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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2005
Or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission File No. 0-23047
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 408 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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes |_| No |X|.
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15 (d) of the Act Yes |_| No |X|.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one): Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer
|X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on March 15,
2006 as reported on the Nasdaq SmallCap Market was approximately $29,946,000. As
of March 15, 2006 the registrant had outstanding 26,500,648 shares of common
stock.
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SIGA Technologies, Inc.
Form 10-K
Table of Contents
Page No.
PART I
Item 1. Business....................................................................2
Item 1A. Risk Factors That May Affect Results of Operations and
Financial Condition........................................................11
Item 1B. Unresolved Staff Comments..................................................19
Item 2. Properties.................................................................19
Item 3. Legal Proceedings..........................................................19
Item 4. Submission of Matters to a Vote of Security Holders........................19
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities..................................20
Item 6. Selected Financial Data....................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................30
Item 8. Financial Statements and Supplementary Data................................31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................................53
Item 9A. Controls and Procedures....................................................53
Item 9B. Other Information..........................................................53
PART III
Item 10. Directors and Executive Officers of the Registrant.........................54
Item 11. Executive Compensation.....................................................57
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................................60
Item 13. Certain Relationships and Related Transactions.............................64
Item 14. Principal Accountant Fees and Services.....................................64
PART IV
Item 15. Exhibits...................................................................65
SIGNATURES...........................................................................70
Item 1. Business
Certain statements in this Annual Report on Form 10-K, including certain
statements contained in "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words or phrases "can be," "expects," "may affect," "may depend," "believes,"
"estimate," "project" and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and SIGA cautions you that any
forward-looking information provided by or on behalf of SIGA is not a guarantee
of future performance. SIGA's actual results could differ materially from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond SIGA's control, including (i) the 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.
Introduction
SIGA Technologies, Inc. is referred to throughout this report as "SIGA,"
"the Company," "we" or "us."
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 and
Arenaviruses (hemorrhagic fevers). Our lead product, SIGA-246, is an orally
administered anti-viral drug that targets the smallpox virus. In December 2005
the Food and Drug Administration (FDA) accepted our Investigational New Drug
(IND) application for SIGA-246 and granted the program "Fast-Track" status. Our
anti-viral programs are designed to prevent or limit the replication of the
viral pathogen. Our anti-infectives programs are aimed at the increasingly
serious problem of drug resistance. We are also developing a technology for the
mucosal delivery of our vaccines which may allow the vaccines to activate the
immune system at the mucus lined surfaces of the body -- the mouth, the nose,
the lungs and the gastrointestinal and urogenital tracts -- the sites of entry
for most infectious agents.
Product Candidates and Market Potential
SIGA Biological Warfare Defense Product Portfolio
Anti-Smallpox Drug: Smallpox virus is classified as a Category A agent by the
Center for Disease Control and Prevention (CDC) and is considered one of the
most significant threats for use as a biowarfare agent. While deliberate
introduction of any pathogenic agent would be devastating, we believe the one
that holds the greatest potential for harming the general U.S. population is
Smallpox. At present there is no effective drug with which to treat or prevent
Smallpox infections. To address this serious risk, SIGA scientists have
identified a lead drug candidate, SIGA-246, which inhibits vaccinia, cowpox,
ectromelia (mousepox), monkeypox, camelpox, and variola replication in cell
culture but not other unrelated viruses. Given the safety concerns with the
current smallpox vaccine, there should be several uses for an effective smallpox
antiviral drug: prophylactically, to protect the non-immune who are at risk to
exposure; therapeutically, to prevent disease or death in those exposed to
smallpox; and lastly, as an adjunct treatment to the immunocompromised. SIGA
scientists are also working on several other smallpox drug targets, including
the viral proteinases, to develop additional drug candidates for use in
combination therapy if necessary. In December 2005, the FDA approved our IND
application for SIGA-246. We plan to start Phase I clinical trials in 2006, to
evaluate the safety and tolerability of single escalating doses of SIGA-246 in
healthy volunteers. The Phase I human trials will be performed at the
Bio-defense Clinical Research Branch of the National Institute of Allergy and
Infectious Diseases (NIAID), which is part of the federal government's National
Institutes of Health (NIH). The primary objective of the initial study will be
to evaluate the safety and tolerability of single escalating doses of SIGA-246.
In 2005, the drug demonstrated significant antiviral activity in various
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animal models of poxvirus disease, including the complete protection of golden
ground squirrels from lethal doses of monkeypox virus.
Anti-Arenavirus Drug: Arenaviruses are hemorrhagic fever viruses that have
been classified as Category A agents by the CDC due to the great risk that they
pose to public health and national safety. Among the Category A viruses
recognized by the CDC, there are four hemorrhagic fever arenaviruses (Junin,
Machupo, Guanarito and Sabia viruses) for which there are no FDA approved
treatments available. In order to meet this threat, SIGA scientists have
identified a lead drug candidate, ST-294, which has demonstrated significant
antiviral activity in cell culture assays against arenavirus pathogens. SIGA
also has earlier stage programs against other hemorrhagic fever viruses
including Lassa virus, Lymphocytic choriomeningitis virus (LCMV), and Ebola in
development. We believe that the availability of hemorrhagic fever virus
antiviral drugs will address national and global security needs by acting as a
significant deterrent and defense against the use of arenaviruses as weapons of
bioterrorism.
Bacterial Commensal Vectors: Our scientists have developed methods that
allow essentially any gene sequence to be expressed in Generally Regarded As
Safe (GRAS) gram-positive bacteria, with the foreign protein being displayed on
the surface of the live recombinant organisms. Since these organisms are
inexpensive to grow and are very stable, this technology affords the possibility
of rapidly producing live recombinant vaccines against any variety of biological
agents that might be encountered, such as Bacillus anthracis (anthrax) or
Smallpox. SIGA scientists are working to develop an alternative vaccine with
improved safety for use in preventing human disease caused by pathogenic
orthopoxviruses such as variola virus. To accomplish this goal we are utilizing
our newly-developed BCV (bacterial commensal vector) technology. BCV utilizes
gram-positive commensal bacteria, such as Streptococcus gordonii, (S. Gordonii)
to express heterologous antigens of interest, either in secreted form or
attached to its external surface. Phase I human clinical trials indicate that
this S. gordonii strain is safe and well-tolerated in humans. In several
different animal model systems S. gordonii has been shown to efficiently express
various antigens and elicit protective immune responses (cellular, humoral and
mucosal). We believe that the delivery of selected vaccinia virus antigens via
this live bacterial vector system will provide an effective and safe method for
prevention of smallpox in humans.
Surface Protein Expression (SPEX/PLEX) System: Our scientists have
harnessed the protein expression pathways of gram-positive bacteria and turned
them into protein production factories. Using our proprietary SPEX or PLEX
systems, we can produce foreign proteins at high levels in the laboratory for
use in subunit vaccine formulations or other therapeutic applications.
Furthermore, we can envision engineering these bacteria to colonize the mucosal
surfaces of soldiers and/or civilians and secrete therapeutic molecules - e.g.
anti-toxins that protect against aerosolized botulism toxin.
Antibiotics: To combat the problems associated with emerging antibiotic
resistance, our scientists are developing drugs designed to address a new target
- - the bacterial adhesion organelles. Specifically, by using novel enzymes
required for the transport and/or assembly of the proteins and structures that
bacteria require for adhesion or colonization, we are developing new classes of
broad spectrum antibiotics. This may prove invaluable in providing prompt
treatment to individuals encountering an unknown bacterial pathogen in the air
or food supply.
Market for Biological Defense Programs
The Department of Homeland Security (the "DHS") appropriation bill signed
by President Bush on October 1, 2003 created a discretionary reserve of $5.6
billion to fund Project BioShield for a period of 10 years
(www.aamc.org/advocacy/library/laborhhs/labor0022.htm). $3.4 billion may be
obligated during the first 5 years of the bill, and was included in the United
States government's budgets for fiscal 2004 and 2005
(www.whitehouse.gov/omb/budget/fy2006/tables.html). The remainder is reserved
for the last 5 years of the bill. Project BioShield was introduced to encourage
pharmaceutical and biotechnology companies to develop bioterrorism
countermeasures. One of the major concerns in the field of biological warfare
agents is Smallpox - although declared extinct in 1980 by the World Health
Organization (WHO), there is a threat that a rogue nation or a terrorist group
may have an illegal inventory of the virus that causes Smallpox. The only legal
inventories of the virus are held under extremely tight security at the CDC in
Atlanta, Georgia and at a laboratory in Russia. As a result of this threat, the
U.S. government has announced its intent to make significant expenditures on
finding a way to counteract the virus if turned loose by terrorists or on a
battlefield. The Congressional Budget Office (the "CBO") reported that the DHS
projects the acquisition of 60 million doses of new Smallpox vaccines over a
three year
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period, commencing in 2005. Further the CBO reports that the DHS will spend an
additional $1 billion to replace expired stocks in 2007-2013. The market
opportunity for our biological warfare defense products has not been quantified
as yet beyond the potential to obtain a share of the approximately $9 billion
the federal government is committing to support research in the coming year.
The FDA amended its regulations, effective June 30, 2002, so that certain
new drug and biological products used to reduce or prevent the toxicity of
chemical, biological, radiological, or nuclear substances may be approved for
use in humans based on evidence of effectiveness derived only from appropriate
animal studies and any additional supporting data. We believe that this change
could make it possible for us to have our products which have been proven
effective in animal studies to be approved for sale within a relatively short
time.
SIGA Antibiotics Product Portfolio
Our anti-infectives program is targeted principally toward drug-resistant
bacteria and hospital-acquired infections. According to estimates from the CDC,
approximately two million hospital-acquired infections occur each year in the
United States. Our anti-infectives approaches aim to block the ability of
bacteria to attach to and colonize human tissue, thereby blocking infection at
the first stage in the infection process. By comparison, antibiotics available
today act by interfering with either the structure or the metabolism of a
bacterial cell, affecting its ability to survive and to reproduce. No currently
available antibiotics target the attachment of a bacterium to its target tissue.
We believe that, by preventing attachment, the bacteria should be readily
cleared by the body's immune system. SIGA has Gram-positive, Gram-negative and
broad spectrum antibiotic technologies.
SIGA Antivirals Product Portfolio
SIGA currently has the following antiviral programs which are in various
stages of development ranging from initial research and screening to initiation
of Phase I human clinical trials: Smallpox antiviral, New World Arenavirus
antiviral, Old World Arenavirus antiviral, Filovirus (Ebola & Marburg)
antivirals, Dengue Fever virus antiviral, and Bunyavirus antivirals. Currently
there are no approved antivirals available against any of these viruses.
Market for Anti-infective Programs
There are currently approximately 83 million prescriptions written for
antibiotics annually in the U.S (www.iatrogenic.org/library/antibioticlib.html).
and it is estimated that the worldwide market for antibiotics was worth
approximately 23.7 billion in 2004 (www.pharmaprojectsplus.com). Although our
products are too early in development to make accurate assessments of how well
they might compete, if successfully developed and marketed against other
products currently existing or in development at this time, the successful
capture of even a relatively small global market share could lead to a large
dollar volume of sales. Some of the antivirals that SIGA is developing are for
biowarfare agents and the market for that area is currently unknown, however,
there is funding available to purchase these drugs in Project Bioshield as well
as through the Department of Defense. Markets for the other antiviral programs
at SIGA vary widely depending on the virus and where they are endemic. Each of
these programs will be assessed on an individual basis as they approach the New
Drug Application stage.
Technology
Antiviral Technology: Two Approaches
SIGA has two approaches to the discovery and development of new antiviral
compounds: rational drug design and high-throughput screening (HTS). For
rational drug design SIGA applies advanced receptor structure-based Virtual
Ligand Screening technology for ligand/inhibitor discovery. The analysis of the
structure reveals potentially "drugable" pockets. The technology allows us to
utilize the three-dimensional structure of the target receptor to screen large
virtual compound collections as well as databases of commercially available
compounds and prioritize them for subsequent experimental validation. Rational
drug design is also used to develop structure activity relationships and lead
optimization.
4
For HTS SIGA uses whole cell virus inhibition assays, pseudotype virus
inhibition assays, as well as validated target biochemical assays. SIGA
currently has a 200,000 small molecule compound library in-house that is
utilized for screening in these various assays. This strategy allows for both
target specific and target neutral screening and identification of novel
antiviral compounds. Compounds are also screened for toxicity in various cell
lines to develop a therapeutic index (TI) which is the concentration that the
compound is toxic to 50% of the cells (CC50) divided by the concentration of
compound required to inhibit 50% of the virus (EC50) (TI= CC50/EC50). Once hits
are identified with an acceptable TI they are selected for chemical optimization
and proceed in to the antiviral drug development pipeline.
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from Rockefeller University
(Rockefeller), SIGA is developing specific commensal bacteria ("commensals") as
a means to deliver mucosal vaccines. Commensals are harmless bacteria that
naturally occupy the body's surfaces with different commensals inhabiting
different surfaces, particularly the mucosal surfaces. 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, as opposed to most
conventional vaccines which 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 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 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
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.
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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 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 Systems ("SPEX" & "PLEX")
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 Escherichia coli (E. coli) has been the method of choice to
express a variety of gene products, because of this bacterium'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 bacterial
commensal mucosal vaccines, we have developed methods which, instead of
anchoring the foreign protein to the surface of the recombinant Gram-positive
bacteria, result in it being secreted into the surrounding medium in a manner
which is readily amenable to simple batch purification. We believe the
advantages of this approach include the ease and lower cost of Gram-positive
bacterial growth, the likelihood that secreted recombinant proteins will be
folded properly, and the ability to purify recombinant proteins from the culture
medium without having to disrupt the bacterial cells and liberating cellular
contaminants. Gram-positive bacteria may be grown simply in scales from those
required for laboratory research up to commercial mass production. Recent
developments in the construction of these recombinant bacteria have resulted in
a plasmid-based expression system (PLEX), in which engineered genetic elements
(plasmids) are cloned into commensal bacteria for protein production. This
system allows for higher protein production levels than the original SPEX
constructs. In addition, the PLEX and SPEX systems may be used in concert,
enabling greater flexibility in protein secretion for purification or for
surface expression of multiple proteins - e.g. for multi-component combination
vaccines.
Collaborative Research and Licenses
We have entered into the following license agreements, collaborative
research arrangements and contracts:
National Institutes of Health. In August 2004, we were awarded two Phase I
and two Phase II Small Business Innovation Research (SBIR) grants totaling
approximately $11.1 million to support our work on Smallpox and Arenaviruses.
The grants were acquired as part of our acquisition of certain assets from
ViroPharma
6
Incorporated ("Viropharma"). For the years ending December 31, 2005, 2004 and,
2003, we have recognized revenue from the SBIR grants of $6,596,000, $1,415,000,
and $388,000 respectively.
Prior to 2003, we received grants amounting to approximately $1.1 million
to support our antibiotic and vaccine development programs including a Phase II
SBIR grant for approximately $865,000 that began in 2002 and was completed in
May 2004.
As part of our operational strategy we routinely submit grants to the NIH.
However, there is no assurance that we will receive additional grants.
United States Army Medical Research and Material Command. In September
2005, we entered into a $3.2 million, one year contract with the United States
Army Medical Research and Material Command (USAMRMC). The agreement, for the
rapid identification and treatment of anti-viral diseases, is funded through the
United States Air Force (USAF). It is anticipated that our efforts will aid the
USAF Special Operations Command in its use of computational biology to design
and develop specific countermeasures against biological threat agents Smallpox
and Adenovirus. In 2005, we recognized revenue of $653,000 from this contract.
United States Army Medical Research Acquisition Activity. In December
2002, we entered into a four year contract with the U.S. Army Medical Research
Acquisition Activity (USAMRAA) to develop a drug to treat Smallpox. The contract
start date was January 1, 2003 for the total amount of $1.6 million. Annual
payments over the term of the agreement will be approximately $400,000. In the
years ended December 31, 2005, 2004 and 2003 we recognized revenue of $427,000,
$425,000, and $315,000 respectively.
Saint Louis University. On September 1, 2005, we entered into an agreement
with Saint Louis University for the continued development of one of our Smallpox
drugs. The agreement is funded through the NIH. Under the agreement, SIGA will
receive approximately $1.0 million during the term of September 1, 2005 to
February 28, 2006. Revenues are recognized as services are performed. In 2005,
we recognized revenues of $775,000 from the agreement.
Oregon State University. Oregon State University (OSU) is also a party to
our license agreement with Rockefeller (discussed below), whereby we have
obtained the right and license to make, use and sell products for the therapy,
prevention and diagnosis of diseases caused by streptococcus. Pursuant to a
separate research support agreement with OSU, we provided funding for sponsored
research through December 31, 1999, with exclusive license rights to all
inventions and discoveries resulting from this research. At this time, no
additional funding is contemplated under this agreement, however, we retain the
exclusive licensing rights to the inventions and discoveries that may arise from
this collaboration. The term of the agreement is for the duration of the patents
licensed. As we do not currently know when any patents pending or future patents
will expire, we cannot at this time determine the term of this agreement. The
agreement can be terminated earlier if we are in breach of the provisions of the
agreement and do not cure the breach in the allowed cure period. We are
compliant in all our obligations under the agreement.
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 was negotiated on a year by year basis with OSU
and depended 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 and is now subject to renewal on a year to year basis.
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.
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
7
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, 2005 we
have made payments of approximately $101,000 under the license. In the event
that we sub-license the license, we must pay Regents 15% of all royalty payments
made to SIGA. We have currently met all our obligations under this agreement.
Rockefeller University. In accordance with an exclusive worldwide license
agreement with Rockefeller, we have obtained the right and license to make, use
and sell mucosal vaccines based on gram-positive organisms and products for the
therapy, prevention and diagnosis of diseases caused by streptococcus,
staphylococcus and other organisms. The license covers eight issued U.S. patents
and three issued European patents, as well as one pending U.S. patent
application and one pending European application. The issued United States
patents expire in 2008, 2014 (4), 2015 (2), and 2016, respectively. The
agreement generally requires us to pay royalties on sales of products developed
from the licensed technologies, and fees on revenues from sub-licensees, where
applicable, and we are responsible for the costs of filing and prosecuting
patent applications. Under the agreement, we paid Rockefeller approximately
$850,000 to support research at Rockefeller. The agreement to fund research has
ended and no payments have been made to the university since the year ended
December 31, 1999. Under the agreement we are obligated to pay Rockefeller a
royalty on net sales by SIGA at rates between 2.5% and 5% depending on product
and amount of sales. On sales by any sub-licensee, we will pay Rockefeller a
royalty of 15% of anything we receive. The term of the agreement is for the
duration of the patents licensed. As we do not currently know when any patents
pending or future patents will expire, we cannot at this time determine the term
of this agreement. At the end of that term of the agreement, we have the right
to continue to practice the then existing technical information as a fully paid,
perpetual license. The agreement can be terminated earlier if we are in breach
of the provisions of the agreement and do not cure the breach in the allowed
cure period. We are compliant in all our obligations under the agreement.
TransTech Pharma, Inc. In October 2002, we entered into a drug discovery
collaboration agreement with TransTech Pharma, Inc., a related party ("TransTech
Pharma"). Under the agreement, SIGA and TransTech Pharma collaborate on the
discovery, optimization and development of lead compounds to certain therapeutic
agents. The costs of development are shared. SIGA and TransTech Pharma would
share revenues generated from licensing and profits from any commercialized
product sales. The agreement will be in effect until terminated by the parties
or upon cessation of research or sales of all products developed under the
agreement. If the agreement is terminated, relinquished or expires for any
reason certain rights and benefits will survive the termination. Obligations not
expressly indicated to survive the agreement will terminate with the agreement.
No revenues were recognized in 2005, 2004 and 2003 from this collaboration.
Intellectual Property and Proprietary Rights
Our commercial success will depend in part on our and our collaborators'
ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve
our trade secrets. Because of the substantial length of time and expense
associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the type and breadth
of claims allowed in these patents.
We have licensed the rights to eight issued U.S. patents and three issued
European patents. These patents have varying lives and they are related to the
technology licensed from Rockefeller for the strep and Gram-positive products.
We have one additional patent application in the U.S. and one application in
Europe relating to this technology. We are joint owner with Washington
University of seven issued patents in the U.S. and one in Europe. In addition,
there are four co-owned U.S. patent applications. These patents are for the
technology used for the Gram-negative product opportunities. We are also
exclusive owner of one U.S. patent and three U.S. patent applications. One of
these U.S. patent applications relates to our DegP product opportunities.
8
The following are our patent positions as of December 31, 2005.
- -------------------------------------------------------------------------------------------------------------------------
Number Number
Number Co-Exclusively Exclusively
Exclusively Licensed Licensed Number
Licensed from with from Oregon Exclusively Number
Rockefeller Washington State Licensed from Owned by
PATENTS Univ. Univ. University UCLA SIGA Patent Expiration Dates
- -------------------------------------------------------------------------------------------------------------------------
2008, 2013(2), 2014(6),
U.S. 8 7 1 1 2015(2), 2016(2), 2017,
2019, 2020(2)
- -------------------------------------------------------------------------------------------------------------------------
Australia 5 2 1 2009, 2013, 2014(2),
2015, 2016, 2019, 2020
- -------------------------------------------------------------------------------------------------------------------------
Canada 2 2010, 2019
- -------------------------------------------------------------------------------------------------------------------------
Europe 3 1 1 2009, 2010, 2013, 2019,
2020
- -------------------------------------------------------------------------------------------------------------------------
Hungary 1 2013
- -------------------------------------------------------------------------------------------------------------------------
Japan 2 2010, 2012
- -------------------------------------------------------------------------------------------------------------------------
Mexico 1 2016
- -------------------------------------------------------------------------------------------------------------------------
New Zealand 1 2016
- -------------------------------------------------------------------------------------------------------------------------
China 1 2016
- -------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Number Number
Number Co-Exclusively Exclusively Number
Exclusively Licensed Licensed Exclusively Number
APPLICATIONS Licensed from with from Oregon Licensed from Owned by
Rockefeller Washington State UCLA SIGA
Univ. Univ. University
- ----------------------------------------------------------------------------------------------------
U.S. applications 1 4 2 3
- ----------------------------------------------------------------------------------------------------
U.S. provisionals 6
- ----------------------------------------------------------------------------------------------------
PCT 2
- ----------------------------------------------------------------------------------------------------
Australia 1 1 2
- ----------------------------------------------------------------------------------------------------
Canada 3 2 2 1 1
- ----------------------------------------------------------------------------------------------------
Europe 1 1 1 1 2
- ----------------------------------------------------------------------------------------------------
Finland 1
- ----------------------------------------------------------------------------------------------------
Japan 3 2 1 1 2
- ----------------------------------------------------------------------------------------------------
Hungary 1
- ----------------------------------------------------------------------------------------------------
We also rely upon trade secret protection for our confidential and
proprietary information. No assurance can be given that other companies will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or that we can
meaningfully protect our trade secrets.
Government Regulation
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
biopharmaceutical products that we may develop. The nature and the extent to
which such regulations may apply to us will vary depending on the nature of any
such products. Virtually all of our potential biopharmaceutical products will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous pre-clinical
and clinical testing and other approval procedures by the FDA and similar health
authorities in foreign countries. Various federal
9
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The process of
obtaining these approvals and the subsequent compliance with appropriate federal
and foreign statutes and regulations requires the expenditure of substantial
resources.
In order to test clinically, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug in the United
States, a company must file an IND and receive clearance from the FDA. This
application is a summary of the pre-clinical studies that were conducted to
characterize the drug, including toxicity and safety studies, as well as an
in-depth discussion of the human clinical studies that are being proposed.
The pre-marketing program required for approval by the FDA of a new drug
typically involves a time-consuming and costly three-phase process. In Phase I,
trials are conducted with a small number of healthy patients to determine the
early safety profile, the pattern of drug distribution and metabolism. In Phase
II, trials are conducted with small groups of patients afflicted with a target
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others.
The FDA amended its regulations, effective June 30, 2002, so that certain
new drug and biological products used to reduce or prevent the toxicity of
chemical, biological, radiological, or nuclear substances may be approved for
use in humans based on evidence of effectiveness derived only from appropriate
animal studies and any additional supporting data.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits
a New Drug Application ("NDA") or Product License Application ("PLA") to the FDA
that summarizes the results and observations of the drug during the clinical
testing. Based on its review of the NDA or PLA, the FDA will decide whether to
approve the drug. This review process can be quite lengthy, and approval for the
production and marketing of a new pharmaceutical product can require a number of
years and substantial funding; there can be no assurance that any approvals will
be granted on a timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and its effects. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained. Other countries in which any products
developed by us may be marketed could impose a similar regulatory process.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
most of the major pharmaceutical companies, which have financial, technical and
marketing resources significantly greater than ours. Biotechnology and other
pharmaceutical competitors include Acambis, Achillion Pharmaceuticals, Arrow
Therapeutics, Avant Immuno-therapeutics, Inc., Bavarian Nordic AS, Chimerix
Inc., Bioport, Pharmathene and Vaxgen. Academic institutions, governmental
agencies and other public and private research organizations are also conducting
research activities and seeking patent protection and may commercialize products
on their own or through joint venture. There is a possibility that our
competitors will succeed in developing products that are more effective or less
costly than any which are being developed by us or which would render our
technology and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 15, 2006 we had 42 full time employees. None of our employees
are covered by a collective bargaining agreement and we consider our employee
relations to be good.
10
Availability of Reports and Other Information
We file annual, quarterly, and current reports, proxy statements, and
other documents with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "Exchange Act"). The public may read and
copy any materials that we file with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Also, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers, including us, that file electronically with the SEC. The public can
obtain any documents that we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at
www.siga.com. The website contains information about us and our operations.
Copies of each of our filings with the SEC on Form 10-K, Form 10-KSB, Form 10-Q,
Form 10-QSB and Form 8-K, and all amendments to those reports, can be viewed and
downloaded free of charge as soon as reasonably practicable after the reports
and amendments are electronically filed with or furnished to the SEC. To view
the reports, access www.siga.com/investor.html and click on "SEC Filing".
The following corporate governance related documents are also available on
our website:
o Code of Ethics and Business Conduct
o Amended and Restated Audit Committee Charter
o Compensation Committee Charter
o Nominating and Corporate Governance Committee Charter
o Procedure for Sending Communications to the Board of Directors
o Procedures for Security Holder Submission of Nominating
Recommendations
o 2004 Policy on Confidentiality of Information and Securities Trading
To review these documents, access www.siga.com/investor.html and click on
"Corporate Governance."
Any of the above documents can also be obtained in print by any shareholder upon
request to the Secretary, SIGA Technologies, Inc., 420 Lexington Avenue, Suite
408, New York, New York 10170.
Item 1A. Risk Factors
This report contains forward-looking statements and other prospective
information relating to future events. These forward-looking statements and
other information are subject to risks and uncertainties that could cause our
actual results to differ materially from our historical results or currently
anticipated results including the following:
We have incurred operating losses since our inception and expect to incur net
losses and negative cash flow for the foreseeable future.
We incurred net losses of approximately $2.3 million, $9.4 million, and
$5.3 million for the years ended December 31, 2005, 2004, and 2003,
respectively. As of December 31, 2005, 2004 and 2003, our accumulated deficit
was approximately $46.5 million, $44.2 million and $34.8 million, respectively.
We expect to continue to incur significant operating expenditures. We will need
to generate significant revenues to achieve and maintain profitability.
We cannot guarantee that we will achieve sufficient revenues for
profitability. Even if we do achieve profitability, we cannot guarantee that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenues grow slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, then our business,
results of operations, financial condition and cash flows will be materially and
adversely affected. Because our strategy might include acquisitions of other
businesses, acquisition expenses and any cash used to make these acquisitions
will reduce our available cash.
11
Our business will suffer if we are unable to raise additional equity funding.
We continue to be dependent on our ability to raise money in the equity
markets. There is no guarantee that we will continue to be successful in raising
such funds. If we are unable to raise additional equity funds, we may be forced
to discontinue or cease certain operations. We currently have sufficient
operating capital to finance our operations beyond March 31, 2007. 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 and short selling activity of our common stock.
Additionally, because there is not a high volume of trading in our stock,
any information about SIGA in the media may result in significant volatility in
our stock price.
We will not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance.
In addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance of
individual companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
We are in various stages of product development and there can be no assurance of
successful commercialization.
In general, our research and development programs are at an early stage of
development. To obtain FDA approval for our biological warfare defense products
we will be required to perform two animal models and provide animal and human
safety data. Our other products will be subject to the approval guidelines under
FDA regulatory requirements which include a number of phases of testing in
humans.
12
The FDA has not approved any of our biopharmaceutical product candidates.
Any drug candidates developed by us will require significant additional research
and development efforts, including extensive pre-clinical and clinical testing
and regulatory approval, prior to commercial sale. We cannot be sure our
approach to drug discovery will be effective or will result in the development
of any drug. We cannot expect that any drugs resulting from our research and
development efforts will be commercially available for many years, if at all.
We have limited experience in conducting pre-clinical testing and clinical
trials. Even if we receive initially positive pre-clinical or clinical results,
such results do not mean that similar results will be obtained in the later
stages of drug development, such as additional pre-clinical testing or human
clinical trials. All of our potential drug candidates are prone to the risks of
failure inherent in pharmaceutical product development, including the
possibility that none of our drug candidates will or can:
o be safe, non-toxic and effective;
o otherwise meet applicable regulatory standards;
o receive the necessary regulatory approvals;
o develop into commercially viable drugs;
o be manufactured or produced economically and on a large scale;
o be successfully marketed;
o be reimbursed by government and private insurers; and
o achieve customer acceptance.
In addition, third parties may preclude us from marketing our drugs
through enforcement of their proprietary rights that we are not aware of, or
third parties may succeed in marketing equivalent or superior drug products. Our
failure to develop safe, commercially viable drugs would have a material adverse
effect on our business, financial condition and results of operations.
Most of our immediately foreseeable future revenues are contingent upon grants
and contracts from the United States government and collaborative and license
agreements and we may not achieve sufficient revenues from these agreements to
attain profitability.
Until and unless we successfully make a product, our ability to generate
revenues will largely depend on our ability to enter into additional
collaborative agreements, strategic alliances, research grants, contracts and
license agreements with third parties and maintain the agreements we currently
have in place. Substantially all of our revenues for the years ended December
31, 2005, 2004 and 2003, respectively, were derived from revenues related to
grants, contracts and license agreements. Our current revenue is derived from
contract work being performed for the NIH under two major grants which are
scheduled to expire in September 2006 and contracts with the U.S. Army which
expire in September 2006 and 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. We may not earn significant milestone
payments under our existing collaborative agreements until our collaborators
have advanced products into clinical testing, which may not occur for many
years, if at all.
We have material agreements with the following collaborators:
o National Institutes of Health. Under our collaborative agreement
with the NIH we have received SBIR Grants totaling approximately
$11.1 million in 2004. The term of these grants expire in September
2006. We are paid as the work is performed and the agreement can be
cancelled for non-performance. We also have an agreement whereby the
NIH is required to conduct and pay for the clinical trials of our
strep vaccine product through phase II human trials. The NIH can
terminate the agreement on 60 days written notice. If terminated, we
receive copies of all data, reports and other information related to
the trials. If terminated, we would have to find another source of
funds to continue to conduct the trials. We are current in all our
obligations under our agreements.
13
o United States Army Medical Research and Material Command. In
September 2005 we entered into a $3.2 million, one year contract
with the USAMRMC. The agreement, for the rapid identification and
treatment of anti-viral diseases, is funded through the USAF. It is
anticipated that our efforts will aid the USAF Special Operations
Command in its use of computational biology to design and develop
specific countermeasures against biological threat agents Smallpox
and Adenovirus. We are current in all our obligations under our
agreement.
o Saint Louis University. On September 1, 2005, we entered into an
agreement with Saint Louis University for the continued development
of one of our Smallpox drugs. The agreement is funded through the
NIH. Under the agreement, SIGA will receive approximately $1.0
million during the term of September 1, 2005 to February 28, 2006.
We are current in all our obligations under our agreement.
o United States Army Medical Research Acquisition Activity. In
December 2002, we entered into a four year contract with USAMRAA to
develop a drug to treat Smallpox. We are current in all our
obligations under our agreement.
o Rockefeller University. The term of our agreement with Rockefeller
is for the duration of the patents and a number of pending patents.
As we do not currently know when any patents pending or future
patents will expire, we cannot at this time definitively determine
the term of this agreement. The agreement can be terminated earlier
if we are in breach of the provisions of the agreement and do not
cure the breach in the allowed cure period. We are current in all
obligations under the contract.
o Oregon State University. OSU is a signatory of our agreement with
Rockefeller. The term of this agreement is for the duration of the
patents and a number of pending patents. As we do not currently know
when any patents pending or future patents will expire, we cannot at
this time definitively determine the term of this agreement. The
agreement can be terminated earlier if we are in breach of 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.
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. 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 collaborating
with us on the discovery, optimization and development of lead
compounds to certain therapeutic agents. We and TransTech Pharma
have agreed to share the costs of development and revenues generated
from licensing and profits from any commercialized products sales.
The agreement will be in effect until terminated by the parties or
upon cessation of research or sales of all products developed under
the agreement. We are current in all obligations under this
agreement.
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
14
candidates and to establish and maintain a market for our product candidates.
There also are many companies, both public and private, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, research and development, and human
resources than us. Competitors may develop products or other technologies that
are more effective than any that are being developed by us or may obtain FDA
approval for products more rapidly than us. If we commence commercial sales of
products, we still must compete in the manufacturing and marketing of such
products, areas in which we have no experience. Many of these companies also
have manufacturing facilities and established marketing capabilities that would
enable such companies to market competing products through existing channels of
distribution. Two companies with similar profiles are VaxGen, Inc., which is
developing vaccines against anthrax, Smallpox and HIV/AIDS; and Avant
Immunotherapeutics, Inc., which has vaccine programs for agents of biological
warfare.
Because we must obtain regulatory clearance to test and market our products in
the United States, we cannot predict whether or when we will be permitted to
commercialize our products.
A pharmaceutical product cannot be marketed in the U.S. until it has
completed rigorous pre-clinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Pharmaceutical products
typically take many years to satisfy regulatory requirements and require the
expenditure of substantial resources depending on the type, complexity and
novelty of the product.
Before commencing clinical trials in humans, we must submit and receive
clearance from the FDA by means of an IND application. Institutional review
boards and the FDA oversee clinical trials and such trials:
o must be conducted in conformance with the FDA's good laboratory
practice regulations;
o must meet requirements for institutional review board oversight;
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
15
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 eight issued U.S. patents and three issued
European patents. These patents have varying lives and they are related to the
technology licensed from Rockefeller University for the Strep and Gram-positive
products. We have one additional patent application in the U.S. and one
application in Europe relating to this technology. We are joint owner with
Washington University of seven issued patents in the U.S. and one in Europe. In
addition, there are four co-owned U.S. patent applications. These patents are
for the technology used for the Gram-negative product opportunities. We are also
exclusive owner of one U.S. patent and three U.S. patent applications. One of
these U.S. patent applications relates to our DegP product opportunities.
We included a summary of out patent positions as of December 31, 2005 in
Part I, Item 1 of this document.
We also rely on copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities. In an effort to maintain
the confidentiality and ownership of trade secrets and proprietary information,
we require our employees, consultants and some collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These agreements may not provide meaningful protection for
our trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information, and adequate remedies may
not exist in the event of such unauthorized use or disclosure.
16
We may have difficulty managing our growth.
We expect to experience growth in the number of our employees and the
scope of our operations. This future growth could place a significant strain on
our management and operations. Our ability to manage this growth will depend
upon our ability to broaden our management team and our ability to attract, hire
and retain skilled employees. Our success will also depend on the ability of our
officers and key employees to continue to implement and improve our operational
and other systems and to hire, train and manage our employees.
Our activities involve hazardous materials and may subject us to environmental
regulatory liabilities.
Our biopharmaceutical research and development involves the controlled use
of hazardous and radioactive materials and biological waste. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials and certain waste products.
Although we believe that our safety procedures for handling and disposing of
these materials comply with legally prescribed standards, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of an accident, we could be held liable for damages, and this
liability could exceed our resources. The research and development activities of
our company do not produce any unusual hazardous products. We do use small
amounts of 32P, 35S and 3H, which are stored, used and disposed of in accordance
with Nuclear Regulatory Commission ("NRC") regulations. We maintain liability
insurance in the amount of approximately $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
17
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 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 biotechnology products can be a time-consuming and complex
process which may delay or prevent commercialization of our products, or may
prevent our ability to produce an adequate volume for the successful
commercialization of our products.
Our management believes that we have the ability to acquire or produce
quantities of products sufficient to support our present needs for research and
our projected needs for our initial clinical development programs. The
manufacture of all of our products will be subject to current Good Manufacturing
Practices (GMP) requirements prescribed by the FDA or other standards prescribed
by the appropriate regulatory agency in the country of use. There can be no
assurance that we will be able to manufacture products, or have products
manufactured for us, in a timely fashion at acceptable quality and prices, that
we or third party manufacturers can comply with GMP, or that we or third party
manufacturers will be able to manufacture an adequate supply of product.
Healthcare reform and controls on healthcare spending may limit the price we
charge for any products and the amounts thereof that we can sell.
The U.S. federal government and private insurers have considered ways to
change, and have changed, the manner in which healthcare services are provided
in the U.S. Potential approaches and changes in recent years include controls on
healthcare spending and the creation of large purchasing groups. In the future,
the U.S. government may institute further controls and limits on Medicare and
Medicaid spending. These controls and limits might affect the payments we could
collect from sales of any products. Uncertainties regarding future healthcare
reform and private market practices could adversely affect our ability to sell
any products profitably in the U.S. At present, we do not foresee any changes in
FDA regulatory policies that would adversely affect our development programs.
The future issuance of preferred stock may adversely affect the rights of the
holders of our common stock.
Our certificate of incorporation allows our Board of Directors to issue up
to 10,000,000 shares of preferred stock and to fix the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of these shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
could be adversely affected by, the rights of the holders of any preferred stock
that we may issue in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible
18
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 December 31, 2005, Directors, Officers and principal stockholders
beneficially owned approximately 46.0% of our stock.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our headquarters are located in New York City and our research and
development facilities are located in Corvallis, Oregon. In New York, we lease
approximately 3,000 square feet under a lease that expires in November 2007. In
Corvallis, we lease approximately 10,000 square feet under a lease that expires
in December 2007.
Item 3. Legal Proceedings
On February 28, 2006, Four Star Group, a Division of Executive
Intelligence Network, LLC filed suit in the Supreme Court of the State if New
York naming as defendants SIGA Technologies, Inc., Bernard Kasten and "John
Odgen [sic]." In 2004, SIGA renewed a contract with Four Star under which Four
Star was to assist SIGA in identifying and obtaining contracts and grants.
Plaintiff Four Star alleges that SIGA breached its contract by allegedly failing
to compensate Four Star within the time set by the contract and that SIGA
breached the contract, and tortuously interfered with Four Star's contractual
relationships, by allegedly soliciting and/or hiring certain affiliates of Four
Star. Four Star and SIGA have stipulated that SIGA has until April 12, 2006 to
answer, move or otherwise respond to the complaint. SIGA believes it has
meritorious defenses to Four Star's claims.
Item 4. Submission of Matters to a Vote of Security Holders
None.
19
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock has been traded on the Nasdaq Capital Market since
September 9, 1997 and trades under the symbol "SIGA." Prior to that time there
was no public market for our common stock. The following table sets forth, for
the periods indicated, the high and low closing sales prices for the common
stock, as reported on the Nasdaq Capital Market.
Price Range
2004 High Low
First Quarter ......................................... $ 2.34 $ 1.85
Second Quarter ........................................ $ 1.93 $ 1.29
Third Quarter ......................................... $ 1.63 $ 1.23
Fourth Quarter ........................................ $ 1.75 $ 1.35
2005 High Low
First Quarter ......................................... $ 1.69 $ 1.28
Second Quarter ........................................ $ 1.44 $ 0.99
Third Quarter ......................................... $ 1.10 $ 0.70
Fourth Quarter ........................................ $ 1.35 $ 0.87
As of March 15, 2006, the closing bid price of our common stock was $1.13
per share. There were 97 holders of record as of March 15, 2006. 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 there under. Accordingly, the transfer of the
securities is 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 November 2005, we sold 2,000,000 shares of our common stock at $1.00
per share and warrants to purchase 1,000,000 shares of our common stock. The
warrants are initially exercisable at 110% of the closing price on the closing
date of the transaction ($1.18 per share) at any time and from time to time
through and including the seventh anniversary of the closing date. The investors
are also entitled to purchase additional shares of our common stock for a gross
amount of $2,000,000 at an initial price of $1.10 per share for a period of 90
trading days following the effectiveness of a registration statement. An initial
registration statement relating to the common stock sold and the shares of
common stock underlying the warrants became effective on December 2, 2005. With
respect to the transaction, we entered into an Exclusive Finder's Agreement.
Finder's fees under the agreement include cash compensation of 7% of the gross
amount financed and a warrant to acquire 60,000 shares of our common stock at
terms equal to the investors' warrants. Net proceeds from the November financing
were $1,792,000.
20
In August 2004, we acquired certain government grants and two early stage
antiviral programs, Smallpox and Arenavirus, targeting certain agents of
biological warfare from ViroPharma. As part of the purchase price for these
assets we issued 1,000,000 shares of our common stock.
In August 2003, we entered into an 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. Upon
consummation of the agreement, MacAndrews & Forbes and its permitted assignees
invested an initial $1,000,000 in SIGA 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 at an initial exercise price of $2.00 per share.
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. Upon exercise of the option in October 2003, 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 at an initial exercise price of $2.00 per share. In January 2004,
upon approval of the Company's shareholders, MacAndrews & Forbes and its
permitted assignee, TransTech Pharma, invested the remaining $6,840,595 in
exchange for 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. All warrants
issued under the agreement have a term of seven years.
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 125,000 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 Vaccine
Inc. (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.
See Item 11 for certain equity compensation information with respect to
equity compensation plans.
Other Transactions
In 2004, the Company reached a settlement agreement for breach of contract
with a founder of the Company, whereby the founder returned 40,938 common
shares, 150,000 warrants and $15,000 to the Company. The common shares were
retired by the Company. The Company recorded the $15,000 settlement amount as
other income.
Item 6. Selected Financial Data (in thousands, except share and per share data)
The following table sets forth selected financial information derived from our
audited consolidated financial statements as of and for the years ended December
31, 2005, 2004, 2003, 2002, and 2001.
The year Selling, Patent In-process Impairment
ended general & Research and preparation research and of intangible
December 31, Revenues administrative development fees development assets
- ------------- ---------- ---------------- -------------- ------------- -------------- ---------------
2005 $ 8,477 $ 2,481 $ 8,295 $ 232 $ -- $ --
2004 $ 1,839 $ 4,042 $ 4,166 $ 393 $ 568 $ 2,118
2003 $ 732 $ 2,646 $ 2,943 $ 300 $ 137
2002 $ 344 $ 1,838 $ 1,766 $ 105
2001 $ 1,160 $ 2,571 $ 1,733 $ 117
21
The year Weighted average
ended Net loss per share: shares outstanding:
December 31, Operating loss Net loss basic & diluted basic and diluted
---------------- ---------------- --------------------- ---------------------
2005 $ (2,532) $ (2,288) $ (0.09) 24,824,824
2004 $ (9,448) $ (9,373) $ (0.40) 23,724,026
2003 $ (5,296) $ (5,277) $ (0.34) 15,717,138
2002 $ (3,365) $ (3,331) $ (0.32) 10,450,529
2001 $ (3,262) $ (3,730) $ (0.44) 8,499,961
As of and for the Total Net cash used
year ended Cash & cash Long term stockholders' in operating
December 31, Total assets equivalents obligations equity activities
---------------- ---------------- ----------------- ----------------- -----------------
2005 $ 6,132 $ 1,772 $ 642 $ 3,231 $ (1,392)
2004 $ 6,111 $ 2,021 $ 4,559 $ (4,890)
2003 $ 6,100 $ 1,441 $ 5,551 $ (5,332)
2002 $ 2,830 $ 2,069 $ 2,173 $ (2,648)
2001 $ 4,208 $ 3,148 $ 3,541 $ (2,944)
Item 7. 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 and Arenaviruses. The effort
to develop a drug for Smallpox is being aided by SBIR grants from the NIH
totaling approximately $5.8 million that were awarded in the third quarter of
2004, an agreement with Saint Louis University, funded by the NIH that was
signed in September 2005, and a $1.6 million contract with the U.S. Army which
began in January 2003. The Arenavirus program is being supported by SBIR grants
from the NIH totaling approximately $6.3 million that were awarded in the third
quarter of 2004.
Our anti-viral programs are designed to prevent or limit the replication
of the viral pathogen. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance. These programs are designed to
block the ability of bacteria to attach to human tissue, the first step in the
infection process. We are also developing a technology for the mucosal delivery
of our vaccines which may allow the vaccines to activate the immune system at
the mucus lined surfaces of the body -- the mouth, the nose, the lungs and the
gastrointestinal and urogenital tracts -- the sites of entry for most infectious
agents.
We do not have commercial biomedical products, and we do not expect to
have such products for one to three years, if at all. We believe that we will
need additional funds to complete the development of our biomedical products.
Our plans with regard to these matters include continued development of our
products as well as seeking additional research support funds and financial
arrangements. Although we continue to pursue these plans, there is no assurance
that we will be successful in obtaining 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 and projected cash flows to support operations beyond March 31, 2007.
Our biotechnology operations are based in our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
antiviral, antibiotic and vaccine programs through a combination of government
grants and strategic alliances. While we have had success in obtaining strategic
alliances and grants,
22
there is no assurance that we will continue to be successful in obtaining funds
from these sources. Until additional relationships are established, we expect to
continue to incur significant research and development costs and costs
associated with the manufacturing of product for use in clinical trials and
pre-clinical testing. It is expected that general and administrative costs,
including patent and regulatory costs, necessary to support clinical trials and
research and development will continue to be significant in the future.
To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.
Critical Accounting Estimates
The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our financial
statements, which we discuss under the heading "Results of Operations" following
this section of our MD&A. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include the assessment of recoverability of goodwill, which could
impacts goodwill impairments; the assessment of recoverability of long-lived
assets, which primarily impacts operating income if impairment exists. Below, we
discuss these policies further, as well as the estimates and judgments involved.
Other key accounting policies, including revenue recognition, are less
subjective and involve a far lower degree of estimates and judgment.
Significant Accounting Policies
The following is a brief discussion of the more significant accounting
policies and methods used by us in the preparation of our financial statements.
Note 2 of the Notes to the Consolidated Financial Statements includes a summary
of all of the significant accounting policies.
Revenue Recognition
The Company recognizes revenue from contract research and development and
research progress payments in accordance with SEC Staff Accounting Bulletin No.
104, Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed and determinable, collectibility is reasonably
assured, contractual obligations have been satisfied and title and risk of loss
have been transferred to the customer. The Company recognizes revenue from
non-refundable up-front payments, not tied to achieving a specific performance
milestone, over the period which the Company is obligated to perform services or
based on the percentage of costs incurred to date, estimated costs to complete
and total expected contract revenue. Payments for development activities are
recognized as revenue is earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired.
The Company performs an annual review in the fourth quarter of each year,
or more frequently if indicators of potential impairment exist, to determine if
the carrying value of the recorded goodwill is impaired. Goodwill impairment is
determined using a two-step approach in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). The impairment review process compares the fair value of the reporting
unit in which goodwill resides to its carrying value. In 2005, the Company
operated as one business and one reporting unit. Therefore, the goodwill
impairment analysis was performed on the basis of the Company as a whole using
the market capitalization of the Company as an estimate of its fair value.
23
The estimated fair values might produce significantly different results if other
reasonable assumptions and estimates were to be used.
Identified Intangible Assets
Acquisition-related intangibles include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 1-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 123(R), which requires the Company
to recognize compensation expense for stock options granted to employees based
on the estimated fair value of the equity instrument at the time of grant.
Currently, the Company discloses the pro forma net income and earnings per share
as if the Company applied the fair value recognition provisions of SFAS 123 as
amended by FAS 148. The requirements of SFAS 123(R) are effective for the
Company in the first quarter of fiscal 2006. We will recognize compensation
expense for stock based awards issued after January 1, 2006 on a straight-line
basis over the requisite service period for the entire award. We also expect to
record expense of approximately $440,000 and $400,000 in fiscal 2006 and 2007
related to previously issued, unvested stock options. SIGA will continue to use
the Black-Scholes model for evaluating the fair market value of its stock
options.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Correction - a Replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS 154"). SFAS 154 changes the requirements for the accounting for and the
reporting of a change in accounting principle. SFAS 154 requires that a
voluntary change in accounting principle be applied retroactively with all prior
period financial statements presented using the new accounting principle. SFAS
154 is effective for accounting changes and corrections of errors in fiscal
years beginning after December 15, 2005. We will apply the requirements of SFAS
154 on any changes in principle made on or after January 1, 2006.
Results of Operations
The following table sets forth certain consolidated statements of income data as
a percentage of net revenue for the periods indicated:
2005 2004 2003
-------- -------- --------
Revenue 100% 100% 100%
-------- -------- --------
Selling, general and administrative 29% 220% 362%
Research and development 98% 227% 402%
Patent preparation fees 3% 21% 401%
In-process research and development 0% 31% 0%
Impairment of intangible assets 0% 115% 19%
-------- -------- --------
Operating loss 30% 514% 723%
24
Years ended December 31, 2005, 2004 and 2003
Revenues for the years ended December 31, 2005 and 2004 were $8,477,000
and $1,839,000, respectively. The increase of $6,638,000 or 361% from the year
ended December 31, 2004 related to the award of two Phase I and two Phase II
SBIR grants by the NIH during the third quarter of 2004, an agreement with Saint
Louis University entered into in September 2005, and an agreement with USAMRMC
entered into in September 2005.
The grants awarded by the NIH during the third quarter of 2004 to support
our Smallpox and Arenaviruses programs are for a two year period ending in the
third quarter of 2006. The total award for these grants was $11.1 million. For
the years ended December 31, 2005 and 2004 we recorded revenues of $6.4 million
and $1.0 million, respectively, from these grants, mainly reflecting the
continued development of our Smallpox oral antiviral drug. In 2004, we also
received a one year SBIR grant from the NIH for $252,000 to support our Strep
vaccine program. In 2005 and 2004 we recorded revenue of $156,000 and $86,000,
respectively, from this grant.
On September 1, 2005, we entered into an agreement with Saint Louis
University for the continued development of one of our Smallpox drugs. The
agreement is funded through the NIH. Under the agreement, SIGA will receive
approximately $1.0 million during the term of September 1, 2005 to February 28,
2006. Revenues are recognized as services are performed. In 2005, we recognized
revenues of $775,000 from the agreement.
On September 22, 2005, we entered into a $3.2 million, one year contract
with USAMRMC. The agreement, for the rapid identification and treatment of
anti-viral diseases, is funded through the USAF (the "USAF Agreement"). Advance
payments under the USAF Agreement, received prior to the performance of
services, are deferred and recognized as revenue when the related services are
performed. In 2005, we recognized revenues of $653,000 from the USAF Agreement.
For the years ended December 31, 2005 and 2004 revenue from our contract
with the U.S. Army was $427,000 and $425,000. In 2004 we recognized revenue of
$255,000 from an SBIR grant for our DegP anti infective that we completed in the
second quarter of 2004.
Revenues of $1,839,000 for the year ended December 31, 2004 increased $1.1
million compared to $731,700 recognized for the year ended December 31, 2003.
The 151% increase resulted from the award of two Phase I and two Phase II SBIR
grants by the NIH during the third quarter of 2004. For the year ended December
31, 2004 we recorded revenue of $1,049,600 from these grants. In 2004, we also
recorded $85,600 from the NIH grant awarded to us in August of 2004 to support
our Strep vaccine program. Revenue from our contract with the U.S. Army was
$425,000 for 2004; compared to $315,300 for the year ended December 31, 2003.
The approximate 35% increase was due to the higher budget for work performed in
2004. For the year ended December 31, 2004 we received revenue of $254,800 from
an SBIR grant for our DegP anti infective that we completed in the second
quarter of 2004. For the year ended December 31, 2003 we received $387,800 from
this grant.
Selling, general and administrative expenses (SG&A) were $2,481,000 and
$4,042,000 for the years ended December 31, 2005 and 2004. SG&A declined $1.6
million or 39% primarily due to $1.0 million decline in legal fees and $401,000
decline in consulting fees. In 2005, upon the re-negotiation of certain legal
invoices, we received and recorded credits of $303,000 in legal expenses. In
addition to the credits received by SIGA, legal fees declined by approximately
$711,000 from the year ended December 31, 2004 reflecting higher legal fees
during the 2004 period due to the acquisition of certain assets from ViroPharma,
the review and amendment of our corporate governance policies and procedures to
ensure compliance with Sarbanes Oxley Act of 2002 and NASDAQ requirements. Legal
expenses in 2004 were also incurred in connection with the sale of certain
non-core vaccine assets and a legal action that the Company initiated against a
former founder. In 2004, we incurred higher consulting expenses in connection
with our efforts to secure certain government contracts. Our agreement with the
consulting group was terminated in October 2004.
SG&A expenses for the year ended December 31, 2004 were $4,042,000
compared to $2,646,600 for the year ended December 31, 2003. The increase of
$1,395,400, or approximately 53%, was primarily due to an increase of $628,000
in payroll expense, and a $693,000 increase in legal expenses. Payroll expenses
increased by approximately 128% primarily due to the addition of a Chief
Executive Officer and a Vice President - Business Development, bonuses paid to
employees, and the costs associated with the termination of the Employment
25
Agreement with our former President. The increase in legal expenses of 272% from
2003 was the result of the costs incurred to review and amend our corporate
governance policies and procedures to ensure compliance with the regulations
promulgated under the Sarbanes Oxley Act of 2002, as well as the NASDAQ stock
market. Also contributing to the increase in legal expenses were the costs
incurred in connection with a potential business combination, the sale of
certain non-core vaccine assets, the hiring of our new CEO, a legal action that
we initiated against a former founder and the work performed relative to the
acquisition of certain assets and grants from ViroPharma. Increases in travel
expense, rent, amortization and filing fees were offset by decreases in
depreciation, insurance and miscellaneous expenses.
Research and development (R&D) expenses for the years ended December 31,
2005 and 2004 were $8,295,000 and 4,165,800, respectively. R&D expenses
increased $4.1 million or 99% primarily due to preclinical development work in
connection with our two lead product programs, work performed to support our
recent agreements with Saint Louis University and the USAF, the hiring of new
employees and the increase in amortization expense. In 2005, we incurred
approximately $3.0 million to support preclinical development work in connection
with our Smallpox and Arenaviruses programs. Our research staff increased from
23 scientists at December 31, 2004 to 33 scientists at December 31, 2005,
resulting in an increase of $705,000 in payroll and related expenses.
Amortization of intangible assets in the amount of $1,097,000 and $636,000 for
the years ended December 31, 2005 and 2004, respectively, represented
approximately 11% of the increase.
R&D expenses of $4,165,800 for the year ended December 31, 2004 increased
approximately 42% from the $2,942,800 of expenses incurred for the year ended
December 31, 2003. Amortization expense of $636,000 represented approximately
35% of the increase. These expenses were the result of the acquisition of
certain assets from Plexus in 2003 and ViroPharma in 2004. Payroll expenses
increased approximately 28% to $1,654,000 for 2004 from $1,289,700 incurred in
2003. The increase was the result of the expansion of staff to service the
grants acquired from ViroPharma and bonuses paid to employees. Sponsored
research increased by approximately 117% in 2004 to $486,000 from $223,500 in
2003. The increase was the result of payments made to a Danish university for
former Plexus programs, a payment made to TransTech Pharma for work performed on
an SBIR grant that was completed in the second quarter and payments to Oregon
State University for work on the strep grant received in 2004. Expenses for lab
supplies increased approximately 16% to $473,000 from $407,000 as a result of
accelerated development of our lead product programs.
Our product programs are in the early stage of development. At this stage
of development, we cannot make reasonable estimates of the potential cost for
most of our programs to be completed or the time it will take to complete the
project. Our lead product, SIGA-246, is an orally administered anti-viral drug
that targets the smallpox virus. In December 2005 the FDA accepted our IND
application for SIGA-246 and granted it Fast-Track status. We expect that costs
to complete the program will approximate $15 million to $20 million, and that
the project could be completed in 24 months to 36 months. There is a high risk
of non-completion of any program, including SIGA-246, because of the lead time
to program completion and uncertainty of the costs. Net cash inflows from any
products developed from our programs is at least one to three years away.
However, we could receive additional grants, contracts or technology licenses in
the short-term. The potential cash and timing is not known and we cannot be
certain if they will ever occur.
The risk of failure to complete any program is high, as each, other than
our smallpox program that is scheduled to enter phase I clinical trials in 2006,
is in the relatively early stage of development. Products for the biological
warfare defense market, such as the SIGA-246 Smallpox anti-viral, could generate
revenues in one to three years. We believe the products directed toward this
market are on schedule. We expect the future research and development cost of
our biological warfare defense programs to increase as the potential products
enter animal studies and safety testing, including human safety trials. Funds
for future development will be partially paid for by NIH SBIR grants, 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. 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 years ended December 31, 2005 and 2004
were $232,000 and $393,000, respectively. The decline of $161,000 or 41% relates
to the termination of our relations with Plexus and
26
Pecos Labs Inc. (Pecos), and the reduction in the number of patents supported by
SIGA, in addition to a refund of $83,000 received in 2005 from our patent legal
counsel.
Patent preparation expenses for the year ended December 31, 2004 were
$393,000 compared to $300,500 incurred in 2003. The 31% increase was the result
of increased costs arising from the Plexus and ViroPharma asset acquisitions.
For the year ended December 31, 2004, as a result of the acquisition of
certain government grants and two early stage antiviral programs, Smallpox and
Arenavirus, targeting certain agents of biological warfare, from ViroPharma,
$568,329 was immediately expensed as purchased in-process research and
development ("IPRD"). The amount expensed as IPRD was attributed to technology
that has not reached technological feasibility and has no alternate future use.
The value allocated to IPRD was determined using the income approach that
included an excess earnings analysis reflecting the appropriate costs of capital
for the purchase. Estimates of future cash flows related to the IPRD were made
for both the Smallpox and Arenavirus programs. The aggregate discount rate of
approximately 55% utilized to discount the programs' cash flows were based on
consideration of the Company's weighted average cost of capital, as well as
other factors, including the stage of completion and the uncertainty of
technology advances for these programs. If the programs are not successful or
completed in a timely manner, the Company's product pricing and growth rates may
not be achieved and the Company may not realize the financial benefits expected
from the programs.
For the year ended December 31, 2004 we recorded a $2,118,200 non-cash
loss on impairment of assets. In December 2004, upon completion of the
ViroPharma transaction, integration of the related acquired programs into the
Company's operations, and the demonstrated antiviral activity of the Company's
lead smallpox compound against several mouse models of poxvirus disease, we
commenced an application process for additional government grants to support our
continued efforts under the Smallpox and Arenavirus antiviral programs. We
determined that significant efforts and resources will be necessary to
successfully continue the development efforts under these programs and decided
to allocate the necessary resources to support its commitment. As a result,
limited resources will be available for the development of future product
candidates that utilize the technology acquired from Plexus in May 2003. These
factors resulted in a significant reduction in forecasted revenues related to
that technology and a reduction in the future remaining useful life, and
triggered the related intangible asset impairment. The amount of impairment
recorded by us in December 2004 was determined using the two-step process
impairment review as required by SFAS 144. In the first step, we compared the
projected undiscounted net cash flows associated with the technology acquired
from Plexus over its remaining life against its carrying amount. We determined
that the carrying amount of the technology acquired from Plexus exceeded its
projected undiscounted cash flows. In the second step, we estimated the fair
value of the technology using the income method of valuation, which included the
use of estimated discounted cash flows. Based on our assessment, we recorded a
non-cash impairment charge of approximately $1.5 million in December 2004, which
was included as a component of our operating loss. In May 2004, we performed an
impairment review of our intangible assets in accordance with SFAS 144 in
connection with the sale of certain intangible assets from our immunological
bioinformatics technology and certain non-core vaccine development to a
privately-held company, Pecos. We recorded an impairment charge of $307,000 to
the grants transferred to Pecos and $303,000 to the covenant not to compete with
our President who was terminated during the current year period.
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.
Total operating loss for the years ended December 31, 2005 and 2004 was
$2,532,000 and $9,448,000, respectively. Operating loss in 2004, excluding
non-cash charges recorded for the impairment of assets and recognition of
in-process R&D was $6,763,000. The decline in total operating loss is primarily
related to the increase in revenues generated during 2005 and the decline in our
SG&A expenses which was partially off-set by the increase in R&D expenses to
support our programs.
Total operating loss of $9,448,000 for the year ended December 31, 2004,
increased $4,152,000 from the loss of $5,296,000 in 2003. $2,686,500 of the
operating loss recognized in 2004 related to non-cash charges incurred for the
impairment of assets and recognition of in-process research and development
expense. Excluding
27
these expenses, the loss recognized in 2004 was approximately 28% higher than
the prior year. The increase in the loss was due to higher selling, general and
administrative expenses, higher research and development expenses and higher
patent costs as described in detail above. These increases were partially offset
by higher revenues.
A gain from the decrease in common stock rights and common stock warrants
was recorded in connection with the sale and issuance of common stock, warrants
and rights in 2005. In November 2005, we sold 2,000,000 shares of the Company's
common stock at $1.00 per share, warrants to purchase 1,000,000 shares of the
Company's common stock and rights to purchase additional shares of the Company's
common stock for a gross amount of $2,000,000 at an initial price of $1.10 per
share. The warrants and rights to purchase additional common stock of SIGA were
recorded at fair market value and classified as liabilities at the time of the
transaction. A gain of $253,000 was recorded by us, reflecting the decline in
the fair value of the warrants and the rights to acquire additional shares of
our common stock, from the time of the transaction to December 31, 2005.
Other income for the years ended December 31, 2005, 2004, and 2003 was
$9,000, $75,000, and $18,000, respectively. Other income in 2004 was higher than
2005 and 2003 mainly due to interest income received on higher cash balances
during that year. In 2004 we also received other income of $15,000 as the result
of the settlement of a legal action with a former founder.
Liquidity and Capital Resources
As of December 31, 2005 we had $1,772,489 in cash and cash equivalents. We
believe that these funds and our anticipated cash flows, including receipt of
funding from government contracts and grants, will be sufficient to support our
operations beyond March 31, 2007.
On March 9, 2006, SIGA entered into a term sheet for the merger of the
Company with PharmAthene, Inc. Under the provisions of the term sheet, the Chief
Executive Officer of PharmAthene will serve as President and Chief Executive
Officer of the combined company and the Board of Directors for the new company
will reflect the new proportionate ownership. It is expected that the
shareholders of SIGA will own approximately 32% of the combined company, which
is anticipated to remain listed on the NASDAQ stock market. The transaction is
conditioned on, among other things, the execution of a definitive merger
agreement, approval of the shareholders of each company, regulatory approval and
other customary closing conditions. In connection with the transaction, the
Company and PharmAthene also entered into a Bridge Note Purchase Agreement
whereby PharmAthene will provide SIGA with up to $3 million in interim
financing.
In November 2005, we sold 2,000,000 shares of our common stock at $1.00
per share and warrants to purchase 1,000,000 shares of our common stock. The
warrants are initially exercisable at 110% of the closing price on the closing
date of the transaction ($1.18 per share) at any time and from time to time
through and including the seventh anniversary of the closing date. The investors
are also entitled to purchase additional shares of our common stock for a gross
amount of $2,000,000 at an initial price of $1.10 per share for a period of 90
trading days following the effectiveness of a registration statement. An initial
registration statement relating to the common stock sold and the stock
underlying the warrants became effective on December 2, 2005. With respect to
the transaction, we entered into an Exclusive Finder's Agreement. Finder's fees
under the agreement include cash compensation of 7% of the gross amount financed
and a warrant to acquire 60,000 shares of our common stock at terms equal to the
investors' warrants. Net proceeds from the November financing were $1,792,000.
In May, 2005, we borrowed approximately $276,000 under a Promissory Note
payable to General Electric Capital Corporation. The note is payable in 36
monthly installments of principal and interest of 10.31% per annum. The note is
secured by a master security agreement dated as of April 29, 2005 and by
specific property listed under the master security agreement. Total Balance
outstanding at December 31, 2005 was $214,225.
In August 2004, we acquired certain government grants and two early stage
antiviral programs, Smallpox and Arenavirus, targeting certain agents of
biological warfare from ViroPharma for a purchase price of $1,000,000 in cash
and 1,000,000 shares of our common stock. As part of the closing, we were
awarded Phase I and II SBIR
28
grants from the NIH totaling approximately $11.1 million, which will be received
over the next two years, for the development of drugs for the treatment of
Smallpox and Arenavirus as noted above.
In 2005, we began to expand our research facility in Corvallis, Oregon.
The expanded facility will accommodate the increase in our research and
development staff and is expected to be completed in the second quarter of 2006.
Until the facility expansion is completed, the project is classified as
construction in-progress in property, plant and equipment. In 2006, we expect to
incur approximately $500,000 to complete the expansion.
In May 2004, we sold intangible assets from our immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos in exchange for 150,000 shares of Pecos common
stock. As a result of this transaction, we performed an impairment review of the
intangible assets and concluded that the carrying amount of certain transferred
intangible assets of $307,063 would not be recoverable. In addition, we
terminated our employment agreement with our President. We paid approximately
$270,000 in severance to our former President as well as accelerated vesting on
100,000 stock options that were due to vest in May 2004. No compensation charge
was recorded as the exercise price of the options was above the fair value
market price on the date of termination. In addition, we reduced the covenant
not to compete with our former President to one year from the date of
termination. We recognized $303,000 of impairment to the unamortized covenant
not to compete with our former President due to the reduction of the covenant to
one year from the date of termination.
In August 2003, we entered into an agreement with MacAndrews & Forbes, a
holding company of which the Company's Chairman of the Board of Directors is
Vice Chairman and a director. Upon consummation of the agreement, MacAndrews &
Forbes and its permitted assignees invested an initial $1,000,000 in SIGA 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 at an initial exercise
price of $2.00 per share. MacAndrews & Forbes and its permitted assignee also
received an option, exercisable through October 13, 2003, to invest up to an
additional $9,000,000 in SIGA on the same terms. Upon exercise of the option in
October 2003, 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 at an initial exercise price of $2.00 per share.
In January 2004, upon approval of the Company's shareholders, MacAndrews &
Forbes and its permitted assignees invested the remaining $6,840,595 in exchange
for 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. All warrants issued
under the agreement have a term of seven years.
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 125,000 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.
We have incurred cumulative net losses and expect to incur additional
losses to perform further research and development activities. We do not have
commercial products and have limited capital resources. Our plans with regard to
these matters include continued development of our products as well as seeking
additional working capital through a combination of collaborative agreements,
strategic alliances, research grants, equity and debt financing. Although we
continue to pursue these plans, there is no assurance that we will be successful
in obtaining sufficient financing on commercially reasonable terms.
Our working capital and capital requirements will depend upon numerous
factors, including pharmaceutical research and development programs;
pre-clinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that we devote to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and our ability to establish collaborative arrangements with other
organizations.
29
On March 20, 2006, we received $1.0 million under a $3.0 million Bridge
Note Purchase Agreement between the Company and PharmAthene Inc. We believe that
our existing cash combined with anticipated cash flows, including receipt of
future funding from government contracts and grants and receipt of the remaining
$2.0 million funding under the Bridge Note Purchase Agreement will be sufficient
to support our operations beyond March 31, 2007, and that sufficient cash flows
will be available to meet our business objectives. We have developed a plan to
further reduce the Company's operating expenses in the event that sufficient
funds are not available, or if we are not able to obtain funding from the Bridge
Note Purchase Agreement or the anticipated government contracts and grants,
which would be sufficient to enable us to operate beyond March 31, 2007. If we
are not unable to raise adequate capital or achieve profitability, future
operations will need to be scaled back or discontinued.
Contractual Obligations, Commercial Commitments and Purchase Obligations
As of December 31, 2005, our purchase obligations are not material. We
lease certain facilities and office space under operating leases. Minimum future
rental commitments under operating leases having non-cancelable lease terms in
excess of one year are as follows:
Year ended December 31,
2006 $ 255,400
2007 261,800
2008 133,200
2009 135,900
2010 22,700
----------
Total $ 809,000
==========
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None
30
Item 8. Financial Statements and Supplementary Data
Index to the Financial Statements
Report of Independent Registered Public Accounting Firm.................................................32
Balance Sheets as of December 31, 2005 and 2004.........................................................33
Statements of Operations for the years ended December 31, 2005, 2004 and 2003...........................34
Statements of Changes in Stockholders' Equity for the years ended December 31, 2005, 2004 and 2003......35
Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003...........................37
Notes to Financial Statements...........................................................................38
31
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of SIGA Technologies, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of SIGA Technologies, Inc. at
December 31, 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 28, 2006
32
SIGA TECHNOLOGIES, INC.
BALANCE SHEETS
As of December 31, 2005 and 2004
December 31, December 31,
2005 2004
------------ ------------
ASSETS
Current assets
Cash and cash equivalents .................................................... $ 1,772,489 $ 2,020,938
Accounts receivable .......................................................... 883,054 108,904
Prepaid expenses ............................................................. 160,144 278,547
------------ ------------
Total current assets ........................................................ 2,815,687 2,408,389
Property, plant and equipment, net ........................................... 1,224,147 508,015
Goodwill ..................................................................... 898,334 898,334
Intangible assets, net ....................................................... 932,735 2,114,297
Other assets ................................................................. 234,126 181,725
------------ ------------
Total assets ................................................................ $ 6,105,029 $ 6,110,760
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................................. $ 1,251,854 $ 1,148,277
Accrued expenses and other ................................................... 452,082 403,072
Deferred revenue ............................................................. 347,319 --
Common stock rights .......................................................... 73,400 --
Note payable ................................................................. 107,520 --
------------ ------------
Total current liabilities ................................................... 2,232,175 1,551,349
Non-current portion of note payable ............................................. 106,705 --
Common stock warrants ........................................................... 535,119 --
------------ ------------
Total liabilities ........................................................... 2,873,999 1,551,349
Commitments and contingencies ................................................... -- --
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, 68,038 issued and outstanding at December 31, 2005
and December 31, 2004) ..................................................... 58,672 58,672
Common stock ($.0001 par value, 50,000,000 shares authorized,
26,500,648 and 24,500,648 issued and outstanding at December 31, 2005
and December 31, 2004, respectively) ....................................... 2,650 2,450
Additional paid-in capital ................................................... 49,638,619 48,679,650
Accumulated deficit .......................................................... (46,468,911) (44,181,361)
------------ ------------
Total stockholders' equity .................................................. 3,231,030 4,559,411
------------ ------------
Total liabilities and stockholders' equity .................................. $ 6,105,029 $ 6,110,760
============ ============
The accompanying notes are an integral part of these financial statements.
33
SIGA TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2005, 2004 and 2003
Year Ended December 31,
2005 2004 2003
------------ ------------ ------------
Revenues
Research and development ............................. $ 8,476,741 $ 1,839,182 $ 731,743
------------ ------------ ------------
Operating expenses
Selling, general and administrative .................. 2,481,489 4,041,973 2,646,586
Research and development ............................. 8,295,262 4,165,849 2,942,809
Patent preparation fees .............................. 232,329 393,100 300,494
In-process research and development .................. -- 568,329 --
Impairment of intangible assets ...................... -- 2,118,219 136,750
------------ ------------ ------------
Total operating expenses .......................... 11,009,080 11,287,470 6,026,639
------------ ------------ ------------
Operating loss .................................... (2,532,339) (9,448,288) (5,294,896)
Decrease in fair market value of common stock rights
and common stock warrants ............................ 235,730 -- --
Other income, net .......................................... 9,059 74,969 18,256
------------ ------------ ------------
Net loss .......................................... $ (2,287,550) $ (9,373,319) $ (5,276,640)
Weighted average shares outstanding: basic and diluted ..... 24,824,824 23,724,026 15,717,138
============ ============ ============
Net loss per share: basic and diluted ...................... $ (0.09) $ (0.40) $ (0.34)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
34
SIGA TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2005, 2004 and 2003
Series A Convertible
Preferred Stock Common Stock
-------------------------- ---------------------------
Shares Amount Shares Amount
Balance at January 1, 2003 410,760 $ 443,674 12,902,053 $ 1,293
Net proceeds from issuance of common stock
($1.20 to $1.44 per share) 3,444,031 344
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 for 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
----------- ----------- ----------- -----------
Net proceeds from issuance of common stock
($1.44 per share) 4,750,413 475
Issuance of common stock upon exercise of stock
options and warrants 70,994 7
Conversion of preferred stock for common stock (13,328) (13,994) 13,328 1
Stock issued in acquisition of intangible assets 1,000,000 100
Common stock retired upon settlement agreement
with former founder (40,938) (4)
Stock issued for services 30,000 3
Net loss
----------- ----------- ----------- -----------
Balance at December 31, 2004 68,038 $ 58,672 24,500,648 $ 2,450
----------- ----------- ----------- -----------
Net proceeds allocated to the issuance of common
stock ($1.00 per share) 2,000,000 $ 200
Stock options issued to members of the Board
of Directors
Net loss
----------- ----------- ----------- -----------
Balance at December 31, 2005 68,038 $ 58,672 26,500,648 $ 2,650
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
(Continued)
35
SIGA TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2005, 2004 and 2003
Stock Total
Additional Subscription Accumulated Stockholders'
Paid-in Capital Outstanding Deficit Equity
--------------- ------------- ------------- -------------
Balance at January 1, 2003 $ 32,051,461 $ (791,940) $ (29,531,402) $ 2,173,086
Net proceeds from issuance of common stock
($1.20 to $1.44 per share) 4,171,652 4,171,996
Issuance of common stock upon acquisition 3,408,805 3,409,000
Issuance of stock options and warrants upon acquisition 255,873 255,873
Issuance of common stock upon exercise of
stock options and warrants 24,715 24,718
Conversion of preferred stock for common stock 370,975 --
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
------------- ------------- ------------- -------------
Net proceeds from issuance of common stock
($1.44 per share) 6,784,131 6,784,606
Issuance of common stock upon exercise of stock --
options and warrants 69,369 69,376
Conversion of preferred stock for common stock 13,993 --
Stock issued in acquisition of intangible assets 1,479,900 1,480,000
Common stock retired upon settlement agreement --
with former founder 4 --
Stock issued for services 47,397 -- 47,400
Net loss (9,373,319) (9,373,319)
------------- ------------- ------------- -------------
Balance at December 31, 2004 $ 48,679,650 $ -- $ (44,181,361) $ 4,559,411
------------- ------------- ------------- -------------
Net proceeds allocated to the issuance of common
stock ($1.00 per share) $ 947,269 947,469
Stock options issued to members of the Board
of Directors 11,700 11,700
Net loss (2,287,550) (2,287,550)
------------- ------------- ------------- -------------
Balance at December 31, 2005 $ 49,638,619 $ -- $ (46,468,911) $ 3,231,030
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
36
SIGA TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004 and 2003
2005 2004 2003
------------ ------------ ------------
Cash flows from operating activities:
Net loss ............................................................... $ (2,287,550) $ (9,373,319) $ (5,276,640)
Adjustments to reconcile net loss to net
cash used in operating activities:
Purchase in-process research & development ........................... -- 568,329 --
Loss on impairment of intangible assets .............................. -- 2,118,219 136,750
Loss on impairment of investments .................................... 15,000 -- --
Loss on write-off of prepaid expenses ................................ 116,243 -- --
Bad debt expense ..................................................... -- -- 26,000
Depreciation ......................................................... 145,809 221,719 354,667
Amortization of intangible assets .................................... 1,181,562 832,534 384,893
Decrease in fair market value of common stock rights and warrants .... (235,730) -- --
Stock based compensation ............................................. -- 47,400 1,375
Issuance of stock options to non-employee directors .................. 11,700 -- --
Changes in assets and liabilities:
Accounts receivable ............................................... (774,150) (70,118) (4,635)
Prepaid expenses .................................................. 2,160 (231,210) 53,889
Other assets ...................................................... (67,401) (6,729) (10,827)
Deferred Revenue .................................................. 347,319 -- --
Accounts payable and accrued expenses ............................. 152,587 1,003,117 (997,640)
------------ ------------ ------------
Net cash used in operating activities ............................. (1,392,451) (4,890,058) (5,332,168)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of intangible assets ..................................... -- (1,033,022) --
Capital expenditures ................................................. (861,941) (350,688) (273,560)
------------ ------------ ------------
Net cash used in investing activities ............................. (861,941) (1,383,710) (273,560)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from note payable ........................................... 276,434 -- --
Repayment of note payable ............................................ (62,209) -- --
Net proceeds from issuance of common stock and derivatives ........... 1,791,718 6,784,606 4,171,996
Receipt of stock subscription outstanding ............................ -- -- 791,940
Principal payments on capital lease obligations ...................... -- -- (11,206)
Proceeds from exercise of options and warrants ....................... -- 69,376 24,718
------------ ------------ ------------
Net cash provided from financing activities ....................... 2,005,943 6,853,982 4,977,448
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... (248,449) 580,214 (628,280)
Cash and cash equivalents at beginning of period ....................... 2,020,938 1,440,724 2,069,004
------------ ------------ ------------
Cash and cash equivalents at end of period ............................. $ 1,772,489 $ 2,020,938 $ 1,440,724
============ ============ ============
Non-cash supplemental information:
Conversion of preferred stock to common stock ........................ -- $ 13,994 $ 371,008
Transfer of intangible assets for investment in Pecos Labs, Inc. ..... -- $ 15,000 --
Shares issued for acquisition of assets from ViroPharma Inc. ......... -- $ 1,480,000 --
Shares issued for services ........................................... $ 11,700 $ 47,400 --
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)
Accrued acquisition costs ......................................... -- -- $ (460,030)
The accompanying notes are an integral part of these financial statements.
37
SIGA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") is a bio-defense company
engaged in the discovery, development and commercialization of products for use
in defense against biological warfare agents such as Smallpox and Arenaviruses.
In December 2005, the FDA accepted the SIGA's IND application for the Company's
lead product, SIGA-246, an orally administered anti-viral drug that targets the
smallpox virus. The Company is also engaged in the discovery and development of
other novel anti-infectives, vaccines, and antibiotics for the prevention and
treatment of serious infectious diseases. The Company's anti-viral programs are
designed to prevent or limit the replication of viral pathogens. SIGA's
anti-infectives programs are aimed at the increasingly serious problem of drug
resistant bacteria and emerging pathogens.
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 commercially reasonable terms or that the
Company will be able to secrure funding from anticipated government contracts
and grants.
On March 20, 2006, the Company received $1.0 million under a $3.0 million Bridge
Note Purchase Agreement between the Company and PharmAthene Inc. (see Note 12).
Management believes that existing cash combined with anticipated cash flows,
including receipt of future funding from government contracts and grants and
receipt of the remaining $2.0 million funding under the Bridge Note Purchase
Agreement will be sufficient to support its operations beyond March 31, 2007,
and that sufficient cash flows will be available to meet the Company's business
objectives. Management has developed a plan to further reduce the Company's
operating expenses in the event that sufficient funds are not available, or if
the Company is not able to obtain funding from the Bridge Note Purchase
Agreement or the anticipated government contracts and grants, which would be
sufficient to enable the Company to operate beyond March 31, 2007. If the
Company is unable to raise adequate capital or achieve profitability, future
operations will need to be scaled back or discontinued. Continuance of the
Company as a going concern is dependent upon, among other things, the success of
the Company's research and development programs and the Company's ability to
obtain adequate financing. The financial statements do not include any
adjustments relating to the recoverability of the carrying amount of recorded
assets and liabilities that might result from the outcome of these
uncertainties.
2. Summary of Significant Accounting Policies
Use of Estimates
The financial statements and related disclosures are prepared in conformity with
accounting principles generally accepted in the United States of America.
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and revenue and expenses
during the period reported. These estimates include the realization of deferred
tax assets, useful lives and impairment of tangible and intangible assets, and
the value of options and warrants granted or issued by the Company. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the financial statements in the period they are determined to be
necessary. Actual results could differ from these estimates.
38
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid investments, with
original maturities of less than three months when purchased and are stated at
cost. Interest is accrued as earned.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the various asset classes. Estimated lives are 5 years for laboratory
equipment; 3 years for computer equipment; 7 years for furniture and fixtures;
and the life of the lease for leasehold improvements. Maintenance, repairs and
minor replacements are charged to expense as incurred. Upon retirement or
disposal of assets, the cost and related accumulated depreciation are removed
from the Balance Sheet and any gain or loss is reflected in the Statement of
Operations.
Revenue Recognition
The Company recognizes revenue from contract research and development and
research payments in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed and determinable, collectibility is reasonably
assured, contractual obligations have been satisfied and title and risk of loss
have been transferred to the customer. The Company recognizes revenue from
non-refundable up-front payments, not tied to achieving a specific performance
milestone, over the period which the Company is obligated to perform services or
based on the percentage of costs incurred to date, estimated costs to complete
and total expected contract revenue. Payments for development activities are
recognized as revenue as earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.
For the years ended December 31, 2005, 2004, and 2003, revenues from National
Institute of Health ("NIH") SBIR grants was 87%, 77%, and 54%, respectively, of
total revenues recognized by the Company.
Accounts Receivable
Accounts receivable are recorded net of provisions for doubtful accounts. An
allowance for doubtful accounts is based on specific analysis of the
receivables. At December 31, 2005, 2004, and 2003, the Company had no allowance
for doubtful accounts.
Research and development
Research and development expenses include costs directly attributable to the
conduct of research and development programs, including employee related costs,
materials, supplies, depreciation on and maintenance of research equipment, the
cost of services provided by outside contractors, and facility costs, such as
rent, utilities, and general support services. All costs associated with
research and development are expensed as incurred. Costs related to the
acquisition of technology rights, for which development work is still in
process, and that have no alternative future uses, are expensed as incurred.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired.
The Company performs an annual review in the fourth quarter of each year, or
more frequently if indicators of potential impairment exist, to determine if the
carrying value of the recorded goodwill is impaired. Goodwill impairment is
determined using a two-step approach in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). The impairment review process compares the fair value of the reporting
unit in which goodwill resides to its carrying value. In 2005, 2004 and 2003 the
Company operated as one business and one reporting unit. Therefore, the goodwill
impairment analysis was performed on the basis of the Company as a whole, using
the market capitalization of the Company as an estimate of its fair value. The
estimated fair values might produce significantly different results if other
reasonable assumptions and estimates were to be used.
39
Identified Intangible Assets
Acquisition-related intangible assets include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 1-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. Changes in events or circumstances that may affect
long-lived assets include, but are not limited to, cancellations or terminations
of research contracts or pending government grants (See Note 4).
Income taxes
Income taxes are accounted for under the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or the
entire deferred tax asset will not be realized.
Net loss per common share
The Company computes, presents and discloses earnings per share in accordance
with SFAS 128 "Earnings Per Share" ("EPS") which specifies the computation,
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock. The statement defines two
earnings per share calculations, basic and diluted. The objective of basic EPS
is to measure the performance of an entity over the reporting period by dividing
income (loss) by the weighted average shares outstanding. The objective of
diluted EPS is consistent with that of basic EPS, that is to measure the
performance of an entity over the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period. The
calculation of diluted EPS is similar to basic EPS except the denominator is
increased for the conversion of potential common shares.
The Company incurred losses for the years ended December 31, 2005, 2004, and
2003, and as a result, certain equity instruments are excluded from the
calculation of diluted loss per share. At December 31, 2005 and 2004, 68,038
shares of the Company's Series A convertible preferred stock have been excluded
from the computation of diluted loss per share as they are anti-dilutive. At
December 31, 2003, 81,366 shares 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 December 31, 2005, 2004, and 2003, outstanding options to
purchase 9,399,561, 9,762,061, 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 December 31, 2005, 2004, and 2003, outstanding warrants to
purchase 9,378,794, 8,469,594, and 6,329,616 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.
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 Federal Deposit Insurance
Corporation insured limits. The Company has not experienced any losses on its
cash accounts. No allowance has been provided for potential credit losses
because management believes that any such losses would be minimal.
40
Stock compensation
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its stock-based
compensation program. Accordingly, employees' and directors' related
compensation expense is recognized only to the extent of the intrinsic value of
the compensatory options or shares granted.
The following table illustrates the effect on net income (loss) available to
common stockholders and earnings (loss) per share as if the Company had applied
the fair value recognition provisions of SFAS 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."
Year Ended December 31,
2005 2004 2003
-------------- -------------- --------------
Net loss applicable to common shareholders, as reported .... ($2,287,550) ($9,373,319) ($5,276,640)
============== ============== ==============
Add: Stock-based compensation expense recorded
under APB No. 25 ...................................... 11,700 -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects ..................... (709,285) (1,105,330) (687,766)
-------------- -------------- --------------
Pro forma net loss applicable to common shareholders ....... ($2,985,135) ($10,478,649) (5,964,406)
============== ============== ==============
Net loss per share:
Basic and diluted -as reported ............................. $ (0.09) $ (0.40) $ (0.34)
============== ============== ==============
Basic and diluted -pro forma ............................... $ (0.12) $ (0.44) $ (0.38)
============== ============== ==============
The fair value of the options granted to employees and directors of the Company
during 2005, 2004, and 2003 ranged from $0.58 to $1.30 on the date of the
respective grant using the Black-Scholes option-pricing model.
The value of options granted in 2005, 2004, and 2003 was estimated at the date
of grant using the following weighted average assumptions:
2005 2004 2003
--------------- ---------------- ---------------
Expected life 2 - 5 Yrs 2 - 5 Yrs 3 - 5 Yrs
Risk free interest rate 3.00% - 4.00% 2.75% - 3.80% 2.89% - 3.24%
Volatility 60% - 75% 74% - 107% 100%
Dividend Yield 0% 0% 0%
Segment information
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
The Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Accordingly, the Company
does not prepare discrete financial information with respect to separate product
areas or by location and only has one reportable segment as defined by SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information".
Recent accounting pronouncements
In December 2004, the FASB issued SFAS 123(R), which requires the Company to
recognize compensation expense for stock options granted to employees based on
the estimated fair value of the equity instrument at the time of grant.
Currently, the Company discloses the pro forma net income and earnings per share
as if the Company applied the fair value recognition provisions of SFAS 123 as
mended by SHAS 148. The requirements of SFAS 123(R) are effective for the
Company in the first quarter of fiscal 2006. The Company will recognize
compensation expense for stock based awards issued after January 1, 2006 on a
straight-line basis over the requisite service period for the entire award. The
Company also expects to record expense of approximately $440,000 and $400,000 in
fiscal 2006 and 2007 related to previously issued, unvested stock options. The
Company will continue to use the Black-Scholes model for evaluating the fair
market value of its stock options.
41
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Correction - a Replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS 154"). SFAS 154 changes the requirements for the accounting for and the
reporting of a change in accounting principle. SFAS 154 requires that a
voluntary change in accounting principle be applied retroactively with all prior
period financial statements presented using the new accounting principle. SFAS
154 is effective for accounting changes and corrections of errors in fiscal
years beginning after December 15, 2005. The Company will apply the requirements
of SFAS 154 on any changes in principle made on or after January 1, 2006.
3. Business Acquisitions and Other Transactions
Purchase of Intangible Assets
In August 2004, the Company acquired certain government grants and two early
stage antiviral programs, Smallpox and Arenavirus, targeting certain agenda of
biological warfare for a purchase price of $1,000,000 in cash and 1,000,000
shares of the Company's common stock from ViroPharma Incorporated ("ViroPharma")
(the "ViroPharma Transaction"). The shares issued to ViroPharma were valued at
the closing date price.
The total purchase price of approximately $2.5 million was allocated to the
acquired government grants ($1.9 million) and to purchased in-process research
and development ($464,000 allocated to the Smallpox program and approximately
$104,000 to the Arenavirus program) ("IPRD"). The grants are amortized over the
contractual life of each grant or 2 years. The amount expensed as IPRD was
attributed to technology that has not reached technological feasibility and has
no alternate future use. The value allocated to IPRD was determined using the
income approach that included an excess earnings analysis reflecting the
appropriate costs of capital for the purchase. Estimates of future cash flows
related to the IPRD were made for both the Smallpox and Arenavirus programs. The
aggregate discount rate of approximately 55% utilized to discount the programs'
cash flows were based on consideration of the Company's weighted average cost of
capital as well as other factors, including the stage of completion and the
uncertainty of technology advances for these programs. If the programs are not
successful or completed in a timely manner, the Company's product pricing and
growth rates may not be achieved and the Company may not realize the financial
benefits expected from the programs.
Business Acquisition
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. 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, the announcement date. 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 $255,900. 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.
42
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
===========
In May 2004, the Company sold certain intangible assets originally acquired from
Plexus, to Pecos Labs, Inc. ("Pecos"). See Note 4 "Intangible Assets."
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 as if Plexus
were part of the Company as of January 1, 2003.
Revenues $ 826,525
Net loss $ (7,527,206)
Net loss per common share - basic and diluted $ (0.46)
Weighted average number of common shares outstanding 16,481,110
In the fourth quarter of 2003, a customer contract acquired with the acquisition
of Plexus was cancelled. Management recorded an impairment loss of $136,750,
included in the Company's operating expenses for the year ended December 31,
2003, to reflect the cancellation.
4. Intangible Assets
The following table presents the components of the Company's acquired intangible
assets with finite lives:
December 31, 2005 December 31, 2004
--------------------------------------------- ---------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Net Amount Amortization Net
-------------- ------------ ------------ -------------- ------------ ------------
Acquired grants $ 1,962,693 $ 1,308,465 $ 654,228 $ 1,962,693 $ 327,118 $ 1,635,575
Customer contract and grants 83,571 52,927 30,644 83,571 19,499 64,072
Covenants not to compete 202,000 202,000 -- 202,000 117,833 84,167
Acquired technology 330,483 82,620 247,863 330,483 -- 330,483
------------ ------------ ------------ ------------ ------------ ------------
$ 2,578,747 $ 1,646,012 $ 932,735 $ 2,578,747 $ 464,450 $ 2,114,297
------------ ------------ ------------ ------------ ------------ ------------
43
Amortization expense for intangible assets and costs included the following:
Year Ended
December 31,
2005 2004
------------ ------------
Amortization of acquired grants $ 981,347 $ 327,116
Amortization of customer contract and grants 33,428 89,345
Impairment of customer contract and grants -- 322,063
Amortization of covenants not to compete 84,167 196,973
Impairment of covenants not to compete -- 303,000
Amortization of acquired technology 82,620 219,100
Impairment of acquired technology -- 1,508,156
------------ ------------
$ 1,181,562 $ 2,965,753
------------ ------------
The Company anticipates amortization expense to approximate $767,500, $82,600,
and $82,600 for the years ending December 31, 2006, 2007, and 2008,
respectively.
Impairment of Intangible Assets
In December 2004, upon completion of the ViroPharma Transaction, integration of
the related acquired programs into the Company's operations, and the
demonstrated antiviral activity of the Company's lead smallpox compound against
several mouse models of poxvirus disease; management commenced an application
process for additional government grants to support its continued efforts under
the Smallpox and Arenavirus antiviral programs. Management determined that
significant efforts and resources will be necessary to successfully continue the
development efforts under these programs and decided to allocate the necessary
resources to support its commitment. As a result, limited resources will be
available for the development of future product candidates that utilize the
technology acquired from Plexus in May 2003. These factors resulted in a
significant reduction in forecasted revenues related to that technology and a
reduction in the future remaining useful life, and triggered the related
intangible asset impairment. The amount of impairment recorded by management in
December 2004 was determined using the two-step process impairment review as
required by SFAS 144. In the first step, management compared the projected
undiscounted net cash flows associated with the technology acquired from Plexus
over its remaining life against its carrying amount. Management determined that
the carrying amount of the technology acquired from Plexus exceeded its
projected undiscounted cash flows. In the second step, management estimated the
fair value of the technology using the income method of valuation, which
included the use of estimated discounted cash flows using a discount rate of
28.5%. Based on management's assessment, the Company recorded a non-cash
impairment charge of approximately $1.5 million in December 2004, which was
included as a component of the Company's operating loss.
Transfer of Intangible Assets to Pecos Labs, Inc.
In May 2004, the Company sold intangible assets from its immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos Labs, Inc. ("Pecos") in exchange for 150,000
shares of Pecos common stock. In addition, concurrent with the asset transfer,
the Company terminated its employment agreement with the President of the
Company. The Company paid approximately $270,000 in severance to the President
as well as accelerated vesting on 100,000 stock options that were due to vest in
May 2004. No compensation charge was recorded as the exercise price of the
options was above the fair value market price on the date of termination. In
addition, the Company reduced the covenant not to compete with the President to
one year from the date of termination.
As a result of the Pecos transaction in the second quarter of 2004, the Company
performed an impairment review of the intangible assets in accordance with SFAS
144. The impairment of intangible assets consists of $322,063 of impairments to
unamortized intangible assets related to the grants transferred to Pecos and
$303,000 of impairment to the unamortized covenant not to compete with the
President of the Company due to the reduction of the covenant to one year from
the date of termination.
44
During the year ended December 31, 2005, Pecos terminated its operations. As a
result, the Company recorded a loss of $15,000 to write-off its investment in
Pecos.
5. Stockholders' Equity
At December 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.
2005 Placement
In November 2005, the Company entered into a Securities Purchase Agreement for
the issuance and sale of 2,000,000 shares of the Company's common stock at $1.00
per share and warrants to purchase 1,000,000 shares of the Company's common
stock. The warrants are initially exercisable at 110% of the closing price on
the closing date of the transaction ($1.18 per share) at any time and from time
to time through and including the seventh anniversary of the closing date. The
investors are also entitled to purchase additional shares of the Company's
common stock for a gross amount of $2,000,000 at an initial price of $1.10 per
share for a period of 90 trading days following the effectiveness of a
registration statement. An initial registration statement relating to the common
stock sold and the stock underlying the warrants became effective on December 2,
2005. With respect to the transaction, the Company entered into an Exclusive
Finder's Agreement. Finder's fees under the agreement include cash compensation
of 7% of the gross amount financed and a warrant to acquire 60,000 shares of the
Company's common stock at terms equal to the investors' warrants. The Company
received gross proceeds of $2,000,000 from the transaction on November 3, 2005.
Net proceeds from were $1,792,000.
The Company accounted for the transaction under the provisions of EITF 00-19
which requires that free standing derivative financial instruments that require
net cash settlement be classified as assets or liabilities at the time of the
transaction, and recorded at their fair value. On November 2, 2005, the Company
recorded the warrants to acquire common stock and the option to acquire common
stock as liabilities with estimated fair value of $631,000 and $213,000,
respectively. EITF 00-19 also requires that any changes in the fair value of the
derivative instruments be reported in earnings as long as the derivative
contracts are classified as assets or liabilities. At December 31, 2005, the
fair market value of the warrants to acquire common stock and the option to
acquire additional shares of common stock was $535,000 and $73,000,
respectively. The Company applied the Black-Scholes model to calculate the fair
values of the respective derivative instruments using the contracted term of the
instruments. Management estimates the expected volatility using a combination of
the Company's historical volatility and the volatility of a group of comparable
companies. SIGA recorded a gain of $236,000 for the decline in the instruments'
fair value form the date of the transaction to December 31, 2005.
2003 and 2004 Placements
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 the agreement, the Company raised gross proceeds of $1.0
million from MacAndrews & Forbes and certain of its employees, in exchange for
694,444 shares of the Company's common stock at a price of $1.44 per share and
warrants to purchase 347,222 shares of the Company's common stock at an exercise
price of $2.00 per share. In addition, MacAndrews & Forbes and certain of its
employees were granted an option, exercisable through October 13, 2003, to
invest up to an additional $9.0 million in the Company on the same terms.
In October 2003, MacAndrews & Forbes, certain of its employees and TransTech
Pharma, Inc., a related party to the Company and an affiliate of MacAndrews &
Forbes ("TransTech Pharma"), exercised their option to invest $9.0 million in
the Company, in exchange for an aggregate of 6,250,000 shares of common stock of
the Company's common stock, and warrants to purchase up to an aggregate of
3,125,000 shares of the Company's common stock at an exercise price of $2.00 per
share. Immediately prior to the exercise of such option, MacAndrews & Forbes
assigned the right to invest up to $5.0 million in the Company to TransTech
Pharma. The Company and TransTech Pharma are parties to a drug discovery
collaboration agreement signed in October 2002.
45
In accordance with and subject to the terms and conditions of the securities
purchase agreement, MacAndrews & Forbes and certain of its employees invested
$2.2 million in exchange for 1,499,587 shares of the Company's common stock at a
price of $1.44 per share and received warrants to purchase up to an additional
749,794 shares of common stock at an exercise price of $2.00 per share.
In January 2004, following the approval of the Company's stockholders,
MacAndrews & Forbes and TransTech Pharma completed the final portion of their
investment. MacAndrews & Forbes invested $1,840,595 in exchange for 1,278,191
shares of common stock at a price of $1.44 per share, and warrants to purchase
up to an additional 639,095 shares of common stock at an exercise price of $2.00
per share; and TransTech Pharma invested $5,000,000 in exchange for 3,472,222
shares of common stock and warrants to purchase up to an additional 1,736,111
shares of common stock on the same terms. In addition, as part of the
investment, MacAndrews & Forbes and TransTech Pharma each were given the right
to appoint one board member to the Board of Directors, subject to certain terms
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.
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 125,000 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.
Other Transactions
In 2004, the Company reached a settlement agreement for breach of contract with
a founder of the Company, whereby the founder returned 40,938 common shares,
150,000 warrants and $15,000 to the Company. The common shares were retired by
the Company. The Company recorded the settlement amount as other income.
Preferred Stock
Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at an annual rate of 6% payable when and if declared by the
Company's board of directors; (ii) in the event of liquidation of the Company,
each holder is entitled to receive $1.4375 per share (subject to certain
adjustments) plus all accrued but unpaid dividends; (iii) convert each share of
Series A to a number of fully paid and non-assessable shares of common stock as
calculated by dividing $1.4375 by the Series A Conversion Price (shall initially
be $1.4375); and (iv) vote with the holders of other classes of shares on an
as-converted basis.
During the year ended December 31, 2004 certain preferred stockholders converted
13,328 Series A convertible preferred stock into 13,328 shares of common stock.
6. Stock option plan and warrants
Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan
In January 1996, the Company implemented its 1996 Incentive and Non-Qualified
Stock Option Plan (the "Plan"). The Plan as amended provides for the granting of
up to 11,000,000 shares of the Company's common stock to employees, consultants
and outside directors of the Company. The exercise period for options granted
under the Plan, except those granted to outside directors, is determined by a
committee of the Board of Directors. Stock options granted to outside directors
pursuant to the Plan must have an exercise price equal to or in excess of the
fair market value of the Company's common stock at the date of grant.
46
Stock option activity of the Company is summarized as follows:
Number of Weighted Average
Shares Exercise Price
Options outstanding on January 1, 2003 5,807,561 $ 2.52
Granted 813,250 1.79
Forfeited (160,000) 4.81
Exercised -- --
------------ ------------
Options outstanding at December 31, 2003 6,460,811 $ 2.33
Granted 3,442,500 1.34
Forfeited (138,334) 1.77
Exercised (2,916) 1.77
------------ ------------
Options outstanding at December 31, 2004 9,762,061 $ 1.99
Granted 90,000 1.22
Forfeited (452,500) 1.60
Exercised -- --
------------ ------------
Options outstanding at December 31, 2005 9,399,561 $ 2.00
============ ============
Options available for future grant at December 31, 2005 1,385,398
Weighted average fair value of options granted during 2005 $ 0.64
Weighted average fair value of options granted during 2004 $ 0.98
Weighted average fair value of options granted during 2003 $ 1.14
The following table summarizes information about options outstanding at December
31, 2005:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Price December 31, 2005 Life (Years) Price December 31, 2005 Price
1.00 - 1.85 4,224,084 7.99 $ 1.37 2,249,584 $ 1.40
2.00 - 2.75 4,837,250 5.19 $ 2.38 4,837,250 $ 2.38
3.94 - 5.5 338,227 3.16 $ 4.36 325,227 $ 4.38
----------------- -----------------
9,399,561 7,412,061
================= =================
At December 31, 2005, 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.
47
The following tables summarize information about warrants outstanding at
December 31, 2005:
Number of Weighted Average
Warrants Exercise Price Expiration Dates
Outstanding at January 1, 2003 4,675,144 $ 3.06
Granted 2,161,250 1.98 12/31/2007 - 03/01/2012
Exercised (40,562) 1.19
Canceled / Expired (466,216) 5.83
------------ ------------
Outstanding at December 31, 2003 6,329,616 $ 2.50
Granted 2,375,206 2.00 08/10/2010
Exercised (85,228) 1.08
Canceled / Expired (150,000) 1.50
------------ ------------
Outstanding at December 31, 2004 8,469,594 $ 2.39
Granted 1,060,000 1.18 11/2/2012
Exercised -- --
Canceled / Expired (150,800) 2.38
------------ ------------
Outstanding at December 31, 2005 9,378,794 $ 2.26
------------ ------------
Number of
Warrants
Outstanding Exercise Price ($)
1,583,410 1.18 - 1.69
5,294,172 2.00 - 2.25
2,501,212 2.94 - 3.63
-----------
9,378,794
===========
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 the Company being awarded research contracts in excess of $2.0
million from such support, and recognizing $2.0 million in revenues from such
contracts, 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, 2005,
the Company had not yet recognized the minimum of $2.0 million in revenues from
the related contract.
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.
7. 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 (See Note 5).
Additionally, a director of the Company is a member of the Company's outside
counsel.
Other related party transactions
In January 2004, TransTech Pharma invested $5.0 million in SIGA (See Note 5).
During the year ended December 31, 2005, the Company incurred costs of $461,000
related to services provided by TransTech Pharma, Inc., a related party, and its
affiliates mostly in connection with one of the Company's lead product programs.
On December 31, 2005, the Company's outstanding payables included $339,000
payable to the related party and its affiliates. Accounts receivable as of
December 31, 2005, included $25,400 outstanding from TransTech Pharma, Inc.
48
8. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 2005
and 2004:
Laboratory equipment $ 1,358,489 $ 1,259,711
Leasehold improvements 649,211 632,435
Computer equipment 306,527 212,077
Furniture and fixtures 205,628 194,890
Construction in-progress 804,596 163,397
------------ ------------
3,324,451 2,462,510
Less - Accumulated depreciation (2,100,304) (1,954,495)
------------ ------------
Property, plant and equipment, net $ 1,224,147 $ 508,015
============ ============
9. Note Payable
On May 20, 2005, the Company borrowed approximately $276,000 under a Promissory
Note payable to General Electric Capital Corporation. The note is payable in 36
monthly installments of principal and interest of 10.31% per annum. The note is
collateralized by a master security agreement dated as of April 29, 2005 and by
specific property listed under the master security agreement. Total balance
outstanding at December 31, 2005 was $214,225. Scheduled payments for 2006 and
2007 are $107,520 and $106,705, respectively.
10. Income Taxes
The Company has incurred losses since inception, which have generated net
operating loss carryforwards of approximately $31,079,000 at December 31, 2005
for federal and state income tax purposes. These carryforwards are available to
offset future taxable income and begin expiring in 2010 for federal income tax
purposes. As a result of a previous change in stock ownership, the annual
utilization of the net operating loss carryforwards is subject to limitation.
The net operating loss carryforwards and temporary differences, arising
primarily from deferred research and development expenses and differences in the
treatment of intangible assets, result in a noncurrent deferred tax asset at
December 31, 2005 and 2004 of approximately $16,411,000 and $16,090,000,
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.
At December 31, 2005 and 2004, the Company's deferred tax assets are comprised
of the following:
2005 2004
Net Operating Losses 12,121 11,810
Deferred Research and Development Costs 3,455 3,950
Amortization of Acquired Assets 623 60
Depreciation of Property Plant and Equipment 212 270
---------- ----------
Total Deferred Tax Asset 16,411 16,090
Valuation Allowance (16,411) (16,090)
---------- ----------
Net Deferred Tax Assets $ -- $ --
========== ==========
49
Following is a summary of changes in our valuation allowance for deferred tax
assets as of and for the years ended December 31, 2005, 2004 and 2003 (in
thousands):
Additions Charged
Balance at to Costs and Balance at End
December 31, Beginning of Year Expenses Deductions of Year
----------------- -------- ---------- -------
2005 $16,090 $ 321 $16,411
2004 $13,030 $ 3,060 $ -- $16,090
2003 $11,144 $ 1,886 $ -- $13,030
For the years ended December 31, 2005 and 2004, 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.
11. Commitments and Contingencies
Employment agreements
In July 2004, the Company entered into a 3-year employment agreement with its
Vice President of Business Development, commencing in August 2004. The
employment agreement provided for an annual salary of $230,000 plus bonuses
based on certain objectives and goals. Under the agreement, the Company granted
the employee an option to acquire 200,000 shares of its common stock at an
exercise price of $1.40, of which 50,000 options vested upon signing and 50,000
would have vested at each of the next 3 anniversaries. At the discretion of the
Board of Directors the employee might have been granted additional awards of up
to 25,000 shares each, upon meeting certain milestones. The agreement had a one
year renewal option. Effective September 16, 2005, the employee resigned and his
options were forfeited.
In July 2004, the Company entered into an employment agreement with Bernard L.
Kasten, M.D. to serve as the Company's Chief Executive Officer (CEO). The
employment agreement provides for an annual salary of $250,000 plus, at the
discretion of the Board of Directors, bonus payments for a 3-year initial term
with an automatic 3-year renewal unless either party gives notice that it does
not want to renew. The agreement also provides for an award of 2,500,000 options
to purchase common stock with an exercise price of $1.30, of which 500,000
vested upon signing, one million options ratably vest over the 3-year initial
term and the remaining 1 million options vest over the renewal term. The CEO is
also entitled to additional options to be granted upon meeting certain
milestones.
In July 2004, the Company entered into an amendment to its existing employment
agreement with the Company's Chief Scientific Officer (CSO). Pursuant to the
amendment, the employment agreement is effective through December 31, 2007 and
provides for an annual salary of $225,000 plus, at the discretion of the Board
of Directors, a bonus not to exceed 50% of the Chief Scientific Officer's
salary. The agreement also provides for an option grant of 150,000 options to
purchase common stock with an exercise price of $1.40, of which 75,000 vest on
December 31, 2005 and 75,000 vest on December 31, 2006. In October 2002, the
Company granted the CSO options to acquire 300,000 shares of the Company's
common stock at an exercise price of $2.50. Upon such grant, the CSO was
50
required to surrender 50,000 shares granted under a previous grant with an
exercise price of $3.94. Under the October 2002 grant, 75,000 shares vested
immediately, 75,000 shares vested on September 1, 2003 and 2004 and 75,000
shares will vest on September 1, 2005. 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, 2005, 2004, and 2003 there was no stock
compensation charge as the fair value of the underlying common stock was below
the exercise price of the option.
In June 2004, the Company entered into an amendment to its existing employment
agreement with the Company's Chief Financial Officer. Pursuant to the amendment,
the employment agreement is effective through December 31, 2005 and provides for
an annual salary of $230,000 plus a one-time payment of $50,000 for the Chief
Financial Officer's prior service as Acting Chief Executive Officer. An
additional bonus not to exceed 25% of the Chief Financial Officer's salary may
be awarded at the discretion of the Board of Directors. The agreement also
provides for an option grant of 150,000 options to purchase common stock with an
exercise price of $1.40, of which 75,000 vested upon signing and the remainder
vested on a prorata basis from January 1, 2005 through December 31, 2005.
Operating lease commitments
The Company leases certain facilities and office space under operating leases.
Rent expense for the years ended December 31, 2004, 2003 and 2002 was
approximately $297,000, $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,
2006 $ 255,400
2007 261,800
2008 133,200
2009 135,900
2010 22,700
-----------
Total $ 809,000
===========
Other
From time to time, the Company is involved in disputes or legal proceedings
arising in the ordinary course of business. The Company believes that there is
no dispute or litigation pending that could have, individually or in the
aggregate, a material adverse effect on its financial position, results of
operations or cash flows.
12. Subsequent Event
On March 9, 2006, SIGA entered into a term sheet for the merger of the Company
with PharmAthene, Inc. Under the provisions of the term sheet, the Chief
Executive Officer of PharmAthene will serve as President and Chief Executive
Officer of the combined company and the Board of Directors for the new company
will reflect the new proportionate ownership. It is expected that the
shareholders of SIGA will own approximately 32% of the combined company, which
is anticipated to remain listed on the NASDAQ stock market. The transaction is
conditioned on, among other things, the execution of a definitive merger
agreement, approval of the shareholders of each company, regulatory approval and
other customary closing conditions. In connection with the transaction, the
Company and PharmAthene also entered into a Bridge Note Purchase Agreement
whereby PharmAthene will provide SIGA with up to $3 million in interim
financing.
51
13. Financial Information By Quarter (Unaudited) (in thousand, except for per
share data)
2005 For The Quarter Ended March 31, June 30, September 30, December 31, Total
---------- ---------- ------------- ------------ ----------
Revenues $ 1,459 $ 1,864 $ 2,910 $ 2,244 $ 8,477
Selling, general & administrative $ 845 $ 811 $ 415 $ 410 $ 2,481
Research and development $ 1,552 $ 2,583 $ 1,765 $ 2,395 $ 8,295
Patent preparation fees $ 175 $ 91 $ 8 $ (42) $ 232
Operating income (loss) $ (1,113) $ (1,621) $ 722 $ (520) $ (2,532)
Net income (loss) $ (1,107) $ (1,630) $ 724 $ (258) $ (2,271)
Net loss per share: basic and diluted $ (0.05) $ (0.07) $ 0.03 $ (0.00) $ (0.09)
Market price range for common stock
High $ 1.69 $ 1.44 $ 1.10 $ 1.35 $ 1.69
Low $ 1.28 $ 0.99 $ 0.70 $ 0.87 $ 0.70
2004 For The Quarter Ended March 31, June 30, September 30, December 31, Total
---------- ---------- ------------- ------------ ----------
Revenues $ 161 $ 299 $ 533 $ 846 $ 1,839
Selling, general & administrative $ 1,006 $ 1,112 $ 919 $ 1,005 $ 4,042
Research and development $ 1,020 $ 1,026 $ 827 $ 1,292 $ 4,165
Patent preparation fees $ 92 $ 55 $ 84 $ 162 $ 393
In-process research and development $ -- $ -- $ 568 $ -- $ 568
Impairment of intangible assets $ -- $ 610 $ -- $ 1,508 $ 2,118
Operating loss $ 1,956 $ 2,504 $ 1,865 $ 3,123 $ 9,448
Net loss $ 1,940 $ 2,490 $ 1,837 $ 3,106 $ 9,373
Net loss per share: basic and diluted $ 0.08 $ 0.11 $ 0.08 $ 0.13 $ 0.40
Market price range for common stock
High $ 2.34 $ 1.93 $ 1.63 $ 1.75 $ 2.34
Low $ 1.85 $ 1.29 $ 1.23 $ 1.35 $ 1.23
52
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K,
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective.
There have been no changes in the Company's internal controls over
financial reporting identified in connection with the evaluation by the Chief
Executive Officer and Chief Financial Officer that occurred during the Company's
fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
None.
53
PART III
Item 10. Directors and Executive Officers of the Registrant
All directors are elected each year at SIGA's annual meeting of
stockholders and hold office for one year terms until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
SIGA's executive officers serve terms pursuant to employment agreements, which
are summarized below.
Name Age Position
---- --- --------
Donald G. Drapkin* 58 Chairman of the Board
James J. Antal* 55 Director
Thomas E. Constance* 69 Director
Dennis E. Hruby 54 Chief Scientific Officer
Bernard L. Kasten Jr. M.D. 59 Director, Chief Executive Officer
Thomas N. Konatich 60 Chief Financial Officer
Adnan M. Mjalli, Ph.D. 42 Director
Mehmet C. Oz, M.D. * 43 Director
Eric A. Rose, M.D. * 53 Director
Paul G. Savas* 43 Director
Judy S. Slotkin* 52 Director
Michael A. Weiner, M.D. * 59 Director
* Determined by the Board of Directors to be independent pursuant to
Rule 4200 of the NASD Marketplace Rules.
There are no family relations between any of our directors and our
executive officers.
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: Allied Security Holdings, LLC,
Anthracite Capital, Inc., Playboy Enterprises, Inc., Revlon Consumer Products
Corporation, Revlon Inc. and Nephros, Inc. Mr. Drapkin is also a director of
PharmaCore, Inc. and TransTech Pharma, Inc.
James J. Antal has served as a director of SIGA since November 2004. Mr.
Antal has been an active consultant and founding investor in several Southern
California based emerging companies, including serving as Chief Financial
Advisor to Black Mountain Gold Coffee Co., since his retirement in 2002. Mr.
Antal was the Chief Financial Officer and Chief Investment Officer from 1996 to
2002 for Experian, a $1.6 billion global information services subsidiary of
UK-based GUS plc. Prior to the GUS acquisition of Experian (the former TRW Inc.
Information Systems and Services businesses), Mr. Antal held various finance
positions with TRW from 1978 to 1996, including Senior VP of Finance for TRW
Information Systems and Services and TRW Inc. Corporate Director of Financial
Reporting and Accounting. He earned his undergraduate degree in accounting from
The Ohio State University in 1973, and became a certified public accountant
(Ohio) in 1974. He engaged in active practice as a CPA with Ernst & Ernst until
1978. Mr. Antal has served as a director of First American Real Estate
Solutions, an Experian joint venture with First American Financial Corp.
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 was a director of Kroll
Inc., which ceased to file reports pursuant to the Securities Exchange Act of
1934 in August 2004. 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
and became Chief Executive Officer in the third quarter of 2004. Prior to
becoming Chief Executive Officer of SIGA and since February 2002,
54
Dr. Kasten had 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 founded TransTech Pharma, Inc., a privately held drug discovery
company in High Point, North Carolina, in 1999 and has since served as its
President and Chief Executive Officer. 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.
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 PharmaCore, Inc., 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 served as a director of SIGA since January 2004. Mr.
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 until 1998. From December
1988 until April 1994, 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.
Judy S. Slotkin has served as a director of SIGA since November 2004. Ms.
Slotkin was Co-Head of the Finance Committee of the Modern Africa Fund, a $120
million private equity fund, from 1998 until 2003. Ms. Slotkin was formerly
Department Head in the Corporate Finance Division of Citigroup (Citibank
Investment Bank) where she was responsible for various businesses and the first
head of the group's Capital Markets Desk. Prior to that, Ms. Slotkin held
various positions in the Citigroup (Citibank) commercial bank. Ms. Slotkin is
also a founding member of the Food Allergy Initiative, an organization funding
research, legislative initiatives and education regarding food allergies. Ms.
Slotkin received her undergraduate degree in accounting from Fairleigh Dickinson
University in 1976 and, in 1980, she received her MBA in Finance from Fordham
University.
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
55
graduate of the New York State Health Sciences Center at Syracuse and was a post
graduate student at New York University and Johns Hopkins University.
Committees of the Board of Directors
The Board of Directors currently has, and appoints the members of,
standing Audit, Compensation and Nominating and Corporate Governance Committees.
Each member of the Audit, Compensation and Nominating and Corporate Governance
Committees is an Independent Director. Each of these committees has a written
charter approved by the Board of the Directors in March 2004. A copy of each
charter is posted on SIGA's website at www.siga.com under the "Corporate
Governance" section.
Audit Committee. The Audit Committee, which currently consists of
directors Paul G. Savas, Judy S. Slotkin and James J. Antal, held eleven
meetings during 2005. The Board of Directors has determined that each of the
members of the Audit Committee is "independent" under the applicable laws, rules
and regulations. The Company has determined that Mr. Savas is an "Audit
Committee financial expert" within the meaning of Regulation S-K promulgated by
the Securities and Exchange Commission (the "SEC"). The purpose of the Audit
Committee is to assist the 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 registered public accounting firm's qualifications and
independence, and the performance of SIGA's independent registered public
accounting firm. 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 the Board of Directors. The Audit Committee also
selects the independent registered public accounting firm 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
registered public accounting firm and our financial accounting staff; and
reviews and approves transactions between us and our directors, officers, and
their affiliates. A copy of the Audit Committee charter is available on SIGA's
website (as described above).
Code of Ethics
SIGA has adopted a code of ethics and business conduct that applies to its
officers, directors and employees, including without limitation, our Chief
Executive Officer, Chief Financial Officer and Chief Scientific Officer. The
Code of Ethics and Business Conduct is available on SIGA's website at
www.siga.com under the "Corporate Governance" section.
56
Item 11. Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 2005, 2004 and 2003, for each person who acted as
SIGA's Chief Executive Officer at any time during the year ended December 31,
2005, and its most highly compensated executive officers, other than its Chief
Executive Officer, whose salary and bonus for the fiscal year ended December 31,
2005 were in excess of $100,000 each.
Annual Compensation
Long-Term
Compensation
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Comensation ($) Bonus ($) Options (#)
- --------------------------- -------- ------------ ----------------- ----------- -------------
Bernard L. Kasten, M.D 2005 250,000 -- -- --
Chief Executive Officer 2004 113,636 -- -- 2,500,000
2003 -- -- -- --
Thomas N. Konatich 2005 230,000 -- 35,000 --
Chief Financial Officer 2004 218,485 -- 50,000 150,000
2003 210,000 -- -- --
Dennis E. Hruby, Ph.D 2005 225,000 -- 112,500 --
Chief Scientific Officer 2004 213,363 -- 63,000 150,000
2003 210,000 -- -- --
John R. Odden
Vice President Business Development (1) 2005 175,070 -- -- --
2004 82,257 -- -- 200,000
2003 -- -- -- --
(1) Mr. Odden became Vice President Business Development in the third quarter
of 2004. His annual salary was $230,000. He resigned as Vice President
Business Development in September, 2005.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 2005 by SIGA's Chief Executive Officer and its
two most highly compensated executive officers, other than its Chief Executive
Officer. No options were exercised during fiscal 2005 by any of the officers.
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options # At fiscal Year-End ($) (1)
--------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Bernard L. Kasten, M.D 933,332 1,666,668 -- --
Thomas N. Konatich 545,000 -- -- --
Dennis E. Hruby, Ph.D 550,000 75,000 -- --
(1) Based upon the closing price on December 31, 2005, as reported on the Nasdaq
SmallCap Market and the exercise price per option.
57
Option Grants for the Year Ended December 31, 2005
No options were granted during the year ended December 31, 2005 to anyone who
served as Chief Executive Officer and its three highest paid employees.
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 stockholders 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. At our annual meeting on May, 26,
2005, the Plan was amended when our stockholders voted to increase the maximum
number of shares of common stock available for issuance under the Plan from
10,000,000 to 11,000,000.
The Plan is administered by our Compensation Committee which 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 Compensation Committee are Mehmet
C. Oz, M.D., Paul G. Savas and Donald G. Drapkin. See "Committees of the Board
of Directors" above for more information.
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
11,000,000 shares of common stock, of which 9,399,561 options were outstanding
as of December 31, 2005.
During the fiscal year ending December 31, 2005, the named Officers of
SIGA received no long-term incentive compensation under the Plan.
Employment Contracts and Directors Compensation
Directors' Compensation
Directors who are not currently receiving compensation as officers or
employees of the Company or any of its affiliates receive $1,000 per meeting for
board meetings and will be reimbursed for expenses incurred by them in
connection with serving on our Board of Directors. The chairman of the Audit
Committee receives $1,000 per meeting for meetings of the Audit Committee and
all other members of the Audit Committee receive $500 per meeting for meetings
of the Audit Committee. Members of Compensation Committee and Nominating and
Corporate Governance Committee receive $500 per meeting for meetings of the
Compensation Committee and Nominating and Corporate Governance Committee.
Non-employee directors receive an initial grant of 25,000 options, upon
such non-employee director's first election to the Board of Directors, which
such options are granted under SIGA's Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan. In addition, non-employee directors receive an
annual grant of 10,000 options under SIGA's Amended and Restated 1996 Incentive
and Non-Qualified Stock Option Plan, made at
58
each Annual Meeting. All such options have an exercise price equal to the fair
market value of the underlying SIGA shares on the date of grant.
Employment Contracts
Dr. Bernard L. Kasten, SIGA's Chief Executive Officer, is employed by SIGA
under an employment agreement dated July 2, 2004. The initial term of the
employment agreement expires on July 2, 2007. The employment agreement will,
however, automatically renew for an additional three (3) years following the end
of the initial term, unless either Dr. Kasten or SIGA provides at least three
(3) months advance notice of his/its desire not to renew. Dr. Kasten receives an
annual base salary of $250,000 and his employment agreement also provides for
additional bonus payments at the discretion of the Board of Directors. On July
2, 2004, he received options to purchase 2,500,000 shares of common stock with
an exercise price of $1.30 per share, of which 500,000 shares vested on the date
of grant; with respect to the next 1,000,000 shares, an additional 166,666
shares shall vest on the end of each six (6) month period after date of grant
until the end of the sixth six (6) month period at which time 166,667 shares
shall vest. In the event Dr. Kasten's employment renews as described above, with
respect to the balance of 1,000,000 shares of common stock, an additional
166,666 shares shall vest at the end of each six (6) month period commencing at
the beginning of the renewal term until the end of the sixth six (6) month
period at which time 166,667 shares shall vest. Dr. Kasten also received options
to purchase up to 4,800,000 shares of common stock, with an exercise price of
$1.30 per share, if various milestones set forth in his employment agreement are
met. Dr. Kasten is also eligible to receive additional stock options and bonuses
at the discretion of the Board of Directors. SIGA may terminate the employment
agreement for cause (as such term is defined in the employment agreement) or for
any other reason, provided that upon any termination for any other reason (other
than cause), Dr. Kasten shall receive his salary due and payable through the
date of termination plus a severance amount (as defined in the employment
agreement) to be paid through a specified period during which his time vested
options shall continue to vest. If within 90 days prior to or 12 months after a
change of control (as such term is defined in the employment agreement) of SIGA
either Dr. Kasten's employment is terminated or Dr. Kasten is no longer Chief
Executive Officer of the surviving organization and elects to terminate his
employment as a result of the change of control, Dr. Kasten will receive
payments as specified in the employment agreement.
Thomas N. Konatich, SIGA's Vice President, Chief Financial Officer,
Secretary and Treasurer, 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, as amended on November 5,
2002, as amended on July 29, 2004 and as amended on February 1, 2006. This
employment agreement expires on December 31, 2006. Mr. Konatich was also
formerly employed as SIGA Acting Chief Executive Officer, which duties concluded
on July 2, 2004. Mr. Konatich receives an annual base salary of $230,000 and
received a one-time payment of $50,000 for his prior service as Acting Chief
Executive Officer. His employment agreement also provides for an additional
bonus payment at the discretion of the Board of Directors and not to exceed 25%
of his annual base salary amount. 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. On July 29, 2004, Mr. Konatich was granted
an Incentive Stock Option to purchase 150,000 shares at an exercise price of
$1.40 per share. 75,000 of these options vested immediately and with the
remaining 75,000 options vesting on a pro rata basis from January 1, 2005
through December 31, 2005 with no provision for acceleration under any
circumstances. Mr. Konatich is also eligible to receive additional stock options
and bonuses at the discretion of the Board of Directors. SIGA may terminate the
employment agreement with or without cause (as such term is defined in the
employment agreement), provided that upon any termination without cause, SIGA
will be obligated to continue to pay Mr. Konatich's salary and all other amounts
due under the employment agreement for the remainder of the term. If Mr.
Konatich is terminated due to a change of control (as such term is defined in
the employment agreement), SIGA shall pay Mr. Konatich a change in control
amount (as such term is defined in the employment agreement) plus his accrued
and unpaid base salary, and, upon the first event constituting a change of
control, all stock options and other stock-based grants to Mr. Konatich shall
immediately and irrevocably vest and become exercisable upon the date of such
event.
59
Dr. Dennis E. Hruby, Chief Scientific Officer, 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 and as amended on
July 29, 2004. This employment agreement expires on December 31, 2007. Dr. Hruby
receives a base salary of $225,000 per year and his employment agreement also
provides for additional bonus payments at the discretion of the Board of
Directors and not to exceed 50% of his base salary amount. 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. 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 an "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 October 3, 2002 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. 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. On July 29, 2004, Dr. Hruby was
granted an Incentive Stock Option to purchase 150,000 shares at an exercise
price of $1.40 per share, which options shall vest in 75,000 share increments on
December 31 of each year, commencing December 31, 2005. Dr. Hruby is eligible to
receive additional stock options and bonuses at the discretion of the Board of
Directors. SIGA may terminate the employment agreement with or without cause (as
such term is defined in the employment agreement), provided that upon any
termination without cause SIGA will be obligated to continue to pay Dr. Hruby's
salary for the remainder of the term. In addition, SIGA shall have the right to
terminate Dr. Hruby's employment upon one (1) year written notice with such
termination being treated as a termination for cause. If Dr. Hruby is terminated
due to a change of control (as such term is defined in the employment
agreement), SIGA shall pay Dr. Hruby a change in control amount (as such term is
defined in the employment agreement) plus his accrued and unpaid base salary,
and, upon the first event constituting a change of control, all stock options
and other stock-based grants to Dr. Hruby shall immediately and irrevocably vest
and become exercisable upon the date of such event.
Compensation Committee Interlocks and Insider Participation
None.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following tables set forth certain information regarding the
beneficial ownership of SIGA's voting securities as of March 15, 2006 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 executive officers of SIGA
as a group. As of March 16, 2006, a total of 26,500,648 shares of Common Stock
and a total of 68,038 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 holders of Common Stock are eligible to vote. The column
entitled "Percentage of Total Voting Stock Outstanding" shows the percentage of
total voting stock beneficially owned by each listed party.
The number of shares beneficially owned is determined under rules
promulgated by the Securities and Exchange Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of March 15, 2006,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Unless otherwise indicated, each person or entity named
in the table has sole voting power and investment
60
power (or shares that power with that person's spouse) with respect to all
shares of capital stock listed as owned by that person or entity.
Ownership of Common Stock
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 Inc. (3)
35 East 62nd Street
New York, NY 10021 .............................. 5,036,458(4) 17.9% 17.8%
TransTech Pharma, Inc.
4170 Mendenhall Oaks Parkway
High Point, NC 27265 ........................... 5,208,333(5) 18.5% 18.4%
Officers and Directors
Donald G. Drapkin (6)
35 East 62nd Street
New York, NY 10021 .............................. 1,808,326(7) 6.5% 6.4%
James J. Antal
30952 Steeplechase Dr.
San Juan Capistrano, CA 94704 ................... 46,154(8) * *
Judy S. Slotkin (19)
888 Park Avenue
NY, NY 10021 .................................... 35,000(9) * *
Thomas E. Constance
1177 Avenue of the Americas,
New York, NY 10036 .............................. 263,467(10) * *
Bernard L. Kasten Jr., M.D.(11) ................. 1,462,358(12) 5.3% 5.3%
Adnan M. Mjalli, Ph.D
4170 Mendenhall Oaks Parkway, Suite 110
High Point, NC 27265 ............................ 35,000(13) * _
Mehmet C. Oz, M.D.
177 Fort Washington Ave
New York, NY 10032 .............................. 135,000(14) * *
Eric A. Rose, M.D. (15)
122 East 78th Street
New York, NY 10021 .............................. 800,090(16) 2.9% 2.9%
Paul G. Savas
35 East 62nd Street
New York, NY 10021 .............................. 61,222(17) * *
Michael A. Weiner, M.D.
161 Fort Washington Ave.
New York, NY 10032 .............................. 135,000(14) * *
Thomas N. Konatich .............................. 545,000(18) 2.0% 2.0%
Dennis E. Hruby, Ph.D ........................... 550,000(18) 2.0% 2.0%
All Executive Officers and Directors as a
group (thirteen persons) ........................ 5,864,117(20) 18.6% 18.6%
61
* Less than 1%
(1) Unless otherwise indicated the address of each beneficial owner identified
is 420 Lexington Avenue, Suite 408, 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 Inc. is a direct wholly-owned subsidiary of MacAndrews
& Forbes 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 MacAndrews & Forbes
Holdings Inc. and MacAndrews & Forbes Inc. and a director of TransTech
Pharma.
(7) Includes 1,135,000 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 35,000 shares of common stock issuable upon exercise of options.
(9) Includes 35,000 shares of common stock issuable upon exercise of options.
(10) Includes 12,200 shares issuable upon exercise of warrants and 235,000
shares of common stock issuable upon exercise of options.
(11) Dr. Kasten became our Chief Executive Officer in the third quarter of
2004.
(12) Includes 1,350 shares of common stock issuable upon exercise of warrants
and 1,099,998 shares of common stock issuable upon exercise of options.
(13) Includes 35,000 shares of common stock issuable upon exercise of options.
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.
(14) Includes 12,500 shares issuable upon exercise of warrants and 110,000
shares issuable upon exercise of options.
(15) Dr. Rose is a director of TransTech Pharma.
62
(16) Includes 88,610 shares of common stock issuable upon exercise of warrants
and 610,000 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.
(17) Includes 8,681 shares of common stock issuable upon exercise of warrants
and 35,000 shares issuable upon exercise of options.
(18) 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.
(19) Does not include 34,722 shares of common stock owned by Ms. Slotkin's
spouse to which she disclaims beneficial ownership.
(20) See footnotes (6)-(19).
Ownership of Series A Preferred Stock
Name and Address of Percentage of Series A Preferred
Beneficial Owner (1) Amount of Beneficial Ownership Shares Outstanding(2)
- --------------------------------- -------------------------------- ----------------------------------
Frank J. and Mary Ann Loccisano 68,038 100%
- ----------
(1) Unless otherwise indicated the address of each beneficial owner identified
is 420 Lexington Avenue, Suite 408, New York, NY 10170.
(2) Percentage of beneficial ownership of Series A Preferred Stock is
calculated based on the assumption that there were 68,038 shares of Series
A Preferred Stock outstanding on March 15, 2006.
Equity Compensation Plan Information
The following table sets forth certain compensation plan information with
respect to both equity compensation plans approved by security holders and
equity compensation plans not approved by security holders as of December 31,
2005:
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected
Plam Category warrants and rights warrants and rights in column (a))
(a) (b) (c)
Equity compensation plans
approved by security holders (1) 9,399,561 $ 2.00 1,385,398
Equity compensation plans not
approved by security holders 250,000 $ 2.00 --
Total 9,649,561 $ 2.00 1,385,398
63
(1) SIGA Technologies, inc., Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan.
Item 13. 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 has retained to
provide legal services.
Adnan M. Mjalli, a director of SIGA, is also President and Chief Executive
Officer of TransTech Pharma.
Item 14. Principal Accountant Fees and Services
Audit Fees
PricewaterhouseCoopers LLP billed SIGA $182,500 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, 2005, reviews of the interim
financial statements included in SIGA's Forms 10-Q filed during the year ended
December 31, 2005 and consents and reviews of various documents filed with the
SEC during the year ended December 31, 2005.
PricewaterhouseCoopers LLP billed SIGA $213,300 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, 2004, reviews of the interim
financial statements included in SIGA's Forms 10-QSB filed during the year ended
December 31, 2004 and consents and reviews of various documents filed with the
SEC during the year ended December 31, 2004.
Audit Related Fees
There were no Audit Related Fees in 2005 and 2004.
Tax Fees
PricewaterhouseCoopers LLP did not render any professional services for
tax compliance, tax advice or tax planning during either of the fiscal years
ended December 31, 2005 or December 31, 2004.
All Other Fees
PricewaterhouseCoopers LLP did not provide any products or render any
professional services (other than those covered above under "Audit Fees,"
"Audited Related Fees," and "Tax Fees") during either of the fiscal years ended
December 31, 2005 or December 31, 2004.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent registered public accounting
firm. These services may include audit services, audit-related services, tax
services, and other services. SIGA did not make use in fiscal year 2004 of the
rule that waives pre-approval requirements for non-audit services in certain
cases if the fees for these services constitute less than 5% of the total fees
paid to the auditor during the year.
64
PART IV
Item 15. Exhibits
Exhibit
No. Description
2(a) Asset Purchase Agreement, dated as of May 14, 2003, between the
Company 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 the
Company and Plexus Vaccine Inc. (Incorporated by reference to Form
8-K of the Company filed June 9, 2003).
4(f) Registration Rights Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(a) License and Research Support Agreement between the Company and The
Rockefeller University, dated as of January 31, 1996; and Amendment
to License and Research Support Agreement between the Company and
The Rockefeller University, dated as of October 1, 1996(2)
(Incorporated by reference to Form SB-2 Registration Statement of
the Company dated March 10, 1997 (No. 333-23037)).
10(b) Research Agreement between the Company and Emory University, dated
as of January 31, 1996(2) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(c) Research Support Agreement between the Company and Oregon State
University, dated as of January 31, 1996(2) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated
March 10, 1997 (No. 333-23037)). Letter Agreement dated as of March
5, 1999 to continue the Research Support Agreement (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
65
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. Amendment to the Agreement,
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). Amendment to the Agreement, 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). Amendment to the Agreement, dated as
of July 29, 2004 (Incorporated by reference to the Company's
Quarterly Report on Form 10QSB for the quarter ended September 30,
2004).
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
66
(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
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000). Amendment and Waiver
to the Agreement, 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). Amendment to the Agreement, 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). Amendment to Amended and
Restated Agreement, dated as of July 29, 2004 (Incorporated by
reference to the Company's Quarterly Report on Form 10QSB for the
quarter ended September 30, 2004).
10(p) Option Agreement between the Company and Ross Products Division of
Abbott Laboratories, dated February 28, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(q) Agreement between the Company and Oregon State University for the
Company to provide contract research services to the University
dated September 24, 2000 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10(r) License and Research Agreements between the Company and the Regents
of the University of California dated December 6, 2000 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000).
10(s) Amended and Restated 1996 Incentive and Non-Qualified Stock Option
Plan dated August 15, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001), as amended (as set forth in the Form 8-K of the Company
filed May 27, 2005).
10(t) 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(u) Research and License Agreement between the Company and TransTech
Pharma, Inc. dated October 1, 2002 (Filed with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002 initially
filed with the Securities and Exchange Commission on March 31,
2003).
10(v) Retainer Agreement between the Company and Saggi Capital, 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(w) 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(x) Contract between the Company and the Department of the US Army dated
December 12, 2002 (Filed with the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002 initially filed with the
Securities and Exchange Commission on March 31, 2003).
10(y) Contract between the Company and Four Star Group dated February 5,
2003 (Filed with the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002 initially filed with the Securities and
Exchange Commission on March 31, 2003).
10(z) Employment Agreement, dated as of May 23, 2003, between the Company
and Susan K. Burgess, Ph.D. (Incorporated by reference to Form 8-K
of the Company filed June 9, 2003).
67
10(aa) Securities Purchase Agreement, dated as of August 13, 2003, between
the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(bb) Letter Agreement dated October 8, 2003 among the Company, MacAndrews
& Forbes Holdings Inc. and TransTech Pharma, Inc. (Incorporated by
reference to Form 8-K of the Company filed August 18, 2003).
10(cc) Employment Agreement dated as of July 2, 2004, between the Company
and Bernard L. Kasten, M.D. (Incorporated by reference to the
Company's Quarterly Report on Form 10QSB for the quarter ended June
30, 2004).
10(dd) Non-Employee Director Compensation Summary Sheet (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005).
10(ee) Director Compensation Program, effective April 21, 2005 (as set
forth in the Form 8-K of the Company filed April 26, 2005).
10(ff) Service Agreement, dated as of April 27, 2005, between the Company
and TransTech Pharma, Inc. (Incorporated by reference to Form 8-K of
the Company filed May 3, 2005).
10(gg) Master Security Agreement, dated as of April 29, 2005, between
General Electric Capital Corporation and the Company (Incorporated
by reference to Form 8-K of the Company filed May 3, 2005).
10(hh) Letter Agreement, dated as of August 5, 2005, between the Company
and John Odden (Incorporated by reference to Form 8-K of the Company
filed August 11, 2005).
10(ii) Agreement, dated as of September 14, 2005, between Saint Louis
University and the Company (Incorporated by reference to Form 8-K of
the Company filed September 20, 2005).
10(jj) Agreement, dated as of September 22, 2005, between the United States
Army Medical Research and Material Command and the Company
(Incorporated by reference to Form 8-K of the Company filed
September 27, 2005).
10(kk) Securities Purchase Agreement, dated as of November 2, 2005, between
Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master
Trust, Smithfield Fiduciary LLC and the Company (Incorporated by
reference to Form 8-K of the Company filed November 4, 2005).
10(ll) Exclusive Finder's Agreement, dated as of November 1, 2005, between
the Shemano Group, Inc. and the Company (Incorporated by reference
to Form 8-K of the Company filed November 4, 2005).
10(mm) Letter Agreement, dated as of February 1, 2006, between the Company
and Thomas N. Konatich (Incorporated by reference to Form 8-K of the
Company filed February 7, 2006).
14 The Company's Code of Ethics and Business Conduct (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2003).
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer.
31.2 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Executive Officer.
68
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
Financial Officer.
- ----------
(1) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(2) Confidential information is omitted and identified by an * and filed
separately with the SEC with a request for Confidential Treatment.
69
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 28 2006 By: /s/ Bernard L. Kasten, M.D.
---------------------------
Bernard L. Kasten, M.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title of Capacities Date
/s/ Bernard L. Kasten, M.D.
- ---------------------------------
Bernard L. Kasten, M.D. Chief Executive Officer March 28, 2006
/s/ Thomas N. Konatich
- ---------------------------------
Thomas N. Konatich Chief Financial Officer March 28, 2006
/s/ Donald G. Drapkin
- ---------------------------------
Donald G. Drapkin Chairman of the Board March 28, 2006
/s/ James J. Antal
- ---------------------------------
James J. Antal Director March 27, 2006
/s/ Thomas E. Constance
- ---------------------------------
Thomas E. Constance Director March 27, 2006
/s/ Adnan M. Mjalli, Ph.D.
- ---------------------------------
Adnan M. Mjalli, Ph.D. Director March 27, 2006
/s/ Mehmet C. Oz, M.D.
- ---------------------------------
Mehmet C. Oz, M.D. Director March 28, 2006
/s/ Eric A. Rose, M.D
- ---------------------------------
Eric A. Rose, M.D. Director March 27, 2006
/s/ Paul G. Savas
- ---------------------------------
Paul G. Savas Director March 27, 2006
/S/ Judy S. Slotkin
- ---------------------------------
Judy S. Slotkin Director March 27, 2006
/s/ Michael Weiner, M.D.
- ---------------------------------
Michael Weiner, M.D. Director March 27, 2006
70
This Page Intentionally left Blank
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-3 (Nos. 333-129756, 333-36682, 333-43750, 333-64414,
333-72553, 333-74390, 333-103231, 333-120742 and 333-112356) and Forms S-8 (Nos.
333-35992, 333-56216 and 333-112935) of SIGA Technologies, Inc. of our report
dated March 28, 2006 relating to the financial statements, which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 28, 2006
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bernard L. Kasten, M.D., certify that:
1. I have reviewed this annual report on Form 10-K of SIGA
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(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. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of 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 28, 2006 By: /s/ Bernard L. Kasten, M.D.
------------------------------
Bernard L. Kasten, M.D.
Chief Executive Officer
EXHIBIT 31.2
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-K of SIGA
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(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. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of 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 28, 2006 By: /s/ Thomas N. Konatich
----------------------
Thomas N. Konatich
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SIGA Technologies, Inc. (the "Company")
on Form 10-K for the year ending December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Bernard L. Kasten,
M.D., Chief Executive 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,
to the best of my knowledge:
(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.
March 28, 2006
/S/ Bernard L. Kasten, M.D.
------------------------------
Bernard L. Kasten, M.D.
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SIGA Technologies, Inc. (the "Company")
on Form 10-K for the year ending December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas N.
Konatich., Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(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.
March 28, 2006
/S/ Thomas N. Konatich
--------------------------
Thomas N. Konatich
Chief Financial Officer