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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File No. 0-23047
June 30, 2003
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 601
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
common stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
As of August 13, 2003 the registrant had outstanding 17,149,682 shares of common
stock.
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Part I
Financial Information
Item 1. Financial Statements
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET - UNAUDITED
June 30, December 31,
2003 2002
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ASSETS
Current Assets
Cash and cash equivalents ................................................... $ 1,495,099 $ 2,069,004
Accounts receivable ......................................................... 94,747 60,151
Prepaid expenses ............................................................ 75,352 104,227
------------ ------------
Total current assets ....................................................... 1,665,198 2,233,382
Equipment, net .............................................................. 465,462 432,442
Goodwill .................................................................... 933,334 --
Intangible assets, net ...................................................... 3,572,204 --
Other assets ................................................................ 169,584 164,168
------------ ------------
Total assets ............................................................... $ 6,805,782 $ 2,829,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................................ $ 546,212 $ 461,146
Accrued expenses and other .................................................. 371,042 184,554
Capital lease obligations ................................................... -- 11,206
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Total liabilities .......................................................... 917,254 656,906
Commitments and contingencies
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, 78,282 and 410,760 issued and outstanding at June 30, 2003
and December 31, 2002, respectively) ........................................ 72,666 443,674
Common stock ($.0001 par value, 50,000,000 shares authorized,
16,455,238 and 12,902,053 issued and outstanding at June 30, 2003
and December 31, 2002, respectively) ...................................... 1,646 1,293
Additional paid-in capital .................................................. 37,438,365 32,051,461
Stock subscriptions outstanding ............................................. -- (791,940)
Accumulated deficit ......................................................... (31,624,149) (29,531,402)
------------ ------------
Total stockholders' equity ................................................. 5,888,528 2,173,086
------------ ------------
Total liabilities and stockholders' equity ................................. $ 6,805,782 $ 2,829,992
============ ============
The accompanying notes are an integral part of these financial statements.
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues
Research and development contracts .................. $ 243,530 $ 139,319 $ 448,674 $ 139,319
------------ ------------ ------------ ------------
Operating expenses
General and administrative .......................... 748,476 668,162 1,308,784 1,008,760
Research and development ............................ 642,744 413,630 1,120,243 770,603
Patent preparation fees ............................. 66,174 18,169 122,106 45,414
------------ ------------ ------------ ------------
Total operating expenses .......................... 1,457,394 1,099,961 2,551,133 1,824,777
------------ ------------ ------------ ------------
Operating loss .................................... (1,213,864) (960,642) (2,102,459) (1,685,458)
Interest income, net ..................................... 3,355 9,255 9,712 21,775
------------ ------------ ------------ ------------
Net loss .......................................... $ (1,210,509) $ (951,387) $ (2,092,747) $ (1,663,683)
============ ============ ============ ============
Weighted average shares outstanding: basic and diluted ... 14,201,723 10,140,053 13,725,091 10,083,998
============ ============ ============ ============
Net loss per share: basic and diluted .................... $ (0.09) $ (0.09) $ (0.15) $ (0.16)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Six months ended
June 30,
2003 2002
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Cash flows from operating activities:
Net loss $ (2,092,747) $ (1,663,683)
Adjustments to reconcile net loss to net
cash used in operating activities:
Bad debt expense 14,000 --
Depreciation 172,900 156,446
Amortization of intangible assets 66,796 --
Stock, options & warrant compensation 1,375 62,513
Changes in assets and liabilities:
Accounts receivable (48,596) (101,148)
Prepaid expenses 28,875 60,874
Other assets (5,416) 16,852
Accounts payable and accrued expenses (663,617) 298,008
------------ ------------
Net cash used in operating activities (2,526,430) (1,170,138)
------------ ------------
Cash flows from investing activities:
Capital expenditures (178,209) (34,857)
------------ ------------
Net cash flow used in investing activities (178,209) (34,857)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,350,000 --
Receipts of stock subscriptions outstanding 791,940 --
Proceeds from exercise of options -- 562
Principal payments on capital lease obligations (11,206) (99,539)
------------ ------------
Net cash provided from (used in) financing activities 2,130,734 (98,977)
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Net decrease in cash and cash equivalents (573,905) (1,303,972)
Cash and cash equivalents at beginning of period 2,069,004 3,148,160
------------ ------------
Cash and cash equivalents at end of period $ 1,495,099 $ 1,844,188
============ ============
Supplemental information of business acquired
Fair value of assets acquired:
Equipment $ 27,711
Intangible assets 3,639,000
Goodwill 933,334
Less, liabilities assumed and non-cash consideration:
Current liabilities (529,142)
Stock issued (3,409,000)
Stock options and warrants issued (255,873)
Accrued acquisition costs (406,030)
Non cash supplemental information:
Conversion of preferred stock to common stock $ 371,008
The accompanying notes are an integral part of these financial statements.
Notes to the June 30, 2003 Financial Statements
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1. Basis of Presentation
The financial statements of SIGA Technologies, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on forms 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 2002, included in the 2002 Form 10-KSB.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting of normal adjustments, necessary for the
fair presentation of the balance sheet and results of operations for the interim
periods. The results of operations for the three and six months ended June 30,
2003 are not necessarily indicative of the results of operations to be expected
for the full year ending December 31, 2003.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Management believes that current
resources will be sufficient to support its planned operations into the first
quarter 2004. The Company does not have commercial biomedical products, and does
not expect to have such for several years, if at all. In addition, the Company
acquired Plexus Vaccine Inc. ("Plexus") in May 2003, which will require
additional cash flows to integrate the combined companies. The Company believes
that it will need additional funds to complete the development of its biomedical
products. These circumstances raise substantial doubt about the Company's
ability to continue as a going concern beyond March 31, 2004. Management's plans
with regard to these matters include continued development of its products as
well as seeking additional research support funds and financial arrangements.
Although management continues to pursue these plans, there is no assurance that
the Company will be successful in obtaining sufficient financing on terms
acceptable to the Company. In the event that the Company is unable to raise
additional funds, planned operations will need to be scaled back or
discontinued. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
2. Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements as amended by SAB 101A and
101B ("SAB 101"). SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. Under the provisions
of SAB 101 the Company recognizes revenue from government research grants,
contract research and development and progress payments as services are
performed, provided a contractual arrangement exists, the contract price is
fixed or determinable, and the collection of the resulting receivable is
probable. Milestones, which generally are related to substantial scientific or
technical achievement, are recognized in revenue when the milestone is
accomplished.
Business Combinations, Goodwill and Intangible Assets
The Company accounts for business combinations in accordance with the provisions
of Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141"). SFAS 141 requires business combinations completed after June 30,
2001 to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets required to be recognized and
reported separately from goodwill.
The Company accounts for goodwill in accordance with the provisions of Statement
of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). Goodwill is not subject to amortization and is tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset may be impaired. The impairment test consists of a
comparison of the fair value of goodwill with its carrying amount. If the
carrying amount of goodwill exceeds its fair value, an impairment loss shall be
recognized in an amount equal to that excess. After an impairment loss is
recognized, the adjusted carrying amount of goodwill is its new accounting
basis. The annual impairment testing required under SFAS 142 requires management
to make assumptions and judgments regarding the estimated fair value of the
Company's goodwill. Such assumptions include the present value discount factor
used to determine the fair value of a reporting unit, which is ultimately used
to identify potential goodwill impairment. Such estimated fair values might
produce significantly different results if other reasonable assumptions and
estimates were to be used.
The Company accounts for long-lived assets such as non-compete agreements and
research contracts in accordance with the provisions of Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The Company
compares the carrying amount of the asset to the estimated undiscounted future
cash flows expected to result from the use of the asset. If the carrying amount
of the asset exceeds estimated expected undiscounted future cash flows, the
Company records an impairment charge for the difference between the carrying
amount of the asset and its fair value. Changes in events or circumstances
impacting long-lived assets include, but are not limited to, cancellations or
terminations of research contracts or pending government research grants.
Income taxes
Income taxes are accounted for under the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or all
of the deferred tax asset will not be realized.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). As provided for by SFAS
123, the Company has elected to continue to account for its stock-based
compensation programs according to the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. The Company has adopted the
disclosure provisions required by SFAS 123, as amended by SFAS 148, "Accounting
for Stock-Based Compensation - Transaction and Disclosure, an amendment to FASB
Statement No. 123."
Had compensation cost for stock options granted been determined based upon the
fair value at the grant date for awards, consistent with the methodology
prescribed under SFAS 123, the Company's net loss and net loss per share would
have been as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Net loss, as reported ($1,210,509) ($ 951,387) ($2,092,747) ($1,663,683)
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Add: Stock-based employee compensation
expense recorded under APB No. 25 -- $ 12,311 -- $ 24,622
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards (480,259) (38,471) (503,004) (76,942)
----------- ----------- ----------- -----------
Pro forma net loss ($1,690,768) ($ 977,547) ($2,595,751) ($1,716,003)
=========== =========== =========== ===========
Net loss per share:
Basic and diluted -as reported $ (0.09) $ (0.09) $ (0.15) $ (0.16)
=========== =========== =========== ===========
Basic and diluted -pro forma $ (0.12) $ (0.10) $ (0.19) $ (0.17)
=========== =========== =========== ===========
The fair value of the options granted to employees during 2003 and 2002 ranged
from $0.42 to $2.08 on the date of the respective grant using the Black-Scholes
option-pricing model. The following weighted average assumptions were used for
2003 and 2002: no dividend yield, expected volatility of 100%, risk free
interest rates of 2.42%-4.50% and an expected term of 3 to 5 years.
3. Business Acquisition
On May 23, 2003, the Company acquired substantially all of the assets of Plexus
and assumed certain liabilities in exchange for 1,950,000 shares of the
Company's common stock and 190,950 of the Company's options and warrants at an
exercise price of $1.62 per share. Plexus is a structure-based rational vaccine
design and development company directed toward the convergence of structural
biology, pharmacogenomics and molecular immunology. Plexus is employing its
technologies to formulate and test a vaccine candidate for severe acute
respiratory syndrome, or "SARS". The Company believes that the premium paid
broadens the Company's capabilities in biological warfare defense research.
Combined, the Company has potential for significant discoveries of vaccines and
pharmaceutical agents to fight emerging pathogens. The results of operations of
Plexus from May 23, 2003 through June 30, 2003 have been included in the
statement of operations of the combined entity.
In determining the non-cash purchase price of Plexus, the equity consideration
has been calculated based on Emerging Issues Task Force ("EITF") 99-12,
"Accounting for Formula Arrangements under EITF 95-19". For this calculation,
the Company used the average market price for a few days before and after May
14, 2003. Based on EITF 99-12, the value of the common stock issued was
approximately $3,409,000. The value attributed to the options and warrants
exchanged was approximately $255,873. In addition, loans made to Plexus,
payments made on behalf Plexus prior to the asset purchase agreement and costs
incurred for the transaction amounted to $406,030. The preliminary valuation of
the intangible assets is detailed below.
The allocation of the total purchase price of $4,070,903 is as follows:
Useful life Fair Value
Purchase Price $ 4,070,903
Add:
Equipment, net 3 - 7 years (27,711)
Liabilities assumed N/A 529,142
-----------
Total Intangible Value $ 4,572,334
Less:
Acquired technology 10 years $ 2,191,000
Contracts and grants 3 1/2 years 741,000
Covenant not to compete 3 1/2 years 707,000
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Goodwill Indefinite 933,334
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Selected Unaudited Pro Forma Financial Information
The Company has prepared a condensed pro forma statement of operations in
accordance with SFAS 141, for the three and six month periods ended June 30,
2003 and 2002 as if Plexus were part of the Company as of January 1, 2003 and
2002, respectively.
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 273,212 $ 167,828 $ 543,456 $ 171,819
Net loss $ (1,702,421) $ (1,548,364) $ (4,400,995) $ (2,740,694)
Net loss per common share - basic and diluted $ (0.11) $ (0.13) $ (0.29) $ (0.25)
============ ============ ============ ============
Weighted average number of common shares outstanding 15,337,437 12,046,696 15,265,698 11,037,569
============ ============ ============ ============
4. Private Placement Offering
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 625,000 warrants to purchase shares of the Company's common
stock to placement agents. Each of the warrants are exercisable at a price of
$2.00 per share and have a term of five years.
5. Conversion of Preferred Shares and Earnings Per Share
During the first six months ended June 30, 2003, certain preferred shareholders
converted 353,185 Series A convertible preferred stock into 353,185 shares of
common stock.
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 available to common stock 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. Due to the Company's net loss for the
three-month and six-month periods ended June 30, 2003 and 2002, all outstanding
stock options are considered to be anti-dilutive.
6. Subsequent Events
In August 2003, the Company received $1.0 million from an investor in exchange
for 694,444 shares of the Company's common stock at a price of $1.44 per share
and warrants to purchase an additional 347,222 shares of the Company's common
stock at an exercise price of $2.00 per share. In addition, the investor was
granted an option, exercisable through October 13, 2003, to invest up to an
additional $9.0 million in the Company on the same terms.
Item 2. 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 Quarterly Report. In addition to historical
information, the following discussion and other parts of this Quarterly Report
contain forward-looking information that involves risks and uncertainties.
Overview
Since our inception in December 1995 we have been principally engaged in
the research and development of novel products for the prevention and treatment
of serious infectious diseases, including products for use in the defense
against biological warfare agents such as smallpox. The effort to develop a drug
for smallpox is being aided by a $1.6 million contract with the U.S. Army which
was entered into in December 2002.
We are developing technology for the mucosal delivery of our vaccines to
activate the immune system at the mucus lined surfaces of the body, the mouth,
the nose, the lungs and the gastrointestinal and urogenital tracts, the sites of
entry for most infectious agents. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance, and they are designed to block
the ability of infectious agents to attach to human tissue, the first step in
the infection process. In May 2003, we signed a Definitive Asset Purchase
Agreement to acquire substantially all the assets of Plexus Vaccine, Inc.
("Plexus"). Plexus is a bioinformatics company that develops vaccines using its
proprietary technology. The acquisition will expand our capabilities in
biological warfare defense research and allow for the development of vaccines
for smallpox, anthrax, plague, botulism and other biological pathogens. The
acquisition will also facilitate development of vaccines for traditional human
health targets such as tuberculosis and HCV. This transaction will have an
impact on our cash flows based on our ability to integrate the combined
companies.
In June 2003 we received net proceeds of $1,350,000 from the completion of
a private placement of 1,250,000 shares of our common stock. In connection with
the shares issued, we issued 625,000 warrants to the investors to purchase
common stock at an initial exercise price of $2.00 per share.
In August 2003 we entered into an agreement with a private investor
whereby the investor or its permitted assignees would have the option to invest
up to $10.0 million in our company. Net proceeds of $1,000,000 were received in
August 2003 in exchange for 694,444 shares of our common stock at a price of
$1.44 per share and warrants to purchase 347,222 shares of common stock. The
warrants have an initial exercise price of $2.00 per share and have a term of
seven years. The investor or its permitted assignees have an option, exercisable
through October 13, 2003, to invest up to an additional $9,000,000 in SIGA on
the same terms.
We do not have commercial biomedical products, and we do not expect to
have such products for several years, if at all. We believe that we will need
additional funds to complete the development of our biomedical products. Our
plans with regard to these matters include continued development of our products
as well as seeking additional research support funds and financial arrangements.
Although we continue to pursue these plans, there is no assurance that we will
be successful in obtaining sufficient financing on terms acceptable to us. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management believes it has sufficient funds to
support operations into the first quarter of 2004.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon and and our bioinformatics activities are carried out at our
offices in San Diego, California. We continue to seek to fund a major portion of
our ongoing vaccine and antibiotic programs through a combination of government
grants and strategic alliances. While we have had success in obtaining strategic
alliances and grants, no assurance can be given that we will continue to be
successful in obtaining funds from these sources. Until additional relationships
are established, we expect to continue to incur significant research and
development costs and costs associated with the manufacturing of product for use
in clinical trials and pre-clinical testing. It is expected that general and
administrative costs, including patent and regulatory costs, necessary to
support clinical trials and research and development will continue to be
significant in the future.
To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.
Significant Accounting Policies
Financial Reporting Release No. 60, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of the Notes to the Financial Statements includes a
summary of the significant accounting policies and methods used in the
preparation of our Financial Statements. The following is a brief discussion of
the more significant accounting policies and methods used by us. In addition,
Financial Reporting Release No. 61 was recently released by the SEC to require
all companies to include a discussion to address, among other things, liquidity,
off-balance sheet arrangements, contractual obligations and commercial
commitments.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SAB
101A and 101B ("SAB 101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. Under the provisions
of SAB 101 the Company recognizes revenue from government research grants,
contract research and development and progress payments as services are
performed, provided a contractual arrangement exists, the contract price is
fixed or determinable, and the collection of the resulting receivable is
probable. Milestones, which generally are related to substantial scientific or
technical achievement, are recognized in revenue when the milestone is
accomplished.
Income taxes
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recorded for temporary differences
between financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or all
of the deferred tax asset will not be realized.
Valuation of Investments
We periodically review the carrying value of our investments for continued
appropriateness. This review is based upon our projections of anticipated future
cash flows. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations.
Business Combinations, Goodwill and Intangible Assets
We account for business combinations in accordance with the provisions of
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141"). SFAS 141 requires business combinations completed after June 30,
2001 to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets required to be recognized and
reported separately from goodwill.
We account for goodwill in accordance with the provisions of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). Goodwill is not subject to amortization and is tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset may be impaired. The impairment test consists of a
comparison of the fair value of goodwill with its carrying amount. If the
carrying amount of goodwill exceeds its fair value, an impairment loss shall be
recognized in an amount equal to that excess. After an impairment loss is
recognized, the adjusted carrying amount of goodwill is its new accounting
basis. The annual impairment testing required under SFAS 142 requires management
to make assumptions and judgments regarding the estimated fair value of the
Company's goodwill. Such assumptions include the present value discount factor
used to determine the fair value of a reporting unit, which is ultimately used
to identify potential goodwill impairment. Such estimated fair values might
produce significantly different results if other reasonable assumptions and
estimates were to be used.
We account for long-lived assets such as non-compete agreements and
research contracts in accordance with the provisions of Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The Company
compares the carrying amount of the asset to the estimated undiscounted future
cash flows expected to result from the use of the asset. If the carrying amount
of the asset exceeds estimated expected undiscounted future cash flows, the
Company records an impairment charge for the difference between the carrying
amount of the asset to its fair value. Changes in events or circumstances to
long-lived assets include cancellations or terminations of research contracts or
pending government research grants.
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
Contractual obligations and commercial commitments
The Company leases certain facilities and office space under operating
leases. Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year are as follows:
Year ended December 31,
2003 $ 91,765
2004 193,237
2005 86,398
2006 87,737
2007 94,921
Thereafter 19,416
---------
Total $ 573,474
=========
Results of Operations
Three Months ended June 30, 2003 and June 30, 2002.
Revenues from grants and research and development contracts were $243,530
for the three months ended June 30, 2003 compared to $139,319 for the three
months ended June 30, 2002. The approximate 75% increase is primarily the result
of $84,510 of revenue received from work performed under a contract with the
U.S. Army to develop a drug for smallpox. The four year contract for $1.6
million began in January 2003. In the current year period we also received
$158,840 under a grant from a Small Business Innovation Research (SBIR) grant
from the National Institutes of Health (NIH) compared to $64,319 from the same
grant for the three months ended June 30, 2002. In the three months ended June
30, 2002 we recognized revenue of $75,000 from Oregon State University for work
performed for them; no related revenue was recognized in the current year
period.
General and administrative expenses for the three months ended June 30,
2003 were $748,476, an increase of approximately 12% from an expense of $668,162
for the three months ended June 30, 2002. Consulting expenses for investor
relations and marketing increased approximately $170,000 for the three months
ended June 30, 2003 from the minimal level incurred in the prior year period.
The increase was due to an increased effort to market our programs to agencies
of the government as well as professional fees related to various regulatory
filings. Payroll expenses increased approximately 22% from $73,559 for the three
months ended June 30, 2002 to $90,061 for the three months ended June 30, 2003
as a result of the addition of former Plexus employees to the payroll. These
increases were partially offset by a reduction in legal and accounting costs
from $455,419 in the prior year quarter to $352,022 for the current year
quarter, an approximate 23% decrease, as a result of the prior year quarter
having significant legal and accounting costs related to a failed acquisition.
Research and development expenses increased approximately 55% to $642,744
for the three months ended June 30, 2003 from $413,630 for the same period in
2002. The increase was primarily the result of the Plexus transaction. Payroll
increased approximately 92% to $331,315 for the three months ended June 30, 2003
from $172,301 for the prior year period. The increase was the result of adding
former Plexus employees as well as increased staffing to service the SBIR grant
and the U.S. Army contract. Lab supply expenses increased by approximately 64%
from $61,168 for the three months ended June 30, 2002 to slightly more than
$100,000 for the three months ended June 30, 2003, as a result of work on the
grant and contract. Travel expenses were approximately $32,000 in the period
ended June 30, 2003 compared to no expense in the prior year. The increase was
the result of travel associated with administering our agreement with TransTech
Pharma, Inc. ("TransTech") and integration costs with the Plexus facility.
All of our product programs are in the early stage of development except
for the strep vaccine which is in Phase I clinical trials. At this stage of
development, we can not make estimates of the potential cost for any program to
be completed or the time it will take to complete the project. For the three
months ended June 30, 2003, approximately 35% of the research and development
effort was for the strep vaccine, and 15% was directed at other vaccine research
programs. Approximately 20% of the anti-infectives research effort was spent on
the DegP antiviral, 20% on the smallpox antiviral and 10% on other
anti-infective programs. These percentages are basically unchanged from the
three months ended June 30, 2002 other than the additional work on vaccines that
are being developed using the assets acquired in the Plexus transaction. As the
acquisition of Plexus occurred late in the current reporting period, spending on
programs relating to the acquired assets was not material. In future reporting
periods, we would expect spending to increase significantly. Additionally, a
number of our research programs are being developed in collaboration with
TransTech under the agreement signed with them in October 2002. Currently we are
working with TransTech on our smallpox and SARS anti-viral products and our DegP
broad spectrum anti-biotic. There is a high risk of non-completion of any
program because of the lead time to program completion and uncertainty of the
costs. Net cash inflows from any products developed from these programs is at
least two to three years away. However, we could receive additional grants,
contracts or technology licenses in the short-term. The potential cash and
timing is not known and we cannot be certain if they will ever occur.
Patent preparation fees for the three months ended June 30, 2003 were
$66,174 compared to $18,169 for the three months ended June 30, 2002. The
approximate 264% increase was the result of additional expenses associated with
patent expenses of Plexus and increased costs related to maintaining patents in
certain foreign countries.
Total operating loss for the three months ended June 30, 2003 was
$1,213,964 an approximate 26% increase from the $960,642 loss incurred for the
three months ended June 30, 2002. The increase in the loss is the result of
higher operating expenses as presented in more detail above, partially offset by
increased revenue.
Interest income, net was $3,355 for the three months ended June 30, 2003
compared to income of $9,255 for the three months ended June 30, 2002. The
approximate 64% decrease was the result of lower cash balances in the current
year period as well as lower interest rates.
Six Months ended June 30, 2003 and June 30, 2002.
Revenues from grants and research and development contracts were $448,674
for the six months ended June 30, 2003 compared to $139,319 for the six months
ended June 30, 2002, an approximate 222% increase. Revenues for the six months
ended June 30, 2003 included revenue of $292,434 under the SBIR grant from the
NIH as well as revenue received for work performed under a contract with the
U.S. Army to develop a drug for smallpox. The four year contract for $1.6
million began in January 2003. For the six months ended June 30, 2002 we had
revenue of $64,319 from the SBIR grant from the NIH and $75,000 from work
performed under a contract with Oregon State University.
General and administrative expenses for the six months ended June 30, 2003
were $1,308,784, an increase of approximately 30% from the prior year period
expense of $1,008,760. Consulting expenses for investor relations and marketing
expenses were $338,391 for the six months ended June 30, 2003 compared to
$70,834 for the six months ended June 30, 2002, an approximate 378% increase.
The increase was due to an increased effort to market our programs to agencies
of the government as well as professional fees related to various regulatory
filings. Payroll expenses increased by approximately $20,000 in the current six
month period compared to the six months ended June 30, 2002 as a result of the
addition of former Plexus employees to the payroll.
Research and development expenses increased approximately 45% to
$1,120,243 for the six months ended June 30, 2003 from $770,603 for the same
period in 2002. Payroll increased from $340,326 for the first six months of 2002
to $579,025 for the six month period of the current year, an increase of
approximately 70%. The increase was the result of adding former Plexus employees
as well as increased staffing to service the SBIR grant and the U.S. Army
contract. Lab supply expenses increased by approximately 86% from $99,564 for
the six months ended June 30, 2002 to $185,151 for the six months ended June 30,
2003, as a result of the increased activity associated with the SBIR grant and
the U.S. Army contract. Travel expenses were $47,563 for the six month period
ended June 30, 2003 compared to no expense in the prior year period. The
increase was the result of travel associated with administering our agreement
with TransTech and integration costs with the Plexus facility.
All of our product programs are in the early stage of development except
for the strep vaccine which is in Phase I clinical trials. At this stage of
development, we can not make estimates of the potential cost for any program to
be completed or the time it will take to complete the project. For the six
months ended June 30, 2003, approximately 35% of the development effort was for
the strep vaccine, and 15% was directed at other vaccine research programs.
Approximately 20% of the research effort was spent on the DegP antiviral, 20% on
the smallpox antiviral and 10% on other anti-infective programs. These
percentages are basically unchanged from the six months ended June 30, 2002
other than the additional work on vaccines that are being developed using the
assets acquired in the Plexus transaction. As the acquisition of Plexus occurred
late in the current reporting period, spending on Plexus's programs was not
material. In future periods, we would expect spending to increase significantly.
Additionally, a number of our research programs are being developed in
collaboration with TransTech under the Agreement signed with them in October
2002. Currently we are working with TransTech on our smallpox and SARS
anti-viral products and our DegP broad spectrum anti-biotic. There is a high
risk of non-completion of any program because of the lead time to program
completion and uncertainty of the costs. Net cash inflows from any products
developed from these programs is at least two to three years away. However, we
could receive additional grants, contracts or technology licenses in the
short-term. The potential cash and timing is not known and we can not be certain
if they will ever occur.
Patent preparation fees for the six months ended June 30, 2003 were
$122,106 compared to $45,414 for the six months ended June 30, 2002. The
approximate 169% increase was the result of additional expenses associated with
patent expenses of Plexus and increased costs related to maintaining patents in
certain foreign countries.
Total operating loss for the six months ended June 30, 2003 was $2,102,459
an approximate 25% increase from the $1,685,458 loss incurred for the six months
ended June 30, 2002. The increase in the loss is the result of higher operating
expenses as presented in more detail above partially offset by increased
revenue.
Interest income, net was $9,712 for the six months ended June 30, 2003
compared to income of $21,775 for the six months ended June 30, 2002. The
approximate 55% decrease was the result of lower cash balances in the current
year period as well as lower interest rates.
Liquidity and Capital Resources
As of June 30, 2003, we had $1,495,099 in cash and cash equivalents.
In January 2003 we received net proceeds of $791,940 from the completion
of a private placement that had begun in December 2002. In total, we sold
1,700,000 shares of common stock in this offering. In December 2002 we received
net proceeds from the offering of $891,000. In connection with the offering we
issued 171,216 warrants to purchase shares of our common stock to consultants.
The warrants are initially exercisable at a price of $1.65 per share and have a
term of five years. The fair value of the warrants on the date of grant was
approximately $188,970.
In May 2003, we acquired substantially all of the assets of Plexus in
exchange for 1,950,000 shares of our common stock and the assumption of certain
liabilities, including promissory notes for loans we previously made to Plexus
for $50,000 and $20,000.
In 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 625,000 warrants to purchase 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 August 2003 we entered into an agreement with a private investor
whereby the investor or its permitted assignees would have the option to invest
up to $10.0 million in our Company. Net proceeds of $1,000,000 were received in
August 2003 in exchange for 694,444 shares of our common stock at a price of
$1.44 per share and warrants to purchase 347,222 shares of common stock. The
warrants have an initial exercise price of $2.00 per share and have a term of
seven years. The investor or its permitted assignees have an option, exercisable
through October 13, 2003, to invest up to an additional $9,000,000 in SIGA on
the same terms.
We anticipate that our current resources will be sufficient to finance our
currently anticipated needs for operating and capital expenditures approximately
into the first quarter of 2004. Capital expenditures for the next six months are
expected to not be material. In addition, we will attempt to generate additional
working capital through a combination of collaborative agreements, strategic
alliances, research grants, equity and debt financing. However, no assurance can
be provided that additional capital will be obtained through these sources or,
if obtained, will be on commercially reasonable terms.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Management believes that current
resources will be sufficient to support its planned operations into the first
quarter 2004. The Company does not have commercial biomedical products, and does
not expect to have such for several years, if at all. In May 2003, we signed a
Definitive Purchase Agreement to acquire substantially all of the assets of
Plexus which will require additional cash flows to integrate the combined
companies. The Company believes that it will need additional funds to complete
the development of its biomedical products. These circumstances raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to these matters include continued development of
its products as well as seeking additional research support funds and financial
arrangements. Although, management continues to pursue these plans, there is no
assurance that the Company will be successful in obtaining sufficient financing
on terms acceptable to the Company. In the event that the Company is unable to
raise additional funds, planned operations will need to be scaled back or
discontinued. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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.
Item 3. Controls and Procedures
The Company maintains a system of controls and procedures designed to
provide reasonable assurance as to the reliability of the financial statements
and other disclosures included in this report, as well as to safeguard assets
from unauthorized use or disposition. The Company's management, including the
Acting Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of June 30, 2003, pursuant to Exchange Act Rule 13a-15(e) and
15d-15(e). Based on that evaluation, the Acting Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls, or in
other factors that could significantly affect internal controls, subsequent to
the date the Acting Chief Executive Officer and Chief Financial Officer
completed their evaluation.
Part II
Other information
Item 1. Legal Proceedings - SIGA is not a party, nor is its property the subject
of, any legal proceedings other than routine litigation incidental to its
business.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company filed a Current Report of Form 8-K on May 22, 2003 listing items 5
and 7 and a Current Report on Form 8-K on June 9, 2003 listing items 2 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGA Technologies, Inc.
(Registrant)
Date: August 14, 2003 By:/s/Thomas N. Konatich
----------------------
Thomas N. Konatich
Chief Financial Officer
(Principal Accounting Officer and
Financial Officer and Vice
President, Finance)