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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended (Commission File No. 0-23047)
December 31, 2002
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 601 10170
New York, NY (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
common stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on March 20,
2003 as reported on the Nasdaq SmallCap Market was approximately $16,268,778. As
of March 20 , 2002 the registrant had outstanding 13,226,649 shares of common
stock. For the year ended December 31, 2002 SIGA had revenues of $344,450.
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SIGA Technologies, Inc.
Form 10-KSB
Table of Contents
Page No.
PART I
Item 1. Business............................................................1
Item 2. Properties.........................................................14
Item 3. Legal Proceedings..................................................14
Item 4. Submission of Matters to a Vote of Security Holders................14
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters................................................15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................17
Item 7. Financial Statements and Supplementary Data........................32
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................32
PART III
Item 9. Directors and Executive Officers of the Registrant.................33
Item 10. Executive Compensation.............................................34
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders Matters........................37
Item 12. Certain Relationships and Related Transactions.....................39
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K..............40
Item 14. Controls and Procedures............................................45
Item 15. Principal Accountant Fees and Services.............................45
SIGNATURES....................................................................46
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Item 1. Business
Certain statements in this Annual Report on Form 10-KSB, including
certain statements contained in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words or phrases "can be," "expects," "may affect," "may
depend," "believes," "estimate," "project" and similar words and phrases are
intended to identify such forward-looking statements. Such forward-looking
statements are subject to various known and unknown risks and uncertainties and
SIGA cautions you that any forward-looking information provided by or on behalf
of SIGA is not a guarantee of future performance. SIGA's actual results could
differ materially from those anticipated by such forward-looking statements due
to a number of factors, some of which are beyond SIGA's control, including (i)
the volatile and competitive nature of the biotechnology industry, (ii) changes
in domestic and foreign economic and market conditions, and (iii) the effect of
federal, state and foreign regulation on SIGA's businesses. All such
forward-looking statements are current only as of the date on which such
statements were made. SIGA does not undertake any obligation to publicly update
any forward-looking statement to reflect events or circumstances after the date
on which any such statement is made or to reflect the occurrence of
unanticipated events.
SIGA Technologies, Inc. is referred to throughout this report as
"SIGA," "the Company," "we" or "us."
Introduction
SIGA is a development stage biotechnology company incorporated in
Delaware on December 9, 1996. We aim to discover, develop and commercialize
vaccines, antibiotics and novel anti-infectives for serious infectious diseases.
Our lead vaccine candidate is for the prevention of group A streptococcal
pharyngitis or "strep throat." We are developing a technology for the mucosal
delivery of our vaccines which may allow those 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 focus our anti-infectives program on the increasingly
serious problem of drug resistance. These programs are designed to block the
ability of bacteria to attach to human tissue, the first step in the infection
process.
Technology
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from The Rockefeller
University ("Rockefeller"), SIGA is developing certain commensal bacteria
("commensals") as a means to deliver mucosal vaccines. Commensals are harmless
bacteria that naturally inhabit the body's surfaces with different commensals
inhabiting different surfaces, particularly the mucosal surfaces. Our vaccine
candidates use genetically engineered commensals to deliver antigens for a
variety of pathogens to the mucosal immune system. When administered, the
genetically engineered commensals colonize the mucosal surface and replicate. By
activating a local mucosal immune response, our vaccine candidates are designed
to prevent infection and disease at the earliest possible stage. By comparison,
most conventional vaccines are designed to act after infection has already
occurred.
Our commensal vaccine candidates use Gram-positive bacteria.
Rockefeller scientists have identified a protein region that is used by
Gram-positive bacteria to anchor proteins to their surfaces. We are using the
proprietary technology licensed from Rockefeller to combine antigens from a wide
range of infectious organisms, both viral and bacterial, with the surface
protein anchor region of a variety of commensal organisms. By combining a
specific antigen with a specific commensal, vaccines may be tailored to both the
target pathogen and its mucosal point of entry.
To target an immune response to a particular mucosal surface, a
commensal vaccine would employ a commensal organism that naturally inhabits that
surface. For example, vaccines targeting sexually transmitted
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diseases might employ Lactobacillus acidophilus, a commensal colonizing the
female urogenital tract. Vaccines targeting gastrointestinal diseases could
employ Lactobacillus casei, a commensal colonizing the gastrointestinal tract.
We have conducted initial experiments using Streptococcus gordonii ("S.
gordonii"), a commensal that colonizes the oral cavity and which may be used in
vaccines targeting pathogens that enter through the upper respiratory tract,
such as the influenza virus.
By using an antigen unique to a given pathogen, the technology may
potentially be applied to any infectious agent that enters the body through a
mucosal surface. Our founding scientists have expressed and anchored a variety
of viral and bacterial antigens on the outside of S. gordonii, including the M6
protein from group A streptococcus, a group of organisms that causes a range of
diseases, including strep throat, necrotizing fasciitis, impetigo and scarlet
fever. In addition, proteins from other infectious agents, such as HIV and human
papilloma virus have also been expressed using this system. We believe this
technology will enable the expression of most antigens regardless of size or
shape. In animal studies, we have shown that the administration of a genetically
engineered S. gordonii vaccine prototype induces both a local mucosal immune
response and a systemic immune response.
We believe that mucosal vaccines developed using our proprietary
commensal delivery technology could provide a number of advantages, including:
o More complete protection than conventional vaccines: Mucosal
vaccines in general may be more effective than conventional
parenteral vaccines, due to mucosal vaccines' ability to produce
both a systemic and local (mucosal) immune response.
o Safety advantage over other live vectors: A number of bacterial
pathogens have been genetically rendered less infectious, or
attenuated, for use as live vaccine vectors. Commensals, by virtue
of their substantially harmless nature, may offer a safer delivery
vehicle without fear of genetic reversion to the infectious state
inherent in attenuated pathogens.
o Non-injection administration: Oral, nasal, rectal or vaginal
administration of the vaccine eliminates the need for painful
injections with their potential adverse reactions.
o Potential for combined vaccine delivery: The Children's Vaccine
Initiative, a world wide effort to improve vaccination of children
sponsored by the World Health Organization (WHO), has called for the
development of combined vaccines, specifically to reduce the number
of needle sticks per child, by combining several vaccines into one
injection, thereby increasing compliance and decreasing disease. We
believe our commensal delivery technology can be an effective method
of delivery of multi-component vaccines within a single commensal
organism that address multiple diseases or diseases caused by
multiple strains of an infectious agent.
o Eliminating need for refrigeration: One of the problems confronting
the effective delivery of parenteral vaccines is the need for
refrigeration at all stages prior to injection. The stability of the
commensal organisms in a freeze-dried state would, for the most
part, eliminate the need for special climate conditions, a critical
consideration, especially for the delivery of vaccines in developing
countries.
o Low cost production: By using a live bacterial vector, extensive
downstream processing is eliminated, leading to considerable cost
savings in the production of the vaccine. The potential for
eliminating the need for refrigeration would add considerably to
these savings by reducing the costs inherent in refrigeration for
vaccine delivery.
Anti-Infectives Technology: Prevention of Attachment and Infectivity
The bacterial infectious process generally includes three steps:
colonization, invasion and disease. The adherence of bacteria to a host's
surface is crucial to establishing colonization. Bacteria adhere through a
number of mechanisms, but generally by using highly specialized surface
structures which, in turn, bind to specific structures or molecules on the
host's cells or, as discussed below, to inanimate objects residing in the host.
Once adhered,
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many bacteria will invade the host's cells and either establish residence or
continue invasion into deeper tissues. During any of these stages, the invading
bacteria can cause the outward manifestations of disease, in some cases through
the production and release of toxin molecules. The severity of disease, while
dependent on a large combination of factors, is often the result of the ability
of the bacteria to persist in the host. These bacteria accomplish this
persistence by using surface molecules which can alter the host's nonspecific
mechanisms or its highly specific immune responses to clear or destroy the
organisms.
Unlike conventional antibiotics, as discussed above, our
anti-infectives approaches aim to block the ability of pathogenic bacteria to
attach to and colonize human tissue, thereby preventing infection at its
earliest stage. Our scientific strategy is to inhibit the expression of
bacterial surface proteins required for bacterial infectivity. We believe that
this approach has promise in the areas of hospital-acquired drug-resistant
infections and a broad range of other diseases caused by bacteria.
Many special surface proteins used by bacteria to infect the host
are anchored in the bacterial cell wall. Scientists at Rockefeller University
have identified an amino acid sequence and related enzyme, a selective protease,
that are essential for anchoring proteins to the surface of most Gram-positive
bacteria. Published information indicates that this amino acid sequence is
shared by more than 50 different surface proteins found on a variety of
Gram-positive bacteria. This commonality suggests that this protease represents
a promising target for the development of a new class of antibiotic products for
the treatment of a wide range of infectious diseases. Experiments by our
founding scientists have shown that without this sequence, proteins cannot
become anchored to the bacterial surface and thus the bacteria are no longer
capable of attachment, colonization or infection. Such "disarmed" bacteria
should be readily cleared by the body's immune system. Our drug discovery
strategy is to use a combination of structure-based drug design and high
throughput screening procedures to identify compounds that inhibit the protease,
thereby blocking the anchoring process. If successful, this strategy should
provide relief from many Gram-positive bacterial infections, but may prove
particularly important in combating diseases caused by the emerging antibiotic
resistance of the Gram-positive organisms S. aureus, Streptococcus pneumoniae,
and the enterococci.
In contrast to the above program, which focuses on Gram-positive
bacteria, our pilicide program, based upon initial research performed at
Washington University, focuses on a number of new and novel targets all of which
impact on the ability of Gram-negative bacteria to assemble adhesive pili on
their surfaces. Pili are proteins on the surfaces of Gram-negative bacteria --
such as E. coli, salmonella, and shigella -- that are required for the
attachment of the bacteria to human tissue, the first step in the infection
process. This research program is based upon the well-characterized interaction
between a periplasmic protein -- a chaperone -- and the protein subunits
required to form pili. In addition to describing the process by which chaperones
and pili subunits interact, we have developed the assay systems necessary to
screen for potential therapeutic compounds, and have provided an initial basis
for selecting novel antibiotics that work by interfering with the pili adhesion
mechanism.
Surface Protein Expression System ("SPEX")
The ability to overproduce many bacterial and human proteins has
been made possible through the use of recombinant DNA technology. The
introduction of DNA molecules into E. coli has been the method of choice to
express a variety of gene products, because of this bacteria's rapid
reproduction and well-understood genetics. Yet despite the development of many
efficient E. coli-based gene expression systems, the most important concern
continues to be associated with subsequent purification of the product.
Recombinant proteins produced in this manner do not readily cross E. coli's
outer membrane, and as a result, proteins must be purified from the bacterial
cytoplasm or periplasmic space. Purification of proteins from these cellular
compartments can be very difficult. Frequently encountered problems include low
product yields, contamination with potentially toxic cellular material (i.e.,
endotoxin) and the formation of large amounts of partially folded polypeptide
chains in non-active aggregates termed inclusion bodies.
To overcome these problems, we have taken advantage of our knowledge
of Gram-positive bacterial protein expression and anchoring pathways. This
pathway has evolved to handle the transport of surface proteins that vary widely
in size, structure and function. Modifying the approach used to create commensal
mucosal vaccines, we have developed methods which, instead of anchoring the
foreign protein to the surface of the recombinant Gram-positive bacteria, result
in it being secreted into the surrounding medium in a manner which is
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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.
Product Candidates and Market Potential
Mucosal Vaccines
Development of our mucosal vaccine candidates involves: (i)
identifying a suitable immunizing antigen from a pathogen; (ii) selecting a
commensal that naturally colonizes the mucosal point of entry for that pathogen;
and (iii) genetically engineering the commensal to express the antigen on its
surface for subsequent delivery to the target population.
Strep Throat Vaccine Candidate. Until the age of 15, many children
suffer recurrent strep throat infections. Up to three percent of ineffectively
treated strep throat cases progress to rheumatic fever, a debilitating heart
disease, which worsens with each succeeding streptococcal infection. Since the
advent of penicillin therapy, rheumatic fever in the United States has
experienced a dramatic decline. However, in the last decade, rheumatic fever has
experienced a resurgence in the United States. Part of the reason for this is
the latent presence of this organism in children who do not display symptoms of
a sore throat, and, therefore, remain untreated and at risk for development of
rheumatic fever. Based on data from the Centers for Disease Control and
Prevention, there are five to 10 million cases of pharyngitis due to group A
streptococcus in the United States each year. There are over 32 million children
in the principal age group targeted by us for vaccination. Worldwide, it is
estimated that one percent of all school age children in the developing world
have rheumatic heart disease. Additionally, despite the relative ease of
treating strep throat with antibiotics, the specter of antibiotic resistance is
always present. In fact, resistance to erythromycin, the second line antibiotic
in patients allergic to penicillin, has appeared in a number of cases.
We believe that the reason no vaccine for strep throat has been
developed is because of problems associated with identifying an antigen that is
common to the more than 120 different serotypes of group A streptococcus, the
bacterium that causes the disease. We have licensed from Rockefeller a
proprietary antigen which is common to most types of group A streptococcus,
including types that have been associated with rheumatic fever. When this
antigen was orally administered to animals, it was shown to provide protection
against multiple types of group A streptococcal infection. Using this antigen,
we are seeking to develop a mucosal vaccine for strep throat.
Our strep throat vaccine candidate expresses the strep throat
antigen on the surface of the commensal S. gordonii, which lives on the surface
of the teeth and gums. Pre-clinical research in mice and rabbits has established
the ability of this vaccine candidate to colonize and induce both a local and
systemic immune response. We are collaborating with the National Institutes of
Health ("NIH") and the University of Maryland Center for Vaccine Development on
the clinical development of this vaccine candidate. In cooperation with the NIH
we filed an Investigational New Drug Application ("IND") with the United States
Food and Drug Administration (the "FDA") in December 1997. The first stage of
these clinical trials, using the commensal delivery system without the strep
throat antigen, were completed at the University of Maryland in 2000. The study
showed the commensal delivery system to be well-tolerated and that it
spontaneously eradicated or was easily eradicated by conventional antibiotics. A
second clinical trial of the commensal delivery system without the strep throat
antigen was initiated in 2000 at the University of Maryland. The study was
completed in January 2002 and the results corroborated the results of the
earlier study regarding tolerance and spontaneous eradication.
In the U.S. there are about 19 million children aged 2 to 6 years
who could be candidates to receive such a vaccine at the time of its
introduction and then around 4 million babies born each year to be protected.
Assuming a charge of $25 per dose and three doses needed for protection, there
could be a potential market for a strep throat vaccine of $1.4 billion to
immunize the entire U.S. population of 2 to 6 year olds and, thereafter, $300
million per year to maintain immunization in new births.
STD Vaccine Candidates. One of the great challenges in vaccine
research remains the development of effective vaccines to prevent sexually
transmitted diseases ("STDs"). Two principal pathogens that are transmitted
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via this route are chlamydia, the most common bacterial STD, and Neisseria, the
causative agent of gonorrhea. To date, a great deal of effort has been expended,
without appreciable success, to develop effective injectable prophylactic
vaccines versus these pathogens. Given that both of these pathogens enter the
host through the mucosa, we believe that induction of a vigorous mucosal
response to certain bacterial antigens may protect against acquisition of the
initial infection. To test this hypothesis, we have expressed newly discovered
antigens from these pathogens in our proprietary mucosal vaccine delivery
system. These live genetically engineered vaccines will be delivered to animals
and tested for local and systemic immune response induction, and whether these
responses can block subsequent bacterial infections. We have licensed technology
from Oregon State University and Washington University in support of our
chlamydia and Neisseria programs, respectively. In February 2000 we entered into
an option agreement with the Ross Products Division of Abbott Laboratories
("Ross"), which will provide funding for further development of an STD vaccine
product. The research program was completed in late 2001 and a report has been
sent to Ross. Following review of the data, the agreement was extended to allow
for an additional set of experiments to be conducted.
Chlamydia is the leading sexually transmitted disease in the U.S.,
with an estimated 4 million cases occurring annually. Up to $2.4 billion is
spent annually on the treatment of infections from this pathogen, with the
greatest percentage of this cost directed toward the therapy of chlamydial
infection in women. Vaginal infection with C. trachomatis can progress to pelvic
inflammatory disease, resulting in infertility, or may result in ectopic
pregnancies. In addition, new evidence has linked C. trachomatis infection with
an increased incidence of cervical cancer.
The target population for STD vaccines is likely to be 12 - 18 years
of age. There are currently 27.5 million such individuals in the U.S., with
around 4 million entering this age group annually. Once again, assuming $25 per
dose and three doses to complete immunization, there could be a potential market
for a C. trachomatis vaccine of $2 billion to immunize the entire U.S.
population of 12 to 18 year olds and, thereafter, $300 million per year to
maintain immunization in those entering this age group.
Mucosal Vaccine Delivery System
We are developing our proprietary mucosal vaccine delivery system,
which is a component of our vaccine program, for license to other vaccine
developers. Our commensal vaccine candidates utilize Gram-positive bacteria to
deliver antigens. We are using proprietary technology to anchor antigens from a
wide range of infectious organisms, both viral and bacterial, to the surface
protein anchor region of a variety of commensal organisms. By combining a
specific antigen with a specific commensal, we believe that vaccines can be
tailored to both the target pathogen and its mucosal point of entry.
We have developed several genetic methods for recombining foreign
sequences into the genome of Gram-positive bacteria at a number of non-essential
sites. Various parameters have been tested and optimized to improve the level of
foreign protein expression and its immunogenicity. In pre-clinical studies,
genetically engineered commensals have been implanted into the oral cavities of
several animal species with no observed deleterious effects. The introduced
vaccine strains have taken up residence for prolonged periods of time and induce
both a local mucosal (IgA) as well as a systemic immune response (IgG and
T-cell).
We have completed two early stage clinical evaluations of our
mucosal vaccine delivery system based on the commensal bacterium, S. gordonii.
These clinical studies were designed to test the safety of the formulation, to
monitor the extent and duration of colonization of the nasal and oral cavities
and to determine if the delivery system could be eradicated at the end of the
study with a regimen of conventional antibiotics. A total of 47 volunteers
between the ages of 18 and 40 completed the first study, performed in the United
Kingdom, in which S. gordonii was delivered to the nasal passage and oral
cavity. A total of 60 volunteers completed a second study which was conducted at
the University of Maryland as part of our strep throat vaccine program as
described above. The results of the studies indicated the delivery system was
well-tolerated and that the delivery system spontaneously eradicated or was
easily eradicated by conventional antibiotics. The ongoing clinical studies at
the University of Maryland are also designed to evaluate S. gordonii as a
commensal bacterial delivery system for our vaccine targeting strep throat.
Experiments are currently underway to optimize and test the vaccine formulation
prior to initiating Phase I human trials with the recombinant commensal vector
based vaccine.
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Anti-Infectives
Our anti-infectives program is targeted principally toward
drug-resistant bacteria and hospital-acquired infections. According to estimates
from the Centers for Disease Control, approximately two million
hospital-acquired infections occur each year in the United States.
Our anti-infectives approaches aim to block the ability of bacteria
to attach to and colonize human tissue, thereby blocking infection at the first
stage in the infection process. By comparison, antibiotics available today act
by interfering with either the structure or the metabolism of a bacterial cell,
affecting its ability to survive and to reproduce. No currently available
antibiotics target the attachment of a bacterium to its target tissue. We
believe that, by preventing attachment, the bacteria should be readily cleared
by the body's immune system.
Gram-Positive Antibiotic Technology. Our lead anti-infectives
program is based on a novel target for antibiotic therapy. Our founding
scientists have identified an enzyme, a selective protease, used by most
Gram-positive bacteria to anchor certain proteins to the bacterial cell wall.
These surface proteins are the means by which certain bacteria recognize, adhere
to and colonize specific tissue. Our strategy is to develop protease inhibitors
as novel antibiotics. We believe protease inhibitors will have wide
applicability to Gram-positive bacteria in general, including antibiotic
resistant staphylococcus and a broad range of serious infectious diseases
including meningitis and respiratory tract infections. In 1997, we entered into
a collaborative research and license agreement with Wyeth to identify and
develop protease inhibitors as novel antibiotics. In the first quarter of 2001,
we received a milestone payment from Wyeth for delivery of the first quantities
of protease for screening, and high-throughput screening for protease inhibitors
was initiated. In connection with our effort on this program we have entered
into a license agreement with the University of California at Los Angeles for
certain technology that may be incorporated into our development of products for
Wyeth. High throughput screening of compound libraries has been completed and
lead compounds are currently being evaluated in the laboratory.
Gram-Negative Antibiotic Technology. In 1998 we entered into a set
of technology transfer and related agreements with MedImmune, Inc., Astra AB and
The Washington University, St. Louis ("Washington University"), pursuant to
which we acquired rights to certain Gram-negative antibiotic targets, products,
screens and services developed at Washington University. In February 2000, we
ended our collaborative research and development relationship with Washington
University on this technology. (See "Collaborative Research and Licenses"). We
maintain a non-exclusive license to technology acquired through these related
agreements. We are using this technology in the development of antibiotics
against Gram-negative pathogens. These bacteria use structures called pili to
adhere to target tissue, and we plan to exploit the assembly and export of these
essential infective structures as novel anti-infective targets. We continue to
work on enhancing the intellectual property that we jointly share with
Washington University.
Broad-Spectrum Antibiotic Technology. An initial host response to
pathogen invasion is the release of oxygen radicals, such as superoxide anions
and hydrogen peroxide. The DegP protease is a first-line defense against these
toxic compounds, which are lethal to invading pathogens, and is a demonstrated
virulence factor for several important Gram-negative pathogens: Salmonella
typhimurium, Salmonella typhi, Brucella melitensis and Yersinia enterocolitica.
In all of these pathogens it was demonstrated that organisms lacking a
functional DegP protease were compromised for virulence and showed an increased
sensitivity to oxidative stress. It was also recently demonstrated that in
Pseudomonas aeruginosa conversion to mucoidy, the so-called CF phenotype
involves two DegP homologues.
Our scientists recently demonstrated that the DegP protease is
conserved in most important Gram-positive pathogens, including S. pyogenes, S.
pneumoniae, S. mutans and S. aureus. Moreover, our investigators have shown a
conservation of function of this important protease in Gram-positive pathogens
and believe that DegP represents a true broad-spectrum anti-infective
development target. Our research has uncovered a virulence-associated target of
the DegP protease that will be used to design an assay for high-throughput
screening for the identification of lead inhibitors of this potentially
important anti-infective target.
There are currently more than 100 million prescriptions written for
antibiotics annually in the U.S. and we estimate the worldwide market for
antibiotics to be more than $26 billion. Although our products are too early in
development to make accurate assessments of how well they might compete, if
successfully developed and marketed
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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.
Biological Defense Program. The U.S. government's budget for the
fiscal year beginning October 1, 2002 proposed a $1.5 billion increase in
federal spending on bioterrorism related research and infrastructure which will
bring total spending in this area to more than $1.7 billion. One of the major
concerns is Smallpox -- although declared extinct in 1980 by the World Health
Organization, there is a threat that a rogue nation or a terrorist group may
have an illegal inventory of the virus that causes Smallpox. The only legal
inventories of the virus are held under extremely tight security at the Centers
For Disease Control 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.
We believe that two recent events have made this area a particularly
attractive business opportunity. First, the federal government has committed
approximately $9 billion of new money to support research on biowarfare defense
in the upcoming year. Second, the FDA has amended its regulations, effective
June 30, 2002, so that certain new drug and biological products used to reduce
or prevent the toxicity of chemical, biological, radiological, or nuclear
substances may be approved for use in humans based on evidence of effectiveness
derived only from appropriate animal studies and any additional supporting data.
We believe that this change could make it possible for us to have potential
products in animal models within six months and approved for sale within two
years if the program is successful. Our Chief Scientific Officer, Dennis Hruby
has over 20 years experience working on Smallpox-related research and has been
leading a SIGA/Oregon State University consortium working on an antiviral drug
development project for the past two years.
SIGA Biological Warfare Defense Product Portfolio
Bacterial Commensal Vectors: Our scientists have developed methods
that allow essentially any gene sequence to be expressed in GRAS gram-positive
bacteria, with the foreign protein being displayed on the surface of the live
recombinant organisms. Since these organisms are inexpensive to grow and are
very stable, this technology affords the possibility of rapidly producing live
recombinant vaccines against any variety of biological agent that might be
encountered such as Bacillus anthracis (anthrax) or Smallpox.
Surface Protein Expression (SPEX) System: Our scientists have
harnessed the protein expression pathways of gram-positive bacteria and turned
them into protein productions factories. Using our proprietary SPEX system, we
can produce foreign proteins at high levels in the laboratory for use in subunit
vaccine formulations. Furthermore, we can envision engineering these bacteria to
colonize the mucosal surfaces of soldiers and/or civilians and secrete
anti-toxins that protect against aerosolized botulism toxin.
Antibiotics: To combat the problems associated with emerging
antibiotic resistance, SIGA scientists are developing drugs designed to hit a
new target - the bacterial adhesion organelles. Specifically, by using novel
enzymes required for the transport and/or assembly of the proteins and
structures that bacteria require for adhesion or colonization, we are developing
new classes of broad spectrum antibiotics. This may prove invaluable in
providing prompt treatment to individuals encountering an unknown bacterial
pathogen in the air or food supply.
Anti-Smallpox Drugs: While deliberate introduction of any pathogenic
agent would be devastating, the one that holds, we believe, the greatest
potential for harming the general U.S. population is Smallpox. At present there
is no effective drug with which to treat or prevent Smallpox infections. To
address this serious risk, our scientists have identified two key Smallpox
proteinases and are using their expertise in the design of proteinase inhibitors
to attempt to develop an effective antiviral drug that could treat a Smallpox
infection.
The market potential for our biological warfare defense products has
not been quantified as yet beyond the potential to obtain a share of the
approximately $9 billion the federal government is committing to support
research in the coming year. The government's purchase of approximately $800
million worth of Smallpox vaccines to have an inventory on hand if needed is
evidence of such market potential.
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Veterinary Vaccines
One application of our technology is the development of live
vaccines that are delivered to a specific mucosal niche where they can colonize
and thereby present antigen to the immune system and produce local immunity at
the site where the corresponding pathogen may attempt to enter. Since the
proprietary expression pathway that we use is conserved in essentially all
Gram-positive bacteria, this should allow the same strategy to be employed in
the development of veterinary vaccines. A commensal bacterium can be isolated
from the mucosa of the target species, engineered to express a desired antigen
and then reintroduced to the species in order to produce immunity against
subsequent infection by the corresponding pathogen. Examples of potential
targets for this technology in the area of animal health include prevention of
salmonid aquaculture disease problems or canine papilloma virus infections.
Veterinary Program. We believe our vaccine and anti-infectives
technologies also provide opportunities to develop biopharmaceutical products
for the veterinary health care market. Based on sales of the major companies in
the veterinary market, we estimate the world wide veterinary market to have been
approximately $4 billion in 2001. In the U.S. alone, there are 120 million cats
and dogs, 2 million horses, 100 million cattle, 56 million hogs and 8 million
sheep and goats. We are in discussions with a number of potential strategic
partners to undertake collaborative development agreements in this field. To
date, we have not concluded any agreements with these potential strategic
partners. In April 2002 we executed a proof-of-concept research agreement with
one of the major vaccine providers to test our commensal vector technology. This
project has been completed and the partner company is currently evaluating the
data.
Surface Protein Expression System
Our proprietary SPEX system uses the protein export and anchoring
pathway of Gram-positive bacteria as a means to facilitate the production and
purification of biopharmaceutical proteins. We have developed vectors which
allow foreign genes to be inserted into the chromosome of Gram-positive bacteria
in a manner such that the encoded protein is synthesized, transported to the
cell surface and secreted into the medium. This system has been used to produce
milligram quantities of soluble antigenically authentic protein that can be
easily purified from the culture medium by affinity chromatography. We have
recently used the SPEX system to obtain large quantities of pure M protein
subunit antigen for preclinical studies. We believe this technology can be
extended to a variety of different antigens and enzymes.
We have commenced yield optimization and process validation of this
system. This program is designed to transfer the method from a laboratory scale
environment to a commercial production facility. Our business strategy is to
license this technology on a non-exclusive basis for a broad range of
applications.
Collaborative Research and Licenses
We have entered into the following license agreements and
collaborative research arrangements:
Rockefeller University. In accordance with an exclusive worldwide
license agreement with Rockefeller, we have obtained the right and license to
make, use and sell mucosal vaccines based on gram-positive organisms and
products for the therapy, prevention and diagnosis of diseases caused by
streptococcus, staphylococcus and other organisms. The license covers two issued
U.S. patents and one issued European patent, as well as 11 pending U.S. patent
applications and corresponding foreign patent applications. The issued United
States patents expire in 2005 and 2014, respectively. The agreement generally
requires us to pay royalties on sales of products developed from the licensed
technologies, and fees on revenues from sublicensees, where applicable, and we
are responsible for the costs of filing and prosecuting patent applications. The
agreement also requires us to pay 15% of certain milestone payments we receive
from Wyeth to Rockefeller, if any, under our collaborative and license agreement
with Wyeth. Accordingly, under the agreement, which is our only agreement that
requires us to make milestone payments, we could be required to make milestone
payments to Rockefeller of up to an aggregate amount of approximately $1.1
million. To date, we have not received any milestone payments from Wyeth that
would require us to make a payment to Rockefeller. The primary potential
products from this collaboration are the strep vaccine and the broad spectrum
antibiotic. Under the agreement, we paid the university approximately $850,000
to support research at Rockefeller. The agreement to fund research has ended and
no payments have been made to the university since the year ended December 31,
1999. Under the agreement we are obligated to pay Rockefeller a royalty on net
sales by SIGA at rates between 2.5% and 5% depending on product and amount of
sales. On sales by
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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 current
in all our obligations under the agreement.
Oregon State University. Oregon State University ("OSU") is also a
party to our license agreement with Rockefeller whereby we have obtained the
right and license to make, use and sell products for the therapy, prevention and
diagnosis of diseases caused by streptococcus. Pursuant to a separate research
support agreement with OSU, we provided funding for sponsored research through
December 31, 1999, with exclusive license rights to all inventions and
discoveries resulting from this research. At this time, no additional funding is
contemplated under this agreement, however we retain the exclusive licensing
rights to the inventions and discoveries that may arise from this collaboration.
The term of the agreement is for the duration of the patents licensed. As we do
not currently know when any patents pending or future patents will expire, we
cannot at this time determine the term of this agreement. The agreement can be
terminated earlier if we are in breach of the provisions of the agreement and do
not cure the breach in the allowed cure period. We are current in all our
obligations under the agreement.
During 1999, we acquired an option to enter into a license with OSU
in which we will acquire the rights to certain technology pertaining to the
potential development of a chlamydia vaccine. In February 2000, we exercised our
option and pursuant to an exclusive license agreement dated March 2000, we have
made payments to OSU of approximately $25,000 as part of our obligation under
the option.
In September 2000, we entered into a subcontract with OSU. The
contract is for a project which is targeted towards developing novel antiviral
drugs capable of preventing disease and pathology for Smallpox in the event this
pathogen were to be used as an agent of bioterrorism. The project is being
funded by a grant from the NIH. The basic virology aspects of the project will
be conducted at OSU and the drug development will be performed by us under the
subcontract. The budget for the subcontract work will be negotiated on a year by
year basis with OSU depending on progress of the program and funding available.
In the year ended December 31, 2001 we recognized revenue of $15,000. On October
5, 2001 the agreement was extended through August 31, 2002. For the period ended
December 31, 2002 we recognized $75,000 in revenue. The agreement was extended
again through August 31, 2003. The sub-contract is on a year to year renewal.
Through December 31, 2002 we have received a total of $90,000 under the
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 our obligations under the agreement.
Wyeth. We have entered into a collaborative research and license
agreement with Wyeth in connection with the discovery and development of
anti-infectives for the treatment of gram-positive bacterial infections.
Pursuant to the agreement, Wyeth provided funding for a joint research and
development program, subject to certain milestones, through September 30, 1999
and is responsible for additional milestone payments. In May 2001, we entered
into an amendment to the July 1, 1997 agreement. The amendment extended the term
of the original agreement to September 30, 2001. The extension provided for
Wyeth to continue to pay us at a rate of $450,000 per year through the term of
the amended agreement. During the term of the agreement as amended, we received
$787,500 from Wyeth to support work performed by SIGA under the agreement and
$237,500 for achieving a research milestone. For the year ended December 31,
2001 we recognized revenue of $1,025,000. The agreement to fund additional
research was not extended beyond September 30, 2001.
Wyeth is obligated to make milestone payments to us as any product
developed progresses through the FDA approval process under our agreement with
Wyeth, which is the only agreement pursuant to which we are entitled to receive
milestone payments. For product developed we could receive up to approximately
$13 million in milestone payments for approval of the product in the U.S. and
Japan. We would also receive royalty payments of 2% on the first $300,000 of
cumulative licensed product sales, 4% on annual sales up to $100 million, 6% on
annual sales between $100 million and $250 million and 8% on annual sales above
$250 million. The license will expire on the earlier of 10 years or the last to
expire issued patent. Wyeth has the right to terminate the agreement early, on
ninety days written notice. If terminated early, all rights granted to Wyeth
revert to SIGA except with respect to any
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compound identified by Wyeth as of the date of termination and subject to the
milestone and royalty obligations of the agreement.
National Institutes of Health. We have entered into a clinical
trials agreement with the NIH pursuant to which the NIH, with our cooperation,
will conduct clinical trials of our strep throat vaccine candidate. The
agreement will fund trials through Phase II of the FDA approval process. To
date, two Phase I clinical trials have been conducted for the strep vaccine
delivery system. We are working to optimize and test the vaccine formulation
prior to initiating Phase I clinical trials with the recombinant commensal
vector based vaccine. The agreement may be terminated unilaterally by the
parties upon sixty days prior notice. If terminated we will receive copies of
all data, reports and other information related to the trials and any unused
vaccine.
In May, August and September 2000, we were awarded three Phase I
Small Business Innovation Research ("SBIR") grants from the NIH in the amounts
of $26,000, $96,000 and $125,000 respectively. The grants were for the periods
May 3, 2000 to August 31, 2000, August 1, 2000 to January 31, 2001, and
September 15, 2000 to March 14, 2001 respectively, and supported our antibiotic
and vaccine development programs. In June 2002 we received a Phase II SBIR grant
for approximately $865,000. The grant was for the two year period beginning
June, 1, 2002 and ending May 31, 2004. For the years ending December 31, 2002,
2001 and 2000, we have recognized revenue from grants of $270,000, $64,500 and
$182,643, respectively.
As part of our operational strategy we routinely submit grants to
the NIH. There is no assurance that we will receive additional grants.
Washington University. In February 1998, we entered into a research
collaboration and worldwide license agreement with Washington University
pursuant to which we obtained the right and license to make, use and sell
antibiotic products based on gram-negative technology for all human and
veterinary diagnostic and therapeutic uses. The license covered five pending
United States patent applications and corresponding foreign patent applications.
The agreement generally required us to pay royalties on sales of products
developed from the licensed technologies and fees on revenues from sublicensees,
where applicable, and we were responsible for certain milestone payments and for
the costs of filing and prosecuting patent applications. Pursuant to the
agreement, we agreed to provide funding to Washington University for sponsored
research through February 6, 2001, with exclusive license rights to all
inventions and discoveries resulting from this research. During 1999, a dispute
arose between the parties regarding their respective performance under the
agreement. In February 2000, the parties reached a settlement agreement and
mutual release of their obligations under the research collaboration agreement.
Under the terms of the settlement, we are released from any further payments to
Washington University and have disclaimed any rights to the patents licensed
under the original agreement. As part of the settlement agreement, we entered
into a non-exclusive license to certain patents covered in the original
agreement. SIGA and Washington University will share equally the responsibility
for the administration and the expenses for the prosecution of patent
applications and /or patents in the agreement. The collaboration is for the
gram-negative product opportunity. We will receive licensing revenue from
Washington University that derive from the commercialization of products covered
by patent rights of the agreement. The royalty will be 20% of the first $400,000
received and 10% of the next $1,000,000 received with a total payment of
licensing revenues to us not to exceed $500,000. The term of our agreement with
Washington is for the duration of the patents and a number of pending patents.
As we do not currently know when any patents pending or future patents will
expire, we cannot at this time definitively determine the term of this
agreement. The agreement cannot be terminated unless we fail to pay our share of
the joint patent costs for the technology licensed. We have currently met all
our obligations under this agreement.
Abbott Laboratories. In March 2000, we entered into an agreement
with the Ross Products Division of Abbott Laboratories ("Ross"). The agreement
grants Ross an exclusive option to negotiate an exclusive license to certain
SIGA technology and patents in addition to certain research development
services. In exchange for research services and the option, Ross was obligated
to pay us $120,000 in three installments of $40,000. The first payment of
$40,000 was received in March 2000 and was recognized ratably, over the term of
the arrangement. The remaining installments are contingent upon meeting certain
milestones under the agreement and will be recognized as revenue upon completion
and acceptance of such milestones. The first milestone was met, and we received
an additional payment of $40,000 in the quarter ended September 30, 2000. During
the years ended December 31, 2001 and 2000, we recognized revenue in the amount
of $45,000 and $80,000, respectively. The development agreement was for the
sexually transmitted disease product opportunity. Work under the agreement has
been
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completed and no revenue was recognized in 2002. Ross is currently evaluating
whether it will go forward with a license. If Ross does not exercise the option
to negotiate a license with us, all rights to the technology and possible
products revert to SIGA.
Regents of the University of California. In December 2000, we
entered into an exclusive license agreement and a sponsored research agreement
with the Regents of the University of California ("Regents"). Under the license
agreement we obtained rights for the exclusive commercial development, use and
sale of products related to certain inventions in exchange for a non-refundable
license issuance fee of $15,000 and an annual maintenance fee of $10,000. As of
December 31, 2001 we have made payments of approximately $25,000 under the
license In the event that we sub-license the license, we must pay Regents 15% of
all royalty payments made to SIGA. Under the agreement, we will also pay Regents
15% of all royalties received from Wyeth. The agreement applies to the gram
positive product opportunity and our collaborative agreement with Wyeth. The
term of the agreement is until the expiration of the last-to-expire patent
licensed under this agreement. The agreement may be terminated by Regents if we
default on any of our obligations, the agreement with Wyeth is terminated and a
substitute agreement is not entered into or if we give notice that we do not
intend to make product from the licensed technology. We have currently met all
our obligations under this agreement.
TransTech Pharma, Inc. In October 2002, we entered into a drug
discovery collaboration agreement. Under the agreement, SIGA and TransTech will
collaborate on the discovery, optimization and development of lead compounds to
therapeutic agents. The costs of development will be shared. SIGA and TransTech
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 2002 from this collaboration.
Intellectual Property and Proprietary Rights
Protection of our proprietary compounds and technology is essential
to our business. Our policy is to seek, when appropriate, protection for our
lead compounds and certain other proprietary technology by filing patent
applications in the United States and other countries. We have licensed the
rights to seven issued United States patents and two 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
three additional patent applications in the U.S. and three applications in
Europe relating to this technology. We are joint owner with Washington
University of four issued patents in the U.S. and one in Europe. In addition,
there are seven co-owned patent applications in the U.S. and one in Europe.
These patents are for the technology used for the gram-negative product
opportunities. We are also exclusive owner of two U.S. patents and three U.S.
patent applications. Furthermore, there are three U.S. patent applications and
two European applications. These patents relate to our DegP product
opportunities.
-11-
----------------------------------------------------------------------------------------------------------------------------------
Number
Exclusively
Licensed Number
Number Number from Univ. Exclusively Number
Exclusively Co-Exclusively of Licensed Obtained
Licensed Licensed Copenhagen from Number from the Number
from with and Danish Oregon Exclusively Acquisition Owned
Rockefeller Washington Technical State Licensed of Plexus by Patent Expiration
PATENTS Univ. Univ. University University from UCLA Vaccine SIGA Dates
----------------------------------------------------------------------------------------------------------------------------------
U.S. 9 6 -- -- -- -- 1 2013,
2014 (5 patents),
2015 (3 patents),
2016 (2 patents),
2017,
2019 (2 patents),
2020 (2 patents)
----------------------------------------------------------------------------------------------------------------------------------
Australia 6 1 -- 1 -- -- -- 2004, 2009, 2013,
2014 (2 patents),
2015, 2016,2019
----------------------------------------------------------------------------------------------------------------------------------
Canada 3 -- -- -- -- -- -- 2004, 2010,2019
----------------------------------------------------------------------------------------------------------------------------------
Germany 1 -- -- -- -- -- -- 2009
----------------------------------------------------------------------------------------------------------------------------------
Hong Kong 1 -- -- -- -- -- -- 2009
----------------------------------------------------------------------------------------------------------------------------------
Hungary 1 -- -- -- -- -- -- 2013
----------------------------------------------------------------------------------------------------------------------------------
Japan 4 -- -- -- -- -- -- 2004 (2 patents),
2010,2012
----------------------------------------------------------------------------------------------------------------------------------
Luxembourg 1 -- -- -- -- -- -- 2009
----------------------------------------------------------------------------------------------------------------------------------
Mexico 1 -- -- -- -- -- -- 2016
----------------------------------------------------------------------------------------------------------------------------------
New Zealand 1 -- -- -- -- -- -- 2016
----------------------------------------------------------------------------------------------------------------------------------
Switzerland 2 -- -- -- -- -- -- 2004,2010
----------------------------------------------------------------------------------------------------------------------------------
APPLICATIONS
----------------------------------------------------------------------------------------------------------------
U.S. applications 2 4 -- 1 2 1 1
----------------------------------------------------------------------------------------------------------------
U.S. provisionals -- -- -- -- -- 2 1
----------------------------------------------------------------------------------------------------------------
Danish provisionals -- -- 4 -- -- -- --
----------------------------------------------------------------------------------------------------------------
PCT -- -- 1 1 -- 1 1
----------------------------------------------------------------------------------------------------------------
Australia -- 1 -- -- -- -- 1
----------------------------------------------------------------------------------------------------------------
China 1 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------
Canada 3 2 -- 1 -- -- 1
----------------------------------------------------------------------------------------------------------------
Europe 2 2 -- 1 -- -- 1
----------------------------------------------------------------------------------------------------------------
Finland 1 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------
Hungary 1 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------
Italy 1 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------
Korea 1 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------
Japan 3 2 -- -- -- -- 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 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.
-12-
In order to test clinically, produce and market products for
diagnostic or therapeutic use, a company must comply with mandatory procedures
and safety standards established by the FDA and comparable agencies in foreign
countries. Before beginning human clinical testing of a potential new drug, a
company must file an IND and receive clearance from the FDA. This application is
a summary of the pre-clinical studies that were conducted to characterize the
drug, including toxicity and safety studies, as well as an in-depth discussion
of the human clinical studies that are being proposed.
The pre-marketing program required for approval by the FDA of a new
drug typically involves a time-consuming and costly three-phase process. In
Phase I, trials are conducted with a small number of patients to determine the
early safety profile, the pattern of drug distribution and metabolism. In Phase
II, trials are conducted with small groups of patients afflicted with a target
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits
a New Drug Application ("NDA") or Product License Application ("PLA") to the FDA
that summarizes the results and observations of the drug during the clinical
testing. Based on its review of the NDA or PLA, the FDA will decide whether to
approve the drug. This review process can be quite lengthy, and approval for the
production and marketing of a new pharmaceutical product can require a number of
years and substantial funding; there can be no assurance that any approvals will
be granted on a timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and its effects. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained. Other countries in which any products
developed by us may be marketed could impose a similar regulatory process.
Commercialization of animal health products can be accomplished more
rapidly than human health products. Unlike the human market, potential vaccine
or therapeutic products can be tested directly on the target animal as soon as
the product leaves the research laboratory. The data collected in these trials
is submitted to the U.S. Department of Agriculture for review and eventual
product approval.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
most of the major pharmaceutical companies, which have financial, technical and
marketing resources significantly greater than ours. Biotechnology and other
pharmaceutical competitors include Cubist Pharmaceuticals, Inc., Corixa
Corporation, Microcide Pharmaceuticals, Inc., ID Vaccines Ltd., Actinova PLC,
and Antex Biologics, Inc. Academic institutions, governmental agencies and other
public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on their
own or through joint venture. There can be no assurance that our competitors
will not succeed in developing products that are more effective or less costly
than any which are being developed by us or which would render our technology
and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 20, 2003 we had 17 full time employees. None of our
employees are covered by a collective bargaining agreement and we consider our
employee relations to be good.
-13-
Availability of Reports and Other Information
Our website is www.sigatechnologies.com. We make available on this
website, free of charge, our annual, quarterly and current reports and other
documents filed by us with the Securities and Exchange Commission as soon as
reasonably practicable after the filing date.
Item 2. Properties
Our headquarters are located in New York City and our research and
development facilities are located in Corvallis, Oregon. In New York, we lease
approximately 1,600 square feet under a lease that expires in November 2007. In
Corvallis, we lease approximately 10,000 square feet under a lease that expires
in December 2004.
Item 3. Legal Proceedings
SIGA is not a party, nor is its property the subject of, any pending
legal proceedings other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on December 10, 2002, our
stockholders re-elected to our board each member of our board of directors and
ratified our selection of independent auditors:
The following nominees were elected to our board of directors upon
the following votes:
Nominee Votes For Votes Against Abstained
------- --------- ------------- ---------
Donald G. Drapkin....... 7,514,929 0 7,890
Gabriel M. Cerrone...... 7,514,929 0 7,890
Thomas E. Constance..... 7,514,929 0 7,890
Mehmet C. Oz............ 7,410,613 0 112,206
Eric A. Rose............ 7,514,929 0 7,890
Michael Weiner.......... 7,410,613 0 112,206
Our stockholders ratified the selection of PricewaterhouseCoopers
LLP as our independent auditors for the fiscal year ending December 31, 2002 by
casting 7,508,629 votes in favor of this proposal, 12,150 votes against the
proposal and 2,040 abstained.
-14-
PART II.
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock has been traded on the Nasdaq SmallCap Market since
September 9, 1997 and trades under the symbol "SIGA." Prior to that time there
was no public market for our common stock. The following table sets forth, for
the periods indicated, the high and low closing sales prices for the common
stock, as reported on the Nasdaq SmallCap Market.
Price Range
2001 High Low
------- -------
First Quarter........................... $4.09 $1.65
Second Quarter.......................... $4.24 $1.75
Third Quarter........................... $4.05 $2.29
Fourth Quarter.......................... $4.00 $2.03
2002 High Low
------- -------
First Quarter........................... $2.85 $2.10
Second Quarter.......................... $2.53 $1.05
Third Quarter........................... $1.39 $0.81
Fourth Quarter.......................... $1.87 $0.71
As of March 20, 2003, the closing bid price of our common stock was
$1.23 per share. There were 96 holders of record as of March 20, 2003. We
believe that the number of beneficial owners of our common stock is
substantially greater than the number of record holders, because a large portion
of common stock is held in broker "street names."
We have paid no dividends on our common stock and we do not expect
to pay cash dividends in the foreseeable future. We are not under any
contractual restriction as to our present or future ability to pay dividends. We
currently intend to retain any future earnings to finance the growth and
development of our business.
Recent Sales of Unregistered Securities
All of the following sales of unregistered securities were made
without registration under the Securities Act in reliance upon the exemption
from registration afforded under Section 4(6) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. Accordingly, the transfer of the
securities are subject to substantial restrictions. Securities were only
purchased by "Accredited Investors" as that term is defined under Rule 501 of
Regulation D. Proceeds from the offerings were used for general working capital
purposes.
In December 2002 and January 2003, we completed a private placement
of 34 units consisting of 1.7 million shares of common stock to a group of
private investors. The gross proceeds from the offering were $1,865,000 with net
proceeds to SIGA of approximately $1,682,000.
In October 2002, we completed a private placement of units
consisting of an aggregate of 1,037,500 shares of common stock and warrants to
purchase 518,750 shares of common stock at an exercise price of $2.25 per share
to a group of private investors. The offering yielded net proceeds of
approximately $935,000.
In October 2001, we raised gross proceeds of $2.55 million in a
private offering of common stock and warrants to purchase our common stock. We
sold 850,000 shares of common stock and 425,000 warrants. These
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warrants are exercisable at $3.60 and have a term of seven years. In connection
with the offering we issued 100,000 warrants to purchase shares of the our
common stock to consultants. The consultants' warrants are exercisable at a
price of $3.60 and have a term of five years. The fair value of the warrants on
the date of grant was approximately $221,300.
In August 2001, we raised gross proceeds of $1,159,500 in a private
offering of 409,636 shares of common stock and 307,226 warrants to purchase
shares of our common stock. The warrants are exercisable at $3.55 per share and
have a term of seven years.
In May 2001, we raised gross proceeds of $850,000 in a private
offering of common stock and warrants to purchase shares of our common stock. We
sold 425,000 shares of common stock and 425,000 warrants. The warrants are
exercisable at $2.94 and have a term of seven years. The investors consisted of
members of the board of directors, existing investors and new investors
representing, at that time, 43.4%, 5.9% and 50.8% of the investors in the
transaction, respectively. We recorded a charge to earnings in the amount of
$103,040 representing the intrinsic value of the restricted stock purchased by
members of the board of directors.
In March 2000, we entered into an agreement to sell 600,000 shares
of our common stock and 450,000 warrants to acquire shares of our common stock
(the "March Financing") for gross proceeds of $3,000,000. Of the warrants
issued, 210,000, 120,000 and 120,000 are exercisable at $5.00, $6.38 and $6.90,
respectively. The warrants have a term of three years and are redeemable at
$0.01 each by SIGA upon meeting certain conditions. Offering expenses of
$117,000 were paid in April 2000. At December 31, 2002, all 450,000 warrants
were outstanding.
In connection with the March Financing, we issued a total of 379,000
warrants to purchase shares of the our common stock to Fahnestock & Co. (the
"Fahnestock Warrants") in consideration for services related to the March
financing. The warrants had an exercise price of $5.00 per share and are
exercisable at any time until March 28, 2005. In November 2000, we entered into
a one year consulting agreement with Fahnestock and Co. under which we will
receive marketing, public relations acquisitions and strategic planning service.
In exchange for such services, we canceled the Fahnestock Warrants and reissued
them to effectuate an amendment to the exercise price to $2.00 per share. In
connection with such amendment, we recorded a charge of approximately $270,000
in the year ended December 31, 2000.
In January 2000 we completed a private placement of 6% convertible
debentures at an aggregate principal amount of $1,500,000 and 1,043,478 warrants
to purchase shares of our common stock with a purchase price of $0.05 per
warrant (the "January Financing"). We received net proceeds of $1,499,674 from
the total $1,552,174 gross proceeds raised. The debentures are convertible into
common stock at $1.4375 per share. Interest at the rate of 6% per annum was
payable on the principal of each convertible debenture in cash or shares of our
common stock, at the our discretion upon conversion or at maturity. The warrants
have a term of five years and are exercisable at $3.4059 per share.
SIGA has the right to require the holder to exercise the January
Financing warrants within five days under the following circumstances: (i) a
registration statement is effective; and (ii) the closing bid price for the
Company's common stock, for each of any 15 consecutive trading days is at least
200% of the exercise price of such warrants. If the holder does not exercise the
warrants after notice is given, the unexercised warrants will expire. The
warrants are exercisable for a period of five years.
In connection with the placement of the debentures and warrants in
January 2000, we recorded debt discount of approximately $1.0 million. Such
amount represents the value of the warrants calculated using the Black-Scholes
valuation model. The discount is amortized over the term of the debentures.
Additionally, during the years ended December 31, 2001 and 2000, we recorded
interest expense of $232,393 and $589,312 respectively, related to the
amortization of such debt discount. In 2001 and 2000, debentures with a
principal amount of $1,375,000 and $108,664, respectively, along with accrued
interest, were converted into 1,011,593 and 108,884 shares of the Company's
preferred and common stock, respectively.
In connection with the January financing, we issued warrants to
purchase a total of 275,000 shares of common stock to the placement agent and
the investors' counsel (or their respective designees). These warrants have
-16-
a term of five years and are exercisable at $1.45 per share. In connection with
the issuance of such warrants, the Company recorded a deferred charge of
$280,653, which was amortized over the term of the debentures.
Holders of the Series A Convertible Preferred Stock are entitled to
(i) cumulative dividends at the annual rate of 6% payable when and if declared
by our board of directors; (ii) in the event of liquidation of SIGA, each holder
is entitled to receive $1.4375 per share (subject to certain adjustment) plus
all accrued but unpaid dividends; (iii) convert each share of Series A to a
number of fully paid and non-assessable shares of common stock as calculated by
dividing $1.4375 by the Series A Conversion Price (shall initially be $1.4375);
and (iv) vote with the holders of other classes of shares on an as converted
basis.
As of December 31, 2001, all of the debentures were converted into
shares of the Company's common stock.
Recent Developments
In December 2002, we entered into a contract with the U.S. Army to
develop a drug to treat Smallpox. The effective date of the contract is January
1, 2003. The contract is for a period of four years for a total of approximately
$1.6 million. Payment over the term of the agreement will be approximately
$400,000 per year.
In February 2003, we entered into a market contract with the Four
Star Group. Four Star will work on our behalf to obtain additional government
contracts and grants. Under the contract, we make certain cash payments for
their services and, if they are successful in obtaining new government funding,
they will receive warrants to purchase shares of our stock. The number of
warrants they can receive will depend on the amount of any contract and grant
funding they obtain. We have the right to cancel the agreement after six months.
In March 2003, we entered into a non-binding letter of intent to
acquire substantially all of the assets of Plexus Vaccines, Inc. ("Plexus"). The
transaction is subject to certain conditions, including, without limitation, the
completion of due diligence and the negotiation and execution of definitive
agreements. As part of the agreement, we have pursuant to a promissory note made
a loan to Plexus in the amount of $50,000. If the transaction is not completed
by November 30, 2003 or if certain other events occur the loan plus accrued
interest is to be repaid to SIGA.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
financial statements and notes to those statements and other financial
information appearing elsewhere in this Annual Report. In addition to historical
information, the following discussion and other parts of this Annual Report
contain forward-looking information that involves risks and uncertainties.
Overview
We are a development stage biotechnology company, whose primary
focus is on biopharmaceutical product development. Since inception in December
1995 our efforts have been principally devoted to research and development,
securing patent protection, obtaining corporate relationships and raising
capital. Since inception through December 31, 2002, we have sustained cumulative
net losses of $29,531,402, including non-cash charges in the amount of
$1,457,458 for the write-off of research and development expenses associated
with the acquisition of certain technology rights acquired from a third party in
exchange for our common stock. In addition, a non-cash charge of $2,996,784 was
incurred for stock option and warrant compensation expense. Our losses have
resulted primarily from expenditures incurred in connection with research and
development, patent preparation and prosecution and general and administrative
expenses. From inception through December 31, 2002, research and development
expenses amounted to $13,775,444, patent preparation and prosecution expenses
totaled $1,459,454, general and administration expenses amounted to $17,221,915.
From inception through December 31, 2002 revenues from research and development
agreements and government grants totaled $3,631,631.
-17-
Since inception, SIGA has had limited resources, has incurred
cumulative net operating losses of $29,531,402 and expects to incur additional
losses to perform further research and development activities. We do not have
commercial biomedical products, and we do not expect to have such 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 through the first quarter of 2004.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
vaccine and antibiotic programs through a combination of government grants and
strategic alliances. While we have had success in obtaining strategic alliances
and grants, no assurance can be given that we will continue to be successful in
obtaining funds from these sources. Until additional relationships are
established, we expect to continue to incur significant research and development
costs and costs associated with the manufacturing of product for use in clinical
trials and pre-clinical testing. It is expected that general and administrative
costs, including patent and regulatory costs, necessary to support clinical
trials and research and development will continue to be significant in the
future.
To date, we have not marketed, or generated revenues from the
commercial sale of any products. Our biopharmaceutical product candidates are
not expected to be commercially available for several years, if at all.
Accordingly, we expect to incur operating losses for the foreseeable future.
There can be no assurance that we will ever achieve profitable operations.
Significant Accounting Policies
Financial Reporting Release No. 60, requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. Note 2 of the Notes to the Financial
Statements include a summary of the significant accounting policies and methods
used in the preparation of our Financial Statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.
In addition, Financial Reporting Release No. 61 was 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 (SAB
101), as amended by SAB 101A and 101B. 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.
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.
Off-Balance Sheet Arrangements
SIGA does not have any significant off-balance sheet arrangements.
-18-
Results of Operations
Twelve Months ended December 31, 2002 and December 31, 2001.
Revenues from grants and research and development contracts were
$344,450 for the twelve months ended December 31, 2002 compared to $1,159,500
for the same period of 2001, an approximate 70% decrease. Revenue for the twelve
months ended December 31, 2001 included recognition of $562,500 from payments
made by Wyeth that had been made to fund research in prior periods and were
recorded as deferred revenue pending signing of a contract extension. In total,
$1,025,000 of revenue recorded for the twelve months ended December 31, 2001 was
received from Wyeth. For the twelve months ended December 31, 2002 revenue was
comprised primarily of approximately $270,000 from a Phase II Small Business
Innovation Research ("SBIR") grant and $75,000 received under a sub-contract
with Oregon State University. In December 2002, we entered into a contract with
the U.S. Army to develop a drug to treat Smallpox. The contract is a four year
agreement for approximately $1.6 million with an average annual payment to us of
approximately $400,000. The contract became effective on January 1, 2003.
General and administrative expenses for the twelve months ended
December 31, 2002 were $1,838,470, a decrease of approximately 28% from an
expense of $2,570,869 for the twelve months ended December 31, 2001. Included in
the expenses for the twelve months ended December 31, 2001 was a non-cash charge
of $612,750 to reflect the granting of options to directors with an exercise
price that was less than the fair market value of our shares at the time of the
grant. Excluding these charges, general and administrative expenses for the
twelve months ended December 31, 2002 were approximately $120,000 less than the
same period of the prior year. Payroll expenses declined by 52.1% as a result of
reduction of executive management staff, professional fees were approximately
31% higher in the twelve months ended December 31, 2002 compared to the same
period of 2001 due to the charges incurred as the result of a potential merger.
Research and development expenses increased approximately 2% to
$1,766,368 for the twelve months ended December 31, 2002 from $1,733,188 for the
same period in 2001. Approximately 35% of expenses were for the Strep vaccine
program for both the twelve months ended December 31 2002 and the twelve months
ended December 31, 2001. For the twelve months ended December 31, 2002 spending
on the development of the smallpox antiviral product accounted for approximately
20% of the research and development expenses compared to 10% for the prior year
period. Research and development expenses for the DegP anti-infective accounted
for 20% of the expenses for both twelve month periods. Spending on other
anti-infective products declined to 10% of research and development expenses for
the twelve months ended December 31, 2002, compared to 20% for the prior year
period. Research on other vaccine products was 15% of spending for both twelve
month periods. We estimate that since our inception, of the total amount of
$13,775,444 spent on research and development, we spent approximately $4.8
million on our Strep vaccine program, approximately $2.1 million on the gram
positive product that is licensed to Wyeth, approximately $1.7 million on the
DegP broad spectrum antibiotic and approximately $1.5 million on the smallpox
antiviral product. In addition, approximately $1.3 million of expense was
incurred in connection with a discontinued project in 2000. The remaining amount
of expenses were spent on a variety of smaller research programs.
The risk of failure to complete any program is high, as each is in
the relatively early stage of development. Products for the biological warfare
defense market, such as the smallpox anti-viral, could be available for sale in
two to three years. We believe the products directed toward this market are on
schedule. We expect the future research and development cost of this program to
increase as the potential products enter animal studies and safety testing.
Funds for future development will be partially paid for by the contract we have
with the U.S. Army, additional government funding and from future financing. If
we are unable to obtain additional federal grants and contracts or funding in
the required amounts, the development timeline for these products would slow or
possibly be suspended. The clinical trials for our Strep vaccine through Phase
II are being funded under an agreement with the NIH. The time to market for this
product should be several years from now because of the nature of the FDA
requirements for approval of a pediatric vaccine. We expect to fund the
development of the Strep vaccine beyond the Phase II clinical trials through a
corporate collaboration or from additional funding from debt or equity
financings. We do not yet have a corporate partner for this product and there is
no assurance that we will ever have one or that we will be able to raise the
funds needed to go forward. If the funding is not available or the clinical
trials are not successful, the program could be delayed or cancelled. We believe
this product program is on schedule. Delay or suspension of any of our programs
could have an adverse impact on our ability to raise funds in the future, enter
into
-19-
collaborations with corporate partners or obtain additional federal funding from
contracts or grants.
Patent preparation expense for the twelve months ended December 31,
2002 were $104,700 compared to $117,264 for the twelve months ended December 31,
2001. The $12,564, or approximately 11%, decrease does not reflect any
significant change in our patent preparation activities.
Total operating loss for the twelve months ended December 31, 2002
was $3,365,088 an approximate 3% increase from the $3,261,821 loss incurred for
the twelve months ended December 31, 2001. The increase in the loss is the
result of lower revenue recognition in the 2002 period, offset by the reduction
in operating expenses.
Net interest income was $34,061 for the twelve months ended December
31, 2002 compared to interest expense of $192,679 for the twelve months ended
WDecember 31, 2001. The improvement is a result of the conversion of the
remainder of the $1,500,000 principle amount of the 6% convertible debenture and
accrued interest during the twelve months ended December 31, 2001.
During the twelve months ended December 31, 2001 the company
recorded a charge of $275,106 for the impairment of an investment associated
with its interest in Open-i Media.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly
statements of operations data, in dollar amounts and as percentages of net
revenue, for the four quarters ended December 31, 2001 and for the four quarters
ended December 31, 2002. This information has been prepared substantially on the
same basis as the audited financial statements appearing elsewhere in this
annual statement, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the unaudited quarterly results of operations data. The quarterly data
should be read with our financial statement and then noted to those statements
appearing elsewhere in the annual statement.
2001
($ in 000's) Q1 Q2 Q3 Q4
------- ------- ------- -------
Revenue ............................ $ 305 $ 683 $ 158 $ 15
G&A .............................. $ 65 $ 635 $ 1,259 $ 611
% of Revenue .................. 21% 93% 797% 4,073%
R&D ................................ $ 431 $ 429 $ 498 $ 376
% of Revenue ..................... 141% 63% 315% 2,507%
Patent Prep. Costs ................. $ 18 $ 63 $ (11) $ 47
% of Revenue ..................... 6% 9% (7)% 313%
Operating Loss ..................... $ 209 $ 445 $ 1,588 $ 1,019
%of Revenue ...................... 69% 65% 1,005% 6,793%
Net Loss ........................... $ 368 $ 520 $ 1,591 $ 1,251
% of Revenue ..................... 121% 76% 1,007% 8,340%
Basic and diluted loss per share ... (0.05) (0.07) (0.19) (0.13)
2002
($ in 000's) Q1 Q2 Q3 Q4
------- ------- ------- -------
Revenue ............................ $ 0 $ 139 $ 90 $ 115
G&A .............................. $ 341 $ 668 $ 273 $ 556
% of Revenue .................. NA 480% 305% 483%
R&D ................................ $ 357 $ 414 $ 424 $ 571
% of Revenue ..................... NA 297% 472% 497%
Patent Prep. Costs ................. $ 27 $ 18 $ 27 $ 33
% of Revenue ..................... NA 13% 30% 29%
Operating Loss ..................... $ 725 $ 961 $ 634 $ 1,045
% of Revenue ..................... NA 689% 704% 909%
Net Loss ........................... $ 712 $ 951 $ 630 $ 1,038
% of Revenue ..................... NA 683% 700% 902%
Basic and diluted loss per share ... (0.07) (0.09) (0.06) (0.10)
-20-
Liquidity and Capital Resources
As of December 31, 2002 we had $2,069,004 in cash and cash
equivalents. In addition, we had stock subscriptions outstanding of $791,940
from a private placement of our common shares that closed in December 2002 and
January 2003.
In March 2002, we signed a non-binding letter of intent to acquire
all of the outstanding shares of Allergy Therapeutics (Holdings) Limited in a
stock for stock transaction. In July 2002, the letter of intent was terminated
due to changes in market conditions. We incurred approximately $600,000 of
expenses in connection with this contemplated transaction. Approximately
$200,000 of these expenses remains unpaid.
In June 2002, we received an SBIR grant from the NIH. The grant is
for approximately $865,000 to support research over a two year period. Of the
total grant, approximately $521,000 has been allotted for work to be performed
in the first twelve months of the grant. During the twelve months ended December
31, 2002, we recorded revenue in the amount of $270,000.
In December 2002, we were awarded an initial U.S. government
contract with the U.S. Army to develop an effective Smallpox antiviral drug. The
total estimated revenue under the contract is $1.6 million for the periods
January 1, 2003 to May 31, 2007.
In October 2002, we entered into a collaborative research agreement
with TransTech Pharma, Inc. for the discovery and treatment of human diseases.
Under the terms of the agreement, Trans Tech and SIGA have agreed to contribute
their respective services and products and share in equal costs of specified
research projects. In consideration of the services performed by Trans Tech and
use of its proprietary technology, we granted an exclusive, fully-paid,
nontransferable, nonsublicenseable, limited license to use existing rights to
patents and technologies. We will share equally in the ownership of compounds
and related intellectual property derived from such research efforts.
In December 2002, we raised gross proceeds of $1.865 million in a
private offering of common stock and warrants to purchase our common stock. We
sold 1,700,000 shares of common stock in this offering. 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. We received net proceeds from the offering
of $891,000 prior to December 31, 2002 and net proceeds of $791,940 after
December 31, 2002.
In October 2002, we raised gross proceeds of $1.04 million in a
private offering of common stock and warrants to purchase our common stock. We
sold 1,037,500 shares of common stock and 518,750 warrants. These warrants are
initially exercisable at $2.25 per share and have a term of five years. We
received net proceeds of approximately $935,000. In connection with the offering
we issued another 103,750 warrants to purchase shares of our common stock to
consultants. The consultants' warrants are initially exercisable at a price of
$1.50 per share and have a term of five years.
In March 2003 we entered into a non-binding letter of intent to
acquire substantially all of the assets of Plexus Vaccines, Inc. ("Plexus"). The
transaction is subject to certain conditions, including, without limitation, the
completion of due diligence and the negotiation and execution of definitive
agreements. As part of the agreement, we have pursuant to a promissory note made
a loan to Plexus in the amount of $50,000. If the transaction is not completed
by November 30, 2003 or if certain other events occur the loan plus accrued
interest is to be repaid to SIGA.
We anticipate that our current resources will be sufficient to
finance our currently anticipated needs for operating and capital expenditures
approximately through the first quarter of 2004. In addition, we will attempt to
generate additional working capital through a combination of collaborative
agreements, strategic alliances, research
-21-
grants, equity and debt financing. However, no assurance can be provided that
additional capital will be obtained through these sources or, if obtained, will
be on commercially reasonable terms.
Our working capital and capital requirements will depend upon
numerous factors, including pharmaceutical research and development programs;
pre-clinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that we devote to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and our ability to establish collaborative arrangements with other
organizations.
SIGA leases certain facilities and office space under operating
leases. Minimum future rental commitments under operating leases having
noncancellable lease terms are $164,115 $173,821 and $66,982 for the years
ending December 31, 2003, 2004 and 2005, respectively. Future minimum leases
payments for equipment under capital leases amount to $11,326 for the year ended
December 31, 2003.
Risk Factors That May Affect Results of Operations and Financial Condition
This report contains forward-looking statements and other
prospective information relating to future events. These forward-looking
statements and other information are subject to risks and uncertainties that
could cause our actual results to differ materially from our historical results
or currently anticipated results including the following:
We have incurred operating losses since our inception and expect to incur net
losses and negative cash flow for the foreseeable future.
We incurred net losses of approximately $3.3 million and
approximately $3.7 million for the years ended December 31, 2002 and 2001,
respectively. As of December 31, 2002 and December 31, 2001, our accumulated
deficit was approximately $29.5 million and approximately $26.2 million,
respectively. We expect to continue to incur significant operating expenditures.
However we do not foresee significant capital expenditures in the near future,
other than as discussed herein. We will need to generate significant revenues to
achieve and maintain profitability.
We cannot guarantee that we will achieve sufficient revenues for
profitability. Even if we do achieve profitability, we cannot guarantee that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenues grow slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, then our business,
results of operations and financial condition will be materially and adversely
affected. Because our strategy includes acquisitions of other businesses,
acquisition expenses and any cash used to make these acquisitions will reduce
our available cash.
Our business will suffer if we are unable to raise additional equity funding.
We continue to be dependent on our ability to raise money in the
equity markets. There is no guarantee that we will continue to be successful in
raising such funds. If we are unable to raise additional equity funds, we may be
forced to discontinue or cease certain operations. We currently have sufficient
operating capital to finance our operations into approximately the first quarter
of 2004. 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;
-22-
o delay or failure in initiating, completing or analyzing pre-clinical or
clinical trials or the unsatisfactory design or results of these trials;
o achievement or rejection of regulatory approvals by our competitors or us;
o announcements of technological innovations or new commercial products by
our competitors or us;
o developments concerning proprietary rights, including patents;
o developments concerning our collaborations;
o regulatory developments in the United States and foreign countries;
o economic or other crises and other external factors;
o period-to-period fluctuations in our revenues and other results of
operations;
o changes in financial estimates by securities analysts; and
o sales of our common stock.
Additionally, because there is not a high volume of trading in our
stock, any information about SIGA in the media may result in significant
volatility in our stock price.
We will not be able to control many of these factors, and we believe
that period-to-period comparisons of our financial results will not necessarily
be indicative of our future performance.
In addition, the stock market in general, and the market for
biotechnology companies in particular, has experienced extreme price and volume
fluctuations that may have been unrelated or disproportionate to the operating
performance of individual companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our operating
performance.
The following table presents the high and low bid range of our stock
for the past eight quarters.
Bid Range
2001 High Low
------- -------
First Quarter.............................. $4.88 $1.62
Second Quarter............................. $4.48 $1.62
Third Quarter.............................. $4.05 $2.24
Fourth Quarter............................. $5.21 $1.91
2002 High Low
------- -------
First Quarter.............................. $2.89 $2.01
Second Quarter............................. $2.63 $0.81
Third Quarter.............................. $1.39 $0.65
Fourth Quarter............................. $2.15 $0.65
We are in various stages of product development and there can be no assurance of
successful commercialization.
In general, our research and development programs are at an early
stage of development. The strep vaccine program is in Phase I clinical trials.
All other programs are in the pre-clinical stage of development. Our biological
-23-
warfare defense products do not need human clinical trials for approval by the
FDA. We will need to perform two animal models and provide safety data for a
product to be approved. Our other products will be subject to the approval
guidelines under FDA regulatory requirements which include a number of phases of
testing in humans.
The FDA has not approved any of our biopharmaceutical product
candidates. Any drug candidates developed by us will require significant
additional research and development efforts, including extensive pre-clinical
and clinical testing and regulatory approval, prior to commercial sale. We
cannot be sure our approach to drug discovery will be effective or will result
in the development of any drug. We cannot expect that any drugs resulting from
our research and development efforts will be commercially available for many
years, if at all.
We have limited experience in conducting pre-clinical testing and
clinical trials. Even if we receive initially positive pre-clinical or clinical
results, such results do not mean that similar results will be obtained in the
later stages of drug development, such as additional pre-clinical testing or
human clinical trials. All of our potential drug candidates are prone to the
risks of failure inherent in pharmaceutical product development, including the
possibility that none of our drug candidates will or can:
o be safe, non-toxic and effective;
o otherwise meet applicable regulatory standards;
o receive the necessary regulatory approvals;
o develop into commercially viable drugs;
o be manufactured or produced economically and on a large scale;
o be successfully marketed;
o be reimbursed by government and private insurers; and
o achieve customer acceptance.
In addition, third parties may preclude us from marketing our drugs
through enforcement of their proprietary rights, or third parties may succeed in
marketing equivalent or superior drug products. Our failure to develop safe,
commercially viable drugs would have a material adverse effect on our business,
financial condition and results of operations.
Most of our immediately foreseeable future revenues are contingent upon
collaborative and license agreements and we may not achieve sufficient revenues
from these agreements to attain profitability.
Until and unless we successfully make a product, our ability to
generate revenues will largely depend on our ability to enter into additional
collaborative and license agreements with third parties and maintain the
agreements we currently have in place. Substantially all of our revenues for the
years ended December 31, 2002 and 2001, respectively, were derived from revenues
related to collaborative and license agreements. We will receive little or no
revenues under our collaborative agreements if our collaborators' research,
development or marketing efforts are unsuccessful, or if our agreements are
terminated early. Additionally, if we do not enter into new collaborative
agreements, we will not receive future revenues from new sources. Our future
revenue is substantially dependent on the continuing grant and contract work
being performed for the NIH which expires in May 2004 and the U.S. Army which
expires at the end of December 2007. These agreements are for specific work to
be performed under the agreements and could only be canceled by the other party
thereto for non-performance by the other party thereto.
Several factors will affect our future receipt of revenues from
collaborative arrangements, including the amount of time and effort expended by
our collaborators, the timing of the identification of useful drug targets and
the timing of the discovery and development of drug candidates. Under our
existing agreements, we may not earn
-24-
significant milestone payments until our collaborators have advanced products
into clinical testing, which may not occur for many years, if at all.
We have material agreements with the following collaborators:
o The Rockefeller University. The term of our agreement with
Rockefeller is for the duration of the patents and a number of
pending patents. As we do not currently know when any patents
pending or future patents will expire, we cannot at this time
definitively determine the term of this agreement. The
agreement can be terminated earlier if we are in breach of the
provisions of the agreement and do not cure the breach in the
allowed cure period. We are current in all obligations under
the contract.
o Oregon State University ("OSU"). We have two agreements with
OSU. OSU is a signatory of our agreement with Rockefeller. The
term of this agreement is for the duration of the patents and
a number of pending patents. As we do not currently know when
any patents pending or future patents will expire, we cannot
at this time definitively determine the term of this
agreement. The agreement can be terminated earlier if we are
in breach of the provisions of the agreement and do not cure
the breach in the allowed cure period. We are current in all
obligations under the contract. We have also entered into a
sub-contract agreement with OSU for us to perform work under a
grant OSU has from the NIH. The sub-contract agreement is
renewable annually and the current terms expire on August 31,
2003. 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 our
obligations under the sub-contract agreement.
o Wyeth. Our license agreement expires on the earlier of June
30, 2007 or the last to expire patent that we have
sub-licensed to them. Wyeth has the right to terminate the
agreement on 90 days written notice. If terminated, all rights
granted to Wyeth will revert to us, except for any compound
identified by Wyeth prior to the date of termination and
subject to the milestones and royalty obligations of the
agreement.
o National Institutes of Health. Under our collaborative
agreement with the NIH, it is required to conduct and pay for
the clinical trials of our strep vaccine product through phase
II human trials. The NIH can terminate the agreement on 60
days written notice. If terminated, we receive copies of all
data, reports and other information related to the trials. If
terminated, we would have to find another source of funds to
continue to conduct the trials. We are party to another
collaborative agreement with the NIH under which we received a
grant for approximately $865,000. The term of this agreement
expires in May 2004. We are paid as the work is performed and
the agreement can be cancelled for non-performance. We are
current in all our obligations under this agreement.
o Washington University. We have licensed certain technology
from Washington under a non-exclusive license agreement. The
term of our agreement with Washington is for the duration of
the patents and a number of pending patents. As we do not
currently know when any patents pending or future patents will
expire, we cannot at this time definitively determine the term
of this agreement. The agreement cannot be terminated unless
we fail to pay our share of the joint patent costs for the
technology licensed. We have currently met all our obligations
under this agreement.
o Regents of the University of California. We have licensed
certain technology from Regents under an exclusive license
agreement. We are required to pay minimum royalties under this
agreement. This agreement is related to our agreement with
Wyeth and expires at the same time as that agreement. It can
be cancelled earlier if we default on our obligations or if
Wyeth cancels its agreement with SIGA and we are not able to
find a replacement for Wyeth. We have currently met all our
obligations under this agreement.
o TransTech Pharma, Inc. Under our collaborative agreement with
TransTech, TransTech is required to collaborate with us on the
discovery, optimization and development of lead compounds to
therapeutic agents. We and TransTech have agreed to share the
costs of development and 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. We are current in all obligations under this
agreement.
-25-
We may face limitations on our ability to attract suitable acquisition
opportunities or to integrate additional acquired businesses and the failure to
consummate an acquisition may significantly drain our resources.
As part of our business strategy we expect to enter into business
combinations and acquisitions. Some of these transactions could be material in
size and scope. While we will continually be searching for additional
acquisition opportunities, we may not be successful in identifying suitable
acquisitions. We compete for acquisition candidates with other entities, some of
which have greater financial and other resources than we have. Increased
competition for acquisition candidates may make fewer acquisition candidates
available to us and may cause acquisitions to be made on less attractive terms,
such as higher purchase prices. Acquisition costs may increase to levels that
are beyond our financial capability or that would adversely affect our results
of operations and financial condition.
Our ability to make acquisitions will depend in part on the relative
attractiveness of shares of our common stock as consideration for potential
acquisition candidates. This attractiveness may depend largely on the relative
market price, our ability to register common stock and capital appreciation
prospects of our common stock. If the market price of our common stock were to
decline materially over a prolonged period of time, our acquisition program
could be materially adversely affected. Failure to making an acquisition will
limit our ability to grow, but will not be central to our continued existence.
Costs associated with failed acquisitions, such as our plans to merge with
Allergy Therapeutics and Hypernix, may result in significant operating costs
that may need to be financed from operations or from additional equity capital.
The total costs associated with the failed acquisition of Allergy Therapeutics
were approximately $625,000, of which approximately $200,000 remain unpaid. The
costs were associated with professional fees for attorneys and accountants.
Additionally, there was significant time spent by our management in the
contemplated transaction. The proposed Hypernix transaction resulted in expenses
of $511,000 for advances made to them. We recovered approximately $85,000 from
them.
We may not be able to consummate potential acquisitions or an acquisition may
not enhance our business or may decrease rather than increase our earnings.
In the future, we may issue additional securities in connection with
one or more acquisitions, which may dilute our existing shareholders. Future
acquisitions could also divert substantial management time and result in short
term reductions in earnings or special transaction or other charges. In
addition, we cannot guarantee that we will be able to successfully integrate the
businesses that we may acquire into our existing business. Our shareholders may
not have the opportunity to review, vote on or evaluate future acquisitions.
The biopharmaceutical market in which we compete and will compete is highly
competitive.
The biopharmaceutical industry is characterized by rapid and
significant technological change. Our success will depend on our ability to
develop and apply our technologies in the design and development of our product
candidates and to establish and maintain a market for our product candidates.
There also are many companies, both public and private, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, research and development, and human
resources than us. Competitors may develop products or other technologies that
are more effective than any that are being developed by us or may obtain FDA
approval for products more rapidly than us. If we commence commercial sales of
products, we still must compete in the manufacturing and marketing of such
products, areas in which we have no experience. Many of these companies also
have manufacturing facilities and established marketing capabilities that would
enable such companies to market competing products through existing channels of
distribution. Two companies with similar profiles are VaxGen, Inc. which is
developing vaccines against anthrax, Smallpox and HIV/AIDS; and Avant
Immunotherapeutics, Inc. which has vaccine programs for agents of biological
warfare.
Because we must obtain regulatory clearance to test and market our products in
the United States, we cannot predict whether or when we will be permitted to
commercialize our products.
A pharmaceutical product cannot be marketed in the U.S. until it has
completed rigorous pre-clinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Pharmaceutical products
-26-
typically take many years to satisfy regulatory requirements and require the
expenditure of substantial resources depending on the type, complexity and
novelty of the product.
Before commencing clinical trials in humans, we must submit and
receive clearance from the FDA by means of an Investigational New Drug ("IND")
application. Institutional review boards and the FDA oversee clinical trials and
such trials:
o must be conducted in conformance with the FDA's good laboratory
practice regulations;
o must meet requirements for institutional review board oversight;
o must meet requirements for informed consent;
o must meet requirements for good clinical and manufacturing
practices;
o are subject to continuing FDA oversight;
o may require large numbers of test subjects; and
o may be suspended by us or the FDA at any time if it is believed that
the subjects participating in these trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the
IND application or the conduct of these trials.
Before receiving FDA clearance to market a product, we must
demonstrate that the product is safe and effective on the patient population
that will be treated. Data we obtain from preclinical and clinical activities
are susceptible to varying interpretations that could delay, limit or prevent
regulatory clearances. Additionally, we have limited experience in conducting
and managing the clinical trials and manufacturing processes necessary to obtain
regulatory clearance.
If regulatory clearance of a product is granted, this clearance will
be limited only to those states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance.
If our technologies or those of our collaborators are alleged or found to
infringe the patents or proprietary rights of others, we may be sued or have to
license those rights from others on unfavorable terms.
Our commercial success will depend significantly on our ability to
operate without infringing the patents and proprietary rights of third parties.
Our technologies, along with our licensors' and our collaborators' technologies,
may infringe the patents or proprietary rights of others. If there is an adverse
outcome in litigation or an interference to determine priority or other
proceeding in a court or patent office, then we, or our collaborators an
licensors, could be subjected to significant liabilities, required be license
disputed rights from or to other parties and/or required to cease using a
technology necessary to carry out research, development and commercialization.
At present we are unaware of any or potential infringement claims against our
patent portfolio.
The costs to establish the validity of patents, to defend against
patent infringement claims of others and to assert infringement claims against
others can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to us or one
of our licensors or collaborators may have a material adverse effect on us. We
could incur substantial costs if we are required to defend ourselves in patent
suits brought by third parties, if we participate in patent suits brought
against or initiated by our licensors or collaborators or if we initiate such
suits. We may not have sufficient funds or resources in the event of litigation.
Additionally, we may not prevail in any such action.
Any conflicts resulting from third-party patent applications and
patents could significantly reduce the coverage of the patents owned, optioned
by or licensed to us or our collaborators and limit our ability or that of our
-27-
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 nine issued United States patents,
six issued Austrailan patents, four issued Japanese patents, and three issued
Canadian patents. These patents have varying lives and they are related to the
technology licensed from Rockefeller University for the strep and gram positive
products. We have two additional patent applications in the U.S., three
applications in Canada, three applications in Japan, and two applications in
Europe relating to this technology. We are joint owner with Washington
University of six issued patents in the U.S. and one issued patent in Australia.
In addition, there are four co-owned patent applications in the U.S., two in
Canada, two in Japan, and two in Europe. These patents are for the technology
used for the gram-negative product opportunities. We are also exclusive owner of
one U.S. patent. Furthermore, there is one U.S. patent application and one
European application. These patents relate to our DegP product opportunities.
--------------------------------------------------------------------------------------------------------------------------------
Number
Exclusively
Licensed Number
Number Number from Univ. Exclusively Number
Exclusively Co-Exclusively of Licensed Obtained
Licensed Licensed Copenhagen from Number from the
from with and Danish Oregon Exclusively Acquisition Number
Rockefeller Washington Technical State Licensed of Plexus Owned by Patent Expiration
PATENTS Univ. Univ. University University from UCLA Vaccine SIGA Dates
--------------------------------------------------------------------------------------------------------------------------------
U.S. 9 6 -- -- -- -- 1 2013,
2014 (5 patents),
2015 (3 patents),
2016 (2 patents),
2017,
2019 (2 patents),
2020 (2 patents)
--------------------------------------------------------------------------------------------------------------------------------
Australia 6 1 -- 1 -- -- -- 2004, 2009, 2013,
2014 (2 patents),
2015, 2016,2019
--------------------------------------------------------------------------------------------------------------------------------
Canada 3 -- -- -- -- -- -- 2004, 2010,2019
--------------------------------------------------------------------------------------------------------------------------------
Germany 1 -- -- -- -- -- -- 2009
--------------------------------------------------------------------------------------------------------------------------------
Hong Kong 1 -- -- -- -- -- -- 2009
--------------------------------------------------------------------------------------------------------------------------------
Hungary 1 -- -- -- -- -- -- 2013
--------------------------------------------------------------------------------------------------------------------------------
Japan 4 -- -- -- -- -- -- 2004 (2 patents),
2010,2012
--------------------------------------------------------------------------------------------------------------------------------
Luxembourg 1 -- -- -- -- -- -- 2009
--------------------------------------------------------------------------------------------------------------------------------
Mexico 1 -- -- -- -- -- -- 2016
--------------------------------------------------------------------------------------------------------------------------------
New Zealand 1 -- -- -- -- -- -- 2016
--------------------------------------------------------------------------------------------------------------------------------
Switzerland 2 -- -- -- -- -- -- 2004, 2010
--------------------------------------------------------------------------------------------------------------------------------
-28-
Number
Exclusively
Licensed Number
Number Number from Univ. Exclusively Number
Exclusively Co-Exclusively of Licensed Obtained
Licensed Licensed Copenhagen from Number from the
from with and Danish Oregon Exclusively Acquisition Number
Rockefeller Washington Technical State Licensed of Plexus Owned by
PATENT APPLICATIONS Univ. Univ. University University from UCLA Vaccine SIGA
-----------------------------------------------------------------------------------------------------------------------
U.S. applications 2 4 1 2 1 1
-----------------------------------------------------------------------------------------------------------------------
U.S. provisionals -- -- -- -- -- 2 1
-----------------------------------------------------------------------------------------------------------------------
Danish provisionals -- -- 4 -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
PCT -- -- 1 1 -- 1 1
-----------------------------------------------------------------------------------------------------------------------
Australia -- 1 -- -- -- -- 1
-----------------------------------------------------------------------------------------------------------------------
China 1 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Canada 3 2 -- 1 -- -- 1
-----------------------------------------------------------------------------------------------------------------------
Europe 2 2 -- 1 -- -- 1
-----------------------------------------------------------------------------------------------------------------------
Finland 1 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Hungary 1 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Italy 1 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Korea 1 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Japan 3 2 -- -- -- -- 1
-----------------------------------------------------------------------------------------------------------------------
We also rely on copyright protection, trade secrets, know-how,
continuing technological innovation and licensing opportunities. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, we require our employees, consultants and some collaborators to
execute confidentiality and invention assignment agreements upon commencement of
a relationship with us. These agreements may not provide meaningful protection
for our trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information, and adequate remedies may
not exist in the event of such unauthorized use or disclosure.
We may have difficulty managing our growth.
We expect to experience growth in the number of our employees and
the scope of our operations. This growth has placed, and may continue to place,
a significant strain on our management and operations. Our ability to manage
this growth will depend upon our ability to broaden our management team and our
ability to attract, hire and retain skilled employees. Our success will also
depend on the ability of our officers and key employees to continue to implement
and improve our operational and other systems and to hire, train and manage our
employees.
We depend on a key employee in a competitive market for skilled personnel.
We are highly dependent on Dr. Dennis Hruby, our Chief Scientific
Officer. We currently have an employment agreement which expires on December 31,
2005 with Dr. Hruby who we consider to be a "key employee." The loss of his
services prior to the termination of his employment agreement would have a
material adverse effect on our business. We do not maintain a key person life
insurance policy on the life of any employee.
-29-
Our future success also will depend in part on the continued service
of our key scientific, software, bioinformatics and management personnel and our
ability to identify, hire and retain additional personnel, including, when we
have a product for commercialization, customer service, marketing and sales
staff. We experience intense competition for qualified personnel. We may not be
able to continue to attract and retain personnel necessary to develop our
business.
Our activities involve hazardous materials and may subject us to environmental
regulatory liabilities.
Our biopharmaceutical research and development involves the
controlled use of hazardous and radioactive materials and biological waste. We
are subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and certain waste
products. Although we believe that our safety procedures for handling and
disposing of these materials comply with legally prescribed standards, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of an accident, we could be held liable for damages,
and this liability could exceed our resources. The research and development
activities of our company do not produce any unusual hazardous products. We do
use small amounts of 32P, 35S and 3H, which are stored used and disposed of in
accordance with Nuclear Regulatory Commission ("NRC") regulations. We maintain
liability insurance in the amount of approximately $3,000,000 and we believe
this should be sufficient to cover any contingent losses.
We believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently do not expect to
make material additional capital expenditures for environmental control
facilities in the near term. However, we may have to incur significant costs to
comply with current or future environmental laws and regulations.
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
-30-
not be able to obtain such insurance. Even if such insurance is obtainable, it
may not be available at a reasonable cost or in a sufficient amount to protect
us against liability.
We may be required to perform additional clinical trials or change the labeling
of our products if we or others identify side effects after our products are on
the market, which could harm sales of the affected products.
If we or others identify side effects after any of our products, if
any, after they are on the market, or if manufacturing problems occur:
o regulatory approval may be withdrawn;
o reformulation of our products, additional clinical trials, changes
in labeling of our products may be required;
o changes to or re-approvals of our manufacturing facilities may be
required;
o sales of the affected products may drop significantly;
o our reputation in the marketplace may suffer; and
o lawsuits, including class action suits, may be brought against us.
Any of the above occurrences could harm or prevent sales of the
affected products or could increase the costs and expenses of commercializing
and marketing these products.
The manufacture of genetically engineered commensals is a time-consuming and
complex process which may delay or prevent commercialization of our products, or
may prevent our ability to produce an adequate volume for the successful
commercialization of our products.
Although our management believes that we have the ability to acquire
or produce quantities of genetically engineered commensals sufficient to support
our present needs for research and our projected needs for our initial clinical
development programs, management believes that improvements in our manufacturing
technology will be required to enable us to meet the volume and cost
requirements needed for certain commercial applications of commensal products.
Products based on commensals have never been manufactured on a commercial scale.
The manufacture of all of our products will be subject to current GMP
requirements prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. There can be no assurance
that we will be able to manufacture products, or have products manufactured for
us, in a timely fashion at acceptable quality and prices, that we or third party
manufacturers can comply with GMP or that we or third party manufacturers will
be able to manufacture an adequate supply of product.
Health care reform and controls on health care 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 health care services are
provided in the U.S. Potential approaches and changes in recent years include
controls on health care 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 health care reform and private market practices could adversely affect
our ability to sell any products profitably in the U.S. At present, we do not
foresee any changes in FDA regulatory policies that would adversely effect our
development programs.
-31-
The future issuance of preferred stock may adversely effect the rights of the
holders of our common stock.
Our certificate of incorporation allows our Board of Directors to
issue up to 10,000,000 shares of preferred stock and to fix the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of these shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
could be adversely affected by, the rights of the holders of any preferred stock
that we may issue in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control.
Concentration of ownership of our capital stock could delay or prevent change of
control.
Our directors, executive officers and principal stockholders
beneficially own a significant percentage of our common stock and preferred
stock. They also have, through the exercise or conversion of certain securities,
the right 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, 2002, Directors, Officers and
principal stockholders beneficially own approximately 37% of the our stock.
Item 7. Financial Statements and Supplementary Data
The financial statements required by Item 7 are included in this
Annual Report beginning on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-32-
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Position
---- --- --------
Donald G. Drapkin 55 Chairman of the Board
Thomas N. Konatich 57 Acting Chief Executive Officer, Chief
Financial Officer, Secretary and Treasurer
Dennis E. Hruby, Ph.D. 51 Chief Scientific Officer
Gabriel M. Cerrone 31 Director
Thomas E. Constance 66 Director
Mehmet C. Oz, M.D. 41 Director
Eric A. Rose, M.D. 51 Director
Michael Weiner, M.D. 56 Director
Donald G. Drapkin has served as Chairman of the Board and a Director
of SIGA since April 19, 2001. Mr. Drapkin has been a Director and Vice Chairman
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. Mr. Drapkin is also a Director of
the following corporations which file reports pursuant to the Securities
Exchange Act of 1934: Anthracite Capital, Inc., BlackRock Asset Investors, The
Molson Companies Limited, Panavision, Inc., Playboy.com, Inc., Playboy
Enterprises, Inc., Revlon Consumer Products Corporation, Revlon Inc., and the
Warnaco Group, Inc. Mr. Drapkin is a Director of American Lawyer Media, Inc.,
Pharmacore, Inc., and TransTech Pharma, Inc. and WeddingChannel.com.
Thomas N. Konatich has served as Vice President, Chief Financial
Officer and Treasurer since April 1, 1998. He was named Secretary of SIGA on
June 29, 2001 and has been our Acting Chief Executive Officer since October 5,
2001. From November 1996 through March 1998, Mr. Konatich served as Chief
Financial Officer and a Director of Innapharma, Inc., a privately held
pharmaceutical development company. From 1993 through November 1996, Mr.
Konatich served as Vice President and Chief Financial Officer of Seragen, Inc.,
a publicly traded biopharmaceutical development company. From 1988 to 1993, he
was Treasurer of Ohmicron Corporation, a venture capital financed environmental
biotechnology firm. Mr. Konatich has an MBA from the Columbia Graduate School of
Business.
Dennis F. Hruby, Ph.D. has served as Vice-President - Chief
Scientific Officer since June 2000. From April 1, 1997 through June 2000 Dr.
Hruby was our Vice President of Research. From January 1996 through March 1997,
Dr. Hruby served as a senior scientific advisor to SIGA. Dr. Hruby is a
Professor of Microbiology at Oregon State University, and from 1990 to 1993 was
Director of the Molecular and Cellular Biology Program and Associate Director of
the Center for Gene Research and Biotechnology. Dr. Hruby specializes in
virology and cell biology research, and the use of viral and bacterial vectors
to produce recombinant vaccines. He is a member of the American Society of
Virology, the American Society for Microbiology and a fellow of the American
Academy of Microbiology. Dr. Hruby received a Ph.D. in microbiology from the
University of Colorado Medical Center and a B.S. in microbiology from Oregon
State University.
Gabriel M. Cerrone has served as a Director of SIGA since April 19,
2001. Mr. Cerrone has been Senior Vice President of Investments of Fahnestock &
Co., Inc., a financial services firm, since March 1999. From March 1998 to March
1999, Mr. Cerrone was Managing Director of Investments at Barington Capital,
L.P., a merchant bank, and, from June 1994 to February 1998, he was Senior Vice
President of Investments at Blair & Company, a financial services firm focusing
on microcap companies. Mr. Cerrone is a Director of the following privately-held
companies: Callisto Pharmaceuticals, Inc. and Macro Holdings, LLC. He is also
the sole general partner of Panetta Partners, Ltd., a firm which acts as an
investor in, and consultant to, primarily emerging technology companies. Mr.
Cerrone is a 1994 graduate of New York University's Stern School of Business.
-33-
Thomas E. Constance has served as a Director of SIGA since April 19,
2001. Mr. Constance is Chairman and, since 1994, a partner of Kramer Levin
Naftalis & Frankel LLP, a law firm in New York City. Mr. Constance is a Director
of the following corporations which file reports pursuant to the Securities
Exchange Act of 1934: Uniroyal Technology Corporation and Kroll Inc. Mr.
Constance is also a Director of Callisto Pharmaceuticals, Inc., a privately-held
company. 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 Barington Capital,
L.P.
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 an Associate Professor of Surgery there since July 2000.
Dr. Oz directs the following programs at Columbia University Presbyterian
Hospital: 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 also a 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.
Michael Weiner, M.D. has served as a Director of SIGA since April
19, 2001. Dr. Weiner has been a 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 formerly
a Director of Nexell Therapeutics, Inc. (f/k/a VimRx) from March 1996 to
February 1999. Dr. Weiner is a 1972 graduate of the New York State Health
Sciences Center at Syracuse, and he was a post graduate student at New York
University and Johns Hopkins University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports that they file.
Based solely upon review of the copies of such reports furnished to
the Company and written representations from certain of the Company's executive
officers and directors that no other such reports were required, the Company
believes that during the fiscal year ended December 31, 2002 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with on a timely basis, except that
Mr. Konatich belatedly filed in March 2003 a Form 5 due in January 2003.
Item 10. Executive Compensation
The following table sets forth the total compensation paid or
accrued for the years ended December 31, 2002, 2001 and 2000 for each person who
acted as SIGA's Chief Executive Officer at any time during the year ended
December 31, 2002 and its most highly compensated executive officers, other than
its Chief Executive Officer, whose salary and bonus for the fiscal year ended
December 31, 2002 were in excess of $100,000 each.
-34-
Summary Compensation Table
Annual Compensation
---------------------------------------------
Long-Term
Compensation
Other Annual Securities
Compensation Underlying Options
------------ ------------------
Name and Principal Position Year Salary ($) ($) (#)
--------------------------- ------ ---------- ------------ ------------------
Thomas N. Konatich, 2002 188,333 -- 200,000
Chief Financial Officer and Acting CEO 2001 177,542 -- --
2000 170,000 -- 100,000
Dennis E. Hruby 2002 195,000 -- 300,000
Chief Scientific Officer 2001 196,055 -- --
2000 170,000 -- 125,000
Option Grants for the Year Ended December 31, 2002
The following table sets forth grants of stock options during the
year ended December 31, 2002 to anyone who served as Chief Executive Officer
during the year. The exercise price at the time of the grant was equal to or
above the fair market value at the time of the grant.
Common Stock % of Total Exercise
Underlying Options Granted Price Per Expiration
Name Options Granted to Employees Share Date
---- --------------- --------------- --------- ----------
Thomas N. Konatich......... 200,000 25.7% $2.50 11/15/12
Dennis E. Hruby............ 300,000 38.6% $2.50 10/15/12
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table provides certain summary information concerning
stock options held as of December 31, 2002 by SIGA's Chief Executive Officer and
its two most highly compensated executive officers, other than its Chief
Executive Officer. No options were exercised during fiscal 2002 by any of the
officers.
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options # at Fiscal Year-End ($) (1)
------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- --------------- ----------- -------------
Thomas N. Konatich 288,750 106,250 0 0
Dennis Hruby 250,000 225,000 0 0
----------
(1) Based upon the closing price on December 31, 2002 as reported on the
Nasdaq SmallCap Market and the exercise price per option.
Stock Option Plan
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.
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The Plan is administered by a committee (the "Committee") comprised
of disinterested directors. The Committee determines persons to be granted stock
options, the amount of stock options to be granted to each such person, and the
terms and conditions of any stock options as permitted under the Plan. The
members of the Committee are Mehmet C. Oz, M.D. and Michael Weiner, M.D.
Both Incentive Options and Nonqualified Options may be granted under
the Plan. An Incentive Option is intended to qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Any Incentive Option granted under the Plan will have
an exercise price of not less than 100% of the fair market value of the shares
on the date on which such option is granted. With respect to an Incentive Option
granted to an employee who owns more than 10% of the total combined voting stock
of SIGA or of any parent or subsidiary of SIGA, the exercise price for such
option must be at least 110% of the fair market value of the shares subject to
the option on the date the option is granted.
The Plan, as amended, provides for the granting of options to
purchase 7,500,000 shares of common stock, of which 5,807,561 options were
outstanding as of December 31, 2002.
During the fiscal years ending December 31, 2002, 2001 and 2000, the
named Directors and Officers of SIGA received log-term incentive compensation
under the Plan as shown in the following table.
-----------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price Based Plans
-----------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
-----------------------------------------------------------------------------------------------
Number of Performance or
Shares, Units Other Period Until
or Other Rights Maturation of Threshold Target Maximum
Name (#) Payout ($ or #) ($ or #) ($ or #)
-----------------------------------------------------------------------------------------------
Donald G. Drapkin 1,125,000 8/15/11 0 0 0
Thomas N. Konatich 300,000 11/15/12 0 0 0
Gabriel Cerrone 1,075,000 8/15/11 0 0 0
Thomas E. Constance 225,000 8/15/11 0 0 0
Mehmet C. Oz, M.D 100,000 8/15/11 0 0 0
Eric A. Rose, M.D. 600,000 8/15/11 0 0 0
Michael Weiner, M.D. 100,000 8/15/11 0 0 0
Dennis E. Hruby 300,000 10/15/12 0 0 0
-----------------------------------------------------------------------------------------------
Employment Contracts and Directors Compensation
Employment Contracts
Thomas N. Konatich, SIGA's Vice President, Chief Financial Officer,
Secretary, Treasurer and Acting Chief Executive Officer, is employed by SIGA
under an employment agreement dated April 1, 1998, as amended on January 19,
2000, as amended and restated on October 6, 2000, as amended as of January 31,
2002 and as amended on November 5, 2002. This Agreement expires on September 30,
2004 and is cancelable by SIGA only for cause, as defined in the agreement. Mr.
Konatich receives an annual base salary of $210,000. He received options to
purchase 95,000 shares of common stock, at $4.44 on April 1, 1998. The options
vested on a pro rata basis on the first, second, third and fourth anniversaries
of the agreement. On January 19, 2000, he received an additional grant to
purchase 100,000 shares at an exercise price of $2.00 per share. These options
vest on a pro rata basis each quarter through January 19, 2002. On January 31,
2002, Mr. Konatich was granted an "Incentive Stock Option" to purchase 50,000
shares at an exercise price of $3.94 per share. Such options vest in eight equal
quarterly installments beginning on April 20, 2002. On November 5, 2002, Mr.
Konatich was granted an Incentive Stock Option to purchase 150,000 shares at an
exercise price of $2.50 per share. 75,000 of these options vested immediately
and 75,000 options vest on September 1, 2003. Mr. Konatich is also eligible to
receive additional stock options and bonuses at the discretion of the Board of
Directors.
-36-
Dr. Dennis Hruby, Chief Scientific Officer ("CSO"), is employed by
SIGA under an employment agreement dated January, 1, 1998, as amended on June
16, 2000, as amended on January 31, 2002, as amended on October 3, 2002. This
Agreement expires on December 31, 2005, except that SIGA may terminate the
agreement upon 180 days written notice. Dr. Hruby receives a base salary of
$210,000 per year. Dr. Hruby received options to purchase 10,000 shares of
common stock at an exercise price of $5.00 per share on April 1, 1997 and 40,000
shares of common stock at an exercise price of $4.63 per share on April 1, 1998.
The options became exercisable on a pro rata basis on the first, second, third
and fourth anniversaries of the agreement. Dr. Hruby is eligible to receive
additional stock options and bonuses at the discretion of the Board of
Directors. Under the June 16, 2000 amendment, Dr. Hruby was granted options to
purchase 125,000 shares of SIGA's common stock at $2.00 per share. The options
vest ratably over the remaining term of the amendment. The January 31, 2002
amendment changed the terms of the lock-up agreed to in the June 16, 2000
amendment to the employment agreement limiting Hruby's ability to sell SIGA
stock. On January 31, 2002 Dr. Hruby was granted and "Incentive Stock Option" to
purchase 50,000 shares at an exercise price of $3.94 per share. Such options
vest in four equal annual installments beginning on August 15, 2002. As part of
the most recent amendment, Dr. Hruby was granted an option to purchase 300,000
shares of common stock. Options with respect to 75,000 shares vested upon the
signing of the amendment and an additional 75,000 shares shall vest on a pro
rata basis on September 1 of each 2003, 2004 and 2005. The options have an
exercise price of $2.50 per share. As part of the amended agreement, Dr. Hruby
surrendered his option to purchase up to 50,000 shares of common stock of SIGA
at an exercise price of $3.94 that he was granted under an earlier amendment.
Directors' Compensation
SIGA does not pay fees to its directors, nor does it reimburse its
directors for expenses incurred.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters
The following tables set forth certain information regarding the
beneficial ownership of SIGA's voting securities as of December 31, 2002 of (i)
each person known to SIGA to beneficially own more than 5% of the applicable
class of voting securities, (ii) each director and director nominee of SIGA,
(iii) each Named Officer, and (iv) all directors and officers of SIGA as a
group. As of March 13, 2003, a total of 13,226,649 shares of common stock and a
total of 410,760 shares of Series A preferred stock were outstanding. Each share
of common stock and Series A preferred stock is entitled to one vote on matters
on which common stockholders are eligible to vote. The column entitled
"Percentage of Total Voting Stock" shows the percentage of total voting stock
beneficially owned by each listed party.
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
Judson Cooper 1,152,117(3) 8.5% 8.2%
Howard Gittis
35 East 62nd Street
New York, NY 10021 1,005,902(4) 7.6% 7.4%
Panetta Partners, Ltd.(5)
265 E. 66th St. Suite 16G
New York, NY 10021 790,472(6) 5.8% 5.7%
Joshua D. Schein 1,178,517(3) 8.7% 8.4%
-37-
Percentage of Percentage of
Name and Address of Amount of Beneficial Common Stock Total Voting
Beneficial Owner (1) Ownership (2) Outstanding Stock Outstanding
-------------------- -------------------- ------------- -----------------
Officers and Directors
Thomas N. Konatich 395,000(7) 3.0% 2.9%
Dennis E. Hruby 475,000(7) 3.6% 3.5%
Donald G. Drapkin
35 East 62nd Street
New York, NY 10021 2,855,058(8)(9)(10) 19.1% 18.6%
Gabriel M. Cerrone(5)
265E. 66th Street, Suite 16G
New York, NY 10021 1,926,972(6)(11) 13.2% 12.8%
Thomas E. Constance
919 Third Avenue, 41st Floor
New York, NY 10022 253,467(12) 1.9% 1.9%
Mehmet C. Oz, M.D.
177 Fort Washington Ave
New York, NY 10032 125,000(13) 1.0% 0.9%
Eric A. Rose, M.D.
122 East 78th Street
New York, NY 10021 790,090(14) 5.8% 5.6%
Michael Weiner, M.D.
161 Fort Washington Ave.
New York, NY 10032 125,000(13) 1.0% 0.9%
All Officers and Directors as a group
(eight persons) 6,945,587(15) 37.1% 36.3%
----------
* Less than 1%
(1) Unless otherwise indicated the address of each beneficial owner identified
is 420 Lexington Avenue, Suite 601, New York, NY 10170.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(3) The amounts in the table for each of Mr. Cooper and Dr. Schein includes
options to purchase 700,001 shares of common stock owned directly and
beneficial ownership of options to purchase 12,500 shares of common stock,
held by Prism Ventures LLC, an entity jointly owned by Mr. Cooper and Dr.
Schein.
(4) Includes 260,178 shares issuable upon exercise of a warrant.
(5) Mr. Cerrone, as the sole general partner of Panetta Partners, Ltd., may be
deemed to beneficially own the shares owned by Panetta Partners, Ltd.
(6) Includes 649,388 shares issuable upon exercise of warrants.
(7) Messrs. Konatich and Hruby own no shares of common stock. All shares
listed as beneficially owned by Messrs. Konatich and Hruby are shares
issuable upon exercise of stock options.
(8) Includes 1,125,000 shares of common stock issuable upon exercise of
options and 30,500 shares issuable upon exercise of warrant.
(9) Mr. Drapkin has entered into a management restructuring agreement,
pursuant to which he has been granted proxies giving him voting power over
an aggregate of 905,632 shares of common stock, included in the figures in
the above table.
(10) Mr. Drapkin holds, inter alia, a warrant (an "Investor Warrant") to
purchase 347,826 shares of common stock. However, the Investor Warrant
provides that, with certain limited exceptions, it 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 such Investor Warrant) would exceed 9.99% of
the outstanding shares of common stock. As a result of the restrictions
described in the immediately preceding sentence and the other securities
which Mr. Drapkin may be deemed beneficially to own, Mr. Drapkin's
Investor Warrant is not presently exercisable. If not for the 9.99% limit,
Mr. Drapkin could be deemed to beneficially own 3,202,884 shares of common
stock, or 19.9% of the outstanding shares of common stock and 19.4% of the
total shares of voting stock outstanding.
-38-
(11) Includes 790,472 shares held by and issuable upon exercise of warrants
held by Panetta Partners and 1,075,000 shares issuable upon exercise of
options.
(12) Includes 12,200 shares issuable upon exercise of warrants and 225,000
shares of common stock issuable upon exercise of options.
(13) Includes 12,500 shares issuable upon exercise of warrants and 100,000
shares issuable upon exercise of options.
(14) Includes 88,610 shares issuable upon exercise of warrants and 600,000
shares of common stock issuable upon exercise of options.
(15) See footnotes (5), (6), (7), (8), (9), (10), (11), (12), (13) and (14).
Equity Compensation Plan Information
The following table sets forth certain equity compensation plan
information with respect to both equity compensation plans approved by security
holders and equity compensation plans not approved by security holders as of
December 31, 2002:
----------------------------------------------------------------------------------------------------------
Number of
securities
remaining available
Number of for future issuance
securities to be under equity
issued upon compensation plans
exercise of Weighted-average (excluding
outstanding exercise price of securities
options, warrants outstanding options, reflected in column
and rights warrants and rights (a))
Plan category (a) (b) (c)
----------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders (1)...................... 5,807,561 $2.52 1,480,314
----------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders....................... 250,000 $2.00 0
----------------------------------------------------------------------------------------------------------
Total..................................... 6,057,561 $2.50 1,480,314
----------------------------------------------------------------------------------------------------------
----------
(1) SIGA Technologies, Inc., Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan
Item 12. Certain Relationships and Related Transactions
Thomas E. Constance, a director of SIGA, is Chairman of Kramer Levin
Naftalis & Frankel LLP, a law firm in New York City, which SIGA retained to
provide legal services during fiscal year 2001.
Donald G. Drapkin, Chairman of the Board of Directors of SIGA, is
also a director with TransTech Pharma, Inc., a company with which we have a
collaborative agreement.
-39-
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
3(a) Restated Articles of Incorporation of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated
May 10, 2000 (No. 333-36682)).
3(b) Bylaws of the Company (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
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) Registration Rights 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).
4(e) 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).
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).
-40-
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) Amended and Restated Employment Agreement between the Company and
Dr. Joshua D. Schein, 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).
10(f) Amended and Restated Employment Agreement between the Company and
Judson A. Cooper, 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).
10(g) 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(h) 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(i) Consulting Agreement between the Company and CSO Ventures LLC, 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(j) Consulting Agreement between the Company and Dr. Vincent A.
Fischetti, 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(k) Consulting Agreement between the Company and Dr. Dennis Hruby, 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(l) Letter Agreement between the Company and Dr. Vincent A. Fischetti,
dated as of March 1, 1996 (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(m) 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(n) 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(o) 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(p) 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(q) Collaborative Evaluation Agreement between the Company and Chiron
Corporation, 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)).
-41-
10(r) Consulting Agreement between the Company and Dr. Scott Hultgren,
dated as of July 9, 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(s) Letter of Intent between the Company and MedImmune, Inc., dated as
of July 10, 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(t) 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(u) 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(v) 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(w) Employment Agreement between the Company and Dr. Dennis Hruby, dated
as of January 1, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
Amendment to the Agreement, dated as of October 15, 1999
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999). Amendment to the
Agreement dated as of June 12, 2000).
10(x) Employment Agreement between the Company and Dr. Walter Flamenbaum,
dated as of February 1, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1997).
10(y) Employment Agreement between the Company and Thomas Konatich, dated
as of April 1, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
Extension and Amendment of the Agreement, dated as of January 19,
2000 (Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999). Amendment and
Restatement of the Agreement, dated as of October 6, 2000
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000).
10(z) Consulting Agreement between the Company and Prism Ventures LLC,
dated as of January 15, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1997).
10(aa) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated June 21, 1999 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(bb) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated September 27, 1999
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
10(cc) Software Application Development Services Agreement between the
Company and Open-i Media, Inc., dated October 15, 1999 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999).
-42-
10(dd) Media Development Agreement Services Agreement between the Company
and Open-i Media, Inc., dated March 15, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(ee) 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(ff) Consulting 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).
10(gg) Stock Purchase 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(hh) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated May 3, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000).
10(ii) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated August 1, 2000. (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000).
10(jj) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated August 21, 2000. (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2000).
10(kk) Stock Purchase Agreement between the Company and Open-i Media, Inc.
dated July 7, 2000. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10(ll) 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(mm) Agreement between the Company and Maxygen, Inc. dated October 17,
2000. (Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2000).
10(nn) 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(oo) Research Agreement between the Company and the University of
Maryland dated January 3, 2001) (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2000).
10(pp) Amended and Restated 1996 Incentive and Non-Qualified Stock Option
Plan dated August 15, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001).
10(qq) Letter Agreement among the Company, Donald G. Drapkin, Gabriel
Cerrone, Thomas E. Constance, Eric A. Rose, Judson A. Cooper and
Joshua D. Schein dated March 30, 2001 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2001).
-43-
10(rr) Separation Agreement between the Company and Joshua D. Schein dated
as of March 30, 2001 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2001).
10(ss) Separation Agreement between the Company and Judson A. Cooper dated
as of March 30, 2001 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2001).
10(tt) Employment Agreement between the Company and Philip Sussman dated
June 22, 2001 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2001).
10(uu) Amendment to Employment Agreement between the Company and Dr. Dennis
Hruby dated as of January 31, 2002 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 2001).
10(vv) Amendment and Waiver to Employment Agreement between the Company and
Thomas Konatich dated as of January 31, 2002 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2001).
10(ww) 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(xx) 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(yy) Amendment to Employment Agreement between the Company and Denis
Hruby dated October 1, 2002 (Filed with the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2002 initially filed
with the Securities and Exchange Commission on March 31, 2003).
10(zz) Retainer Agreement between the Company and Saggi Captial, Inc.,
dated November 1, 2002 (Filed with the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2002 initially filed
with the Securities and Exchange Commission on March 31, 2003).
10(aaa) 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(bbb) Amendment to Employment Agreement between the Company and Thomas N.
Konatich, dated November 5, 2002 (Filed with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002 initially
filed with the Securities and Exchange Commission on March 31,
2003).
10(ccc) 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(ddd) 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).
23.1 Consent of Independent Accountants.
31.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
-44-
32.1 Certification of Acting Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
----------
(1) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(2) Confidential information is omitted and identified by an * and filed
separately with the SEC with a request for Confidential Treatment.
(b) Reports on Form 8-K
On October 10, 2002, we filed with the SEC a report on Form 8-K stating
that, on October 4, 2002, we raised approximately $930,000 through a
private placement of our common stock.
Item 14. Controls and Procedures
Within 90 days prior to the filing date of this Annual Report on
Form 10-K, the Company's management, including the Acting Chief Executive
Officer, Chief Financial Officer, carried out an evaluation of the effectiveness
of the Company's disclosure controls and procedures as defined in Exchange Act
Rule 13a-14. Based upon that evaluation, the Acting Chief Executive Officer and
Chief Financial Officer has concluded that the Company's current disclosure
controls and procedures are effective. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the evaluation by the Acting
Chief Executive Officer and Chief Financial Officer.
The design of any system of controls and procedures is based in part
upon certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
Item 15. Principal Accountant Fees and Services
Current Year Audit Fees
PricewaterhouseCoopers LLP billed SIGA $101,580 in the aggregate,
for professional services rendered by them for the audit of SIGA's annual
financial statements for the fiscal year ended December 31, 2002, and the
reviews of the interim financial statements included in SIGA's form 10-QSB filed
during the year ended December 31, 2002.
Audit Related Fees
PricewaterhouseCoopers LLP billed SIGA $255,690 in the aggregate for
assurance and related services primarily with regard to the acquisition of
Allergy Therapeutics Holdings Ltd. rendered by them during the fiscal year ended
December 31, 2002.
Prior Year Proxy Audit Fees
PricewaterhouseCoopers LLP billed SIGA $105,000 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, 2001, and the
reviews of the interim financial statements included in SIGA's form 10-QSB filed
during the year ended December 31, 2001.
-45-
All Other Fees
PricewaterhouseCoopers LLP billed SIGA $30,870 in the aggregate, for
all other services rendered by them (other than those covered above under "Audit
Fees") during the fiscal year ended December 31, 2001.
-46-
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: September 5, 2003 By: /s/ Thomas N. Konatich
--------------------------------
Thomas N. Konatich
Chief Financial Officer & Acting
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title of Capacities Date
/s/ Thomas N. Konatich
--------------------------------- Acting Chief Executive Officer
Thomas N. Konatich and Chief Financial Officer September 5, 2003
/s/ Donald G. Drapkin
--------------------------------
Donald G. Drapkin Chairman of the Board September 5, 2003
/s/ Roger Brent, Ph.D.
--------------------------------
Roger Brent, Ph.D. Director September 5, 2003
/s/ Charles Cantor, Ph.D
--------------------------------
Charles Cantor, Ph.D Director September 5, 2003
/s/ Thomas E. Constance
--------------------------------
Thomas E. Constance Director September 5, 2003
/s/ Bernard L. Kasten, Jr., M.D.
--------------------------------
Bernard L. Kasten, Jr., M.D. Director September 5, 2003
/s/ Mehmet C. Oz
--------------------------------
Mehmet C. Oz Director September 5, 2003
/s/ Eric A. Rose
--------------------------------
Eric A. Rose Director September 5, 2003
/s/ Michael Weiner
--------------------------------
Michael Weiner Director September 5, 2003
-47-
SIGA Technologies, Inc.
(A development stage company)
Index to Financial Statements
Report of Independent Accountants............................................F-2
Balance Sheets as of December 31, 2002 and 2001..............................F-3
Statement of Operations for the years ended December 31, 2002 and 2001,
and for the period from inception through December 31, 2002.............F-4
Statement of Changes in Stockholders' Equity for the period from
inception through December 31, 2002.....................................F-5
Statement of Cash Flows for the years ended December 31, 2002 and 2001,
and for the period from inception through December 31, 2002............F-14
Notes to Financial Statements...............................................F-16
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders
of SIGA Technologies, Inc.
In our opinion, the accompanying balance sheets and related statements of
operations, of cash flows and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of SIGA
Technologies, Inc. (a development stage company) at December 31, 2002 and 2001,
and the results of its operations and cash flows for the years ended December
31, 2002 and 2001, and for the period from December 28, 1995 ("Inception")
through December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
\s\PricewaterhouseCoopers LLP
-----------------------------
New York, New York
February 14, 2003
F-2
SIGA Technologies, Inc.
(A development stage company)
Balance Sheets
December 31,
2002 2001
------------ ------------
Assets
Current Assets:
Cash and cash equivalents ....................................... $ 2,069,004 $ 3,148,160
Accounts receivable ............................................. 60,151 55,000
Prepaid expenses ................................................ 104,227 153,416
------------ ------------
Total current assets ................................... 2,233,382 3,356,576
Equipment, net .................................................. 432,442 703,239
Other assets .................................................... 164,168 147,873
------------ ------------
Total assets ........................................... $ 2,829,992 $ 4,207,688
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable ................................................ $ 461,146 $ 210,391
Accrued expenses and other ...................................... 184,554 263,616
Capital lease obligations ....................................... 11,206 192,196
------------ ------------
Total liabilities ...................................... 656,906 666,203
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock ($.0001 par value,
10,000,000 shares authorized, 410,760 and 379,294
issued and outstanding at December 31, 2002 and 2001,
respectively) ............................................... 443,674 398,441
Common stock ($.0001 par value, 50,000,000 shares authorized,
12,902,053 and 10,139,553 issued and outstanding at
December 31, 2002 and 2001, respectively) ................... 1,293 1,016
Additional paid-in capital ...................................... 32,051,461 29,348,786
Stock subscriptions outstanding ................................. (791,940) --
Deferred compensation ........................................... -- (35,583)
Deficit accumulated during the development stage ................ (29,531,402) (26,171,175)
------------ ------------
Total stockholders' equity ............................. 2,173,086 3,541,485
------------ ------------
Total liabilities and stockholders' equity ............. $ 2,829,992 $ 4,207,688
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SIGA Technologies, Inc.
(A development stage company)
Statement of Operations
For the Period
December 28,
1995 (Date of
Year Ended December 31, Inception)
---------------------------- to December 31,
2002 2001 2002
------------ ------------ ---------------
Revenues:
Research and development contracts ........... $ 344,450 $ 1,159,500 $ 3,631,631
------------ ------------ ------------
Operating expenses:
General and administrative ................... 1,838,470 2,570,869 17,221,915
Research and development (including amounts to
related parties of $59,000, $104,000, and
$547,581 for the years ended December 31,
2002 and 2001, and for the period from the
date of inception to December 31, 2002) .. 1,766,368 1,733,188 13,775,444
Patent preparation fees ...................... 104,700 117,264 1,459,454
------------ ------------ ------------
Total operating expenses ............ 3,709,538 4,421,321 32,456,813
------------ ------------ ------------
Operating loss ...................... (3,365,088) (3,261,821) (28,825,182)
Interest income/(expense) ......................... 34,061 (192,679) (312,983)
Loss on impairment of investment .................. -- (275,106) (430,697)
Other income/gain on sale of securities ........... -- -- 66,660
------------ ------------ ------------
Net loss ............................ (3,331,027) (3,729,606) (29,502,202)
Deemed dividend related to beneficial conversion
feature ...................................... 29,200 -- 29,200
------------ ------------ ------------
Net loss applicable to common
shareholders .................... $ (3,360,227) $ -- $(29,531,402)
============ ============ ============
Basic and diluted loss per share .................. $ (.32) $ (.44)
Weighted average common shares outstanding used for
basic and diluted loss per share ............. 10,450,529 8,499,961
============ ============
Comprehensive loss:
Net loss .......................................... $ (3,331,027) $ (3,729,606) $(29,502,202)
------------ ------------ ------------
Total comprehensive loss ............ $ (3,331,027) $ (3,729,606) $(29,502,202)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Series A Convertible
Preferred Stock Common Stock Additional
------------------------- ------------------------- Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- -----------
Issuance of common stock at inception ......... $ $ 2,079,170 $ 208 $ 1,040
Net loss ...................................... -- -- --
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1995 ............ -- 2,079,170 208 1,040
Net proceeds from issuance and sale of
common stock ($1.50 per share) ............. 1,038,008 104 1,551,333
Net proceeds from issuance and sale of
common stock ($3.00 per share) ............. 250,004 25 748,985
Receipt of stock subscriptions outstanding .... -- -- --
Issuance of compensatory options and
warrants ................................... -- -- 367,461
Net loss ...................................... -- -- --
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 ............ -- 3,367,182 337 2,668,819
Net proceeds from issuance and sale of
common stock ($5.00 per share) ............. 2,875,000 287 12,179,322
Issuance of warrants with bridge notes ........ -- -- 133,000
Stock option and warrant compensation ......... -- -- 68,582
Net loss ...................................... -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 ............. -- 6,242,182 624 15,049,723
Issuance of common stock to acquire third
party's right to certain technology
($4.34 per share) .......................... 335,530 34 1,457,424
Issuance of compensatory options and
warrants ................................... -- -- 175,870
Stock option and warrant compensation ......... -- -- 14,407
Unrealized losses on available for sale
securities ................................. -- -- --
Net loss ...................................... -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ............. -- 6,577,712 658 16,697,424
Issuance of common stock for software
development ($1.25 per share) .............. 25,000 3 31,247
Issuance of compensatory common stock,
options and warrants ....................... -- 51,550
Stock option and warrant compensation ......... -- 75,278
Unrealized gains on available for sale
securities .................................
Net loss ......................................
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ............. -- 6,602,712 661 16,855,499
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements
(Continued)
F-5
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Deficit
Accumulated
Stock During the
Deferred Subscriptions Development
Compensation Outstanding Stage
------------- ------------- -------------
Issuance of common stock at inception ................. $ (1,248)
Net loss .............................................. -- -- $ (1,000)
------------- ------------- -------------
Balances at December 31, 1995 ................ -- (1,248) (1,000)
Net proceeds from issuance and sale of common stock
($1.50 per share) ................................ -- --
Net proceeds from issuance and sale of common stock
($3.00 per share) ................................ --
Receipt of stock subscriptions outstanding ............ 1,248 --
Issuance of compensatory options and warrants ......... -- --
Net loss .............................................. -- -- (2,268,176)
------------- ------------- -------------
Balances at December 31, 1996 ................ -- -- (2,269,176)
Net proceeds from issuance and sale of common stock
($5.00 per share)
Issuance of warrants with bridge notes ................ -- --
Stock option and warrant compensation ................. -- --
Net loss .............................................. -- -- (2,194,638)
------------- ------------- -------------
Balance at December 31, 1997 ................. -- -- (4,463,814)
Issuance of common stock to acquire third party's
right to certain technology ($4.34 per share)
Issuance of compensatory options and warrants ......... -- --
Stock option and warrant compensation ................. -- --
Unrealized losses on available for sale securities .... -- --
Net loss .............................................. -- -- (6,551,666)
------------- ------------- -------------
Balance at December 31, 1998 ................. -- -- (11,015,480)
Issuance of common stock for software development
($1.25 per share) ................................
Issuance of compensatory common stock, options and
warrants .........................................
Stock option and warrant compensation .................
Unrealized gains on available for sale securities .....
Net loss .............................................. (3,636,500)
------------- ------------- -------------
Balance at December 31, 1999 ................. -- -- (14,651,980)
------------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
(Continued)
F-6
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Unrealized
Gains (Losses) Total
on Available Stockholders'
for Sale of Equity
Securities (Deficit)
-------------- ------------
Issuance of common stock at inception .................................... -- --
Net loss ................................................................. -- $ (1,000)
------------ ------------
Balances at December 31, 1995 ................................... -- (1,000)
Net proceeds from issuance and sale of common stock ($1.50 per share) .... -- 1,551,437
Net proceeds from issuance and sale of common stock ($3.00 per share) .... -- 749,010
Receipt of stock subscriptions outstanding ............................... -- 1,248
Issuance of compensatory options and warrants ............................ -- 367,461
Net loss ................................................................. -- (2,268,176)
------------ ------------
Balances at December 31, 1996 ................................... -- 399,980
Net proceeds from issuance and sale of common stock ($5.00 per share) .... 12,179,609
Issuance of warrants with bridge notes ................................... -- 133,000
Stock option and warrant compensation .................................... -- 68,582
Net loss ................................................................. -- (2,194,638)
------------ ------------
Balance at December 31, 1997 .................................... -- 10,586,533
Issuance of common stock to acquire third party's right to certain
technology ($4.34 per share) ........................................ 1,457,458
Issuance of compensatory options and warrants ............................ -- 175,870
Stock option and warrant compensation .................................... -- 14,407
Unrealized losses on available for sale securities ....................... (34,816) (34,816)
Net loss ................................................................. -- (6,551,666)
------------ ------------
Balance at December 31, 1998 .................................... (34,816) 5,647,786
Issuance of common stock for software development ($1.25 per share) ...... 31,250
Issuance of compensatory common stock, options and warrants .............. 51,550
Stock option and warrant compensation .................................... 75,278
Unrealized gains on available for sale securities ........................ 34,816 34,816
Net loss ................................................................. (3,636,500)
------------ ------------
Balance at December 31, 1999 .................................... -- 2,204,180
------------ ------------
The accompanying notes are an integral part of these financial statements.
(Continued)
F-7
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Series A Convertible
Preferred Stock Common Stock Additional
--------------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
Net proceeds from exercising of stock options .... $ 19,875 $ 2 $ 52,772
Net proceeds from the issuance of common
stock ($5.0 per share) ........................ 600,000 60 2,882,940
Issuance of common stock in connection with
software development .......................... 102,721 10 500,334
Issuance of common shares in connection with
acquisition of 12.5% equity interest in a
private company ............................... 40,336 4 179,996
Issuance of common shares upon conversion of
debentures .................................... 90,193 9 49,246
Warrants granted in connection with the
issuance of debentures ........................ 1,320,170
Issuance of compensatory options and warrants
to non-employees .............................. 1,218,145
Issuance of compensatory options to employees .... 278,750
Stock options and warrants compensation
related to services received from
non-employees ................................. 185,876
Amortization of deferred compensation
Issuance of shares in exchange for services ... 16,000 1 (1)
Amendment of warrants issued to a
non-employee for services ..................... 270,256
Net loss .........................................
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 ................ 7,471,837 747 23,793,983
------------ ------------ ------------ ------------ ------------
Issuance of preferred stock upon conversion
of debentures ................................. 1,011,593 1,036,707
Common stock issued upon conversion of
preferred series A stock ...................... (632,299) (638,266) 641,719 64 651,735
Net proceeds from issuance of common stock
($2.00 to $3.00 per share ..................... 1,684,636 169 4,356,801
Issuance of common shares upon conversion of
stock options ................................. 167,250 17 196,846
Issuance of common shares upon exercising of
warrants ...................................... 70,000 7 159,613
Issuance of restricted common stock to
non-employee .................................. 50,000 5 77,328
Issuance of common shares upon cashless
warrant exercise .............................. 35,640 4 (4)
Issuance of common stock upon conversion of
debentures .................................... 18,471 3 15,916
Issuance of compensatory stock options to the
board of directors ............................ 612,750
Cancellation of warrants issued to consultant .... (783,598)
Compensation charge relating to common stock
issued below fair value market ................ 103,040
Compensation charge relating to modification
of options to acquire common shares ........... 72,660
Amortization of deferred compensation ............
Stock options issued to non-employee ............. 79,054
Warrants issued to a non-employee ................ 28,318
Forfeiture of options issued to a director ....... (15,656)
Net loss .........................................
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 ................ 379,294 398,441 10,139,553 1,016 29,348,786
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
(Continued)
F-8
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Deficit
Accumulated
Stock During the
Deferred Subscriptions Development
Compensation Outstanding Stage
-------------- -------------- --------------
Net proceeds from exercising of stock options ......................
Net proceeds from the issuance of common stock ($5.0 per share) ....
Issuance of common stock in connection with software development
Issuance of common shares in connection with acquisition of
12.5% equity interest in a private company ....................
Issuance of common shares upon conversion of debentures ............
Warrants granted in connection with the issuance of debentures .....
Issuance of compensatory options and warrants to non-employees ..... $ (1,218,145)
Issuance of compensatory options to employees ...................... (278,750)
Stock options and warrants compensation related to services
received from non-employees ...................................
Amortization of deferred compensation .............................. 1,068,470
Issuance of shares in exchange for services ........................
Amendment of warrants issued to a non-employee for services ........
Net loss ........................................................... $ (7,789,589)
-------------- -------------- --------------
Balance at December 31, 2000 .................................. (428,425) -- (22,441,569)
-------------- -------------- --------------
Issuance of preferred stock upon conversion of debentures ..........
Common stock issued upon conversion of preferred series A stock ....
Net proceeds from issuance of common stock ($2.00 to $3.00 per
share .........................................................
Issuance of common shares upon conversion of stock options .........
Issuance of common shares upon exercising of warrants ..............
Issuance of restricted common stock to non-employee ................
Issuance of common shares upon cashless warrant exercise ...........
Issuance of common stock upon conversion of debentures .............
Issuance of compensatory stock options to the board of directors
Cancellation of warrants issued to consultant ...................... 248,713
Compensation charge relating to common stock issued below fair
value market ..................................................
Compensation charge relating to modification of options to
acquire common shares .........................................
Amortization of deferred compensation .............................. 121,389
Stock options issued to non-employee ...............................
Warrants issued to a non-employee .................................. 7,084
Forfeiture of options issued to a director ......................... 15,656
Net loss ........................................................... (3,729,606)
-------------- -------------- --------------
Balance at December 31, 2001 .................................. (35,583) -- (26,171,175)
The accompanying notes are an integral part of these financial statements.
(Continued)
F-9
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Unrealized
Gains (Losses) Total
on Available Stockholders'
for Sale of Equity
Securities (Deficit)
-------------- -------------
Net proceeds from exercising of stock options .................................. $ 52,774
Net proceeds from the issuance of common stock ($5.0 per share) ................ 2,883,000
Issuance of common stock in connection with software development ............... 500,344
Issuance of common shares in connection with acquisition of 12.5% equity
interest in a private company ............................................. 180,000
Issuance of common shares upon conversion of debentures ........................ 49,255
Warrants granted in connection with the issuance of debentures ................. 1,320,170
Issuance of compensatory options and warrants to non-employees ................. --
Issuance of compensatory options to employees .................................. --
Stock options and warrants compensation related to services received from
non-employees ............................................................. 185,876
Amortization of deferred compensation .......................................... 1,068,470
Issuance of shares in exchange for services .................................... --
Amendment of warrants issued to a non-employee for services .................... 270,256
Net loss ....................................................................... (7,789,589)
-----------
Balance at December 31, 2000 .......................................... -- 924,736
-----------
Issuance of preferred stock upon conversion of debentures ...................... 1,036,707
Common stock issued upon conversion of preferred series A stock ................ 13,533
Net proceeds from issuance of common stock ($2.00 to $3.00 per share ........... 4,356,970
Issuance of common shares upon conversion of stock options ..................... 196,863
Issuance of common shares upon exercising of warrants .......................... 159,620
Issuance of restricted common stock to non-employee ............................ 77,333
Issuance of common shares upon cashless warrant exercise ....................... --
Issuance of common stock upon conversion of debentures ......................... 15,919
Issuance of compensatory stock options to the board of directors ............... 612,750
Cancellation of warrants issued to consultant .................................. (534,885)
Compensation charge relating to common stock issued below fair value market .... 103,040
Compensation charge relating to modification of options to acquire common
shares .................................................................... 72,660
Amortization of deferred compensation .......................................... 121,389
Stock options issued to non-employee ........................................... 79,054
Warrants issued to a non-employee .............................................. 35,402
Forfeiture of options issued to a director ..................................... --
Net loss ....................................................................... (3,729,606)
----------- -----------
Balance at December 31, 2001 .......................................... -- 3,541,485
----------- -----------
The accompanying notes are an integral part of these financial statements.
(Continued)
F-10
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Series A Convertible
Preferred Stock Common Stock Additional
--------------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
Net proceeds from issuance of common stock
($1.00 to $1.09 per share) .................. 2,737,500 274 2,559,924
Issuance of common shares upon exercise of
stock options ............................... 25,000 3 28,093
Issuance of preferred stock to settle
dividends payable ........................... 31,466 45,233
Amortization of deferred compensation Stock
options issued to non-employee .............. 85,458
Deemed dividend related to beneficial
conversion feature .......................... 29,200
Net loss .......................................
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 .......... 410,760 $ 443,674 12,902,053 $ 1,293 $ 32,051,461
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
(Continued)
F-11
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Deficit
Accumulated
Stock During the
Deferred Subscriptions Development
Compensation Outstanding Stage
--------------- --------------- ---------------
Net proceeds from issuance of common stock ($1.00 to
$1.09 per share) ....................................... (791,940)
Issuance of common shares upon exercise of stock options ....
Issuance of preferred stock to settle dividends payable .....
Amortization of deferred compensation ....................... 35,583
Stock options issued to non-employee ........................
Deemed dividend related to beneficial conversion feature .... (29,200)
Net loss .................................................... (3,331,027)
--------------- --------------- ---------------
Balance at December 31, 2002 ........................... $ -- $ (791,940) $ (29,531,402)
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
(Continued)
F-12
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Unrealized
Gains (Losses) Total
on Available Stockholders'
for Sale of Equity
Securities (Deficit)
------------- -------------
Net proceeds from issuance of common stock ($1.00 to $1.09 per share) .... 1,768,258
Issuance of common shares upon exercise of stock options ................. 28,096
Issuance of preferred stock to settle dividends payable .................. 45,233
Amortization of deferred compensation .................................... 35,583
Stock options issued to non-employee ..................................... 85,458
Deemed dividend related to beneficial conversion feature ................. --
Net loss ................................................................. (3,331,027)
------------- -------------
Balance at December 31, 2002 .................................... $ -- $ 2,173,086
============= =============
The accompanying notes are an integral part of these financial statements.
(Continued)
F-13
SIGA Technologies, Inc.
(A development stage company)
Statement of Cash Flows
For the Period
December 28,
Year Ended 1995 (Date of
---------------------------- Inception) to
December 31, December 31, December 31,
2002 2001 2002
------------ ------------ ------------
Cash flows from operating activities:
Net loss ............................................... $ (3,331,027) $ (3,729,606) $(29,502,202)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation ....................................... 317,032 324,463 1,592,381
Stock, options and warrant compensation ............ 121,041 566,743 2,996,784
Loss on impairment of investment ................... -- 275,106 430,697
Loss on write-off of capital equipment ............. -- -- 97,969
Amortization of debt discount ...................... -- 232,393 954,705
Write-off of in-process research and development ... -- -- 1,457,458
Realized gain on sale of marketable securities ..... -- -- (66,660)
Non-cash research and development .................. -- -- 500,344
Changes in assets and liabilities:
Accounts receivable .............................. (5,151) (17,200) (60,151)
Prepaid expenses and other current assets ........ 49,189 (147,772) (104,227)
Other assets ..................................... (16,295) 8,683 (164,167)
Accounts payable and accrued expenses ............ 216,926 (477,649) 704,465
Accrued interest ................................. -- 20,390 100,672
------------ ------------ ------------
Net cash used in operating activities .......... (2,648,285) (2,944,449) (21,061,932)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ................................... (46,235) -- (2,203,489)
Sale (purchase) of investment securities ............... -- -- 66,660
Investment in Open-I-Media ............................. -- -- (170,000)
------------ ------------ ------------
Net cash flow used in investing activities ..... (46,235) -- (2,306,829)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock ............. 1,768,258 4,356,970 23,488,284
Receipts of stock subscriptions outstanding ............ -- -- 1,248
Gross proceeds from sale of convertible debentures ..... -- -- 1,500,000
Proceeds from exercise of stock options and
warrants to acquire common stock ..................... 28,096 356,483 437,353
Net proceeds from sale of warrants ..................... -- -- 52,174
Convertible debentures and warrant issuance costs ...... -- -- (52,500)
Proceeds from bridge notes ............................. -- -- 1,000,000
Repayments of bridge notes ............................. -- -- (1,000,000)
Proceeds from sale and leaseback of equipment .......... -- -- 1,139,085
Principal payments on capital lease obligations ........ (180,990) (328,229) (1,127,879)
------------ ------------ ------------
Net cash provided from financing activities .... 1,615,364 4,385,224 25,437,765
------------ ------------ ------------
(Continued)
F-14
SIGA Technologies, Inc.
(A development stage company)
Statement of Cash Flows
For the Period
December 28,
Year Ended 1995 (Date of
---------------------------- Inception) to
December 31, December 31, December 31,
2002 2001 2002
------------ ------------ --------------
Net increase in cash and cash equivalents ............. (1,079,156) 1,440,775 2,069,004
Cash and cash equivalents at beginning of period ...... 3,148,160 1,707,385 --
------------ ------------ ------------
Cash and cash equivalents at end of period ............ $ 2,069,004 $ 3,148,160 $ 2,069,004
============ ============ ============
Supplemental disclosure of non-cash investing and
financing activities:
Fixed assets exchanged in acquisition ............ $ -- $ -- $ 80,697
============ ============ ============
Fair value of common shares exchanged in
acquisition .................................... $ -- $ -- $ 180,000
============ ============ ============
Notes payable converted into equity .............. $ -- $ 1,375,000 $ 1,500,000
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-15
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") was incorporated in the
State of Delaware on December 28, 1995 ("Inception") as SIGA
Pharmaceuticals, Inc. The Company is engaged in the discovery, development
and commercialization of vaccines, antibiotics, and novel anti-infectives
for the prevention and treatment of infectious diseases. The Company's
technologies are licensed from third parties.
Basis of presentation
The Company's activities since inception have consisted primarily of
sponsoring and performing research and development, performing business
and financial planning, preparing and filing patent applications and
raising capital. Accordingly, the Company is considered to be a
development stage company.
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. Since inception the
Company has incurred cumulative net losses of $29,502,202 and expects to
incur additional losses to perform further research and development
activities. The Company does not have commercial biomedical products and
management believes that it will need additional funds to complete the
development of its biomedical products. 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.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid
investments, with original maturities of less than three months when
purchased and are stated at cost. Interest is accrued as earned.
Equipment
Equipment is stated at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the respective assets, which are
as follows:
Laboratory equipment 5 years
Leasehold improvements Life of lease
Computer equipment 3 years
Furniture and fixtures 7 years
Revenue recognition
The Company applies the guidance provided by Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements ("SAB 101"). 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
F-16
collection of the resulting receivable is probable. In situations where
the Company receives payment in advance of the performance of services,
such amounts are deferred and recognized as revenue as the related
services are performed. Non-refundable fees are recognized as revenue over
the term of the arrangement or based on the percentage of costs incurs to
date, estimated costs to complete and total expected contract revenue.
Milestones, which generally are related to substantial scientific or
technical achievements are recognized in income when the milestone is
accomplished.
Research and development
Research and development costs are expensed as incurred and include costs
of third parties who conduct research and development, pursuant to
development and consulting agreements, on behalf of the Company. Costs
related to the acquisition of technology rights, for which development
work is still in process, and that have no alternative future uses, are
expensed as incurred and considered a component of research and
development costs.
Income taxes
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if
it is more likely than not that some or all of the deferred tax asset will
not be realized.
Net loss per common share
Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period. The computation of Diluted
EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect operating results.
At December 31, 2002 and 2001, 410,760 and 379,294 shares, respectively,
of the Company's Series A convertible preferred stock have been excluded
from the computation of diluted loss per shares as they are anti-dilutive.
At December 31, 2002 and 2001, outstanding options to purchase 5,807,561
and 5,139,811 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 antidilutive. At
December 31, 2002 and 2001, outstanding warrants to purchase 4,675,144 and
4,231,428 shares, respectively, of the Company's common stock, with
exercise prices ranging from $1.00 to $8.25 have been excluded from the
computation of diluted loss per share as they are anti-dilutive.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the
reporting period. Significant estimates include the value of options and
warrants granted by the Company. Actual results could differ from those
estimates.
Fair value of financial instruments
The carrying value of cash and cash equivalents, and accounts payable and
accrued expenses approximates fair value due to the relatively short
maturity of these instruments.
F-17
Concentration of credit risk
The Company has cash in bank accounts that exceed the FDIC insured limits.
The Company has not experienced any losses on its cash accounts. No
allowance has been provided for potential credit losses because management
believes that any such losses would be minimal.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standard (FAS)
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). As
provided for by FAS 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, ("APB 25")"Accounting for
Stock Issued to Employees." 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 FAS
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 FAS 123, the Company's net loss and net loss
per share would have been as follows:
12 Months Ended
December 31,
2002 2001
Net loss, as reported ........................................... ($ 3,360,227) ($ 3,729,606)
============ ============
Add: Stock-based employee compensation expense recorded under
APB No. 25 ................................................. 35,583 121,389
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ................................. (153,882) (7,163,483)
------------ ------------
Pro forma net loss .............................................. ($ 3,478,526) ($10,771,700)
============ ============
Net loss per share:
Basic-as reported .......................................... ($ 0.32) ($ 0.44)
============ ============
Basic-pro forma ............................................ ($ 0.33) ($ 1.27)
============ ============
The fair value of the options granted to employees during 2002 and 2001
ranged from $0.09 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 2002: no dividend yield, expected volatility of
100%, risk free interest rates of 2.87%-4.50% and an expected term of 3 to
5 years.
The following weighted-average assumptions were used for 2001: no dividend
yield, expected volatility of 100%, risk free interest rates of
3.85%-4.74%, and an expected term of 3 to 5 years.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation. The impact of these changes is not material and did not
affect net loss.
Recent pronouncements
In 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (FAS) No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure an amendment of FASB
Statement No. 123" ("FAS 148"). This Statement amends Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), to provide alternative methods of transition
for an entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation. It also amends the
disclosure provisions of that FAS 123 to require prominent disclosure
about the effects on reported net income of an entity's accounting
F-18
policy decisions with respect to stock-based employee compensation.
Finally, this Statement amends APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure about those effects in interim financial
information. The Company adopted the disclosure provisions of FAS 148.
In July 2002, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("FAS 146"). FAS 146 addresses the recognition, measurement
and reporting of costs associated with exit or disposal activities that
are currently accounted for pursuant to Emerging Issues Task Force Issue
No. 94-3, Liabilities Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. Under FAS 146, such
liabilities, with the exception of certain one-time termination benefits,
will be recognized and measured initially at their fair value in the
period in which the liability is incurred. FAS 146 is effective for fiscal
years beginning after December 15, 2002.
3. Equipment
Equipment consisted of the following at December 31, 2002 and 2001:
Laboratory equipment........................ $ 896,862 $ 862,005
Leasehold improvements...................... 627,849 618,315
Computer equipment.......................... 155,204 153,360
Furniture and fixtures...................... 291,637 291,637
----------- -----------
1,971,552 1,925,317
Less - Accumulated depreciation.... (1,539,110) (1,222,078)
----------- -----------
Equipment, net.............................. $ 432,442 $ 703,239
=========== ===========
Depreciation expense for the years ended December 31, 2002 and 2001 was
$317,032 and $324,463, respectively.
At December 31, 2002 and 2001, laboratory equipment, computer equipment
and furniture included approximately $730,500, $117,000 and $291,600,
respectively, of equipment acquired under capital leases. Accumulated
depreciation related to such equipment approximated $684,400, $117,000 and
$190,829, respectively, at December 31, 2002, and $538,300, $78,000 and
$149,171, respectively, at December 31, 2001.
4. Stockholders' Equity
At December 31, 2002, 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.
Private Placement Offerings
2002 Placements
In December 2002, the Company raised gross proceeds of $1.865 million in a
private offering of common stock and warrants to purchase the Company's
common stock. The Company sold 1,700,000 shares of common stock. In
connection with the offering the Company issued 171,216 warrants to
purchase shares of the Company's common stock to placement agents. The
warrants are exercisable at a price of $1.65 and have a term of five
years. The fair value of the warrants on the date of grant was
approximately $188,970. The Company received net proceeds of $891,000
prior to December 31, 2002 and net proceeds of $791,940 after December 31,
2002. As such, as of December 31, 2002, the Company has recorded a
subscription receivable of $791,940.
F-19
In October 2002, the Company raised gross proceeds of $1.04 million in a
private offering of common stock and warrants to purchase the Company's
common stock. The Company sold 1,037,500 shares of common stock and
518,750 warrants. The warrants are exercisable at $2.25 and have a term of
five years. In connection with the offering the Company issued 103,750
warrants to purchase shares of the Company's common stock to placement
agents. The warrants are exercisable at a price of $1.50 and have a term
of five years. The fair value of the warrants attributable to consultants
on the date of grant was approximately $64,670.
Years 2001 and Prior
In October 2001, the Company raised gross proceeds of $2.55 million in a
private offering of common stock and warrants to purchase the Company's
common stock. The Company sold 850,000 shares of common stock and 425,000
warrants. The warrants are exercisable at $3.60 and have a term of seven
years. In connection with the offering the Company issued 100,000 warrants
to purchase shares of the Company's common stock to consultants. The
warrants are exercisable at a price of $3.60 and have a term of five
years. The fair value of the warrants on the date of grant was
approximately $221,300.
In August 2001, the Company raised gross proceeds of $1,159,500 in a
private offering of 409,636 shares of common stock and 307,226 warrants to
purchase shares of the Company's common stock. The warrants are
exercisable at $3.55 per share and have a term of seven years.
In May 2001, the Company raised gross proceeds of $850,000 in a private
offering of common stock and warrants to purchase shares of the Company's
common stock. The Company sold 425,000 shares of common stock and 425,000
warrants. The warrants are exercisable at $2.94 and have a term of seven
years. The investors consisted of members of the board of directors,
existing investors and new investors representing 43.4%, 5.9% and 50.8% of
the investors in the transaction, respectively. The Company recorded a
charge to earnings in the amount of $103,040 representing the intrinsic
value of the restricted stock purchased by members of the board of
directors.
In March 2000 the Company entered into an agreement to sell 600,000 shares
of the Company's common stock and 450,000 warrants to acquire shares of
the Company's common stock (the "March Financing") for gross proceeds of
$3,000,000. Of the warrants issued, 210,000, 120,000 and 120,000 are
exercisable at $5.00, $6.38 and $6.90, respectively. The warrants have a
term of three years and are redeemable at $0.01 each by the Company upon
meeting certain conditions. Offering expenses of $117,000 were paid in
April 2000. At December 31, 2002, all 450,000 warrants were outstanding.
In connection with the March financing, SIGA issued a total of 379,000
warrants to purchase shares of the Company's common stock to Fahnestock &
Co. (the"Fahnestock Warrants") in consideration for services related to
the March financing. The warrants had an exercise price of $5.00 per share
and are exercisable at any time until March 28, 2005. In November 2000,
the Company entered into a one year consulting agreement with Fahnestock
and Co. under which the Company will receive marketing, public relations
acquisitions and strategic planning service. In exchange for such
services, the Company canceled the Fahnestock Warrants and reissued them
to effectuate an amendment to the exercise price to $2.00 per share. In
connection with such amendment, the Company recorded a charge of
approximately $270,000 in the year ended December 31, 2000.
In January 2000 the Company completed a private placement of 6%
convertible debentures at an aggregate principal amount of $1,500,000 and
1,043,478 warrants to purchase shares of the Company's common stock with a
purchase price of $0.05 per warrant (the "January Financing"). The Company
received net proceeds of $1,499,674 from the total $1,552,174 gross
proceeds raised. The debentures are convertible into common stock at
$1.4375 per share. Interest at the rate of 6% per annum was payable on the
principal of each convertible debenture in cash or shares of the Company's
common stock, at the discretion of the Company upon conversion or at
maturity. The warrants have a term of five years and are exercisable at
$3.4059 per share. The Company has the right to require the holder to
exercise the warrants within five days under the following circumstances:
(i) a registration statement is effective; and (ii) the closing bid price
for the Company's common stock, for each of any 15 consecutive trading
days is at least 200% of the
F-20
exercise price of such warrants. If the holder does not exercise the
warrants after notice is given, the unexercised warrants will expire. The
warrants are exercisable for a period of five years.
In connection with the placement of the debentures and warrants, the
Company recorded debt discount of approximately $1.0 million. Such amount
represents the value of the warrants calculated using the Black-Scholes
valuation model. The discount is amortized over the term of the
debentures. Additionally, during the years ended December 31, 2001 and
2000, the Company recorded interest expense of $232,393 and $589,312
respectively, related to the amortization of such debt discount. In 2001
and 2000, debentures with a principal amount of $1,375,000 and $108,664,
respectively, along with accrued interest, were converted into 1,011,593
and 108,884 shares of the Company's preferred and common stock,
respectively.
In connection with the January 2000 financing, the Company issued warrants
to purchase a total of 275,000 shares of common stock to the placement
agent and the investors' counsel (or their respective designees). These
warrants have a term of five years and are exercisable at $1.45 per share.
In connection with the issuance of such warrants, the Company recorded a
deferred charge of $280,653, which was amortized over the term of the
debentures.
Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at the annual rate of 6% payable when and if declared
by the Company's board of directors; (ii) in the event of liquidation of
the Company, each holder is entitled to receive $1.4375 per share (subject
to certain adjustment) plus all accrued but unpaid dividends; (iii)
convert each share of Series A to a number of fully paid and
non-assessable shares of common stock as calculated by dividing $1.4375 by
the Series A Conversion Price (shall initially be $1.4375); and (iv) vote
with the holders of other classes of shares on an as converted basis.
As of December 31, 2001, all of the debentures were converted into shares
of the Company's preferred or common stock.
In November 1999, 16,000 shares of the Company's common stock were issued
in exchange for professional services. The Company recognized non-cash
compensation expense of $21,500 for the year ended December 31, 1999 based
upon the fair value of the stock on the date of grant. The Company issued
the shares in 2000.
In September and October 1997, the Company completed an initial public
offering of 2,875,000 shares of its common stock at an offering price of
$5.00 per share. The Company realized gross proceeds of $14,375,000 and
net proceeds, after deducting underwriting discounts and commissions, and
other offering expenses payable by the Company, of $12,179,609.
Stock option plan and warrants
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 provided
for the granting of up to 7,500,000 shares of the Company's common stock
to employees, consultants and outside directors of the Company. The
exercise period for options granted under the Plan, except those granted
to outside directors, is determined by a committee of the Board of
Directors. Stock options granted to outside directors pursuant to the Plan
must have an exercise price equal to or in excess of the fair market value
of the Company's common stock at the date of grant and become exercisable
over a period of three years with a third of the grant being exercisable
at the completion of each year of service subsequent to the grant.
F-21
Transactions under the Plan are summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
Outstanding at January 1, 2001................................... 2,167,061 $ 2.26
Granted..................................................... 3,660,000 2.67
Forfeited................................................... (500,125) 3.60
Exercised................................................... (187,125) 1.26
---------- ----------
Outstanding at December 31, 2001................................. 5,139,811 2.50
Granted..................................................... 777,750 2.66
Forfeited................................................... (85,000) 3.80
Exercised................................................... (25,000) 1.13
---------- ----------
Total outstanding at December 31, 2002.................. 5,807,561 $ 2.52
========== ==========
Options available for future grant at December 31, 2002.......... 1,480,314
Weighted average fair value of options granted during 2002....... $ 0.71
Weighted average fair value of options granted during 2001....... $ 1.84
The following table summarizes information about options outstanding at
December 31, 2002:
Weighted
Number Average Number
Outstanding Remaining Weighted Exercisable at Weighted
December 31, Contractual Average December 31, Average
2002 Life (Years) Exercise Price 2002 Exercise Price
$1.00............. 10,000 6.86 1.00 10,000 1.00
1.13.............. 300,000 6.81 1.13 300,000 1.13
1.50.............. 167,084 8.48 1.50 36,528 1.50
2.00 - 2.75....... 4,842,250 8.12 2.38 4,531,625 2.38
3.94 - 5.50....... 488,227 5.99 4.55 416,894 4.66
---------- ----------
5,807,561 5,295,047
========== ==========
The following tables summarize information about warrants outstanding at
December 31, 2002:
Number of Weighted Average Expiration
Warrants Exercise Price Dates
Outstanding at January 1, 2001....... 3,694,202 $ 4.04
Granted......................... 1,257,226 3.37 05/31/08 - 10/15/08
Exercised....................... (120,000) 1.85
Canceled / Expired.............. (600,000) 6.43
---------- ---------
Outstanding at December 31, 2001..... 4,231,428 3.61
Granted......................... 793,716 2.03 09/30/07 - 12/31/07
Canceled / Expired.............. (350,000) 7.32
---------- ---------
Outstanding at December 31, 2002..... 4,675,144 $ 3.06
---------- ---------
Number
of Warrants Exercise
Outstanding Price
100,000 1.00
679,966 1.45 - 1.65
877,750 2.00 - 2.25
2,551,212 2.94 - 3.63
226,216 4.63 - 5.00
240,000 6.38 - 6.90
4,675,144
F-22
2002 Grants
At December 31, 2002, options granted outside of the plan included 125,000
options granted to an employee and 125,000 options granted to consultants.
In September 2002, the Company entered into a four-month consulting
agreement under which the consultant assists the Company with public
relations efforts in the United States of America and Europe in exchange
for a monthly retainer of $3,500 for the four-month term and 50,000 fully
vested options to purchase shares of the Company's common stock. Of the
amount of fully vested options, 25,000 shares have an exercise price of
$1.50 per share and 25,000 shares have an exercise price of $1.75. Upon
grant, the Company recorded a $31,618 stock compensation charge to
operations based upon the fair value of the options.
In April 2002, in connection with an existing consulting agreement, the
Company granted a consultant an option to purchase 15,000 shares of the
Company's common stock under the Plan. Upon grant, the Company recorded a
$10,269 stock compensation charge to operations based upon the fair value
of the option.
Years 2001 and Prior
In June 2001, the Company entered into a one year consulting agreement
under which the consultant assists the Company with public relations
efforts in Europe in exchange for 50,000 shares of the Company's
restricted common stock. The restricted stock vests at an equal rate over
the period of the agreement. As the restricted stock vests, the Company
will record charges to earnings based upon the difference between the fair
value and the price of the restricted stock. During the year ended
December 31, 2001, the Company has recorded stock compensation charges to
earnings in the amount of $77,333.
In May 2001, subject to approval by the shareholders, the Company granted
3,225,000 options, at an exercise price of $2.50 per share, to the members
of the new board of directors. Subsequent to the approval by the
shareholders the Company recorded charges to earnings in the amount of
$612,750 based upon the difference between the fair market value and the
exercise price of the options.
In July 2000, the Company entered into an agreement with a consultant to
serve as the Company's public relations agent. The consultant is paid a
monthly retainer of $6,000 and received options to purchase 75,000 shares
of the Company's common stock: 25,000 are exercisable at $5.75 per share,
25,000 at $6.50 per share and 25,000 at $7.50 per share. After an initial
four-month term, the Company may terminate the agreement on thirty days
notice. During the year ended December 31, 2000, the Company recorded a
non-cash charge associated with such options in the amount of $160,314.
The options were vested and exercisable at December 31, 2000. No charge
was recorded for the year ended December 31, 2001.
In connection with the development of its licensed technologies the
Company entered into a consulting agreement with the scientist who
developed such technologies, under which the consultant serves as the
Company's Chief Scientific Advisor. The scientist, who is a stockholder,
has been paid an annual consulting fee of $75,000. The agreement, which
commenced in January 1996 and is only cancelable by the Company for cause,
as defined in the agreement, had an initial term of two years and provided
for automatic renewals of three additional one year periods unless either
party notifies the other of its intention not to renew. Research and
development expense incurred under the agreement amounted to $75,000 and
$75,000 for the years ended December 31, 2000 and 1999, respectively. In
June 2001, the Company entered into an amended consulting agreement with
the scientist under which the scientist will provide services to the
Company for a three year period commencing on September 10, 2001. In
consideration for the consulting services the scientist will be paid an
annual fee of $50,000 payable quarterly. In addition, the
F-23
Company granted the scientist options to purchase 225,000 shares of common
stock at $3.94 per share. On September 10, 2001, ten percent of the
options vested and the remaining shall vest in 36 monthly installments
beginning on October 10, 2001. For the years ended December 31, 2002 and
2001, the Company recorded a charge of $58,904 and $79,000, respectively.
In September 2002, the Company and the consultant terminated their
arrangement and all unvested options were forfeited.
In August 2000, the Company entered into an agreement with a consultant to
provide the Company with financial consulting, planning, structuring,
business strategy, and public relations services and raising equity
capital. The term of the agreement is for a period of fifteen months with
a guarantee of a six-month retention from August 1, 2000, through February
1, 2001. The consultant was paid a fee of $40,000 upon signing of the
agreement, and will be paid an additional $40,000 every two months for the
term of the agreement unless terminated by the Company at the end of the
initial six month period. Under the provisions of the agreement, the
consultant received warrants to purchase 500,000 shares of the Company's
common stock. 200,000 warrants with an exercise price of $3.63 per share
vested upon the date of the agreement. Of the remaining 300,000 warrants,
100,000 warrants vest on May 1, 2001 with an exercise price of $6.50 per
share, 100,000 vest on August 1, 2001 with an exercise price of $7.50 per
share and 100,000 vest on October 1, 2001 with an exercise price of $9.50
per share. The warrants become exercisable over a period of five years.
Unvested warrants terminate in the event the agreement is terminated.
During the year ended December 31, 2000, the Company recorded a non-cash
charge associated with such warrants in the amount of $645,786. In January
2001 the Company and the consultant terminated their arrangement. In
addition to the cancellation of 300,000 unvested warrants, the consultant
agreed to return 150,000 of its vested warrants to the Company. In
connection with the cancellation and return of the vested warrants, the
Company recorded a non-cash benefit of $535,000 in the results of its
operations for the year ended December 31, 2001.
In January 2000 the Company entered into a one year consulting agreement
with a member of its Board of Directors. In exchange for the consulting
services, the Company granted the member of the Board warrants to purchase
50,000 shares of common stock at an exercise price of $1.00. The warrants
vested immediately and became exercisable on January 19, 2001. During the
year ended December 31, 2001 and December 31, 2000, the Company recorded a
non-cash charge associated with such warrants in the amount of $35,402 and
$134,598, respectively.
In September 1999 the Company entered into a consulting agreement with one
of its directors under which the director will provide the Company with
business valuation services in exchange for warrants to purchase 100,000
shares of the Company's common stock, at an exercise price of $1.00 per
share. Of these warrants, 50,000 were exercisable on the date of grant and
the remaining 50,000 on the first anniversary of the consulting agreement.
The warrants must be exercised on or prior to September 9, 2004. The
Company recognized non-cash compensation expense of $108,202 and $46,848
for the years ended December 31, 2000 and 1999, respectively, based upon
the fair value of such warrants. All the warrants were vested and
exercisable at December 31, 2000.
In June 1998 the Company granted a consultant options to purchase 150,000
shares of the Company's common stock at an exercise price of $5.00 per
share. 50,000 options vested immediately, and the remaining 100,000 vest
pro rata over a period of ten quarters. The options have a term of five
years. The Company recognized non-cash compensation expense of $41,424 and
$58,480 for the years ended December 31, 2000 and 1999, respectively,
based upon the fair value of the options on the date of the grant.
In May 1998, the Company granted a consultant options to purchase 5,000
shares of the Company's common stock, at an exercise price of $4.25. The
Company recognized non-cash compensation expense of $15,655 for the year
ended December 31, 1998 based upon the fair value of such options on the
date of the grant.
In January 1998 the Company issued warrants to a third party to purchase
16,216 shares of the Company's common stock, at an exercise price of $4.60
per share in connection with an operating lease. The Company recognized a
non-cash charge of $57,875 for the year ended December 31, 1998 based upon
the fair value of such warrants on the date the grant.
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In September 1997, in connection with the Company's IPO, the Company
issued the underwriters warrants to purchase 225,000 shares of common
stock at an exercise price of $8.25 per share. All the warrants, which
have a term of five years, are exercisable at December 31, 1999.
In November 1996, the Company entered into an employment agreement with
its former President and Chief Executive Officer. Under the terms of the
agreement, the employee received warrants to purchase 461,016 shares of
common stock at $3.00 per share. These warrants expire on November 18,
2006. Upon termination of the employment agreement on April 21, 1998,
230,508 unvested warrants were surrendered to the Company. 230,508 of the
warrants are still outstanding at December 31, 2002.
5. Related Parties
Employment agreements
In September 1998, the Company and its Chief Executive Officer and
Chairman ("EVPs") entered into employment agreements commencing October 1,
1998 and expiring on December 31, 2000. Under the agreements, the EVPs
were each paid an annual minimum compensation of $225,000, and were
granted a minimum of 16,666 options to purchase shares of the Company's
common stock per annum. The Company incurred $450,000 of expense for the
year ended December 31, 1999 pursuant to these agreements.
In November 1999, the EVPs were each granted non-qualified stock options
to purchase 150,000 shares under the Company's 1996 Incentive and
Non-Qualified Stock Option Plan, at an exercise price of $1.30, which
expire in ten years. 37,500 options vested immediately, 75,000 vested in
November 2000, and the remaining 37,500 vested in November 2001.
In January 2000, the Company entered into new employment agreements with
its EVPs, expiring in January 2005. The new agreements provide for an
annual salary of $250,000, with annual increases of at least 5%. In
addition, both of the EVPs were granted fully-vested options to purchase
500,000 shares of the Company's common stock at $2.00 per share. Under the
provisions of the agreements, the EVPs would each receive a cash payment
equal to 1.5% of the total consideration received by the Company in a
transaction resulting in a greater than 50% change in ownership of the
outstanding common stock of the Company.
On March 30, 2001, the Company, its EVPs and certain investors (the
"Investors") in the Company entered into an agreement under which the
EVP's agreed to resign from SIGA and use their best efforts to cause each
of the current directors of SIGA to resign. Under the agreement, certain
Investors were to be appointed as Chairman of the Board and as Chief
Executive Officer. In addition, as prescribed in the agreement, the
amended employment agreement entered into by the Company and the EVPs in
October 2000 was terminated with no cost to the Company, the vesting of
37,500 options granted to the EVPs was accelerated, exercise terms were
extended and the EVPs are entitled to certain benefits until April 2003.
In addition, each of the parties to the agreement have agreed to lock up
their respective shares of common stock and options of SIGA for 24 months
subject to certain release provisions. In connection with the amendment of
the terms of the EVP's options, the Company recorded a non-cash charge of
$73,000 in the year ended December 31, 2001.
In January 2000, the Company amended its employment agreement with its
CFO, extending his employment until April 2002. Under this amendment, the
CFO received options to purchase 100,000 shares of the Company's common
stock at $2.00 per share. The options vest ratably over two years and
expire in January 2010.
In October 2000, the Company entered into an amended and restated
employment agreements with its Chief Executive Officer, its Chairman and
its CFO. Under the amended agreements, in the event of a change in
control, the EVPs and the CFO will be paid their respective compensation
for the remainder of their employment terms and will receive a tax
gross-up payment. In addition, in such event, all unvested options held by
the EVPs and the CFO will become vested and exercisable. In the event of a
merger or
F-25
consolidation where the holders of the voting capital stock of the Company
immediately prior to the transaction own less than a majority of the
voting capital stock of the surviving entity, the EVPs will each receive a
one time cash payment of 1.5% of the total consideration received by the
Company and a tax gross-up payment. In the event of a sale, merger or
public spin-out of any subsidiary or material asset of the Company, the
EVPs shall each receive a fee equal to 1.5% of the value of the Company's
shares of the subsidiary or material asset and a tax gross-up payment.
In January 2002, the Company and its Chief Financial Officer ("CFO")
entered into an amendment to the CFO's employment agreement, extending his
employment until December 31, 2002. In November 2002, the employment
agreement was amended and extended until September 30, 2004. Under the
amended agreement, compensation is set at an annual minimum base salary of
$210,000 and options of 150,000 were granted under the Plan at an exercise
price of $2.50 per share. Of such grant, 75,000 shares vested immediately
and 75,000 shares will vest on September 1, 2003.
In May 2000, the Company and its Vice President for Research entered into
an amendment of the Vice Presidents employment agreement, extending his
employment until December 31, 2002, except that the Company may terminate
the agreement upon 180 days written notice. Under the amendment the
employee's title was changed to Chief Scientific Officer ("CSO"). The CSO
was granted options to purchase 125,000 shares of the Company's common
stock at $2.00 per share. The options vest ratably over the remaining term
of the amendment. During the year ended December 31, 2001 and 2000, the
Company recorded non-cash compensation charges of $112,168 and $130,999
related to these options, respectively. In October 2002, the employment
agreement was amended and extended until December 31, 2005. Under the
amended agreement, compensation is set at an annual minimum base salary of
$210,000 and options of 300,000 shares were granted at an exercise price
of $2.50. Upon such grant, the CSO was required to surrender 50,000 shares
granted under a previous grant with an exercise price of $3.94. Under the
new grant, 75,000 shares vested immediately and 75,000 shares will vest on
September 1, 2003, 2004 and 2005, respectively, pursuant to the Plan. As
such, 50,000 options are considered variable options under APB 25 as
replacement awards for the options surrendered. For the year ended
December 31, 2002, there was no stock compensation charge as the fair
value of the options was below the exercise price.
In November 1999, the Company entered into two year employment agreements
with three newly-hired Vice Presidents ("VPs"), of Business Development,
Investor Relations, and Marketing, at annual salaries of $95,000,
$100,000, and $120,000, respectively. Each VP was also granted options to
purchase 100,000 shares of the Company's common stock at an exercise price
of $1.125 per share, to vest ratably over two years. As of December 31,
2001, the VPs were no longer with the Company. The employees forfeited
12,500 and 100,000 unvested options at December 31, 2001 and 2000,
respectively.
In June 2001, the Company entered into an employment agreement with an
individual to serve as the Company's President and Chief Executive Officer
(the "Executive"), expiring in June 2003. The agreement provides for an
annual salary of $300,000. In addition the Executive was granted options
to purchase 420,000 shares of the Company's common stock at $3.94 per
share. In October 2001, the Company and the Executive entered into a
separation and release agreement under which the Company will pay the
Executive $40,000 over a period through October 5, 2002. Options
previously granted to the Executive have been Canceled.
6. Income Taxes
The Company has incurred losses since inception, which have generated net
operating loss carryforwards of approximately $19,356,114 and $16,575,000,
respectively, at December 31, 2002 and 2001 for federal and state income
tax purposes. These carryforwards are available to offset future taxable
income and begin expiring in 2010 for federal income tax purposes. As a
result of a previous change in stock ownership, the annual utilization of
the net operating loss carryforwards is subject to limitation.
The net operating loss carryforwards and temporary differences, arising
primarily from deferred research and development expenses result in a
noncurrent deferred tax asset at December 31, 2002 and 2001 of
approximately $11,143,534 and $9,811,000, respectively. In consideration
of the Company's accumulated
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losses and the uncertainty of its ability to utilize this deferred tax
asset in the future, the Company has recorded a valuation allowance of an
equal amount on such date to fully offset the deferred tax asset.
For the years ended December 31, 2002 and 2001, 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.
7. Technology Purchase Agreement
In February 1998, the Company entered into an agreement with a third party
pursuant to which the Company acquired the third party's right to certain
technology, intellectual property and related rights in the field of gram
negative antibiotics in exchange for 335,530 shares of the Company's
common stock. Research and development expense related to this agreement
amounted to $1,457,458 for the year ended December 31, 1998.
8. Collaborative Research and License Agreement
In October 2002, the Company entered into a collaborative research
agreement with Trans Tech Pharma, Inc. (Trans Tech), a related party, for
the discovery and treatment of human diseases. Under the terms of the
agreement, Trans Tech and the Company have agreed to contribute each of
their respective services and share in equal costs of specified research
projects. In consideration of the services performed by Trans Tech and use
of its proprietary technology, SIGA grants an exclusive, fully-paid,
nontransferable, nonsublicenseable, limited license to use existing rights
to patents and technologies. Both parties will share equally in the
ownership of compounds and related intellectual property derived from such
research efforts.
In July 1997, the Company entered into a collaborative research and
license agreement with Wyeth-Ayerst (the "Collaborator"). Under the terms
of the agreement, the Company has granted the collaborator an exclusive
worldwide license to develop, make, use and sell products derived from
specified technologies. The agreement required the collaborator to sponsor
further research by the Company for the development of the licensed
technologies for a period of two years from the effective date of the
agreement, in return for payments totaling $1,200,000. In consideration of
the license grant the Company is entitled to receive royalties equal to
specified percentages of net sales of products incorporating the licensed
technologies. The royalty percentages increase as certain cumulative and
annual net sales amounts are attained. The Company could receive milestone
payments, under the terms of the agreement of up to $13,750,000 for the
initial product and $3,250,000 for the second product developed from a
single compound derived from the licensed technologies. Such milestone
payments are contingent upon the Company making project milestones set
forth in the agreement, and, accordingly, if the Company is unable to make
such milestones, the Company will not receive such milestone payments.
During 1999, the Company recognized $337,500 in revenue related to this
agreement. In 2000, the Company received $450,000 from the Collaborator.
The Company recorded the entire amount as deferred revenue on December 31,
2000 and recognized it in its results of operations upon the signing of an
amendment to the agreement in May 2001. In addition, for the year ended
December 31, 2001, the Company recorded $575,000 in revenue relating to
the agreement of which $237,500 reflected a milestone payment. The
sponsorship of the research at SIGA ended in September 2001. Research and
development efforts continue at Wyeth, however, the remaining contractual
milestones have not been reached as of December 31, 2002.
9. License and Research Agreements
In December 2002, the Company announced that it was awarded an initial
U.S. Government contract with the U.S. Army to develop an effective
Smallpox antiviral drug. The total estimated revenue under the contract is
$1.6 million for the periods January 1, 2003 to May 31, 2007.
In May 2002 the Company announced that it was awarded a Phase II research
grant for a total of $865,000. The grant will support the Company's
antibiotic development program. The grant was awarded by the Small
Business Innovation Research Program of the National Institutes of Health.
The Company will
F-27
receive $529,359 over the twelve month period beginning June 1, 2002 and
an additional $335,698 over the twelve month period beginning June 1,
2003. For the twelve months ended December 31, 2002, the Company received
approximately $270,000 from this grant.
On December 6, 2000 the company entered into an exclusive license
agreement and a sponsored research agreement with the Regents of the
University of California (the "Regents"). Under the license agreement the
Company obtained rights for the exclusive commercial development, use and
sale of products related to certain inventions in exchange for a
non-refundable license issuance fee of $15,000 and an annual maintenance
fee of $10,000. In the event that the Company sub-leases the license, it
shall pay Regents 15% of all royalty payments made to SIGA. Under the
agreement, SIGA is required to pay Regents 15% of all funds received from
-Ayesrt and a minimum annual amount of $250,000 for the continued
development of the inventions for a period of three years. Under the
sponsored research agreement SIGA was required to provide the Regents with
funding in the total amount of $300,000 over a period of two years to
support certain research. In September 2001 the sponsored research
agreement was terminated. The Company recorded total research and
development charges in the amount of $52,500 for the year ended December
31, 2000, related to the two agreements.
In February 2001, the Company entered into a subcontract agreement with
the Oregon State University. Under the agreement, the Oregon State
University subcontracted to SIGA certain duties it has under a grant
received from the National Institute of Health for the development of
Proxvirus Proteinase Inhibitors. The term of the original agreement lapses
on August 31, 2001. The agreement has been extended through August 31,
2003. During the year ended December 31, 2002, the Company recognized
revenue in the amount of $75,000.
In March 2000 the Company entered into an agreement with the Ross Products
Division of Abbott Laboratories (Ross), under which the Company granted
Ross an exclusive option to negotiate an exclusive license to certain
Company technology and patents, in addition to certain research
development services. In exchange for the research services and the
option, Ross was obligated to pay the Company $120,000 in three
installments of $40,000. The first payment of $40,000 was received in
March 2000 and is being recognized ratably, over the expected term of the
arrangement. The remaining installments are contingent upon meeting
certain milestones under the agreement and will be recognized as revenue
upon completion and acceptance of such milestones. The first milestone was
met, and the Company received an additional payment of $40,000 in the
quarter ended September 30, 2000. During the years ended December 31, 2001
and 2000, the Company recognized revenue in the amount of $45,000 and
$80,000, respectively. The Company has not entered into any new research
agreements with Ross in 2002.
In May, August and September 2000 the Company was awarded three Phase I
Small Business Innovation Research (SBIR) grants from the National
Institutes for Health in the amounts of $26,000, $96,000 and $125,000
respectively. The grants are for the periods May 3, 2000 to August 31,
2000, August 1, 2000 to January 31, 2001, and September 15, 2000 to March
14, 2001 respectively, and will support the Company's antibiotic and
vaccine development programs.
In July and September, 1999 the Company was awarded two Phase I research
grants by the Small Business Innovation Research Program (SBIR) of
$109,072 and $293,446 respectively. The first grant was to help support
the Company's antibiotic discovery efforts for the period July 1, 1999
through December 31, 1999. The second grant provides support for the
Company's effort to develop a vaccine targeting strep throat, in
collaboration with the National Institutes of Health (NIH). The grant
award is for a period of twelve months beginning on October 1, 1999. For
the years ending December 31, 2000 and 1999 the Company had recognized
revenue from the two grants of $220,457 and $182,061, respectively.
10. Product Development Agreement
In October 1999 the Company entered into an agreement with Open-iMedia, a
software and web development company ("Development Company"). Under the
terms of the agreement the Company was to acquire and the Development
Company was to develop, the source code for a client/server chat and
instant messaging application. In March 2000, the Company entered into an
agreement with the Development
F-28
Company for creative and technical services, and for business strategy
consulting in exchange for $280,000 in cash and 13,605 shares of the
Company's common stock.
During the year ended December 31, 2000 the Company recognized charges of
$180,000 and $500,334 associated with cash paid and 102,721 shares of the
Company's common stock, respectively, paid and granted under the
agreements. Costs related to this agreement were recognized as the
services were performed or upon meeting certain milestones as defined
under the agreements. The Company recorded all amounts paid under the
development agreements, including the fair value of shares issued in
research and development expenses.
In July 2000 the Company acquired a 12.5% equity position in the
Development Company. Under the terms of the agreement, the Development
Company received: (i) $170,000 in cash; (ii) 40,336 shares of the
Company's common stock; and (iii) certain assets consisting of the instant
messenger product, PeerFinder and fixed assets with a net book value of
$80,697. In addition, the Company received the right to appoint one
director to the Development Company's board of directors. At December 31,
2002 and 2001, the Company reassessed the value of its investment in
Open-I. The Company reviewed certain events and changes in circumstances
indicating that the carrying amount of the investment in Open-I may not be
recoverable in its entirety. In 2000, management elected to reduce the
carrying amount of its investment to reflect its recoverable value as of
the year-end and recorded an impairment charge of $156,000. At December
31, 2001, management reviewed all available information and as a result of
its analysis determined that the carrying value of its investment should
be written off.
11. Other Agreements
In March 2002, the Company entered into a non-binding Letter of Intent
(the "Letter") to acquire all of the outstanding shares of Allergy
Therapeutics Holdings Ltd. ("Allergy"). Under the terms of the letter,
SIGA was to issue shares to the Allergy Stockholders that would result in
47.5% ownership to each of the former shareholders of SIGA and former
shareholders of Allergy of the outstanding common stock, on a fully
diluted basis. As part of the transaction, Elan Pharma International
Limited ("Elan") was to enter into an exclusive license for certain
technology with SIGA in exchange for 5% of the Company's common stock on a
fully diluted basis. In July 2002, the Company announced the termination
of the Letter to acquire all the shares of Holdings due to unfavorable
market conditions that existed at the time of the termination. The Company
incurred approximately $600,000 of expenses in connection with this
contemplated transaction, of which approximately $200,000 were still
outstanding as of December 31, 2002.
In May 2000, the Company entered into a letter of intent (the "Letter") to
acquire Hypernix Technologies, Ltd, an Israel-based entity. Under the
letter, in the event that the transaction was consummated, SIGA was to
issue 3 million shares of its common stock to the stockholders and certain
employees of Hypernix and assume all of the liabilities of Hypernix (not
to exceed $1,250,000), with Hypernix's creditors to be paid half in cash
and half in common stock of SIGA. Also under the letter, SIGA was to lend
Hypernix $250,000 per month for up to five months. This advance was
subject to interest at an annual rate of 10% and was collateralized by all
the assets of Hypernix. The Company advanced Hypernix $261,000 and
$250,000 in May and July 2000,respectively, under the agreement. On August
10, 2000, the Company terminated the letter of intent. SIGA recorded
charges of $261,000 and $250,000 for the three months ended June 30, 2000
and September 30, 2000 respectively, to reserve the amounts advanced to
Hypernix. In March 2001, the Company received a payment from Hypernix in
the amount of $84,375.
12. Segments
Since the announcement in September 1999 that the Company intended to
pursue an Internet initiative, the Company operated its Internet
initiative as a separate segment. The Internet segment generated operating
expenses of approximately $1,018,000 during 2000 and has no identifiable
assets at December 31, 2002 and 2001. At December 31, 2002 and 2001 the
Company has no internet related operations.
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13. Commitments and Contingencies
Operating lease 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......................................... $ 164,115
2004......................................... 173,821
2005......................................... 66,982
2006......................................... 68,321
2007 and thereafter.......................... 75,505
---------
Total........................................ $ 548,744
=========
Capital lease commitments
In July, August and September 1998, the Company sold certain laboratory
equipment, computer equipment and furniture to a third party for $493,329,
$385,422 and $260,333, respectively, under sale-leaseback agreements with
terms of 42 months ending December 1, 2001, January 1, 2002 and February
1, 2002, respectively. At the end of the respective leases, the Company
renewed terms for an additional 12 months requiring minimum monthly
payments of $6,167, $4,818 and $3,254, respectively. The Company has an
option to purchase the equipment up to 15% of the original cost at the end
of the renewal lease terms.
Future minimum lease payments for assets under capital leases at December
31, 2002 are as follows:
Year ended December 31, 2003:............................. $ 11,326
--------
Total Minimum Payments...................... 11,326
Less: amounts representing interest.................. 120
--------
Present value of future minimum lease payments............ 11,206
Less current portion of capital lease obligations.... 11,206
--------
Capital lease obligations, net current portion............ $ --
========
14. Subsequent Events
On February 5, 2003, the Company entered into a 12-month consulting
agreement in the amount of $249,420 to provide marketing research support.
Upon being awarded research contracts in excess of $2.0 million from such
support, the Company is obligated to issue 400,000 fully vested warrants
at an exercise price of $1.32 with an expiration of 3 years. Upon renewal
of the agreement, the Company is required to issue an additional 100,000
warrants with an exercise price set at the date of the renewal with an
expiration of 3 years. The Company has the right to terminate the
agreement after six months.
F-30