29,200 (29,200)
conversion feature
Net loss (3,331,027) (3,331,027)
----------- -------- --------- ------------- -----------
Balance at December 31, 2002 32,051,461 -- (791,940) (29,531,402) 2,173,086
=========== ======== ========= ============= ===========
Net proceeds from issuance of common stock 4,171,652 4,171,996
($1.20 to $1.44 per share)
Issuance of common stock upon acquisition 3,408,805 3,409,000
Issuance of stock options and warrants 255,873 255,873
upon acquisition
Issuance of common stock upon exercise of 24,715 24,718
stock options and warrants
Conversion of preferred stock for common 370,975 --
stock
Issuance of preferred stock for --
anti-dilution
Stock options issued to non-employee 1,375 1,375
Receipt of stock subscriptions outstanding 791,940 791,940
Net loss (5,276,640) (5,276,640)
----------- -------- --------- ------------- -----------
Balance at December 31, 2003 $40,284,856 $ -- $ -- $ (34,808,042) $ 5,551,348
=========== ======== ========= ============= ===========
F-6
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
Year Ended
December 31,
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $(5,276,640) $(3,331,027)
Adjustments to reconcile net loss to net cash used in
operating activities:
Bad debt expense 26,000 --
Loss on impairment of intangible asset 136,750 --
Depreciation 354,667 317,032
Amortization of intangible assets 384,893 --
Stock, options & warrant compensation 1,375 121,041
Changes in assets and liabilities:
Accounts receivable (4,635) (5,151)
Prepaid expenses 53,889 49,189
Other assets (10,827) (16,295)
Accounts payable and accrued expenses (997,640) 216,926
----------- -----------
Net cash used in operating activities (5,332,168) (2,648,285)
----------- -----------
Cash flows from investing activities:
Capital expenditures (273,560) (46,235)
----------- -----------
Net cash used in investing activities (273,560) (46,235)
Cash flows from financing activities:
Net proceeds from issuance of common stock 4,171,996 1,768,258
Receipts of stock subscriptions outstanding 791,940 --
Proceeds from exercise of options and warrants 24,718 28,096
Principal payments on capital lease obligations (11,206) (180,990)
----------- -----------
Net cash provided from financing activities 4,977,448 1,615,364
----------- -----------
Net decrease in cash and cash equivalents (628,280) (1,079,156)
Cash and cash equivalents at beginning of period 2,069,004 3,148,160
----------- -----------
Cash and cash equivalents at end of period $ 1,440,724 $ 2,069,004
=========== ===========
Supplemental information of business acquired
Fair value of assets acquired:
Equipment $ 27,711 $ --
Intangible assets 3,639,000 --
Goodwill 898,334 --
Less, liabilities assumed and non-cash consideration:
Current liabilities (494,142) --
Stock issued (3,409,000) --
Stock options and warrants issued (255,873) --
Acquisition costs (406,030) --
Non cash supplemental information:
Conversion of preferred stock to common stock $ 371,008 $ --
The accompanying notes are an integral part of these financial statements.
F-7
SIGA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") was incorporated in the State
of Delaware on December 28, 1995 as SIGA Pharmaceuticals, Inc. The Company is
engaged in the discovery, development and commercialization of vaccines,
antibiotics, and novel anti-infectives for the prevention and treatment of
infectious diseases.
On May 23, 2003, the Company acquired substantially all of the assets of Plexus
Vaccine Inc. ("Plexus") and assumed certain liabilities in exchange for
1,950,000 shares of the Company's common stock and 190,950 of the Company's
options and warrants at an exercise price of $1.62 per share. Plexus is a
structure-based rational vaccine design and development company directed toward
the convergence of structural biology, pharmacogenomics and molecular
immunology. Plexus is employing its technologies to formulate and test a vaccine
candidate for severe acute respiratory syndrome, or "SARS".
Basis of presentation
The accompanying 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 financial arrangements. Although management continues
to pursue these plans, there is no assurance that the Company will be successful
in obtaining sufficient financing on terms acceptable to the Company. See Note 4
for recent private placement offerings.
2. Summary of Significant Accounting Policies
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.
Equipment
Equipment is stated at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the respective assets, which are as
follows: laboratory equipment - 5 years; leasehold improvements - life of lease;
computer equipment - 3 years; furniture and fixtures - 7 years.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" as amended ("SAB 101").
SAB 101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed or determinable; and (4)
collectibility is reasonably assured. Under the provisions of SAB 101, the
Company recognizes revenue from government research grants, contract research
and development and progress payments as services are performed, provided a
contractual arrangement exists, the contract price is fixed or determinable, and
the collection of the resulting receivable is probable. 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.
Non-refundable fees are recognized as revenue over the term of the arrangement
or based on the percentage of costs incurred to date, estimated costs to
complete and total expected contract revenue. Milestones, which generally are
related to substantial scientific or technical achievement, are recognized as
revenue when the milestone is accomplished.
F-8
Research and development
Research and development costs are expensed as incurred and include costs of
third parties who conduct research and development, pursuant to development and
consulting agreements, on behalf of the Company. 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 and
considered a component of research and development costs.
Business Combinations, Goodwill and Intangible Assets
The Company accounts for business combinations in accordance with the provisions
of Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141"). SFAS 141 requires business combinations completed after June 30,
2001 to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets required to be recognized and
reported separately from goodwill.
The Company accounts for the impairment of goodwill in accordance with the
provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142"). Goodwill is not subject to amortization
and is tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset may be impaired. The impairment test
consists of a comparison of the fair value of goodwill with its carrying amount.
If the carrying amount of goodwill exceeds its fair value, a second step of the
goodwill impairment test shall be performed to measure the amount of impairment
loss, if any. After an impairment loss is recognized, the adjusted carrying
amount of goodwill is its new accounting basis. The annual impairment testing
required under SFAS 142 requires management to make assumptions and judgments
regarding the estimated fair value of the Company's goodwill. Such assumptions
include the present value discount factor used to determine the fair value of a
reporting unit, which is ultimately used to identify potential goodwill
impairment. Such estimated fair values might produce significantly different
results if other reasonable assumptions and estimates were to be used.
The Company accounts for the impairment of long-lived assets such as acquired
technology, non-compete agreements and research contracts in accordance with the
provisions of Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. The Company compares the carrying amount of the asset to the
estimated undiscounted future cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company records an impairment charge for the
difference between the carrying amount of the asset and its fair value. Changes
in events or circumstances to the Company that may affect long-lived assets
include, but are not limited to, cancellations or terminations of research
contracts or pending government research grants.
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 all
of the 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.
At December 31, 2003 and 2002, 81,366 and 410,760 shares, respectively, of the
Company's Series A convertible preferred stock have been excluded from the
computation of diluted loss per share as they are anti-dilutive. At
F-9
December 31, 2003 and 2002, outstanding options to purchase 6,460,811 and
5,807,561 shares, respectively, of the Company's common stock with exercise
prices ranging from $1.00 to $5.50 have been excluded from the computation of
diluted loss per share as they are anti-dilutive. At December 31, 2003 and 2002,
outstanding warrants to purchase 6,286,332 and 4,675,144 shares, respectively,
of the Company's common stock, with exercise prices ranging from $1.00 to $3.63
have been excluded from the computation of diluted loss per share as they are
anti-dilutive.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Significant
estimates include the fair value of goodwill and intangible assets and the value
of options and warrants granted by the Company. Actual results could differ from
those estimates.
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.
Concentration of credit risk
The Company has cash in bank accounts that exceed the FDIC 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.
Accounting for stock based compensation
The Company has elected to account for its stock-based compensation programs
according to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, compensation
expense has been recognized to the extent of employee or director services
rendered based on the intrinsic value of compensatory options or shares granted
under the plans. The Company has adopted the disclosure provisions required by
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), as amended by SFAS 148, "Accounting for Stock-Based Compensation -
Transaction and Disclosure, an amendment to FASB Statement No. 123."
Had compensation cost for stock options granted been determined based upon the
fair value at the grant date for awards, consistent with the methodology
prescribed under SFAS 123, the Company's net loss and net loss per share would
have been as follows:
Years ended
December 31,
----------------------------
2003 2002
------------ ------------
Net loss applicable to common shareholders, as reported ........... ($5,276,640) ($3,360,227)
Add: Stock-based employee compensation expense recorded under
APB No. 25 ........................................................ -- 35,583
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects ............................................... (687,766) (153,882)
Pro forma net loss applicable to common shareholders .............. ($5,964,406) ($3,478,526)
Net loss per share:
Basic and diluted -as reported ............................... $ (0.34) $ (0.32)
Basic and diluted -pro forma ................................. $ (0.38) $ (0.33)
F-10
The fair value of the options granted to employees during 2003 and 2002 ranged
from $0.09 to $2.75 on the date of the respective grant using the Black-Scholes
option-pricing model.
The following weighted-average assumptions were used for 2003: no dividend
yield, expected volatility of 100%, risk free interest rates of 2.89%-3.24% and
an expected term of 3 to 5 years. The following weighted-average assumptions
were used for 2002: no dividend yield, expected volatility of 100%, risk free
interest rates of 2.87%-4.50% and an expected term of 3 to 5 years.
Recent pronouncements
In December of 2003, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition", which
supercedes SAB 101, "Revenue Recognition in Financial Statements". SAB 104's
primary purpose is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, superceded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables".
While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21,
the revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not have a material effect on
the Company's results of operations, financial position or cash flows.
In March of 2003, the Emerging Issues Task Force (EITF) issued EITF No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables". EITF No. 00-21
addresses how to determine whether a revenue arrangement involving multiple
deliverables contains more than one unit of accounting for revenue recognition
purposes, and how consideration should be measured and allocated to the separate
accounting units. EITF No. 00-21 applies to all deliverables within
contractually binding arrangements in all industries, except to the extent that
a deliverable in a contractual arrangement is subject to other existing
higher-level authoritative literature. EITF No. 00-21 became effective for
revenue arrangements entered into after July 1, 2003. The adoption of EITF No.
00-21 did not have a material effect on the Company's financial position or
results of operations.
In December of 2003, the FASB revised its FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements". FIN 46R requires that a business enterprise review all of its legal
structures used to conduct its business activities, including those to hold
assets, and its majority-owned subsidiaries, to determine whether those legal
structures are variable interest entities (VIEs) required to be consolidated for
financial reporting purposes by the business enterprise. A VIE is a legal
structure for which the holders of a majority voting interest may not have a
controlling financial interest in the legal structure. FIN 46R provides guidance
for identifying those legal structures and provides guidance for determining
whether a business enterprise shall consolidate a VIE. FIN 46R requires that a
business enterprise that holds a significant variable interest in a VIE make new
disclosures in their financial statements. The Company is required to adopt the
provisions of FIN 46R for its interim period ending March 31, 2004. The Company
does not believe that it holds any interests in VIEs that would require
consolidation or additional disclosures.
In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
applies to certain financial instruments, including mandatorily redeemable
financial instruments that, prior to SFAS No. 150 could have been accounted for
as a component of equity. SFAS No. 150 requires that those instruments be
classified as liabilities in statements of financial position. SFAS No. 150 also
requires disclosures about alternative ways of settling the instruments and the
capital structure of entities whose shares are all mandatorily redeemable. SFAS
No. 150 is effective for these financial instruments entered into or modified
after May 31, 2003. For these financial instruments entered into before May 31,
2003, SFAS No. 150 became effective for the interim period beginning July 1,
2003. The Company does not hold any financial instruments that are within the
scope of SFAS No. 150. Accordingly, SFAS No. 150 did not have a material effect
on the Company's results of operations or financial position.
3. Business Acquisition
On May 23, 2003, the Company acquired substantially all of the assets of Plexus
and assumed certain liabilities in exchange for 1,950,000 shares of the
Company's common stock and 190,950 of the Company's options and
F-11
warrants at an exercise price of $1.62 per share. The results of operations of
Plexus have been included in the statement of operations of the combined entity
since May 23, 2003.
In determining the non-cash purchase price of Plexus, the equity consideration
has been calculated based on Emerging Issues Task Force ("EITF") No. 99-12,
"Accounting for Formula Arrangements under EITF 95-19". For this calculation,
the Company used the average market price for a few days before and after May
14, 2003. Based on EITF 99-12, the value of the common stock issued was
approximately $3,409,000. The value attributed to the options and warrants
exchanged was approximately $255,873. In addition, loans made to Plexus,
payments made on behalf of Plexus prior to the asset purchase agreement and
costs incurred for the transaction amounted to $406,030.
The allocation of the total purchase price of $4,070,903 is as follows:
Useful Life Fair Value
----------- ----------
Equipment, net 3 - 7 years $ 27,711
Liabilities assumed N/A (494,142)
Acquired technology 10 years 2,191,000
Customer contract and grants 3 1/2 years 741,000
Covenant not to compete 3 1/2 years 707,000
Goodwill Indefinite 898,334
-----------
Purchase Price $ 4,070,903
===========
Accumulated amortization of intangible assets for the year ended December 31,
2003 was approximately $385,000 which was approximately $135,000 for acquired
technology, approximately $125,000 for customer contact and grants, and
approximately $125,000 for the covenant not to compete. The Company anticipates
amortization expense to be approximately $593,750, $593,750, $593,750, $219,100,
and $219,100 for the fiscal years ending December 31, 2004, 2005, 2006, 2007
and 2008, respectively.
Selected Unaudited Pro Forma Financial Information The Company has prepared a
condensed pro forma statement of operations in accordance with SFAS 141, for the
years ended December 31, 2003 and 2002 as if Plexus were part of the Company as
of January 1, 2003 and 2002, respectively.
Years Ended
December 31,
2003 2002
------------ ------------
Revenues $ 826,525 $ 516,828
Net loss $ (7,527,206) $ (5,398,730)
Net loss per common share - basic and diluted $ (0.46) $ (0.44)
Weighted average number of common shares outstanding 16,481,110 12,400,529
In the fourth quarter of 2003, the customer contract acquired with the
acquisition of Plexus was cancelled. Based on the fact that there will be no
future cash flows from this contract, the Company recognized an impairment loss
of $136,750 as part of operating expenses in the year ended December 31, 2003
for the unamortized intangible asset amount.
4. Stockholders' Equity
At December 31, 2003, 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.
F-12
2003 Placements
In June 2003, the Company raised gross proceeds of $1.5 million in a private
offering for 1,250,000 shares of common stock. In connection with the offering
the Company issued warrants to purchase 625,000 shares of the Company's common
stock to placement agents. Each of the warrants are exercisable at a price of
$2.00 per share and have a term of five years.
In August 2003, the Company entered into a securities purchase agreement with
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"), a holding company of
which the Company's Chairman of the Board of Directors is Vice Chairman and a
director, pursuant to which, among other things, 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 an additional 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, in accordance with and subject to the terms and conditions of the
securities purchase agreement signed in August 2003, as amended. 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 (see Note 6).
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, MacAndrews & Forbes and TransTech Pharma completed the final
portion of their investment, following the approval of the Company's
stockholders at its annual meeting of stockholders held on January 8, 2004.
Immediately following the stockholders' meeting, 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 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.
2002 Placements
In December 2002, the Company raised gross proceeds of $1.865 million in a
private offering of common stock and warrants to purchase the Company's common
stock. The Company sold 1,700,000 shares of common stock. In connection with the
offering the Company issued 171,216 warrants to purchase shares of the Company's
common stock to placement agents. The warrants are exercisable at a price of
$1.65 and have a term of five years. The Company received net proceeds of
$891,000 prior to December 31, 2002 and net proceeds of $791,940 after December
31, 2002. As such, as of December 31, 2002, the Company had recorded a
subscription receivable of $791,940.
In October 2002, the Company raised gross proceeds of $1.04 million in a private
offering of common stock and warrants to purchase the Company's common stock.
The Company sold 1,037,500 shares of common stock and 518,750 warrants. The
warrants are exercisable at $2.25 and have a term of five years. In connection
with the offering the Company issued 103,750 warrants to purchase shares of the
Company's common stock to placement agents. The warrants are exercisable at a
price of $1.50 and have a term of five years. The fair value of the warrants
attributable to consultants on the date of grant was approximately $64,670.
F-13
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
adjustment) 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 year ended December 31, 2003, certain preferred stockholders
converted 353,185 Series A convertible preferred stock into 353,185 shares of
common stock.
5. 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 7,500,000 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 and become
exercisable over a period of three years with a third of the grant being
exercisable at the completion of each year of service subsequent to the grant.
In November 2003, the Board of Directors approved an amendment to the Plan to
increase the maximum number of shares of common stock available for issuance
thereunder from 7,500,000 shares to 10,000,000 shares. Such amendment became
effective upon approval by the Company's stockholders in January 2004.
Stock option activity of the Company is summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
----------- --------
Outstanding at January 1, 2002 5,139,811 $2.50
Granted 777,750 2.66
Forfeited (85,000) 3.80
Exercised (25,000) 1.13
----------- -----
Outstanding at December 31, 2002 5,807,561 $2.52
Granted 813,250 1.79
Forfeited (160,000) 4.81
Exercised -- --
----------- -----
Outstanding at December 31, 2003 6,460,811 $2.33
=========== =====
Options available for future grant at December 31, 2003 827,064
Weighted average fair value of options granted during 2003 $ 1.14
Weighted average fair value of options granted during 2002 $ 0.71
F-14
The following table summarizes information about options outstanding at December
31, 2003:
Weighted Number
Number Average Weighted Exercisable Weighted
Outstanding Remaining Average at Average
December 31, Contractual Exercise December 31, Exercise
Exercise Price 2003 Life (Years) Price 2003 Price
- ------------------ ------------ ----------- -------- ------------ --------
1.00 ............. 20,000 5.86 1.00 20,000 1.00
1.13 ............. 300,000 5.81 1.13 300,000 1.13
1.50 - 1.85 ...... 964,084 9.16 1.75 594,234 1.75
2.00 - 2.75 ...... 4,838,500 7.12 2.38 4,687,250 2.38
3.94 - 5.50 ...... 338,227 4.99 4.36 292,977 4.42
--------- ---------
6,460,811 5,894,461
========= =========
At December 31, 2003, options held outside of the plan included 125,000 options
granted to an employee and 125,000 options granted to consultants and have not
been included in the above tables.
The following tables summarize information about warrants outstanding at
December 31, 2003:
Number of Weighted Average Expiration
Warrants Exercise Price Dates
--------- ---------------- ----------
Outstanding at January 1, 2002 ...... 4,231,428 $3.61
Granted ........................ 793,716 2.03 09/30/2007 - 12/31/2007
Canceled / Expired ............. (350,000) 7.32
--------- -----
Outstanding at December 31, 2002 .... 4,675,144 $3.06
Granted ........................ 2,117,966 1.97 12/31/2007 - 03/01/2012
Exercised ...................... (40,562) 1.19
Canceled / Expired ............. (466,216) 5.83
--------- -----
Outstanding at December 31, 2003 .... 6,286,332 $2.50
--------- -----
Number
of Warrants Exercise
Outstanding Price
----------- -----------
75,000 1.00
860,354 1.45 - 1.75
2,799,766 2.00 - 2.25
2,551,212 2.94 - 3.63
---------
6,286,332
=========
In February 2003, the Company entered into a 12-month consulting agreement with
an outside consultant in the amount of $249,420 to provide marketing research
support. Upon being awarded research contracts in excess of $2.0 million from
such support, the Company is obligated to issue 400,000 fully vested warrants at
an exercise price of $1.32 with an expiration of 3 years. As of December 31,
2003, the Company had not yet been awarded contracts in excess of $2.0 million.
Upon renewal of the agreement, the Company is required to issue an additional
100,000 warrants with an exercise price set at the date of the renewal with an
expiration of 3 years. In March 2004, the Company renewed the consulting
agreement in the amount of $320,000 for an additional eight months from March 1,
2004. The Company issued 100,000 warrants at an exercise price of $2.05 per
share with an expiration date of March 2007.
During 2003, the Company extended 3,225,000 options held by the Board of
Directors for an additional 5 years. The Company accounted for such extension in
accordance with Financial Accounting Standard Board Interpretation Number 44,
"Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of APB Opinion Number 25". No compensation cost was incurred with
the extension as the exercise prices of the options were higher than the fair
value of the common stock at the date of modification.
F-15
2002 Grants
In September 2002, the Company entered into a four-month consulting agreement
under which a consultant assists the Company with public relations efforts in
the United States and Europe in exchange for a monthly retainer of $3,500 for
the four-month term and 50,000 fully vested options to purchase shares of the
Company's common stock. Of the amount of fully vested options, 25,000 shares
have an exercise price of $1.50 per share and 25,000 shares have an exercise
price of $1.75. Upon grant, the Company recorded a $31,618 stock compensation
charge to operations based upon the fair value of the options.
In April 2002, in connection with an existing consulting agreement, the Company
granted a consultant an option to purchase 15,000 shares of the Company's common
stock under the Plan. Upon grant, the Company recorded a $10,269 stock
compensation charge to operations based upon the fair value of the option.
In connection with the development of its licensed technologies the Company
entered into a consulting agreement with a scientist who developed such
technologies, under which the consultant serves as the Company's Chief
Scientific Advisor. In June 2001, the Company entered into an amended consulting
agreement with the scientist under which the scientist was to provide services
to the Company for a three-year period commencing on September 10, 2001. In
consideration for the consulting services the scientist was to be paid an annual
fee of $50,000 payable quarterly. In addition, the Company granted the scientist
options to purchase 225,000 shares of common stock at $3.94 per share. On
September 10, 2001, ten percent of the options vested and the remaining options
were to vest in 36 monthly installments beginning on October 10, 2001. In
September 2002, the Company and the consultant terminated their arrangement and
all unvested options were forfeited. For the year ended December 31, 2002, the
Company recorded a stock compensation charge of $58,904.
6. Related Parties
Directors
The Company's Chairman of the Board of Directors is Vice Chairman and a director
of MacAndrews & Forbes. During 2003 and January 2004, MacAndrews & Forbes, along
with TransTech Pharma, invested $10.0 million in SIGA. Furthermore, two
directors of the Company are also directors of TransTech Pharma. Additionally, a
director of the Company, is a member of the Company's outside counsel (See Note
4).
Collaborative Research Agreements
In October 2002, the Company entered into a collaborative research agreement
with TransTech Pharma, a related party, for the discovery and treatment of human
diseases. Under the terms of the agreement, TransTech Pharma and the Company
have agreed to contribute each of their respective services and share equally in
costs of specified research projects. In consideration of the services performed
by TransTech Pharma and use of its proprietary technology, SIGA granted an
exclusive, fully-paid, nontransferable, nonsublicenseable, limited license to
use existing rights to patents and technologies. Both parties will share equally
in the ownership of compounds and related intellectual property derived from
such research efforts. In January 2004, TransTech Pharma invested $5.0 million
in SIGA (See Note 4).
7. Equipment
Equipment consisted of the following at December 31, 2003 and 2002:
Laboratory equipment $ 1,134,110 $ 896,862
Leasehold improvements 690,138 627,849
Computer equipment 199,209 155,204
Furniture and fixtures 292,817 291,637
----------- -----------
2,316,274 1,971,552
Less - Accumulated depreciation (1,937,228) (1,539,110)
----------- -----------
Equipment, net $ 379,046 $ 432,442
=========== ===========
F-16
8. Income Taxes
The Company has incurred losses since inception, which have generated net
operating loss carryforwards of approximately $24,990,000 at December 31, 2003
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 result in a noncurrent
deferred tax asset at December 31, 2003 and 2002 of approximately $13,030,000
and $11,144,000, 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.
For the years ended December 31, 2003 and 2002, 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.
9. License and Research Agreements
In December 2002, the Company was awarded an initial U.S. Government contract
with the U.S. Army to develop an effective Smallpox antiviral drug. The total
estimated revenue under the contract is $1.6 million for the periods January 1,
2003 to May 31, 2007. For the year ended December 31, 2003, the Company
recognized revenue of approximately $290,000 from this contract.
In May 2002, the Company announced that it was awarded a Phase II research grant
for a total of $865,000. The grant will support the Company's antibiotic
development program. The grant was awarded by the Small Business Innovation
Research Program of the National Institutes of Health. For the years ended
December 31, 2003 and 2002, the Company recognized revenue of approximately
$388,000 and $270,000, respectively, from this grant.
10. Other Agreements
In March 2002, the Company entered into a non-binding Letter of Intent (the
"Letter") to acquire all of the outstanding shares of Allergy Therapeutics
Holdings Ltd. ("Allergy"). Under the terms of the Letter, SIGA was to issue
shares to the Allergy stockholders that would result in 47.5% ownership to each
of the former shareholders of SIGA and former shareholders of Allergy of the
outstanding common stock, on a fully diluted basis. As part of the transaction,
Elan Pharma International Limited ("Elan") was to enter into an exclusive
license for certain technology with SIGA in exchange for 5% of the Company's
common stock on a fully diluted basis. In July 2002, the Company announced the
termination of the Letter to acquire all the shares of Allergy due to
unfavorable market conditions that existed at the time of the termination. The
Company incurred approximately $600,000 of selling, general and administrative
expenses in connection with this contemplated transaction, of which
approximately $127,000 were still outstanding as of December 31, 2003.
11. Commitments and Contingencies
Employment agreements
In January 2002, the Company and its Chief Financial Officer ("CFO") entered
into an amendment to the CFO's existing employment agreement, extending his
employment until December 31, 2002. In November 2002, the employment agreement
was amended and extended until September 30, 2004. Under the amended agreement,
compensation is set at an annual minimum base salary of $210,000 and options of
150,000 were granted under the Plan at an exercise price of $2.50 per share. Of
such grant, 75,000 shares vested immediately and 75,000 shares vested on
September 1, 2003.
In October 2002, the Company and its Chief Scientific Officer ("CSO") entered
into an amendment to the CSO's existing employment agreement, extending his
employment until December 31, 2005. Under the amended agreement, compensation is
set at an annual minimum base salary of $210,000 and options of 300,000 shares
were
F-17
granted at an exercise price of $2.50. Upon such grant, the CSO was required to
surrender 50,000 shares granted under a previous grant with an exercise price of
$3.94. Under the new grant, 75,000 shares vested immediately and 75,000 shares
will vest on September 1, 2003, 2004 and 2005, respectively, pursuant to the
Plan. As such, 50,000 options are considered variable options under APB 25 as
replacement awards for the options surrendered. For the years ended December 31,
2003 and 2002, there was no stock compensation charge as the fair value of the
underlying common stock was below the exercise price of the option.
In May 2003, the President and CEO of Plexus Vaccine was appointed President of
SIGA. The President and the Company entered into an employment agreement for the
period of May 23, 2003 until December 31, 2005. Under the agreement,
compensation is set at an annual minimum base salary of $216,000 with certain
benefits, as defined. Additionally, 300,000 options were granted under the Plan
at an exercise price of $1.81 per share. Of such grant, 100,000 options vested
immediately, 100,000 options will vest in May 2004 and the remaining 100,000
options will vest in May 2005.
Operating lease commitments
The Company leases certain facilities and office space under operating leases.
Rent expenses for the years ended December 31, 2003 and 2002 was approximately
$235,000 and $213,000, respectively. Minimum future rental commitments under
operating leases having noncancelable lease terms in excess of one year are as
follows:
Year ended December 31,
2004 $ 193,237
2005 86,398
2006 87,737
2007 94,921
2008 19,416
Thereafter --
---------
Total $ 481,709
=========
F-18
EXHIBIT 14
SIGA TECHNOLOGIES, INC.
Code of Ethics and Business Conduct
Introduction
All of us at SIGA have important roles to play in upholding our Company's
commitment to conduct our business-related activities in a legal and ethical
manner. Maintaining high levels of legal and ethical compliance is simply the
right thing to do and will also maximize the long-term success of our Company.
The purpose of this Code of Ethics and Business Conduct is to promote a culture
of honesty, integrity and respect for law and the people with whom we work. It
applies to SIGA Technologies, Inc. and its subsidiaries (which this Code
collectively calls the "Company").
We expect each employee to use sound judgment to help us maintain
appropriate compliance procedures and to carry out our business legally and
ethically. No Code can address all of the issues that its personnel may face, so
please apply this Code with common sense. If you are not sure what to do, ask
your supervisor or Thomas N. Konatich, who serves as our Company's Compliance
Officer. Each employee of our Company must read this Code and demonstrate a
personal commitment to its standards. (References in this Code to "employees"
also include non-employee officers and members of the Board of Directors.)
Our officers and other supervising employees must be leaders in
demonstrating this personal commitment to the standards outlined in this Code.
They must also insure that the employees they supervise adhere to its standards.
An employee who does not comply with this Code may be subject to
discipline, including termination of employment where appropriate.
The Code of Ethics and Business Conduct is not a contract. It is not
intended to and does not create an employment contract, does not create any
contractual right between our Company and its employees, does not alter or amend
any existing or future contractual relationship between our Company and any
employee and does not create any express or implied promise for specific
treatment in any specific situation. Further, is not intended as a detailed
guide for all situations you may face or to detract from the importance of
applicable laws and regulations not detailed herein.
The Rules That Guide Our Business
Our Commitment to Our Stockholders
We expect you to share a commitment to protect our assets and manage our
business in the best interests of our stockholders.
> Accuracy of our records and reporting: All employees must accurately
record financial and other business information pertaining to our Company,
all financial records and transactions must adhere to our system of
internal controls and accounting requirements, and no one shall enter any
false or artificial information in our records or reporting systems. These
requirements apply to all Company information, including personnel,
workplace and safety records and information we release to the public or
file with governmental agencies.
> Disclosure Controls and Procedures. The U.S. Securities and Exchange
Commission (the "SEC") requires that we maintain effective "disclosure
controls and procedures" so that financial and non-financial information
we report in our SEC filings is timely and accurate. All employees must,
within the scope of their employment duties, support the effectiveness of
our disclosure controls and procedures and comply with disclosure
requirements in accordance with applicable laws.
> Stock Trading and Confidential Information Policy. Our Company's Insider
Trading Policy prohibits any employee from buying or selling stock or
other securities of our Company, its affiliates or third parties with whom
we do business using "material" non-public information concerning our
Company or concerning those third parties (until after the material
information has been fully disclosed to the public). As the Policy
explains in more detail, "material" information is any information that a
shareholder would consider important when deciding whether to buy, sell or
hold our stock. Employees must also not disclose or "tip" any of this
material non-public information to family, friends or others outside the
Company. These practices are sometimes called "insider trading." The
insider trading rules can be quite complex, so, if you need more
information, please refer to our Company's Insider Trading Policy or
contact the Compliance Officer.
* No Selective Disclosure. In addition, applicable securities rules
also prohibit selective disclosure of material non-public
information to those outside the Company in most circumstances.
Therefore, all employees must assist the Company in keeping all
material non-public information about our Company strictly
confidential unless and until our Company makes an authorized press
release or other authorized public communication or filing.
* Information to the Public. Our policy is to provide public
dissemination of material information about our business only
through our employees authorized for this purpose. You may not under
any circumstance discuss our Company's financial, business or other
information with the press (except if the Company has expressly
authorized you to do so for this purpose) or on any Internet or
other "discussion board," "chat room," or similar forum. If you
receive a request from the media, an analyst or a stockholder about
our Company, you must forward it to our Chief Executive Officer,
Chief Financial Officer or the Compliance Officer.
> Protection of Company Assets. You are personally responsible to use our
Company's assets only for lawful, corporate purposes approved by
management. All employees should help our Company protect its assets from
misuse, theft, damage or other loss. You may not make improper or
unauthorized personal use of Company assets.
> Intellectual Property. Our Company considers its "intellectual property" -
including its inventions, processes, patents, trademarks, licenses,
customer lists and trade secrets - to be valuable assets. Employees must
maintain the value of our Company's intellectual property by using care to
keep our trade secrets and other non-public information confidential, and
limiting access to non-public information to those authorized to use it in
their duties in connection with our Company's business. If customers or
suppliers
provide non-public information to us in their dealings with us, we must
protect that information in the same manner as our Company's property.
> Communications. You must use appropriate judgment and discretion in your
email, memos, notes and other formal and informal communications relating
to our business. Communications relating to our business must avoid
inappropriate or derogatory comments about other individuals or companies,
unprofessional language and unauthorized financial, legal or business
statements.
> Retention of Records. You must preserve Company records for which you are
responsible in a manner consistent with the business needs of the Company
and all legal requirements. You must familiarize yourself with special
retention rules applicable to specific categories of documents (e.g.,
personnel files, tax records) for which you are responsible. It is our
Company's policy not to destroy or alter our records or documents (whether
in paper form, emails or otherwise) in response to or in anticipation of
any legal proceeding or governmental inquiry or investigation. You may
also subject yourself to criminal liability if you:
* corruptly alter, destroy, mutilate or conceal a record, document or
other object, or attempt to do so, with the intent to impair its
availability for use in an official proceeding, or
* knowingly alter, cover up, falsify or make a false entry in any
record, document or tangible object with the intent to impede or
obstruct the investigation or administration of any matter by a
governmental agency or bankruptcy court.
Our Commitment to Customers and Business Partners
We are committed to excellence in service and performance for our
customers, and building mutually advantageous alliances with our business
partners.
> Customer Relationships. Our policy is to build lasting relationships with
our customers through superior delivery and execution, and honest sales
and marketing. We will comply with applicable advertising laws and
standards. Our policy also prohibits making false or deceptive statements
about our competitors, and giving or accepting kickbacks, bribes,
inappropriate gifts and other matters prohibited under the conflict of
interest topic in this Code.
> Protecting Information about Others. We are committed to treating
confidential information of our customers and business partners with at
least the care we use to protect our own proprietary or confidential
information. All employees are expected to use sound judgment in limiting
access to confidential information about our customers and business
partners to those individuals in our Company who need to know this
information to carry out their jobs.
> Commitment to Quality. Our long-term reputation and business success
depend upon our continued maintenance of high quality in the products and
services we provide. We are committed to deliver our products and services
only in accordance with the documentation, safety, quality control and
other procedures we maintain from time to time.
> Special Concerns with Governmental Customers. Special legal and
contracting rules may apply to our dealings with domestic and foreign
governmental agencies. Many national, state or other local governmental
agencies impose bidding or procurement requirements, special billing and
accounting rules and restrictions on the subcontractors or agents we may
engage. Domestic or foreign laws or regulations may also impose strict
limits on any kind of benefit or gift offered to officials, including
limitations on hiring former government officials or their family members.
If you deal with domestic or foreign governmental agencies, you must be
familiar with the laws applicable to these business activities and use
sound judgment to avoid any violation of the letter or spirit of the laws
prohibiting corrupt practices in connection with governmental contracting.
> Suppliers. We must base our contracts with suppliers of products and
services exclusively on the best interests of our Company and its
business. These contracts must reflect a fair price for the deliverables
provided to us and be recorded in accordance with appropriate approval,
contracting and internal control procedures.
> Business with Third Parties. We expect our consultants, agents, resellers,
distributors, subcontractors and other business partners to adhere to
lawful and ethical business practices. It is important to our Company's
reputation that we avoid doing business with companies that violate
applicable laws or have reputations that could harm our business. Our
policy prohibits engaging agents or other third parties to do indirectly
what we as a Company should not do under our own policies.
Our Commitment to Each Other
Each employee must do his or her part to promote a positive working
environment for all.
> Respect for Our Employees. Our Company's employment decisions will be
based on reasons related to our business, such as job performance,
individual skills and talents, and other business-related factors. Our
Company policy requires adherence to all national, state and local
employment laws. Our Company policy prohibits discrimination in any aspect
of employment based on race, color, religion, sex, sexual preference,
marital status, national origin, disability or age, within the meaning of
applicable laws.
> Abusive or Harassing Conduct Prohibited. Our Company policy prohibits
abusive or harassing conduct by our employees toward others, such as
unwelcome sexual advances, comments based on ethnic, religious or racial
aspects, or other non-business, personal comment or conduct that makes
others uncomfortable in their employment with us. Our Company's policy is
to provide to its employees a protective and pleasant work environment
free from harassment, sexual or otherwise, and to prevent harmful
exploitation of authority and to promote gender equality at work. We
encourage employees to report harassment or other inappropriate conduct as
soon as it occurs. We are committed to taking prompt and appropriate
action as soon as we are aware of or receive any report of harassment or
inappropriate conduct of any kind, and we will neither take nor permit
retaliatory action against any employee who reports alleged harassment.
Sexual harassment impinges upon a person's dignity, privacy and sense of
equality between the sexes, makes the work relationship more difficult and
contradicts our Company's policy. In addition to harm caused to the work
environment, sexual harassment can be a criminal offense. Employees must
adhere to our Company's policy in this matter and the prevailing laws and
regulations.
> Health and Safety. All employees must help us to maintain a healthy,
hygienic and safe working environment and to report promptly any unsafe or
hazardous condition or material, injury or accident connected with our
business. Our Company is committed to adhering to safety laws and
regulations, including fire protection and other building regulations, and
laws and regulations that promote cleanliness and hygiene in the
workplace. You may not work under the influence of any substance that
would impair the safety of others. All threats or acts of physical
violence or intimidation are prohibited.
Competition
We are committed to competing effectively, but lawfully, in our business
markets.
> Compliance with Antitrust Laws. Our Company and its employees must comply
with the antitrust and unfair competition laws of the countries in which
our Company engages in business. These laws vary by country and can be
complex. If you have a role that may implicate the antitrust laws - such
as a sales and marketing executive position - you are responsible for
knowing the laws that apply to these business activities, and should speak
to our Compliance Officer if any question arises. Generally, these laws
prohibit or regulate mergers and acquisitions, attempts to monopolize or
otherwise restrain trade, selling products below cost, price
discrimination, price fixing or other agreements with competitors that
would divide or allocate customers or otherwise harm customers, certain
kinds of "tying" arrangements that require a customer who wishes to buy a
given product to buy other products or services, artificially
maintaining prices, and certain other restrictive agreements or
arrangements. Our employees may not exchange non-public sales information
with competitors for the purpose of affecting sales prices or levels.
> Fair Methods of Competition. Our Company is committed to competition on a
lawful and ethical basis. You may not use improper or illegal means of
gaining competitive information that is confidential or proprietary
information owned by others. You may not use or disclose confidential or
proprietary information that you may have from past employment with other
employers.
Conflicts of Interest
We expect all of our employees to avoid allowing their private interests
to interfere, or appear to interfere, with the interests of our Company as a
whole.
> Generally. You must make or participate in business decisions and actions
in the course of your employment with us based on the best interests of
our Company as a whole, and not based on personal relationships or
benefits. Although this Code contains some general guidelines, you must
apply sound judgment to avoid conflicts of interest that could negatively
affect our Company or its business, whether or not we have specific rules
for that particular situation. You must disclose to us any situation that
may involve inappropriate or improper conflicts of interest affecting you
personally or affecting other employees or those with whom we do business,
as described under "How to Report Your Concerns."
> Business Referrals. You may not personally attempt to give or steer our
Company's business transactions to companies in which a family relative or
personal friend has a financial or other interest unless you first fully
inform the Compliance Officer about such transaction and relationship and
have received the appropriate approvals from unconflicted and sufficiently
senior personnel.
> Personal Investments. Generally, you must avoid investments in other
companies with which our Company does business if these investments could
create the fact or appearance of a conflict of interest, unless such
investments received the appropriate Company approvals after full
disclosure of the relevant circumstances. Investing in relatively small
positions in publicly traded securities of other companies is generally
not prohibited so long as there is no violation of our Company policy
relating to trading while in possession of material non-public information
about other companies. You must notify the Compliance Officer in advance
of any proposed personal investment you wish to make in other companies
with which our Company does business. The Compliance Officer shall advise
on the appropriate approvals, if any, required in such circumstances.
> Corporate Opportunities. You must also refrain from purchasing property or
otherwise taking for yourself personally a business opportunity that you
learn about through your employment with us. You may not use our Company's
information for personal gain.
> Prohibited Competition. You may not compete with us during the term of
your employment and may not initiate any step to compete with us while
still in our employ.
> Outside Compensation and Activities. While employed by us, you may not
work for or seek or accept personal payments from any customer, supplier,
competitor, distributor, reseller or other business partner of our
Company, except as approved in writing by an authorized officer or manager
of our Company. You may not use trade secrets or other non-public know-how
or information learned at our Company in activities outside our Company or
in other ways that could harm our business.
> Outside Board Service. You must obtain prior written authorization from
the Compliance Officer for service as a director, general partner,
manager, officer or similar position with any privately held or public
business entity or as an appointee to any kind of governmental or
quasi-governmental agency or body. Service solely as a director or trustee
of nonprofit corporations engaged in charitable activities does not
require approval unless that activity could involve improper conflicts of
interest.
> Gifts and Gratuities. You may not seek or accept gifts or gratuities in
the form of services or other items of value from our customers, other
business partners or other parties with whom our Company contracts. You
may not offer or give anything of value that could be or appear to be a
bribe or otherwise illegal payment. These prohibitions do not apply to
items of truly nominal value such as generally free promotional items,
assuming these items are not otherwise prohibited by applicable law or
custom. Employees should never accept anything that would appear to create
a conflict of interest. In the unusual situation where refusal to accept a
true gift might hurt our business, be sure to consult the appropriate
officer or manager of our Company concerning the proper means of resolving
the situation.
> Business Entertainment. You must adhere to our Company's policies as in
effect from time to time with respect to costs of entertainment. Extending
or accepting invitations to reasonable meals, public events and similar
business activities incurred for bona fide business purposes is generally
acceptable, assuming the costs are not disproportionate to the business
purpose and otherwise do not create the fact or appearance of a conflict
of interest. You should not attend entertainment events that may appear
contrary to professional standards of conduct.
> Travel. You must comply with Company travel policies in effect from time
to time. All travel-related expenses must actually be incurred, accurately
reported and recorded in compliance with these policies.
> Other Corporate Policies. In addition to the above, employees must comply
with all other Company policies in effect from time to time.
Legal Compliance Generally
We expect our employees to be committed to pro-active compliance with all
applicable laws and regulations affecting our Company and its business. In
addition to the laws discussed elsewhere in this code:
> General Standard of Compliance. You must comply with all applicable laws
and regulations and national and local governmental authority rules and
procedures in every location in which we conduct our business. Competitive
factors, personal goals, and pressure from supervisors, customers or
others shall never be an acceptable excuse for violating the law.
> Prohibited Corrupt Practices. Our Company must comply with anti-corruption
laws, including the Foreign Corrupt Practices Act ("FCPA"), that apply in
the places where we do business. Our employees and agents must not
directly or indirectly offer or make a corrupt payment to any domestic or
foreign governmental official, any foreign political party, candidate or
official, or employees of enterprises owned or controlled by a
governmental agency. You may not engage in any form of fraud, including,
but not limited to, bribery, embezzlement, theft, hiding or misuse of
Company assets or falsification of records.
> Prohibited Political Contributions. Political activity represents another
area where the rules on permissible activities are complex and you could
inadvertently run afoul of such rules. As a result, you may not contribute
in our Company's name or on our Company's behalf any cash, services or
property of any kind for or in support of any political candidate,
committee, initiative or activity without the prior express approval of
the Compliance Officer or appropriate legal counsel. No lobbying effort or
contract shall be undertaken in our Company's name or on our Company's
behalf without the prior approval of our Board of Directors.
> Prohibited Loans to Executive Officers and Directors. It is unlawful for
our Company, directly or indirectly, to extend or maintain credit, to
arrange for the extension of credit, or to renew an extension of credit,
in the form of a personal loan to or for any director or executive officer
of our Company. However, we may continue in effect an extension of credit
in existence on July 30, 2002, provided that there is no material
modification, or any renewal, of the extension of credit after that date.
> Import and Export Restrictions. Our Company and its employees must comply
with applicable restrictions under domestic and foreign laws relating to
importing or exporting technology, products, services or
regulated information. Employees who conduct Company business involving
foreign countries must be familiar with and abide by applicable
import/export and similar restrictions.
> Environmental Laws. Our Company is committed to protecting the
environment. We respect the policies and requirements of domestic and
foreign laws aimed at protecting the environment. We expect a commitment
from our employees to report appropriately any violation of environmental
laws and any exposure to hazardous materials or substances that are not
being handled or disposed of properly.
Our Communities
We respect our employees' involvement in the community, charitable and
political activities and causes they may choose, so long as these activities do
not interfere with job responsibilities to us. You may not represent that your
views or activities speak for our Company. You may not engage in any unwanted
solicitation or pressure toward other employees relating to charitable,
religious or political causes.
How to Report Your Concerns
> Where to Direct Questions. If you have questions about this Code or
concerns about any of the matters listed here, please first consider
speaking with your immediate manager or supervisor if that person was not
involved in the matter giving rise to your questions. If you do not wish
to communicate with that person on the matter, please feel free to contact
Thomas N. Konatich, who serves as our Compliance Officer, or any other
member of our management. If you wish to communicate any matter
anonymously, you are free to do so (although we encourage you to identify
yourself in case we need to follow up on any aspect of your report with
you), and we will maintain the confidentiality of your communication to
the extent reasonably possible under the circumstances. You may send
communications intended to be confidential to the Company's address,
Attention: Chairman of the Audit Committee.
> Good Faith Concerns Are Protected. We encourage each of our employees to
report any concern regarding possible illegal or unethical conduct
relating to our business. We do not discriminate, retaliate or permit
discrimination or retaliation against any employee who reports in good
faith a concern to us. In addition, Company policy prohibits the discharge
of, other adverse employment action in any manner against, or threat to or
harassment of an employee for any lawful, good faith act by the employee
to provide information or assist in an investigation by us or any
governmental authority or agency, of violations of applicable laws.
> False Claims Are Prohibited. It is a violation of our standards for any
employee to communicate a report claiming illegal or unethical conduct
that the employee knows or reasonably believes to be false.
> Audit Committee Available to Hear About Accounting Matters. In addition to
the above, if you have concerns about accounting, internal accounting
controls or auditing matters relating to our Company, you are also free to
contact the audit committee of our board of directors directly. Inquiries
or communications intended to be anonymous should be mailed in writing
without indicating your name or address to the Audit Committee as noted in
the first paragraph of this section.
> Procedures for Investigating and Resolving Concerns. The individual or
Committee that receives a report under this Code may, in his, her or its
discretion, assume responsibility for evaluating any possible violation
and directing or conducting any investigation or may delegate any portion
of such responsibility to the Compliance Officer, our Board of Directors,
another committee of the Board whose charge includes the matter at issue
or another person or entity, either inside or outside the Company. If the
Audit Committee chooses to assume responsibility for evaluating any
possible violation or directing or conducting any investigation where the
investigation concerns a possible violation by a member of the Board, the
Audit Committee, not including that member, shall assume such
responsibility. If the Audit Committee is conducting the investigation, it
shall have the authority to engage independent counsel and other advisers,
as it deems necessary, to assist in its investigation and decision
process. After conducting the investigation, the results will be evaluated
and the Company shall authorize such prompt response,
follow-up and preventive actions, if any, as are deemed necessary and
appropriate to address the substance of the reported possible violation.
The Company reserves the right to take whatever action it believes
appropriate, up to and including discharge, if appropriate and permissible
under law and this Code, of any employee determined to have engaged in
improper conduct.
Waivers Requested by Our Officers and Directors
As noted at the outset, this Code applies to our officers and directors as
well as to our employees generally. Any waiver of a specific provision of this
Code for any individual officer or director of our Company must be approved, if
at all, in advance by a majority of the independent directors serving on our
board of directors. Any such waiver that may be granted and is required to be
disclosed by applicable law will be publicly disclosed by appropriate means.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-3 (Nos. 333-36682, 333-43750, 333-64414, 333-72553,
333-74390, 333-103231 and 333-112356) and Forms S-8 (Nos. 333-35992, 333-56216
and 333-112935) of SIGA Technologies, Inc. of our report dated February 17, 2004
relating to the financial statements, which appears in this Form 10-KSB.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 29, 2004
EXHIBIT 31.1
CERTIFICATION 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-KSB of SIGA
Technologies, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) (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 me by others within those entities, particularly
during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual 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
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and
the audit committee of 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 30, 2004 By: /s/ Thomas N. Konatich
---------------------------------
Thomas N. Konatich
Acting Chief Executive Officer
and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION 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-KSB, for the year ended December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas N. Konatich, Acting Chief Executive Officer and Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.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.
/s/ Thomas N. Konatich
---------------------------------
Thomas N. Konatich
Acting Chief Executive Officer
and Chief Financial Officer
Dated: March 30, 2004
Exhibit 99.1
SIGA TECHNOLOGIES, INC.
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
I. Purpose
The purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of SIGA Technologies, Inc. (the "Company") is to
represent and assist the Board in monitoring (i) the Company's accounting,
auditing, and financial reporting processes; (ii) the integrity of the Company's
financial statements; (iii) the Company's internal controls and procedures
designed to promote compliance with accounting standards and applicable laws and
regulations; and (iv) the appointment of and evaluating the qualifications and
independence of the Company's independent auditors.
II. Membership
The Committee shall be comprised of three or more directors, each of whom
shall be free from any relationship that, in the opinion of the Board, would
interfere with his or her exercise of independent judgment and must be found by
the board to (i) qualify as an "independent director" under the Nasdaq
Marketplace Rules (the "Marketplace Rules"), unless the Board determines that an
exemption to such qualification is available under the Marketplace Rules, (ii)
meet the "independence" requirements under Section 10A of the Securities
Exchange Act of 1934 (the "Exchange Act") and (iii) satisfy the other
requirements of the Nasdaq Marketplace Rules. In addition, all members of the
Committee shall be able to read and understand fundamental financial statements,
including the balance sheet, income statement and cash flow statement. At least
one member of the Committee should in the judgment of the Board be an audit
committee financial expert in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC") and shall have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, which results in such
member's financial sophistication, including a current or past position as a
chief executive or financial officer or other senior officer with financial
oversight responsibilities.
Members of the Committee shall serve at the pleasure of the Board and may
be removed at the Board's sole and absolute discretion. Members shall serve
until their successors shall be duly elected and qualified. The Committee's
chairperson shall be designated by the full Board or, if the Board does not do
so, the Committee members shall elect a chairperson by vote of a majority of the
full Committee.
III. Meetings
The Committee shall meet in person, telephonically or otherwise on a
regular basis but no less than once per quarter. The Committee may also hold
special meetings or act by unanimous written consent, as may be required.
The Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee. The
Committee may, at its option, meet with the
independent auditor without members of management or other personnel of the
Company present.
The chairperson of the Committee will preside at each meeting of the
Committee and, in consultation with the other members of the Committee, shall
set the frequency and length of each meeting and the agenda of items to be
addressed at each meeting. The chairperson will ensure that the agenda for each
meeting is circulated in advance of the meeting. The Committee shall keep
minutes of each of its meetings and conference calls and report its actions and
any recommendations to the Board after each of the Committee's meeting.
The Committee meetings will be governed by the quorum and other procedures
generally applicable to meetings of the Board under the Company's bylaws, unless
otherwise stated in the bylaws of by resolution of the Board or the Committee.
The Committee shall have the authority to delegate any of its responsibilities
to subcommittees as the Committee may deem appropriate.
IV. Committee Resources and Advisors
The Committee shall have the authority to retain outside legal, accounting
and/or other consultants to advise the Committee as it deems necessary to carry
out its duties. The Committee shall also have the authority to obtain advice and
assistance from internal and external legal, human resource or other advisors.
The Company will provide the appropriate funding, as determined by the
Committee, for payment of compensation to the independent auditors for audit
fees, audit related fees, tax fees and all other fees and to any advisors
engaged pursuant to the preceding paragraph or otherwise by the Committee. The
Company will also provide the appropriate funding, as determined by the
Committee, for payment of ordinary administrative expenses of the Committee that
are necessary or appropriate in carrying out its duties.
V. Responsibilities and Duties
The Committee shall have the following authority and responsibilities:
Independent Auditors - Appointment and Oversight
1. To be directly and solely responsible for the appointment, compensation
retention and oversight of the work of the independent auditors engaged on
any audit, including the resolution of disagreements between management
and the auditing firm. The independent auditors shall report directly to
the Committee. The Committee shall also have the sole authority to
directly evaluate and terminate the Company's independent auditor.
2. To approve in advance all auditing services (including comfort letters and
statutory audits) performed by the independent auditors. The Committee
shall approve in advance all non-audit services performed by the
independent auditors as permitted under Section 10A of the Exchange Act.
The Committee may delegate to one or more members the
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authority to grant pre-approvals required by this section and the decision
of such member shall be presented to the Committee at the next scheduled
meeting of the Committee.
3. To annually review and discuss with the independent auditors all
relationships the independent auditors have with the Company in order to
evaluate their continued independence. In this regard, the Committee shall
(i) review on an annual basis a written statement from the independent
auditors (consistent with Independent Standards Board Standard No. 1) that
discloses all relationships and services that may impact the objectivity
and independence of the independent auditors; (ii) discuss with the
independent auditors any disclosed relationships or services that may
impact their objectivity and independence; and (iii) take, or recommend
that the full Board take, appropriate action to oversee the independence
of the independent auditors.
4. To annually review a report by the independent auditors describing: (i)
the independent auditors' internal quality-control procedures; and (ii)
any material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and any
steps taken to deal with such issues.
5. To confirm compliance by the auditors with laws and regulations relating
to audit partner rotation.
6. To review all reports required to be submitted by the independent auditors
to the Committee under Section 10A of the Exchange Act with respect to
critical accounting policies and practices, alternative treatments of
financial information within generally accepted accounting principles that
have been discussed with management, and other material communications
with management.
7. To meet with the independent auditor and senior financial and accounting
personnel of the Company prior to the audit to review the planning and
staffing of the audit and the scope of the proposed audit for the current
year and the audit procedures to be utilized.
8. To review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to such letter. Such review should
include:
A. Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
B. Any changes required in the planned scope of the internal audit.
C. The financial and accounting department responsibilities, budget and
staffing.
9. To review the use of auditors other than the independent auditor in cases
such as management's request for second opinions.
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Financial Statements
10. To review and discuss the annual audited financial statements (including
disclosures made in "Management's Discussion and Analysis of Financial
Condition and Results of Operations") and any major issues regarding
accounting and auditing principles and practices, as well as the adequacy
of internal controls with management of the Company including, without
limitation, the Chief Financial Officer.
11. To review any analysis prepared by management of the Company and the
independent auditor of significant financial reporting issues and
judgments made in connection with the preparation of the Company's
financial statements.
12. To discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit. Document that such discussion has taken place noting
the date, participants and place of the discussion, but not the nature and
scope of such discussion so that frank and open communication between the
Committee and the independent auditor may occur.
13. To obtain assurance from the independent auditor that it has reviewed the
Company's quarterly financial reports within the meaning of the procedures
set forth in Statement on Auditing Standards No. 71 prior to the filing of
the Company's Form 10-Q for each quarter.
14. To review with management of the Company and the independent auditor the
Company's quarterly financial statements (including disclosures made in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations") prior to the filing of the Company's Form 10-Q for each
quarter and, if possible, prior to any quarterly earnings announcement.
15. To review the financial statements contained in the annual report to
stockholders with management of the Company and the independent auditor to
determine that the independent auditor is satisfied with the disclosure
and contents of the financial statements to be presented to the
stockholders of the Company.
Accounting and Financial Reporting Processes and Risk Assessment
16. To periodically discuss with the independent auditors, without management
being present, their judgments about the quality, appropriateness, and
acceptability of the Company's accounting principles and financial
disclosure practices, as applied in its financial reporting, and the
completeness and accuracy of the Company's financial statements
17. To review with management, the independent auditors and the Company's
legal advisors (as appropriate) any legal, regulatory or compliance
matters, including any correspondence with regulators or government
agencies and any employee complaints or
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published reports that raise material issues regarding the Company's
financial statements or accounting policies and any significant changes in
accounting standards or rules promulgated by the Financial Standards
Board, the SEC or other regulatory authorities.
18. To discuss generally the types of information to be disclosed and the
presentation to be made in earnings releases, including the use of
non-GAAP financial data, and in financial information and earnings
guidance (if any) given to analysts and ratings agencies.
19. To review (if any) any material off-balance sheet transactions,
arrangements and obligations (including contingent obligations) and any
other relationships of the Company with unconsolidated entities that may
have a current or future material effect on the Company's financial
statements.
20. To review the Company's major financial risk exposures, the Company's
system of internal controls and policies relating to risk assessment and
management and the steps management has taken to monitor and control such
exposures.
21. To review and discuss with the independent auditor, the Company's Chief
Financial Officer and other senior financial and accounting personnel: (a)
the adequacy and effectiveness of the Company's internal controls
(including any significant deficiencies and significant changes in
internal controls reported to the Committee by the independent auditor or
management; (b) the Company's internal audit procedures; and (c) the
adequacy and effectiveness of the Company's disclosures controls and
procedures, and management reports thereon.
22. To review any recommendations of the independent auditor, the Company's
Chief Financial Officer and other senior financial and accounting
personnel for the improvement of internal control procedures or particular
areas where new or more detailed controls or procedures are desirable.
23. To review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor, Chief
Financial Officer, other senior financial and accounting personnel or
management of the Company.
24. To review the significant reports to management of the Company prepared by
the Chief Financial Officer and management's responses.
25. To advise the Board with respect to the Company's policies and procedures
regarding compliance with relevant laws and regulations
26. To meet at least annually with the Chief Financial Officer and the
independent auditor in separate executive sessions.
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Internal Controls
27. To establish procedures for the receipt, retention and treatment of
complaints concerning accounting, internal accounting controls and
auditing matters; and the confidential, anonymous submission by employees
of the Company of concerns regarding accounting or auditing matters.
28. To review the reports of the Chief Executive Officer and Chief Financial
Officer (in connection with their required certifications for the
Company's filings with the SEC) regarding any significant deficiencies or
material weaknesses in the design or operation of internal controls, and
any fraud that involves management or other employees who have a role in
the Company's internal controls.
Other
29. To take steps to ensure that the Company shall not hire any person to
perform a financial reporting oversight role who has provided more than
ten hours of audit, review or attest services as part of the auditors'
audit engagement team within the past year. For clarity a financial
reporting oversight role refers to a role in which an individual has
direct responsibility for or oversight of those who prepare the Company's
financial statements and related information which will be included in the
Company's filings with the SEC, and also includes members of the Board who
may have significant interaction with the audit engagement team.
30. To review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
31. To have an annual discussion regarding the effectiveness of the Committee
and its processes and procedures.
32. To review all press releases and publicly-distributed information of a
financial nature prior to dissemination.
33. To review the appointment and replacement of the Chief Financial Officer
and other senior financial and accounting personnel.
34. To prepare a report of the Committee as required by the rules of the SEC
and include such report in the Company's annual proxy statement.
35. To review and approve, pursuant to the relevant NASDAQ and SEC rules and
regulations, all related party transactions required to be disclosed
pursuant to Regulation S-K, Item 404 of the SEC, as such regulation may be
amended from time to time.
36. To review and address any notifications regarding violations of the
Company's Code of Ethics and Business Conduct.
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VI. Limitations on Audit Committee's Role
The Committee members are not professional accountants or auditors and
their functions are not intended to duplicate or to certify the activities of
management and the independent auditor, nor can the Committee certify that the
independent auditor is "independent" under applicable rules. The Committee
serves a board level oversight role where it oversees the relationship with the
independent auditor, as set forth in this charter, and provides advice, counsel
and general direction, as it deems appropriate, to management and the auditors
on the basis of the information it receives, discussions with the auditor, and
the experience of the Committee's members in business, financial and accounting
matters.
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