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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File No. 0-23047
March 31, 2004
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
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
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 |_|.
As of May 11, 2004 the registrant had outstanding 23,439,158 shares of common
stock.
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SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31,
2004 2003
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ASSETS
Current Assets
Cash and cash equivalents ................................................... $ 6,808,161 $ 1,440,724
Accounts receivable ......................................................... 41,505 38,786
Prepaid expenses ............................................................ 50,338 50,338
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Total current assets ....................................................... 6,900,004 1,529,848
Equipment, net .............................................................. 308,260 379,046
Goodwill .................................................................... 898,334 898,334
Intangible assets, net ...................................................... 2,970,626 3,117,357
Other assets ................................................................ 177,391 174,995
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Total assets ............................................................... $ 11,254,615 $ 6,099,580
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................................ $ 644,670 $ 353,051
Accrued expenses and other .................................................. 196,682 195,181
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Total liabilities .......................................................... 841,352 548,232
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, 81,366 and 81,366 issued and outstanding at March 31, 2004
and December 31, 2003, respectively) ........................................ 72,666 72,666
Common stock ($.0001 par value, 50,000,000 shares authorized,
23,437,492 and 18,676,851 issued and outstanding at March 31, 2004
and December 31, 2003, respectively) ...................................... 2,344 1,868
Additional paid-in capital .................................................. 47,085,863 40,284,856
Accumulated deficit ......................................................... (36,747,610) (34,808,042)
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Total stockholders' equity ................................................. 10,413,263 5,551,348
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Total liabilities and stockholders' equity ................................. $ 11,254,615 $ 6,099,580
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The accompanying notes are an integral part of these financial statements.
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three months ended
March 31,
2004 2003
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Revenues
Research and development contracts .................. $ 161,217 $ 205,144
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Operating expenses
Selling, general and administrative ................. 1,005,860 560,308
Research and development ............................ 1,019,541 477,499
Patent preparation fees ............................. 91,839 55,932
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Total operating expenses ......................... 2,117,240 1,093,739
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Operating loss ................................... (1,956,023) (888,595)
Interest income, net ..................................... 16,455 6,357
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Net loss ......................................... $ (1,939,568) $ (882,238)
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Weighted average shares outstanding: basic and diluted ... 23,010,544 13,243,162
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Net loss per share: basic and diluted .................... (0.08) $ (0.07)
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The accompanying notes are an integral part of these financial statements.
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three months ended
March 31,
2004 2003
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Cash flows from operating activities:
Net loss $ (1,939,568) $ (882,238)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 89,153 83,747
Amortization of intangible assets 146,731 --
Changes in assets and liabilities:
Accounts receivable (2,719) (117,895)
Prepaid expenses -- 40,325
Other assets (2,396) (2,683)
Accounts payable and accrued expenses 293,120 (113,471)
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Net cash used in operating activities (1,415,679) (992,215)
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Cash flows from investing activities:
Capital expenditures (18,367) (138,054)
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Net cash flow used in investing activities (18,367) (138,054)
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Cash flows from financing activities:
Net proceeds from issuance of common stock 6,784,607 791,940
Issuance of promissory note -- (50,000)
Proceeds from exercise of warrants 16,876 --
Principal payments on capital lease obligations -- (11,206)
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Net cash provided from financing activities 6,801,483 730,734
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Net increase (decrease) in cash and cash equivalents 5,367,437 (399,535)
Cash and cash equivalents at beginning of period 1,440,724 2,069,004
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Cash and cash equivalents at end of period $ 6,808,161 $ 1,669,469
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The accompanying notes are an integral part of these financial statements.
Notes to the March 31, 2004 Financial Statements
1. Organization and Basis of Presentation
Organization
The financial statements of SIGA Technologies, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Forms 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 2003, included in the 2003 Form 10-KSB.
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. The Company anticipates that its current resources
will be sufficient to finance anticipated needs for operations and capital
expenditures approximately through the first quarter of 2005. 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 5 for recent private placement offerings.
2. 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. 104, "Revenue Recognition" which superceded Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements". 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 104, 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. Milestone payments, which generally are related to substantial
scientific or technical achievement, are recognized as revenue when the
milestone is accomplished.
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 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 March 31, 2004 and December 31, 2003, 81,366 and 81,366 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 March
31, 2004 and December 31, 2003, outstanding options to purchase 6,452,477 and
6,460,811 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 March 31, 2004 and December
31, 2003, outstanding warrants to purchase 8,703,310 and 6,286,332 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:
Three Months Ended
March 31,
2004 2003
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Net loss, as reported ($1,939,568) ($ 882,238)
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Add: Stock-based employee compensation expense recorded under
APB No. 25 -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (98,150) (22,745)
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Pro forma net loss ($2,037,718) ($ 904,983)
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Net loss per share:
Basic and diluted -as reported $ (0.08) $ (0.07)
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Basic and diluted -pro forma $ (0.09) $ (0.07)
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The fair value of the options granted to employees during 2003 ranged from $0.09
to $2.75 on the date of the respective grant using the Black-Scholes
option-pricing model. There were no options granted in the first quarter of
2004. 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.
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 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.
Selected Unaudited Pro Forma Financial Information
The Company has prepared a condensed pro forma statement of operations in
accordance with SFAS 141, for the three months ended March 31, 2004 and 2003 as
if Plexus were part of the Company as of January 1, 2004 and 2003, respectively.
Three Months Ended
March 31,
2004 2003
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Revenues $ 161,217 $ 270,244
Net loss $ (1,939,568) $ (2,698,574)
Net loss per common share - basic and diluted $ (0.08) $ (0.18)
Weighted average number of common shares outstanding 23,010,544 15,193,162
4. Intangible Assets
For the three months ended March 31, 2004, amortization of intangible assets
that were acquired on May 23, 2003 was approximately $55,000 for acquired
technology, approximately $41,000 for customer contact and grants, and
approximately $51,000 for the covenant not to compete. The Company anticipates
amortization expense to be approximately $447,019, $593,750, $593,750, $219,100,
and $219,100 for the fiscal years ending December 31, 2004, 2005, 2006, 2007,
and 2008, respectively.
5. Stockholders' Equity
At March 31, 2004, 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.
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.
In January 2004, 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, and TransTech Pharma, Inc., a related party to the
Company and an affiliate of MacAndrews & Forbes ("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.
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 Quarterly Report. In addition to
historical information, the following discussion and other parts of this
Quarterly 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. The acquisition of substantially all
the assets of Plexus Vaccine, Inc. ("Plexus") in May 2003 expands our
capabilities in biological warfare defense research and allows for the
development of vaccines for smallpox, anthrax and plague, botulism and other
biological pathogens. The acquisition can also facilitate development of
vaccines for traditional human health targets.
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 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 at least the next 12 months.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon. 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 include 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. 104 ("SAB 104"), Revenue Recognition, which superceded
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
("SAB 101"). 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. Milestone payments, 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.
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 March 31, 2004, 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 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 adopted the provisions of
FIN 46R for the period ended March 31, 2004. The Company does not hold any
interests in VIEs that would require consolidation or additional disclosures.
Results of Operations
Three months ended March 31, 2004 and March 31, 2003
Revenues from grants and research and development contracts were
$161,217 for the three months ended March 31, 2004, compared to $205,144 for the
same period of 2003, an approximate 21% decrease. The decrease for the three
months ended March 31, 2004 from the prior year reflects lower activity under
the Small Business Innovation Grant (SBIR) from the National Institutes of
Health (NIH) as the allocation of the two year grant was weighted higher in its
initial year of allowance. Revenue from the U.S. Army contact was slightly lower
for the three months ended March 31, 2004, which also contributed to the
decrease.
Selling, general and administrative expenses for the three months
ended March 31, 2004 were $1,005,860 an increase of approximately 80% from
expenses of $560,308 for the three months ended March 31, 2003. Approximately
half of the approximate $450,000 increase was due to materially higher
professional fees, primarily legal expenses. The expenses were incurred as the
result of costs incurred to review and amend our corporate governance policies
and procedures to ensure compliance with Sarbanes Oxley regulations. Also
contributing to the increase in legal expenses were costs incurred in connection
with a review of a potential business combination and a legal action the Company
initiated against a former consultant. Payroll expense accounted for
approximately 21% of the increase in the three months ended March 31, 2004. The
increase was primarily the result of the addition of former Plexus employees to
our staff in May 2003 and therefore not included in the prior year balance.
Consulting expenses for marketing efforts to present our programs to agencies of
the federal government were also higher. Furthermore, the three months ended
March 31, 2004 also included approximately $51,000 of non-cash charges to
amortize certain intangible assets acquired in the Plexus transaction in May
2003. No such charges were incurred in the three months ended March 31, 2003.
Research and development expenses increased approximately 114% to
$1,019,541 for the three months ended March 31, 2004 from $477,499 for the same
period in 2003. Non-cash charges of $95,951 for the amortization of certain
intangible assets acquired in connection with the Plexus acquisition accounted
for approximately 18% of the period to period increase. Payroll expense for the
three months ended March 31, 2004, increased 69% to approximately $420,000
compared to prior year expense of approximately $248,000. The increase was the
result of the addition of former Plexus employees to our staff, an increase in
staff to accelerate development on our lead products and a bonus payment to our
Chief Scientific Officer. Sponsored research expense increased by approximately
$183,000 for the three months ended March 31, 2004 compared to the same period
in 2003 as the result of payments 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 three
months ended March 31, 2004, excluding non-cash charges of approximately
$168,000, we estimate that we spent a total of approximately $850,000 on all our
research programs: approximately $260,000 or 31% of the total for the
development of the Smallpox antiviral; approximately $138,000 or 16% of the
total on the strep vaccine; approximately $154,000, or 18% of the total on the
DegP anti-infective; approximately $195,000, or 23% of the total on vaccines
including those being developed under agreements acquired from Plexus; and
remaining approximately 12% of the total on other anti-infectives. For the three
months ended March 31, 2003, excluding non-cash charges of approximately
$67,000, we estimate we spent a total of approximately $480,000 on all our
product programs: approximately $81,000, or 17% of total for the strep vaccine
program; approximately $154,000, or 32% of the total was for the smallpox
program; approximately $91,000, or 19% of the total was for the DegP
anti-infectives program; approximately $38,000, or 8% of the total for other
anti-infectives; and approximately $115,000, or 24% of the total was for other
vaccine programs including the smallpox vaccine. 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 three months ended March 31,
2004 were $91,839 compared to $55,932 for the three months ended March 31, 2003.
The 64% increase was the result of increased costs of patent work required on
the intellectual property acquired in the Plexus transaction, including foreign
patent filings.
Total operating loss for the three months ended March 31, 2004 was
$2,117,240, an approximate 94% increase from the $1,093,739 loss incurred for
the three months March 31, 2003. The increase in the loss is the result of
higher general and administration expenses and research and development expenses
as described above. Approximately 14% of the increase in the net loss was the
result of non-cash charges incurred in the three month ended March 31, 2004.
Interest income, net was $16,455 for the three months ended March
31, 2004, compared to $6,357 for the three months ended March 31, 2003. The
increase is the result of higher cash balances in the three months ended March
31, 2004 compared to the prior year period.
Liquidity and Capital Resources
As of March 31, 2004, we had $6,808,161 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. 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 was received and the
common shares and warrants were issued.
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.
We incurred net losses of approximately $1.9 million for the three
months ended March 31, 2004, $5.3 million and approximately $3.3 million for the
years ended December 31, 2003 and 2002, respectively. As of March 31, 2004,
December 31, 2003 and December 31, 2002, our accumulated deficit was
approximately $36.7 million, $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.
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
------ ------ -----
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
2004 High Low
------ ------ -----
First Quarter............................. $2.82 $1.83
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;
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
three months ended March 31, 2004 and 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 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, a related party, 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 make an acquisition will
limit our ability to grow, but will not be central to our continued existence.
Costs associated with failed acquisitions, may result in significant operating
costs that may need to be financed from operations or from additional equity
capital.
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
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 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 March 31, 2003.
- ---------------------------------------------------------------------------------------------------
Number
Licensed Number
from Co-owned with Number
Rockefeller Washington Owned by Years of Expiration Dates
PATENTS Univ. Univ. SIGA of Patents
- ---------------------------------------------------------------------------------------------------
United States 7 7 1 2013, 2014 (3 patents), 2015 (4
patents), 2016 (2 patents),
2017, 2019 (2 patents), 2020,
2021
- ---------------------------------------------------------------------------------------------------
Europe 3 2 2004, 2009, 2010, 2014, 2020
- ---------------------------------------------------------------------------------------------------
2004, 2009, 2014 (2 patents),
Australia 5 2 2015, 2016, 2019, 2020
- ---------------------------------------------------------------------------------------------------
Japan 4 2 2004 (2 patents), 2010, 2012,
2014, 2020
- ---------------------------------------------------------------------------------------------------
Canada 3 1 2004, 2010, 2014, 2019
- ---------------------------------------------------------------------------------------------------
Hungary 2 2013, 2016
- ---------------------------------------------------------------------------------------------------
Mexico 1 2016
- ---------------------------------------------------------------------------------------------------
New Zealand 1 2016
- ---------------------------------------------------------------------------------------------------
APPLICATIONS
- -------------------------------------------------------------------
United States 2 4 1
- -------------------------------------------------------------------
Europe 2 1
- -------------------------------------------------------------------
Japan 3 1
- -------------------------------------------------------------------
Canada 3 1 1
- -------------------------------------------------------------------
Australia 1 1
- -------------------------------------------------------------------
China 1
- -------------------------------------------------------------------
Finland 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 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 healthcare 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;
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 affect our
development programs.
The future issuance of preferred stock may adversely affect the rights of the
holders of our common stock.
Our certificate of incorporation allows our Board of Directors to
issue up to 10,000,000 shares of preferred stock and to fix the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of these shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
could be adversely affected by, the rights of the holders of any preferred stock
that we may issue in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control.
Concentration of ownership of our capital stock could delay or prevent change of
control.
Our Directors, executive officers and principal stockholders
beneficially own a significant percentage of our common stock and preferred
stock. They also have, through the exercise or conversion of certain securities,
the right to acquire additional common stock. As a result, these stockholders,
if acting together, have the ability to significantly influence the outcome of
corporate actions requiring shareholder approval. Additionally, this
concentration of ownership may have the effect of delaying or preventing a
change in control of SIGA. At March 31, 2004, Directors, Officers and principal
stockholders beneficially owned approximately 50.2% of our stock.
Item 3. Controls and Procedures
As of the end of the fiscal quarter ended March 31, 2004, the Company's
management, including the Acting Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15(d)-15(e) of the Securities Exchange Act of 1934, as amended). Based on that
evaluation, the Acting Chief Executive Officer and Chief Financial Officer
concluded that such disclosure controls and procedures were effective for
recording, processing, summarizing and reporting information that the Company is
required to disclose in reports filed under the Securities and Exchange Act of
1934, as amended.
There have been no changes in the Company's internal controls
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act, as amended) or in other factors during the fiscal
quarter ended March 31, 2004, that materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
Part II
Other information
Item 1. Legal Proceedings - SIGA is not a party, nor is its property the subject
of, any legal proceedings other than routine litigation incidental to its
business.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
31. Certification of Acting Chief Executive Officer and Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32. Certification of Acting Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(1) On January 13, 2004, SIGA filed a Current Report on Form 8-K, dated
January 8, 2004, pursuant to which SIGA reported under Item 5 (i) the completion
by MacAndrews & Forbes Holdings Inc. and its affiliate, TransTech Pharma Inc.,
of the final portion of their $10 million investment in SIGA, and (ii) the
issuance of a press release related to such investment, which was filed as an
exhibit thereto.
(2) On January 30, 2004, SIGA filed a Current Report on Form 8-K, dated
January 30, 2004, pursuant to which SIGA provided under Item 7 the following
financial information (i) the unaudited pro forma statement of operations for
SIGA and Plexus Vaccines, Inc. ("Plexus") for the nine months ended September
30, 2003, and (ii) the unaudited pro forma statement of operations for SIGA and
Plexus for the year ended December 31, 2002.
(3) On March 22, 2004, SIGA filed a Current Report on Form 8-K, dated
March 22, 2004, pursuant to which SIGA reported under Item 9 that SIGA issued a
press release announcing a successful small pox vaccine trial and a possible
sale of certain non-core vaccine assets.
(4) On April 21, 2004, SIGA filed a Current Report on Form 8-K, dated
April 21, 2004, pursuant to which SIGA provided under Item 7 the unaudited pro
forma statement of operations for SIGA and Plexus for the year ended December
31, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGA Technologies, Inc.
(Registrant)
Date: May 14, 2004 By: /s/Thomas N. Konatich
----------------------
Thomas N. Konatich
Chief Financial Officer
(Principal Accounting Officer and
Financial Officer and Vice
President, Finance)
Exhibit 31
I, Thomas Konatich, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SIGA
Technologies, Inc.;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this quarterly 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 quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting;
5. I have disclosed, based on our most recent evaluation, 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 controls 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 controls over
financial reporting.
Date: May 14, 2004
By /s/ Thomas N. Konatich
-------------------------
Thomas N. Konatich
Acting Chief Executive Officer and
Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SIGA Technologies, Inc. (the
"Company") on Form 10-QSB for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
Konatich, Acting Chief Executive Officer and Chief 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.
May 14, 2004
/S/ Thomas N. Konatich
----------------------
Thomas Konatich
Acting Chief Executive Officer
and Chief Financial Officer
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its
staff upon request.
