acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS 141R also requires additional disclosure of information surrounding a business combination, such that users of the entity’s financial statements can fully understand the nature and financial impact of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The provisions of SFAS 141R will only impact us if we are party to a business combination after the pronouncement has been adopted.
The following table sets forth certain consolidated statements of income data as a percentage of net revenue for the periods indicated:
Revenues from research and development contracts and grants for the year ended December 31, 2007 were $6.70 million, a decline of $560,000 or 7.7% from the $7.26 million in revenues recorded for the year ended December 31, 2006. During the year ended December 31, 2007, we recognized revenues of $4.52 million from NIH grants and an agreement with the NIH supporting our lead programs. Revenues from NIH grants, an agreement with the NIH and an agreement with Saint Louis University, supporting these lead programs during the year ended December 31, 2006 were $3.7 million. Revenues recorded from our programs with the USAF and the US Army were $1.9 million and $2.7 million for the years ended December 31, 2007 and 2006, respectively. The decline of $800,000 in revenues generated from our agreements with the USAF and the US Army is mainly due to revenues generated in 2006 from a one-year agreement with the US Army, signed in September 2005 and completed in 2006. The decline in revenues recorded for the year ended December 31, 2007 was also due to the completion of a one year, $500,000, Phase I grant from the NIH to support the development of our Bacterial Commensal Vector technology for the delivery of smallpox vaccine, which we completed in February 28, 2007. Revenues recorded in connection with this grant were $82,000 and $409,000, for the years ended December 31, 2007 and 2006, respectively. Revenues for the year ended December 31, 2006 also included $412,000 related to a four-year agreement with the US Army, supporting our Strep program, which was completed in December 31, 2006. In July 2007, we were awarded a two-year grant for a total of $530,000 to support of Strep program. For the year ended December 31, 2007 we recorded $67,000 from this grant.
Revenues for the years ended December 31, 2006 and 2005 were $7.26 million and $8.48 million, respectively. Revenues recorded for the year ended December 31, 2006 declined $1.2 million or 14% from the prior
year. For the year ended December 31, 2006 we recorded $3.7 million from an NIH contract, NIH grants and an agreement with Saint Louis University, supporting two of our lead programs. Revenues from NIH grants supporting these programs during the year ended December 31, 2005 were $7.2 million. The decline of $3.5 million was partially offset by a $1.8 million increase in revenues recognized from our $3.2 million, one year contract with USAMRMC for the rapid identification and treatment of anti-viral diseases. The agreement was signed in September 2005 and was completed in 2006. Revenue recognized in connection with this agreement increased from $653,000 in 2005 to $2.5 million in 2006. The decline in revenues supporting our two lead programs was also offset by $409,000 recorded in connection with a $500,000, one year, Phase I grant from the NIH to support the development of our Bacterial Commensal Vector technology for the delivery of smallpox vaccine, which we completed in February 2007. In November 2006, we received a $1.4 million, one year contract with the Air Force Medical Service for the development of counter-measures against Dengue viruses and other water-related viral agents. In November 2006 we also received a one-year, $900,000 contract to aid the USAF Special Operations Command (USAFSOC) in its development of specific anti-viral agents. For the year ended December 31, 2006 we recognized revenues of $247,000 from these contracts.
Selling, general and administrative expenses (“SG&A”) for the years ended December 31, 2007 and 2006 were $3.70 million and $4.62 million, respectively. The decline of $920,000 or 20% is mainly attributed to professional fees incurred during 2006 in connection with a business transaction and a non-cash consulting charge recorded in 2006. During the year ended December 31, 2006 we recorded legal, accounting, and consulting expenses of $861,000, $183,000, and $132,000, respectively, for due diligence services, fairness opinion and legal advice related to a potential business transaction. During the year ended December 31, 2006, we also recorded non-cash consulting charge of $156,000 related to the issuance of warrants to advisors. The decline in SG&A expenses was partially offset by legal expenses of $240,000 incurred in connection with our defense against an action filed against SIGA, and accounting fees of $110,000 related to the audit of our Sarbanes-Oxley compliance.
SG&A expenses for the years ended December 31, 2006 and 2005 were $4.62 million and $2.48 million, respectively. The increase of $2.14 million or 86% is mainly attributed to $1.2 million of professional fees and $530,000 of non-cash share base compensation and consulting charges recorded for the year ended December 31, 2006, and a credit of $303,000 in legal expenses recorded in 2005. During the year ended December 31, 2006 we recorded legal, accounting and consulting expenses of $861,000, $183,000 and $132,000, respectively, for due diligence services, fairness opinion and legal advice related to a potential business transaction. In 2006, we recorded $156,000 of non-cash consulting charge reflecting the fair market value of 400,000 warrants issued under a February 2003 consulting agreement. For the year ended December 31, 2006, we also recorded a $376,000 non-cash charge for share based compensation following the adoption of FAS 123(R) on January 1, 2006.
Research and development (“R&D”) expenses were $9.94 million and $9.15 million for the years ended December 31, 2007 and 2006, respectively, an increase of $790,000 or 8.7% from the year ended December 31, 2006. Expenditures related to clinical and pre-clinical testing and manufacturing of our lead drug candidates increased $1.1 million from the year ended December 31, 2006. Our payroll and related expense has increased by $350,000 from the year ended December 31, 2006, reflecting the expansion and change in composition of our research and development workforce. In addition, depreciation expense for the year ended December 31, 2007 increased $294,000 from the same period in 2006. These increases were partially offset by a decline of $602,000 in amortization expense and a decline of $351,000 in external R&D service charges related to our USAF and US Army contracts.
R&D expenses for the years ended December 31, 2006 and 2005 were $9.15 million and $8.30 million, respectively. On April 1, 2006, we completed the renovation of a new laboratory space in Corvallis, Oregon. Depreciation expense, lab supplies expenditures and rent expense for the year ended December 31, 2006, increased by $637,000, $354,000, and $381,000, respectively, from the same period in 2005. During the year ended December 31, 2006, we expanded our R&D work force from 35 full time employees to 41 full time employees. R&D payroll and related expenses increased by $743,000 as a result of this expansion and bonuses paid in 2006 to our R&D employees. In addition, R&D expenditures related to our contract with USAMRMC and two contracts with the U.S. Air Force received in 2006 increased $646,000 from $249,000 in 2005 to $895,000 in 2006. These increases were partially offset by a decline of $1.9 million in R&D expenditures related to two of our lead programs.
24
During the years ended December 31, 2007, 2006 and 2005, we spent $3.2 million, $2.3 million, and $3.9 million, respectively, on the development of ST-246. For the year ended December 31, 2007, we spent $924,000 on internal human resources and $2.24 million mainly on manufacturing and clinical testing. For the year ended December 31, 2006, we spent $678,000 on internal human resources and $1.6 million on clinical and pre-clinical testing of ST-246. For the year ended December 31, 2005, we spent $708,000 on internal human resources and $3.2 million on pre-clinical testing of ST-246. From inception of the ST-246 development program to-date, we expended a total of $9.6 million related to the program, of which $2.4 million and $7.2 million were spent on internal human resources, and clinical and pre-clinical work, respectively. These resources reflect SIGA’s research and development expenses directly related to the program. They exclude additional expenditures such as the cost to acquire the program, patent costs, allocation of indirect expenses, and the value of other services received from the NIH and the DoD.
During the years ended December 31, 2007, 2006 and 2005, we spent $1.3 million, $1.3 million and $1.6 million, respectively, to support the development of ST-193, a drug candidate for Lassa fever virus, ST-294, a drug candidate for certain arenavirus pathogens, and other drug candidates for hemorrhagic fevers. For the year ended December 31, 2007, we spent $227,000 on internal human resources and $1.1 million mainly on pre-clinical testing. For the year ended December 31, 2006, we spent $536,000 on internal human resources and $729,000 on pre-clinical testing. For the year ended December 31, 2005, we spent $777,000 on internal human resources and $787,000 on pre-clinical testing of ST-294. From inception of our programs to develop ST-193, ST-294, and other drug candidates for hemorrhagic fevers, to-date, we spent a total of $4.5 million related to the programs, of which $1.8 million and $2.7 million were expended on internal human resources and pre-clinical work, respectively. These resources reflect SIGA’s research and development expenses directly related to the programs. They exclude additional expenditures such as the cost to acquire the programs, patent costs, allocation of indirect expenses, and the value of other services received from the NIH and the DoD.
For the years ended December 31, 2007, 2006 and 2005, we spent $1.3 million, $1.6 million, and $381,000, respectively, in expenses related to our USAF and US Army Agreements. During the year ended December 31, 2007, we spent $910,000 on internal human resources and $372,000 for external R&D services. During the year ended December 31, 2006, we spent $693,000 and $910,000 on internal human resources and external R&D services, respectively. For the year ended December 31, 2005, we spent $132,000 on internal human resources and $249,000 for external R&D services related to the program. Costs related to our work on the USAF Agreements from September 2005 to date were $3.2 million, of which we spent $1.7 million and $1.5 million on internal human resources and external R&D services, respectively. These resources reflect SIGA’s research and development expenses directly related to these agreements. They exclude additional expenditures such as patent costs and allocation of indirect expenses.
Our product programs are in the early stage of development. At this stage of development, we cannot make reasonable estimates of the potential cost for most of our programs to be completed or the time it will take to complete the project. Our lead product, ST-246, is an orally administered anti-viral drug that targets the smallpox virus. In December 2005 the FDA accepted our IND application for ST-246 and granted it Fast-Track status. In December 2006, the FDA granted Orphan Drug designation to ST-246, for the prevention as well as the treatment of smallpox. We expect that costs to complete the program will approximate $15 million to $20 million, and that the project could be completed in 24 months to 36 months. There is a high risk of non-completion of any program, including ST-246, because of the lead time to program completion and uncertainty of the costs. Net cash inflows from any products developed from our programs is at least one to three years away. However, we could receive additional grants, contracts or technology licenses in the short-term. The potential cash and timing is not known and we cannot be certain if they will ever occur.
The risk of failure to complete any program is high, as each, other than our smallpox program which successfully completed 21-day dose-escalating studies in 2007, is in the relatively early stage of development. Products for the biological warfare defense market, such as the ST-246 smallpox anti-viral, could generate revenues in one to three years. We believe the products directed toward this market are on schedule. We expect the future research and development cost of our biological warfare defense programs to increase as the potential products enter animal studies and safety testing, including human safety trials. Funds for future development will be partially paid for by NIH contracts and grants, 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
25
these products would slow or possibly be suspended. Delay or suspension of any of our programs could have an adverse impact on our ability to raise funds in the future, enter into collaborations with corporate partners or obtain additional federal funding from contracts or grants.
Patent preparation expenses for the years ended December 31, 2007 and 2006 were $515,000 and $295,000, respectively. Patent preparation expenses increased $220,000, or 75%, mainly due to new filings related to our leading drug candidates.
Patent preparation costs for the year ended December 31, 2006 were $295,000 compared to $232,000 for the year ended December 31, 2005. The increase of 63,000, or 27%, is mainly due to a refund of $83,000 received in 2005 from our patent legal counsel.
Total operating loss for the years ended December 31, 2007 and 2006 was $7.5 million and $6.8 million, respectively. Our operating loss increased mainly due to a decline of $600,000 in revenues generated in 2007, and an increase in R&D and patent expenses of $729,000 and $220,000, respectively, partially offset by a decline of $932,000 in G&A expenses.
Total operating loss for the year ended December 31, 2006 was $6.8 million compared with $2.5 million for 2005. The increase of $4.2 million in operating loss relates mainly to $1.2 million of professional fees incurred in connection with a potential business transaction, a decline of $1.2 million in revenues generated in 2006, and an increase of $870,000 in non-cash expenses recorded for depreciation, amortization and non-cash compensation.
Changes in the fair value of common stock rights and common stock warrants sold together with common stock in October 2006 and November 2005 are recorded as gains or losses. For the years ended December 31, 2007 and 2006, we recorded a gain of $1.4 million and a loss of $3.1 million, respectively, reflecting changes in the fair market value of warrants and rights to purchase common stock during the respective years. The warrants and rights to purchase common stock of SIGA were recorded at fair market value and classified as liabilities at the time of the transaction. For the year ended December 31, 2005, we recorded a gain of $253,000, reflecting the decline in the fair value of the warrants and the rights to acquire additional shares of our common stock, from October 2005 through December 31, 2005.
Other income for the years ended December 31, 2007, 2006, and 2005, was $394,000, $1,600, and $9,000, respectively. Other income in 2007 represented interest income on our cash and cash equivalents. For the year ended December 31, 2006, we recorded interest income of $147,000 generated from higher cash balance subsequent to the October 2006 sale of SIGA common stock and warrants. Interest income in 2006 was offset by interest charges of $114,000 relating to loans payable in the amount of $3.0 million which we paid in full in October 2006.
Liquidity and Capital Resources
On December 31, 2007, we had $6.8 million in cash and cash equivalents. During the year ended December 31, 2007, we received net proceeds of $3.0 million from exercises of warrants and options to purchase shares of the Company’s Common stock, and repaid the entire balance of $130,000 due on a loan payable.
In September 2007, we received a two-year grant for a total of approximately $600,000 supporting our development of ST-246 treatment of smallpox vaccine-related adverse events. In July 2007, we were awarded a two-year grant for a total of $530,000 to support our Strep program.
Operating activities
Net cash used in operations during the years ended December 31, 2007 and 2006 was $5.4 million and $4.4 million, respectively. The increase in net cash used in operations is mainly due to the use of additional cash to support clinical and pre-clinical testing of our leading programs and to support the increase in our R&D payroll expenses. In addition, during the year ended December 31, 2007, our account receivable balance increased
26
$300,000, compared with a decline of $266,000 in accounts receivable during the same period in 2006 as a result of collection of accounts receivable that were outstanding at December 31, 2005.
Investing activities
Capital expenditures during the years ended December 31, 2007 and 2006 were $1.2 million and $884,000, respectively, and mainly supported the renovation of our research facility in Oregon.
Financing activities
Cash provided by financing activities was $2.9 million and $14.2 million during the years ended December 31, 2007 and 2006, respectively. During the year ended December 31, 2007 we received net proceeds of $3.0 million from exercises of options and warrants to purchase common stock, and repaid the entire balance of $130,000 due on a loan payable to General Electric Capital Corporation. During the year ended December 31, 2006 we received $8.4 million from the sale of common stock and warrants to acquire common stock, $4.3 million from the exercise of options and warrants to purchase shares of common stock, and $1.5 million from exercises of rights to purchase 1,500,000 shares of our common stock for $1.10 per share.
Other
We have incurred cumulative net losses and expect to incur additional losses to perform further research and development activities. We do not have commercial products and have limited capital resources. Our plans with regard to these matters include continued development of our products as well as seeking additional working capital through a combination of collaborative agreements, strategic alliances, research grants, equity and debt financing. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining future financing on commercially reasonable terms or that we will be able to secure funding from anticipated government contracts and grants.
We believe that our existing cash balances combined with cash flows primarily from continuing government grants and contracts, anticipated new government grants and contracts or reduction of certain operating expenses will be sufficient to support our operations beyond the next twelve months, and that sufficient cash flows will be available to meet our business objectives during that period.
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.
Contractual Obligations, Commercial Commitments and Purchase Obligations
As of December 31, 2007, our purchase obligations are not material. We lease certain facilities and office space under operating leases. Minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year are as follows:
| | | | | |
| Year ended December 31, | |
| | | | | |
| 2008 | | | 576,948 | |
| 2009 | | | 579,648 | |
| 2010 | | | 466,448 | |
| 2011 | | | 443,748 | |
| | |
|
| |
| Total | | $ | 2,066,792 | |
| | |
|
| |
27
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
| |
| None. |
28
| |
Item 8. | Financial Statements and Supplementary Data |
Index to the Consolidated Financial Statements
29
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of SIGA Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of SIGA Technologies, Inc. and its subsidiary at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audits (which was an integrated audit in 2007). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions effective January 1, 2007, and changed the manner in which it accounts for share-based compensation effective January 1, 2006.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 12, 2008
30
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2007 and 2006
| | | | | | | | | | | |
| | December 31,
2007 | | December 31,
2006 | |
| |
| |
| |
ASSETS | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | | | $ | 6,832,290 | | | | $ | 10,639,530 | | |
Accounts receivable | | | | 986,489 | | | | | 617,032 | | |
Prepaid expenses | | | | 130,115 | | | | | 141,032 | | |
| | |
|
| | | |
|
| | |
Total current assets | | | | 7,948,894 | | | | | 11,397,594 | | |
| | | | | | | | | | | |
Property, plant and equipment, net | | | | 1,479,678 | | | | | 1,320,315 | | |
Goodwill | | | | 898,334 | | | | | 898,334 | | |
Intangible assets, net | | | | — | | | | | 165,243 | | |
Other assets | | | | 261,766 | | | | | 246,201 | | |
| | |
|
| | | |
|
| | |
Total assets | | | $ | 10,588,672 | | | | $ | 14,027,687 | | |
| | |
|
| | | |
|
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
Accounts payable | | | $ | 1,321,146 | | | | $ | 1,357,906 | | |
Accrued expenses and other | | | | 594,524 | | | | | 382,679 | | |
Accrued bonuses | | | | 202,000 | | | | | 201,825 | | |
Notes payable | | | | — | | | | | 107,520 | | |
| | |
|
| | | |
|
| | |
Total current liabilities | | | | 2,117,670 | | | | | 2,049,930 | | |
Non-current portion of notes payable | | | | — | | | | | 22,809 | | |
Common stock warrants | | | | 3,242,797 | | | | | 4,673,098 | | |
| | |
|
| | | |
|
| | |
Total liabilities | | | | 5,360,467 | | | | | 6,745,837 | | |
Commitments and contingencies | | | | — | | | | | — | | |
Stockholders’ equity | | | | | | | | | | | |
Common stock ($.0001 par value, 100,000,000 shares authorized, 33,937,549 and 32,452,210 issued and outstanding at December 31, 2007 and December 31, 2006, respectively) | | | | 3,394 | | | | | 3,245 | | |
Additional paid-in capital | | | | 67,230,987 | | | | | 63,646,224 | | |
Accumulated deficit | | | | (62,006,176 | ) | | | | (56,367,619 | ) | |
| | |
|
| | | |
|
| | |
Total stockholders’ equity | | | | 5,228,205 | | | | | 7,281,850 | | |
| | |
|
| | | |
|
| | |
Total liabilities and stockholders’ equity | | | $ | 10,588,672 | | | | $ | 14,027,687 | | |
| | |
|
| | | |
|
| | |
The accompanying notes are an integral part of these financial statements.
31
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2007, 2006 and 2005
| | | | | | | | | | |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
| | | | | | | | | | |
Revenues | | | | | | | | | | |
Research and development | | $ | 6,698,717 | | $ | 7,257,532 | | $ | 8,476,741 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating expenses | | | | | | | | | | |
Selling, general and administrative | | | 3,704,058 | | | 4,623,577 | | | 2,481,489 | |
Research and development | | | 9,942,503 | | | 9,149,327 | | | 8,295,262 | |
Patent preparation fees | | | 515,263 | | | 295,006 | | | 232,329 | |
| |
|
| |
|
| |
|
| |
Total operating expenses | | | 14,161,824 | | | 14,067,910 | | | 11,009,080 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating loss | | | (7,463,107 | ) | | (6,810,378 | ) | | (2,532,339 | ) |
| | | | | | | | | | |
Decrease (increase) in fair market value of common stock rights and common stock warrants | | | 1,430,301 | | | (3,089,997 | ) | | 235,730 | |
Other income (expense), net | | | 394,249 | | | 1,667 | | | 9,059 | |
| |
|
| |
|
| |
|
| |
Net loss | | $ | (5,638,557 | ) | $ | (9,898,708 | ) | $ | (2,287,550 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Weighted average shares outstanding: basic and diluted | | | 33,330,814 | | | 28,200,130 | | | 24,824,824 | |
| |
|
| |
|
| |
|
| |
Net loss per share: basic and diluted | | $ | (0.17 | ) | $ | (0.35 | ) | $ | (0.09 | ) |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of these financial statements.
32
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2007, 2006 and 2005
| | | | | | | | | | | | | | | |
| | Series A Convertible
Preferred Stock | | Common Stock | |
| |
| |
| |
| | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | |
Balance at January 1, 2005 | | | 68,038 | | $ | 58,672 | | | 24,500,648 | | | $ | 2,450 | | |
| | | | | | | | | | | | | | | |
Net proceeds allocated to the issuance of common stock ($1.00 per share) | | | | | | | | | 2,000,000 | | | $ | 200 | | |
Stock options issued to members of the Board of Directors | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | |
| |
|
| |
|
| |
|
| | |
|
| | |
Balance at December 31, 2005 | | | 68,038 | | $ | 58,672 | | | 26,500,648 | | | $ | 2,650 | | |
| |
|
| |
|
| |
|
| | |
|
| | |
| | | | | | | | | | | | | | | |
Net proceeds allocated to the issuance of common stock ($4.54 per share) | | | | | | | | | 2,000,000 | | | $ | 200 | | |
Conversion of preferred stock for common stock | | | (68,038 | ) | | (58,672 | ) | | 68,038 | | | | 7 | | |
Stock based compensation | | | | | | | | | | | | | | | |
Stock issued for services | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options and warrants | | | | | | | | | 2,383,524 | | | | 238 | | |
Issuance of common stock upon exercise of common stock rights | | | | | | | | | 1,500,000 | | | | 150 | | |
Fair value of exercised common stock rights and warrants | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | |
| |
|
| |
|
| |
|
| | |
|
| | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | | — | | $ | — | | | 32,452,210 | | | $ | 3,245 | | |
| |
|
| |
|
| |
|
| | |
|
| | |
| | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options and warrants | | | | | | | | | 1,485,339 | | | | 149 | | |
Stock based compensation | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | |
| |
|
| |
|
| |
|
| | |
|
| | |
Balance at December 31, 2007 | | | — | | $ | — | | | 33,937,549 | | | $ | 3,394 | | |
| |
|
| |
|
| |
|
| | |
|
| | |
The accompanying notes are an integral part of these financial statements.
(Continued)
33
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2007, 2006 and 2005
| | | | | | | | | | | | | | | | |
| | Additional Paid
in Capital | | Accumulated
Deficit | | Total
Stockholders’
Equity | |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | |
Balance at January 1, 2005 | | | $ | 48,679,650 | | | | $ | (44,181,361 | ) | | | $ | 4,559,411 | | |
| | | | | | | | | | | | | | | | |
Net proceeds allocated to the issuance of common stock ($1.00 per share) | | | $ | 947,269 | | | | | | | | | | 947,469 | | |
Stock options issued to members of the Board of Directors | | | | 11,700 | | | | | | | | | | 11,700 | | |
Net loss | | | | | | | | | (2,287,550 | ) | | | | (2,287,550 | ) | |
| | |
|
| | | |
|
| | | |
|
| | |
Balance at December 31, 2005 | | | $ | 49,638,619 | | | | $ | (46,468,911 | ) | | | $ | 3,231,030 | | |
| | |
|
| | | |
|
| | | |
|
| | |
| | | | | | | | | | | | | | | | |
Net proceeds allocated to the issuance of common stock ($4.54 per share) | | | $ | 5,948,328 | | | | | | | | | | 5,948,528 | | |
Conversion of preferred stock for common stock | | | | 58,665 | | | | | | | | | | — | | |
Stock based compensation | | | | 470,892 | | | | | | | | | | 470,892 | | |
Stock issued for services | | | | 156,470 | | | | | | | | | | 156,470 | | |
Issuance of common stock upon exercise of stock options and warrants | | | | 4,337,604 | | | | | | | | | | 4,337,842 | | |
Issuance of common stock upon exercise of common stock rights | | | | 1,534,350 | | | | | | | | | | 1,534,500 | | |
Fair value of exercised common stock rights and warrants | | | | 1,501,296 | | | | | | | | | | 1,501,296 | | |
Net loss | | | | | | | | | (9,898,708 | ) | | | | (9,898,708 | ) | |
| | |
|
| | | |
|
| | | |
|
| | |
Balance at December 31, 2006 | | | $ | 63,646,224 | | | | $ | (56,367,619 | ) | | | $ | 7,281,850 | | |
| | |
|
| | | |
|
| | | |
|
| | |
| | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options and warrants | | | | 3,013,841 | | | | | | | | | | 3,013,990 | | |
Stock based compensation | | | | 570,922 | | | | | | | | | | 570,922 | | |
Net loss | | | | | | | | | (5,638,557 | ) | | | | (5,638,557 | ) | |
| | |
|
| | | |
|
| | | |
|
| | |
Balance at December 31, 2007 | | | $ | 67,230,987 | | | | $ | (62,006,176 | ) | | | $ | 5,228,205 | | |
| | |
|
| | | |
|
| | | |
|
| | |
The accompanying notes are an integral part of these financial statements.
34
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
| | | | | | | | | | |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Cash flows from operating activities: | | | | | | | | | | |
Net loss | | $ | (5,638,557 | ) | $ | (9,898,708 | ) | $ | (2,287,550 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
Depreciation | | | 1,083,705 | | | 788,014 | | | 145,809 | |
Amortization of intangible assets | | | 165,243 | | | 767,492 | | | 1,181,562 | |
(Increase) decrease in fair market value of rights and warrants | | | (1,430,301 | ) | | 3,089,997 | | | (235,730 | ) |
Stock based compensation | | | 570,922 | | | 470,892 | | | 11,700 | |
Non-cash consulting expense | | | — | | | 156,470 | | | — | |
Loss on impairment of investments | | | — | | | — | | | 15,000 | |
Loss on write-off of prepaid investments | | | — | | | — | | | 116,243 | |
Changes in assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | (369,457 | ) | | 266,022 | | | (774,150 | ) |
Prepaid expenses | | | 10,917 | | | 19,112 | | | 2,160 | |
Other assets | | | (15,565 | ) | | (12,075 | ) | | (67,401 | ) |
Deferred revenue | | | — | | | (347,319 | ) | | 347,319 | |
Accounts payable and accrued expenses | | | 175,260 | | | 262,098 | | | 152,587 | |
| |
|
| |
|
| |
|
| |
Net cash used in operating activities | | | (5,447,833 | ) | | (4,438,005 | ) | | (1,392,451 | ) |
| |
|
| |
|
| |
|
| |
Cash flows from investing activities: | | | | | | | | | | |
Capital expenditures | | | (1,243,068 | ) | | (884,182 | ) | | (861,941 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in investing activities | | | (1,243,068 | ) | | (884,182 | ) | | (861,941 | ) |
| |
|
| |
|
| |
|
| |
Cash flows from financing activities: | | | | | | | | | | |
Net proceeds from issuance of common stock and derivatives | | | — | | | 8,424,406 | | | 1,791,718 | |
Proceeds from issuance of notes payable | | | — | | | 3,000,000 | | | 276,434 | |
Net proceeds from exercise of common stock rights | | | — | | | 1,534,500 | | | — | |
Net proceeds from exercise of warrants and options | | | 3,013,990 | | | 4,337,842 | | | — | |
Repayment of notes payable | | | (130,329 | ) | | (3,107,520 | ) | | (62,209 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by financing activities | | | 2,883,661 | | | 14,189,228 | | | 2,005,943 | |
| |
|
| |
|
| |
|
| |
Net (decrease) increase in cash and cash equivalents | | | (3,807,240 | ) | | 8,867,041 | | | (248,449 | ) |
Cash and cash equivalents at beginning of period | | | 10,639,530 | | | 1,772,489 | | | 2,020,938 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents at end of period | | $ | 6,832,290 | | $ | 10,639,530 | | $ | 1,772,489 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash paid for interest on notes payable | | $ | 10,192 | | $ | 135,055 | | $ | 11,105 | |
Non-cash supplemental information: | | | | | | | | | | |
Conversion of preferred stock to common stock | | $ | — | | $ | 58,672 | | $ | — | |
Cashless exercise of warrants to purchase common stock | | $ | 153,804 | | $ | — | | $ | — | |
The accompanying notes are an integral part of these financial statements.
35
SIGA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. (“SIGA” or the “Company”) is a bio-defense company engaged in the discovery, development and commercialization of products for use in defense against biological warfare agents such as Smallpox and Arenaviruses. The Company is also engaged in the discovery and development of other novel anti-infectives, vaccines, and antibiotics for the prevention and treatment of serious infectious diseases. The Company’s anti-viral programs are designed to prevent or limit the replication of viral pathogens. SIGA’s anti-infectives programs target the increasingly serious problem of drug resistant bacteria and emerging pathogens.
Basis of presentation
The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred cumulative net losses and expects to incur additional losses to perform further research and development activities. The Company does not have commercial products and has limited capital resources. Management’s plans with regard to these matters include continued development of its products as well as seeking additional research support funds and future financial arrangements. Although management will continue to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient future financing on commercially reasonable terms or that the Company will be able to secure funding from anticipated government contracts and grants. Management believes that existing cash balances combined with cash flows primarily from continuing government grants and contracts, anticipated new government grants and contracts or reduction of certain operating expenses will be sufficient to support its operations beyond the next twelve months, and will fund the Company’s business objectives during that period. If the Company is unable to raise adequate capital or achieve profitability, future operations will need to be scaled back or discontinued. Continuance of the Company as a going concern is dependent upon, among other things, the success of the Company’s research and development programs and the Company’s ability to obtain adequate financing. The financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.
2. Summary of Significant Accounting Policies
Use of Estimates
The consolidated financial statements and related disclosures are prepared in conformity with accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the period reported. These estimates include the realization of deferred tax assets, useful lives and impairment of goodwill, and tangible and intangible assets, and the value of options and warrants granted or issued by the Company. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid investments, with original maturities of less than three months when purchased and are stated at cost. Interest is accrued as earned.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the various asset classes. Estimated lives are 5 years for laboratory equipment; 3 years for computer equipment; 7 years for furniture and fixtures; and the life of the lease for
36
leasehold improvements. Maintenance, repairs and minor replacements are charged to expense as incurred. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the Balance Sheet and any gain or loss is reflected in the Statement of Operations.
Revenue Recognition
The Company recognizes revenue from contract research and development and research payments in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, (“SAB 104”). In accordance with SAB 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collectibility is reasonably assured, contractual obligations have been satisfied and title and risk of loss have been transferred to the customer. The Company recognizes revenue from non-refundable up-front payments, not tied to achieving a specific performance milestone, over the period which the Company is obligated to perform services or based on the percentage of costs incurred to date, estimated costs to complete and total expected contract revenue. Payments for development activities are recognized as revenue as earned, over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, providing there is no future service obligation associated with that milestone. In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.
For the years ended December 31, 2007, 2006, and 2005, revenues from National Institutes of Health (“NIH”) contracts and grants was 71%, 53%, and 87%, respectively, of total revenues recognized by the Company.
Accounts Receivable
Accounts receivable are recorded net of provisions for doubtful accounts. An allowance for doubtful accounts is based on specific analysis of the receivables. At December 31, 2007, 2006, and 2005, the Company had no allowance for doubtful accounts.
Research and development
Research and development expenses include costs directly attributable to the conduct of research and development programs, including employee related costs, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, and facility costs, such as rent, utilities, and general support services. All costs associated with research and development are expensed as incurred. Costs related to the acquisition of technology rights, for which development work is still in process, and that have no alternative future uses, are expensed as incurred.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.
The Company evaluates goodwill for impairment annually, in the fourth quarter of each year. In addition, the Company would test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Examples of such events could include a significant adverse change in legal matters, liquidity or in the business climate, an adverse action or assessment by a regulator or government organization, loss of key personnel, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of a reporting unit. Goodwill impairment is determined using a two-step approach in accordance with Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. In 2007 and 2006, the Company operated as one business and one reporting unit. Therefore, the goodwill impairment analysis was performed on the basis of the Company as a whole using the market capitalization of the Company as an estimate of its fair value.
Identified Intangible Assets
Acquisition-related intangibles include acquired technology, customer contracts, grants and covenants not to compete, and are amortized on a straight line basis over periods ranging from 2-4 years.
37
In accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company performs a review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances do exist, the Company assesses the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Our estimates of projected cash flows are dependent on many factors, including general economic trends, technological developments and projected future contracts and government grants. It is reasonably likely that future cash flows associated with our intangible assets may exceed or fall short of our current projections, in which case a different amount for impairment would result.
Income taxes
Income taxes are accounted for under the asset and liability method prescribed by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or the entire deferred tax asset will not be realized.
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return.
As of the date of adoption, there were no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months from the date of adoption of FIN 48 or from December 31, 2007. As of December 31, 2007, the only tax jurisdiction to which the Company is subject is the United States. Open tax years relate to years in which unused net operating losses were generated. Thus, upon adoption of FIN 48, the Company’s open tax years extend back to 1995. In the event that the Company concludes that it is subject to interest and/or penalties arising from uncertain tax positions, the Company will present interest and penalties as a component of income taxes. No amounts of interest or penalties were recognized in the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets upon adoption of FIN 48 or as of and for the year ended December 31, 2007.
Net loss per common share
The Company computes, presents and discloses earnings per share in accordance with SFAS 128 “Earnings Per Share” (“EPS”) which specifies the computation, presentation and disclosure requirements for earnings per share of entities with publicly held common stock or potential common stock. The statement defines two earnings per share calculations, basic and diluted. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income (loss) by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, that is to measure the performance of an entity over the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period. The calculation of diluted EPS is similar to basic EPS except the denominator is increased for the conversion of potential common shares.
The Company incurred losses for the years ended December 31, 2007, 2006 and 2005, and as a result, certain equity instruments are excluded from the calculation of diluted loss per share. At December 31, 2005, 68,038 shares of the Company’s Series A convertible preferred stock have been excluded from the computation of diluted loss per share as they were anti-dilutive. These shares were converted into shares of the Company’s common stock in 2006. At December 31, 2007, 2006, and 2005, outstanding options to purchase 8,159,768, 7,736,145, and 9,399,561 shares, respectively, of the Company’s common stock with exercise prices ranging from $0.94 to $4.63 have been excluded from the computation of diluted loss per share as they are anti-dilutive. At December 31, 2007, 2006, and 2005, outstanding warrants to purchase 8,262,377, 9,441,915, and 9,378,794 shares, respectively, of the Company’s common stock, with exercise prices ranging from $1.18 to $4.99 have been excluded from the computation of diluted loss per share as they are anti-dilutive.
38
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments. Common stock rights and warrants which are classified as assets or liabilities under the provisions of EITF 00-19, are recorded at their fair market value as of each reporting period.
Concentration of credit risk
The Company has cash in bank accounts that exceed the Federal Deposit Insurance Corporation insured limits. The Company has not experienced any losses on its cash accounts. No allowance has been provided for potential credit losses because management believes that any such losses would be minimal.
Share-based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of share-based awards on the grant date using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recorded as expense over the requisite periods in the Company’s consolidated statement of operations.
The following table illustrates the effect on net loss and net loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures” (“SFAS 148”) during the year ended December 31, 2005.
| | | | | |
| | 2005 | |
| |
| |
Net loss available to common stockholders, as reported | | $ | (2,287,550 | ) | |
| |
|
| | |
Add: Stock-based employee compensation expense included in reported net loss | | | 11,700 | | |
Deduct: Total stock based compensation expense determined under the fair value based method | | | (709,285 | ) | |
| |
|
| | |
Net loss available to common stockholders, pro forma | | $ | (2,985,135 | ) | |
| |
|
| | |
Loss per common share - basic and diluted: | | | | | |
As reported | | $ | (0.09 | ) | |
Pro forma | | $ | (0.12 | ) | |
Segment information
The Company is managed and operated as one business. The entire business is managed by a single management team that reports to the chief executive officer. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and only has one reportable segment as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”.
Recent accounting pronouncements
In June 2007, the FASB issued EITF Issue 07-3 “Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities” (EITF 07-3). The scope of this Issue is limited to nonrefundable advance payments for goods and services related to research and development activities. The Issue addresses whether such advanced payments should be expensed as incurred or capitalized. SIGA is required to adopt EITF 07-3 effective January 1, 2008. As of December 31, 2007, the Company does not have any arrangements that would be subject to the scope of EITF 07-3.
39
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”. SFAS 141R requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS 141R also requires additional disclosure of information surrounding a business combination, such that users of the entity’s financial statements can fully understand the nature and financial impact of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The provisions of SFAS 141R will only impact us if we are party to a business combination after the pronouncement has been adopted.
In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51. SFAS 160 requires an entity to classify noncontrolling interests in subsidiaries as a separate component of equity. Additionally, transactions between an entity and noncontrolling interests are required to be treated as equity transactions. We are currently evaluating the impact of this statement on our financial statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. As of December 31, 2007, we believe that SFAS 160 will not affect our consolidated financial position, results of operations and cash flows.
3. Research Agreements
In September 2007, we received a two-year grant for a total of approximately $600,000 supporting our development of ST-246 treatment of smallpox vaccine-related adverse events. In July 2007, we were awarded a two-year grant for a total of $530,000 to support our Strep program.
On August 30, 2006, the Company received a three-year, $6.0 million award from the NIH to support the development of its antiviral drugs for the Lassa fever virus. On August 1, 2006, SIGA received a three-year, $4.8 million Phase II continuation grant from the NIH to support the Company’s development of its smallpox drug candidate, SIGA 246. On September 26, 2006, the Company entered into a three-year, $16.5 million contract with the National Institute of Allergy and Infectious Diseases of the NIH, to further advance the development of SIGA-246, the Company’s smallpox drug candidate. In November 2006, SIGA received a $1.4 million, one year contract with the Air Force Medical Service for the development of counter-measures against Dengus viruses and other water-related viral agents. In November 2006 SIGA also received a one-year, $900,000 contract to aid the USAF Special Operations Command (USAFSOC) in its development of specific anti-viral agents.
4. Intangible Assets
The following table presents the components of the Company’s acquired intangible assets with finite lives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2007 | | December 31, 2006 | |
| |
| |
| |
| | Gross Carrying
Amount | | Accumulated
Amortization | | Net | | Gross Carrying
Amount | | Accumulated
Amortization | | Net | |
| |
| |
| |
| |
| |
| |
| |
|
Acquired Grants | | | $ | 1,962,693 | | | | $ | 1,962,693 | | | $ | — | | | $ | 1,962,693 | | | | $ | 1,962,693 | | | $ | — | |
Customer contract and grants | | | | 83,571 | | | | | 83,571 | | | | — | | | | 83,571 | | | | | 83,571 | | | | — | |
Covenants not to compete | | | | 202,000 | | | | | 202,000 | | | | — | | | | 202,000 | | | | | 202,000 | | | | — | |
Acquired technology | | | | 330,483 | | | | | 330,483 | | | | — | | | | 330,483 | | | | | 165,240 | | | | 165,243 | |
| | |
|
| | | |
|
| | |
|
| | |
|
| | | |
|
| | |
|
| |
| | | $ | 2,578,747 | | | | $ | 2,578,747 | | | $ | — | | | $ | 2,578,747 | | | | $ | 2,413,504 | | | $ | 165,243 | |
| | |
|
| | | |
|
| | |
|
| | |
|
| | | |
|
| | |
|
| |
40
Amortization expense for intangible assets and costs included the following:
| | | | | | | |
| | Year Ended December 31, |
| | 2007 | | 2006 | |
| |
| |
| |
|
Amortization of acquired grants | | $ | — | | $ | 654,228 | |
Amortization of customer contract and grants | | | — | | | 30,644 | |
Amortization of acquired technology | | | 165,243 | | | 82,620 | |
| |
|
| |
|
| |
| | $ | 165,243 | | $ | 767,492 | |
| |
|
| |
|
| |
At December 31, 2007, the Company’s intangible assets are fully amortized.
5. Stockholders’ Equity
At December 31, 2007, the Company’s authorized share capital consisted of 110,000,000 shares, of which 100,000,000 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.
2006 Placement
On October 19, 2006, the Company sold 2,000,000 shares of the Company’s common stock at $4.54 per share and warrants to purchase 1,000,000 shares of the Company’s common stock. The warrants have an initial exercise price of $4.99 per share and may be exercised at any time and from time to time through and including the seventh anniversary of the closing date. As of December 31, 2007, warrants to acquire 1,000,000 shares of common stock were outstanding.
The Company accounted for the transaction under the provisions of EITF 00-19 which requires that free standing derivative financial instruments that require net cash settlement be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. EITF 00-19 also requires that any changes in the fair value of the derivative instruments be reported in earnings or loss as long as the derivative contracts are classified as assets or liabilities. At December 31, 2007, the fair market value of the warrants was $1.5 million. The Company applied the Black-Scholes model to calculate the fair values of the respective derivative instruments using the contracted term of the warrants. Management estimates the expected volatility using a combination of the Company’s historical volatility and the volatility of a group of comparable companies. SIGA recorded a gain of $870,000 for the decline in the instruments’ fair value from December 31, 2006 to December 31, 2007 and a gain of $70,000 for the decline in fair value during 2006.
2005 Placement
In November 2005, the Company sold 2,000,000 shares of the Company’s common stock at $1.00 per share and warrants to purchase 1,000,000 shares of the Company’s common stock at an initial exercise price of $1.18 per share, at any time and from time to time through and including the seventh anniversary of the closing date. As of December 31, 2007, warrants to acquire 725,000 shares of common stock were outstanding.
The Company accounted for the transaction under the provisions of EITF 00-19. At December 31, 2007, the fair market value of the warrants to acquire common stock was $1.7 million. SIGA recorded a gain of $560,000 for the decline in the instruments’ fair value from December 31, 2006 to December 31, 2007 and a loss of $3.2 million for the increase in fair value during 2006.
Preferred Stock
Holders of the Series A Convertible Preferred Stock are entitled to (i) cumulative dividends at an annual rate of 6% payable when and if declared by the Company’s board of directors; (ii) in the event of liquidation of the Company, each holder is entitled to receive $1.4375 per share (subject to certain adjustments) plus all accrued but unpaid dividends; (iii) convert each share of Series A to a number of fully paid and non-assessable shares of common stock as calculated by dividing $1.4375 by the Series A Conversion Price (shall initially be $1.4375); and (iv) vote with the holders of other classes of shares on an as-converted basis.
During the year ended December 31, 2006 certain preferred stockholders converted 68,038 Series A convertible preferred stock into 68,038 shares of common stock.
On December 31, 2007, no shares of Series A Convertible Preferred Stock were outstanding.
6. Stock option plan and warrants
Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan
In January 1996, the Company implemented its 1996 Incentive and Non-Qualified Stock Option Plan (the “Plan”). The Plan as amended provides for the granting of up to 11,000,000 shares of the Company’s common
41
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.
For the years ended December 31, 2007 and 2006, the Company recorded compensation expense of $571,000 and $471,000, respectively, related to stock options. The total fair value of options vested during each year was $350,500 and $782,200 for 2007 and 2006, respectively. The total compensation cost not yet recognized related to non-vested awards at December 31, 2007 is $1.4 million. The weighted average period over which total compensation cost is expected to be recognized is 1.80 years.
SIGA calculated the fair value of options awarded during the three years ended December 31, 2007, 2006 and 2005 using the Black-Scholes model with the following weighted average assumptions:
| | | | | | | | | | | | | |
Weighted Average Assumptions | | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Expected volatility | | | 66.00 | % | | | 60.00 | % | | | 60% - 75 | % | |
Dividend Yield | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | |
Risk-free interest rate | | | 4.61% - 4.83 | % | | | 4.49 | % | | | 3.00% - 4.00 | % | |
Expected holding period | | | 5 Yrs | | | | 5 Yrs | | | | 2 - 5 Yrs | | |
The Company calculates the expected volatility using a combination of SIGA’s historical volatility and the volatility of a group of comparable companies. The risk-free interest rate assumption is based upon observed interest rate appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s intent not to issue a dividend in the foreseeable future. The expected holding period assumption was estimated based on historical experience and expectation of employee exercise behavior in the future giving consideration to the contractual terms of the award.
42
Stock options activity of the Company is summarized as follows:
| | | | | | |
| | Number
of
Shares | | Average
Exercise
Price($) | |
| |
| |
| |
Options outstanding at January 1, 2005 | | 9,767,061 | | $ | 1.99 | |
Granted | | 90,000 | | | 1.22 | |
Forfeited | | (452,500 | ) | | 1.60 | |
Exercised | | — | | | — | |
|
|
| |
|
| |
Options outstanding at December 31, 2005 | | 9,404,561 | | | 2.00 | |
Granted | | 337,500 | | | 2.26 | |
Forfeited | | (1,265,167 | ) | | 1.30 | |
Expired | | (33,334 | ) | | 1.50 | |
Exercised | | (897,415 | ) | | 1.74 | |
|
|
| |
|
| |
Options outstanding at December 31, 2006 | | 7,546,145 | | | 2.07 | |
Granted | | 935,000 | | | 3.17 | |
Forfeited | | (92,086 | ) | | 2.29 | |
Expired | | (50,393 | ) | | 5.04 | |
Exercised | | (368,898 | ) | | 1.71 | |
|
|
| |
|
| |
Options outstanding at December 31, 2007 | | 7,969,768 | | $ | 2.28 | |
|
|
| |
|
| |
| | | | | | | | |
| | Number of
Shares | | Weighted
Average
Intrinsic Value
($) | |
Nonvested options at December 31, 2006 | | | 343,982 | | | 1.92 | | |
Nonvested options at December 31, 2007 | | | 972,058 | | | 0.22 | | |
Options vested during 2007 | | | 216,423 | | | 0.70 | | |
Options available for future grant at December 31, 2007 | | | 1,545,962 | | | | | |
Weighted average fair value of options granted during 2007 | | $ | 1.87 | | | | | |
Weighted average fair value of options granted during 2006 | | $ | 1.24 | | | | | |
Weighted average fair value of options granted during 2005 | | $ | 0.64 | | | | | |
Weighted average fair value of options forfeited during 2007 | | $ | 1.33 | | | | | |
Weighted average fair value of options forfeited during 2006 | | $ | 1.02 | | | | | |
Weighted average fair value of options forfeited during 2005 | | $ | 1.04 | | | | | |
| Total intrinsic value of options exercised during 2007 | | $ | 506,000 | | | | | |
| Total intrinsic value of options exercised during 2006 | | $ | 1,939,000 | | | | | |
The following table summarizes information about options outstanding at December 31, 2007:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Range of
Exercise
Price($) | | Number of
Options
Outstanding at
December 31,
2007 | | Weighted
Average
Remaining
Contractual
Life (Years) | | Weighted
Average Exercise
Price ($) | | Number Fully
Vested &
Exercisable at
December 31,
2007 | | Weighted
Average
Exercise Price
($) | | Aggregate
Intrinsic Value
at December 31,
2007 | |
0.94 - 1.85 | | | 2,279,084 | | | | 6.39 | | | | 1.34 | | | | 2,167,030 | | | | 1.35 | | | | $ | 3,754,728 | | |
2.00 - 2.75 | | | 4,412,850 | | | | 3.41 | | | | 2.43 | | | | 4,412,850 | | | | 2.43 | | | | | 2,848,796 | | |
3.10 - 5.50 | | | 1,277,834 | | | | 7.72 | | | | 3.42 | | | | 417,830 | | | | 4.06 | | | | | — | | |
| | |
| | | | | | | | | | | |
| | | | | | | |
|
| | |
| | | 7,969,768 | | | | | | | | | | | | 6,997,710 | | | | | | | | $ | 6,603,524 | | |
| | |
| | | | | | | | | | | |
| | | | | | | |
|
| | |
43
The following tables summarize information about warrants outstanding at December 31, 2007:
| | | | | | | | | | | | | |
| | Number of
Warrants | | Weighted Average
Exercise Price | | Expiration Dates | |
| |
| |
| | | |
Outstanding at January 1, 2005 | | | 8,529,822 | | | | $ | 2.39 | | | | | |
Granted | | | 1,060,000 | | | | | 1.18 | | | | 11/2/2012 | |
Exercised | | | — | | | | | — | | | | | |
Canceled / Expired | | | (150,800 | ) | | | | 2.38 | | | | | |
| | |
| | | |
|
| | | | | |
Outstanding at December 31, 2005 | | | 9,439,022 | | | | $ | 2.26 | | | | | |
Granted | | | 1,949,002 | | | | | 3.81 | | | | 10/19/2013 | |
Exercised | | | (1,421,109 | ) | | | | 1.88 | | | | | |
Canceled / Expired | | | (525,000 | ) | | | | 3.60 | | | | | |
| | |
| | | |
|
| | | | | |
Outstanding at December 31, 2006 | | | 9,441,915 | | | | $ | 2.52 | | | | | |
Granted | | | — | | | | | — | | | | | |
Exercised | | | (1,179,538 | ) | | | | 2.26 | | | | | |
Canceled / Expired | | | — | | | | | — | | | | | |
| | |
| | | |
|
| | | | | |
Outstanding at December 31, 2007 | | | 8,262,377 | | | | $ | 2.55 | | | | | |
| | |
| | | |
|
| | | | | |
| | | | | | |
Number of
Warrants
Outstanding | | Exercise Price | |
| | | |
4,864,264 | | | 1.18 - 1.90 | | |
928,700 | | | 2.00 - 3.00 | | |
2,469,413 | | | 3.00 - 4.99 | | |
| | | | | |
8,262,377 | | | | | |
| | | | | |
7. Related Parties
During the year ended December 31, 2007, the Company incurred costs of $64,500 related to work performed by a related party and its affiliate, in connection with the Company’s lead products. On December 31, 2007, the Company’s outstanding payables included $3,100 payable to the related party and its affiliates. There were no accounts receivable from related parties on December 31, 2007.
Additionally, a member of the Company’s Board of Directors is a member of the Company’s outside counsel.
44
8. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 2007 and 2006:
| | | | | | | |
| | 2007 | | 2006 | |
| |
| |
| |
Laboratory equipment | | $ | 1,933,072 | | $ | 1,555,763 | |
Leasehold improvements | | | 2,809,559 | | | 2,089,293 | |
Computer equipment | | | 178,644 | | | 357,949 | |
Furniture and fixtures | | | 290,637 | | | 205,628 | |
Construction in-progress | | | — | | | — | |
| |
|
| |
|
| |
| | | 5,211,912 | | | 4,208,633 | |
Less - accumulated depreciation | | | (3,732,234 | ) | | (2,888,318 | ) |
| |
|
| |
|
| |
Property, plant and equipment, net | | $ | 1,479,678 | | $ | 1,320,315 | |
| |
|
| |
|
| |
9. Notes Payable
On March 20, 2006, SIGA entered into a Bridge Note Purchase Agreement (“Note Purchase Agreement”) with a third party for the sale of three 8% Notes by SIGA, for $1,000,000 each. The first, second and third Notes were issued on March 20, 2006, April 19, 2006, and June 19, 2006, respectively. The proceeds of the Notes were used by the Company for (i) expenses directly related to the development of ST-246, (ii) expenses related to a potential business transaction with the third party and (iii) corporate overhead. On October 23, 2006, the Company paid the third party $3,114,400 in full repayment of the three notes and interest accrued thereon.
On May 20, 2005, the Company borrowed approximately $276,000 under a Promissory Note payable to General Electric Capital Corporation. The note was payable in 36 monthly installments of principal and interest of 10.31% per annum. The note was collateralized by a master security agreement dated as of April 29, 2005 and by specific property listed under the master security agreement. On September 2, 2007, the Company repaid the entire balance and related interest outstanding under the Promissory Note.
10. Income Taxes
The Company has incurred losses since inception, which have generated net operating loss carryforwards of approximately $37,383,000 at December 31, 2007 for federal and state income tax purposes. These carryforwards are available to offset future taxable income and begin expiring in 2010 for federal income tax purposes. As a result of a previous change in stock ownership, the annual utilization of the net operating loss carryforwards is subject to limitation. The net operating loss carryforwards and temporary differences, arising primarily from deferred research and development expenses and differences in the treatment of intangible assets, result in a noncurrent deferred tax asset at December 31, 2007 and 2006 of approximately $21,621,000 and $19,057,000, respectively. In consideration of the Company’s accumulated losses and the uncertainty of its ability to utilize this deferred tax asset in the future, the Company has recorded a valuation allowance of an equal amount on such date to fully offset the deferred tax asset.
45
At December 31, 2007 and 2006, the Company’s deferred tax assets (in thousands) are comprised of the following:
| | | | | | | |
| | 2007 | | 2006 | |
Net Operating Losses | | | 14,579 | | | 13,372 | |
Deferred Research and Development Costs | | | 5,037 | | | 4,195 | |
Amortization of Acquired Assets | | | 779 | | | 818 | |
Stock Based Compensation | | | 406 | | | 184 | |
Depreciation of Property Plant and Equipment | | | 820 | | | 488 | |
| |
|
| |
|
| |
Total Deferred Tax Asset | | | 21,621 | | | 19,057 | |
Valuation Allowance | | | (21,621 | ) | | (19,057 | ) |
| |
|
| |
|
| |
Net Deferred Tax Assets | | $ | — | | $ | — | |
| |
|
| |
|
| |
Following is a summary of changes in our valuation allowance for deferred tax assets as of and for the years ended December 31, 2007, 2006, and 2005 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
December 31, | | Balance at
Beginning of Year | | Additions Charged
to Costs and
Expenses | | Deductions | | Balance at End of
Year | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | |
2007 | | | $ | 19,057 | | | | $ | 2,603 | | | | $ | 39 | | | | $ | 21,621 | | |
2006 | | | $ | 16,411 | | | | $ | 2,646 | | | | $ | — | | | | $ | 19,057 | | |
2005 | | | $ | 16,090 | | | | $ | 321 | | | | $ | — | | | | $ | 16,411 | | |
For the years ended December 31, 2007 and 2006, 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.
The Company’s effective tax rate differs from the U.S. Federal Statutory income tax rate of 34% as follows:
| | | | | | | |
| | 2007 | | 2006 | |
| | | | | |
Statutory federal income tax rate | | | -34.00 | % | | -34.00 | % |
State tax benefit, net of federal taxes | | | -6.69 | % | | -3.91 | % |
Other | | | -8.62 | % | | 10.61 | % |
Valuation allowance on deferred tax assets | | | 49.31 | % | | 27.30 | % |
| |
|
| |
|
| |
Effective tax rate | | | 0.00 | % | | 0.00 | % |
| |
|
| |
|
| |
46
11. Commitments and Contingencies
Operating lease commitments
As of December 31, 2007, our purchase obligations are not material. The Company leases certain facilities and office space under operating leases. Minimum future rental commitments under operating leases having non-cancelable lease terms in excess of one year and future minimum payments under notes payable are as follows:
| | | | | | |
Year ended December 31, | | Lease obligations | |
| | | | | | |
2008 | | | | 576,948 | | |
2009 | | | | 579,648 | | |
2010 | | | | 466,448 | | |
2011 | | | | 443,748 | | |
| | |
|
| | |
Total | | | $ | 2,066,792 | | |
| | |
|
| | |
Other
On December 20, 2006, PharmAthene, Inc. (“PharmAthene”) filed an action against SIGA in the Court of Chancery in the State of Delaware, captioned PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-N. In its Complaint, PharmAthene asks the Court to order the Company to enter into a license agreement with PharmAthene with respect to SIGA-246, as well as issue a declaration that we are obliged to execute such a license agreement, and award damages resulting from our supposed breach of that obligation. PharmAthene also alleges that the Company breached an obligation to negotiate such a license agreement in good faith, as well as seeks damages for promissory estoppel and unjust enrichment based on supposed information, capital and assistance that PharmAthene allegedly provided to SIGA during the negotiation process. On January 9, 2007, SIGA filed a motion to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted. The Company moved to stay discovery on January 26, 2007 and this motion was granted on March 8, 2007. On January 16, 2008, the Court of Chancery denied SIGA’s motion to dismiss and lifted the stay of discovery. Both parties to the litigation have outstanding document requests and discovery is proceeding. The Company filed its answer to the Complaint on January 31, 2008. SIGA plans to defend itself vigorously.
From time to time, the Company is involved in disputes or legal proceedings arising in the ordinary course of business. The Company believes that there is no other dispute or litigation pending that could have, individually or in the aggregate, a material adverse effect on its financial position, results of operations or cash flows.
47
12. Financial Information By Quarter (Unaudited) (in thousands, except for per share data)
| | | | | | | | | | | | | | | | | | | | | | |
2007 For The Quarter Ended | | March 31, | | June 30, | | September 30, | | December 31, | | Total | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | $ | 1,867 | | | $ | 1,460 | | | $ | 1,609 | | | | $ | 1,763 | | | $ | 6,699 | |
Selling, general & administrative | | | $ | 877 | | | $ | 1,142 | | | $ | 793 | | | | $ | 892 | | | $ | 3,704 | |
Research and development | | | $ | 2,650 | | | $ | 2,201 | | | $ | 2,342 | | | | $ | 2,750 | | | $ | 9,943 | |
Patent preparation fees | | | $ | 138 | | | $ | 127 | | | $ | 59 | | | | $ | 191 | | | $ | 515 | |
Operating loss | | | $ | (1,797 | ) | | $ | (2,010 | ) | | $ | (1,585 | ) | | | $ | (2,071 | ) | | $ | (7,463 | ) |
Net income (loss) | | | $ | (3,142 | ) | | $ | 527 | | | $ | (2,493 | ) | | | $ | (531 | ) | | $ | (5,639 | ) |
Net loss per share: basic and diluted | | | $ | (0.10 | ) | | $ | 0.02 | | | $ | (0.07 | ) | | | $ | (0.02 | ) | | $ | (0.17 | ) |
Market price range for common stock | | | | | | | | | | | | | | | | | | | | | | |
High | | | $ | 6.04 | | | $ | 5.94 | | | $ | 4.70 | | | | $ | 4.50 | | | $ | 5.94 | |
Low | | | $ | 3.36 | | | $ | 3.21 | | | $ | 2.52 | | | | $ | 2.95 | | | $ | 2.52 | |
| | | | | | | | | | | | | | | | | | | | | | |
2006 For The Quarter Ended | | March 31, | | June 30, | | September 30, | | December 31, | | Total | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | $ | 1,394 | | | $ | 1,459 | | | $ | 2,036 | | | | $ | 2,369 | | | $ | 7,258 | |
Selling, general & administrative | | | $ | 942 | | | $ | 1,493 | | | $ | 802 | | | | $ | 1,387 | | | $ | 4,624 | |
Research and development | | | $ | 1,658 | | | $ | 2,431 | | | $ | 2,156 | | | | $ | 2,904 | | | $ | 9,149 | |
Patent preparation fees | | | $ | 109 | | | $ | 113 | | | $ | 36 | | | | $ | 37 | | | $ | 295 | |
Operating loss | | | $ | (1,314 | ) | | $ | (2,579 | ) | | $ | (960 | ) | | | $ | (1,957 | ) | | $ | (6,810 | ) |
Net loss | | | $ | (2,834 | ) | | $ | (2,157 | ) | | $ | (657 | ) | | | $ | (4,251 | ) | | $ | (9,899 | ) |
Net loss per share: basic and diluted | | | $ | (0.11 | ) | | $ | (0.08 | ) | | $ | (0.02 | ) | | | $ | (0.14 | ) | | $ | (0.35 | ) |
Market price range for common stock | | | | | | | | | | | | | | | | | | | | | | |
High | | | $ | 1.64 | | | $ | 1.81 | | | $ | 2.33 | | | | $ | 5.50 | | | $ | 5.50 | |
Low | | | $ | 0.87 | | | $ | 1.16 | | | $ | 1.00 | | | | $ | 1.40 | | | $ | 0.87 | |
48
| | |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| | |
| None. | |
| | |
Item 9A. | Controls and Procedures |
Management’s Responsibility for Financial Statements
Our management is responsible for the integrity and objectivity of all information presented in this annual report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company’s financial position and results of operations.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with the independent auditors, PricewaterhouseCoopers LLP and representatives of management to review accounting, financial reporting, internal control and audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The independent auditors have free access to the Audit Committee.
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. Based on their evaluation as of December 31, 2007, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive office and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the effectiveness of internal control over financial reporting, as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2007 based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2007.
The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in this Form 10-K.
49
| | |
Item 9B. | Other Information |
| | |
| None. | |
PART III
| | |
Item 10. | Directors and Executive Officers of the Registrant |
| | |
Information required by this item is incorporated by reference from our Proxy Statement for the 2008 Annual Meeting of Shareholders. |
| | |
Item 11. | Executive Compensation |
| | |
Information required by this item is incorporated by reference from our Proxy Statement for the 2008 Annual Meeting of Shareholders. |
| | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| | |
Information required by this item is incorporated by reference from our Proxy Statement for the 2008 Annual Meeting of Shareholders. |
| | |
| | Equity Compensation Plan Information |
| | |
The following table sets forth certain compensation plan information with respect to both equity compensation plans approved by security holders and equity compensation plans not approved by security holders as of December 31, 2007:
| | | | | | | | | | | | |
Plan Category
| | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
( c ) | |
| | | | | | | |
Equity compensation plans approved by security holders (1) | | 7,969,768 | | | | $ | 2.28 | | | 1,545,962 | | |
| | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | 190,000 | | | | $ | 2.00 | | | — | | |
| | | | | | | | | | | | |
Total | | 8,159,768 | | | | $ | 2.27 | | | 1,545,962 | | |
(1) SIGA Technologies, Inc., Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan.
As of December 31, 2007, options awarded outside of the Company’s equity compensation plan included 125,000 options awarded to an employee and 65,000 options awarded to consultants. In May 2000, the Company awarded its Chief Scientific Officer options to acquire 125,000 shares of the Company’s common stock at an exercise price of $2.00 per share. In July 2000, the Company entered into an agreement with a consultant to serve as the Company’s public relations agent and awarded the consultant options to acquire shares of the Company’s common stock. As of December 31, 2007, the consultant holds 27,500 options and 37,500 options with an exercise price of $1.50 per share and $1.75 per share, respectively.
50
| | |
Item 13. | Certain Relationships and Related Transactions |
| | |
Information required by this item is incorporated by reference from our Proxy Statement for the 2008 Annual Meeting of Shareholders. |
| | |
Item 14. | Principal Accountant Fees and Services |
| | |
Information required by this item is incorporated by reference from our Proxy Statement for the 2008 Annual Meeting of Shareholders. |
51
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
(a) (1) and (2). Financial Statements and Financial Statements Schedule.
See Index to Financial Statements under Item 8 in Part II hereof where these documents are listed.
(a) (3). Exhibits.
The following is a list of 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) | | Form of Certificate of Amendment of the Restated Certificate of Incorporation of SIGA Technologies, Inc., (Incorporated by reference to the Company’s proxy statement on Schedule 14A dated June 15, 2007). |
| | | |
3(c) | | Bylaws of the Company (Incorporated by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)). |
| | | |
4(a) | | Form of Common Stock Certificate (Incorporated by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)). |
| | | |
4(b) | | Warrant Agreement dated as of September 15, 1996 between the Company and Vincent A. Fischetti (1) (Incorporated by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)). |
| | | |
4(c) | | Warrant Agreement dated as of November 18, 1996 between the Company and David de Weese (1) (Incorporated by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)). |
| | | |
4(d) | | Warrant Agreement between the Company and Stefan Capital, dated September 9, 1999 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999). |
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4(e) | | Registration Rights Agreement, dated as of May 23, 2003, between the Company and Plexus Vaccine Inc. (Incorporated by reference to Form 8-K of the Company filed June 9, 2003). |
| | | |
4(f) | | Registration Rights Agreement, dated as of August 13, 2003, between the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by reference to Form 8-K of the Company filed August 18, 2003). |
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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)). |
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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)). |
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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 |
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| | 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). |
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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). |
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10(h) | | Clinical Trials Agreement between the Company and National Institute of Allergy and Infectious Diseases, dated as of July 1, 1997 (Incorporated by reference to Amendment No. 1 to Form SB-2 Registration Statement of the Company dated July 11, 1997 (No. 333-23037)). |
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10(i) | | Research Agreement between the Company and The Research Foundation of State University of New York, dated as of July 1, 1997(2) (Incorporated by reference to Amendment No. 1 to Form SB-2 Registration Statement of the Company dated July 11, 1997 (No. 333-23037)). |
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10(j) | | Collaborative Research and License Agreement between the Company and Wyeth, dated as of July 1, 1997(2) (Incorporated by reference to Amendment No. 3 to Form SB-2 Registration Statement of the Company dated September 2, 1997 (No. 333-23037)). |
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10(k) | | Research Collaboration and License Agreement between the Company and The Washington University, dated as of February 6, 1998 (2) (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1997). |
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10(l) | | Settlement Agreement and Mutual Release between the Company and The Washington University, dated as of February 17, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999). |
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10(m) | | Technology Transfer Agreement between the Company and MedImmune, Inc., dated as of February 10, 1998 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1997). |
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10(p) | | Option Agreement between the Company and Ross Products Division of Abbott Laboratories, dated February 28, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999). |
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10(q) | | Agreement between the Company and Oregon State University for the Company to provide contract research services to the University dated September 24, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000). |
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10(r) | | License and Research Agreements between the Company and the Regents of the University of California dated December 6, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000). |
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10(s) | | Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan dated August 15, 2001 (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001), as amended (as set forth in the Form 8-K of the Company filed May 27, 2005). |
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10(u) | | Research and License Agreement between the Company and TransTech Pharma, Inc. dated October 1, 2002 (Filed with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 initially filed with the Securities and Exchange Commission on March 31, 2003). |
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10(x) | | Contract between the Company and the Department of the US Army dated December 12, 2002 (Filed with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 initially filed with the Securities and Exchange Commission on March 31, 2003). |
53
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10(y) | | Contract between the Company and Four Star Group dated February 5, 2003 (Filed with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002 initially filed with the Securities and Exchange Commission on March 31, 2003). |
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10(aa) | | Securities Purchase Agreement, dated as of August 13, 2003, between the Company and MacAndrews & Forbes Holdings Inc. (Incorporated by reference to Form 8-K of the Company filed August 18, 2003). |
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10(bb) | | Letter Agreement dated October 8, 2003 among the Company, MacAndrews & Forbes Holdings Inc. and TransTech Pharma, Inc. (Incorporated by reference to Form 8-K of the Company filed August 18, 2003). |
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10(dd) | | Non-Employee Director Compensation Summary Sheet (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005). |
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10(ee) | | Director Compensation Program, effective April 21, 2005 (as set forth in the Form 8-K of the Company filed April 26, 2005). |
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10(ff) | | Service Agreement, dated as of April 27, 2005, between the Company and TransTech Pharma, Inc. (Incorporated by reference to Form 8-K of the Company filed May 3, 2005). |
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10(gg) | | Master Security Agreement, dated as of April 29, 2005, between General Electric Capital Corporation and the Company (Incorporated by reference to Form 8-K of the Company filed May 3, 2005). |
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10(hh) | | Letter Agreement, dated as of August 5, 2005, between the Company and John Odden (Incorporated by reference to Form 8-K of the Company filed August 11, 2005). |
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10(ii) | | Agreement, dated as of September 14, 2005, between Saint Louis University and the Company (Incorporated by reference to Form 8-K of the Company filed September 20, 2005). |
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10(jj) | | Agreement, dated as of September 22, 2005, between the United States Army Medical Research and Material Command and the Company (Incorporated by reference to Form 8-K of the Company filed September 27, 2005). |
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10(kk) | | Securities Purchase Agreement, dated as of November 2, 2005, between Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master Trust, Smithfield Fiduciary LLC and the Company (Incorporated by reference to Form 8-K of the Company filed November 4, 2005). |
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10(ll) | | Exclusive Finder’s Agreement, dated as of November 1, 2005, between the Shemano Group, Inc. and the Company (Incorporated by reference to Form 8-K of the Company filed November 4, 2005). |
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10(mm) | | Letter Agreement, dated as of February 1, 2006, between the Company and Thomas N. Konatich (Incorporated by reference to Form 8-K of the Company filed February 7, 2006). |
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10(oo) | | Bridge Note Purchase Agreement, dated as of March 20, 2006, between the Company and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed March 22, 2006). |
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10(pp) | | Security Agreement, dated as of March 20, 2006, between the Company and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed March 22, 2006). |
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10(qq) | | 8% Note, dated as of March 20, 2006, between the Company and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed March 22, 2006). |
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10(rr) | | Separation Agreement, dated as of March 31, 2006, between the Company and Bernard Kasten (Incorporated by reference to Form 8-K of the Company filed April 3, 2006). |
54
| | | |
10(ss) | | 8% Note, dated as of April 19, 2006, between the Company and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed April 20, 2006). |
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10(tt) | | Voting Agreement, dated as of June 8, 2006, among the Company, TransTech Pharma, Inc., MacAndrews & Forbes, Inc., Howard Gittis, Donald G. Drapkin, James J. Antal, Thomas E. Constance, Mehmet C. Oz, Eric A. Rose and Paul G. Savas (Incorporated by reference to Form 8-K of the Company filed June 13, 2006). |
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10(uu) | | Agreement and Plan of Merger, dated as of June 8, 2006, among the Company, SIGA Acquisition Corp. and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed June 13, 2006). |
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10(vv) | | 8% Note, dated as of June 19, 2006, between the Company and PharmAthene, Inc. (Incorporated by reference to Form 8-K of the Company filed June 20, 2006). |
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10(ww) | | Agreement, dated as of September 29, 2006, between SIGA Technologies, Inc. and the National Institute of Allergy and Infectious Diseases of the National Institutes for Health (Incorporated by reference to Form 10-Q/A of the Company filed November 13, 2006). |
| | | |
10(xx) | | Finder’s Agreement, dated as of October 18, 2006, between the Company and Empire Financial Group, Inc. (Incorporated by reference to Form 8-K of the Company filed October 20, 2006). |
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10(yy) | | Securities Purchase Agreement, dated as of October 18, 2006, between the Company, Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master Trust, Rockmore Investment Master Fund, Ltd., and Smithfield Fiduciary LLC (Incorporated by reference to Form 8-K of the Company filed October 20, 2006). |
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10(zz) | | Amended and Restated Employment Agreement, dated as of January 22, 2007, between the Company and Dennis E. Hruby (Incorporated by reference to Form 8-K of the Company filed January 22, 2007). |
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10(aaa) | | Amended and Restated Employment Agreement, dated as of January 22, 2007, between the Company and Thomas N. Konatich (Incorporated by reference to Form 8-K of the Company filed January 22, 2007). |
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10(bbb) | | Amended and Restated Employment Agreement, dated as of January 31, 2007, between the Company and Eric A. Rose (Incorporated by reference to Form 8-K of the Company filed January 31, 2007). |
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14 | | The Company’s Code of Ethics and Business Conduct (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003). |
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21 | | Subsidiaries of the Registrant |
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23.1 | | Consent of Independent Registered Public Accounting Firm. |
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31.1 | | Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer. |
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31.2 | | Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer. |
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32.1 | | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer. |
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32.2 | | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer. |
55
| |
|
(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. |
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| SIGA TECHNOLOGIES, INC. |
| (Registrant) |
| | |
Date: March 13, 2008 | By: | Eric A. Rose |
| |
|
| | Eric A. Rose, M.D. |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title of Capacities | | Date |
| | | | |
| | Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer) | | |
/s/ Eric A. Rose, M.D | | | |
| | | |
Eric A. Rose, M.D. | | | March 13, 2008 |
| | | | |
| | Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) | | |
/s/ Thomas N. Konatich | | | |
| | | |
Thomas N. Konatich | | | March 13, 2008 |
| | | | |
/s/ Steven L. Fasman | | | | |
| | | | |
Steven L. Fasman | | Director | | March 13, 2008 |
| | | | |
/s/ James J. Antal | | | | |
| | | | |
James J. Antal | | Director | | March 10, 2008 |
| | | | |
/s/ Thomas E. Constance | | | | |
| | | | |
Thomas E. Constance | | Director | | March 13, 2008 |
| | | | |
/s/ Adnan M. Mjalli, Ph.D. | | | | |
| | | | |
Adnan M. Mjalli, Ph.D. | | Director | | March 11, 2008 |
| | | | |
/s/ Mehmet C. Oz, M.D. | | | | |
| | | | |
Mehmet C. Oz, M.D. | | Director | | March 12, 2008 |
| | | | |
/s/ Scott Hammer, M.D | | | | |
| | | | |
Scott Hammer, M.D. | | Director | | March 13, 2008 |
| | | | |
/s/ Paul G. Savas | | | | |
| | | | |
Paul G. Savas | | Director | | March 11, 2008 |
| | | | |
/s/ Judy S. Slotkin | | | | |
| | | | |
Judy S. Slotkin | | Director | | March 13, 2008 |
| | | | |
/s/ Michael Weiner, M.D. | | | | |
| | | | |
Michael Weiner, M.D. | | Director | | March 12, 2008 |
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