SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1998
Commission file number: 0-23047
SIGA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue
New York, NY 10170
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 672-9100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___.
As of August 10, 1998, the Registrant had outstanding 6,557,712 shares of its
$.0001 par value Common Stock.
SIGA PHARMACEUTICALS, INC.
(A development stage company)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEET
December 31, June 30,
1997 1998
------------ ------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents ........................................................... $ 10,674,104 $ 6,714,048
Accounts receivable ................................................................. 150,000 --
Prepaid sponsored research .......................................................... 11,684 --
Prepaid expenses .................................................................... 43,698 108,679
------------ ------------
Total current assets .............................................................. 10,879,486 6,822,727
Equipment, net ...................................................................... 29,814 1,460,953
Other assets ........................................................................ 142,841 184,002
------------ ------------
Total assets ...................................................................... 11,052,141 8,467,682
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .................................................................... 224,623 231,553
Accrued expenses .................................................................... 240,985 236,850
Patent preparation fees payable ..................................................... -- --
Bridge notes ........................................................................ -- --
------------ ------------
Total liabilities ................................................................. 465,608 468,403
Commitments and contingencies .......................................................... -- --
Stockholders' equity
Preferred stock ($.0001 par value, 10,000,000 shares authorized,
none issued and outstanding) ...................................................... -- --
Common stock ($.0001 par value, 25,000,000 shares authorized,
6,242,182 and 6,577,712 issued and outstanding at December 31, 1997
and June 30, 1998, respectively) .................................................. 624 658
Additional paid-in capital .......................................................... 15,049,723 16,594,654
Deficit accumulated during the development stage .................................... (4,463,814) (8,596,033)
------------ ------------
Total stockholders' equity ........................................................ 10,586,533 7,999,279
------------ ------------
Total liabilities and stockholders' equity ........................................ 11,052,141 8,467,682
============ ============
The accompanying notes are an integral part of these financial statements
SIGA PHARMACEUTICALS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
For The Period
December 28,
1995 (Date of
Three Months Ended Six Months Ended Inception) to
June 30, June 30, June 30,
1997 1998 1997 1998 1998
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues -- Research and development
contracts -- $ 112,500 -- $ 225,000 $ 900,000
----------- ----------- ----------- ----------- -----------
Operating expenses
General and administrative (including amounts
to related parties of $131,973 and $102,395
for the three months ended June 30, 1998 and
1997, respectively, and $249,093 and $216,000
for the six months ended June 30, 1998 and
1997, respectively 379,160 905,342 680,122 1,446,160 3,789,663
Research and development (including amounts
to related parties of $ 37,500 and $18,750
for the three months ended March 31, 1998 and
1997, respectively, and $56,250 and $37,500
for the six months ended June 30, 1998 and
1997, respectively 228,709 1,089,863 432,668 1,602,080 3,211,070
Write-off of in-process research and
development -- -- -- 1,457,458 1,457,458
Patent preparation fees 34,219 46,444 49,681 86,722 826,928
Stock option and warrant compensation 28,813 -- 28,813 14,407 450,450
----------- ----------- ----------- ----------- -----------
Total operating expenses 670,901 2,041,649 1,191,284 4,606,827 9,735,569
----------- ----------- ----------- ----------- -----------
Operating income (670,901) (1,929,149) (1,191,284) (4,381,827) (8,835,569)
----------- ----------- ----------- ----------- -----------
Interest income/(expense) (91,337) 167,676 (121,727) 249,608 239,536
----------- ----------- ----------- ----------- -----------
Net loss $ (762,238) $(1,761,473) $(1,313,011) $(4,132,219) $(8,596,033)
----------- ----------- ----------- ----------- -----------
Basic and diluted loss per common share $ (0.23) $ (0.27) $ (0.39) $ (0.64)
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding 3,367,182 6,577,712 3,367,182 6,501,708
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements
SIGA PHARMACEUTICALS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
For The Period
December 28,
1995 (Date of
Six Months Ended Inception) to
June 30, June 30,
1997 1998 1998
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (1,313,011) $ (4,132,219) $ (8,596,033)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4,779 25,306 41,767
Stock, options & warrant compensation 28,813 87,507 523,550
Amortization of debt discount 88,667 -- 133,000
Write-off of in-process research and development -- 1,457,458 1,457,458
Changes in assets and liabilities:
Accounts receivable -- 150,000 --
Prepaid sponsored research 185,798 11,684 --
Prepaid expenses -- (64,981) (108,679)
Other assets -- (41,161) (184,002)
Accounts payable and accrued expenses 172,977 2,795 468,403
------------ ------------ ------------
Net cash used in operating activities (831,977) (2,503,611) (6,264,536)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of furniture & equipment -- (1,456,445) (1,502,720)
------------ ------------ ------------
Net cash flow used in investing activities -- (1,456,445) (1,502,720)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock -- 14,480,056
Receipts of stock subscriptions outstanding -- 1,248
Deferred offering costs (80,300)
Proceeds from bridge notes 1,000,000 1,000,000
Repayment of bridge notes -- -- (1,000,000)
------------ ------------ ------------
Net cash provided from financing activities 919,700 -- 14,481,304
------------ ------------ ------------
Net increase in cash and cash equivalents 87,723 (3,960,056) 6,714,048
Cash and cash equivalents at beginning of period 42,190 10,674,104 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 129,913 $ 6,714,048 $ 6,714,048
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements
SIGA Pharmaceuticals, Inc.
(A development stage company)
1. Basis of Presentation
The financial statements of SIGA Pharmaceuticals, Inc. have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on forms 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 1997, included in the 1997 Form 10-KSB.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments, consisting of normal adjustments, necessary
for a fair presentation of results of operations for the interim periods. The
results of operations for the three months ended June 30, 1998 are not
necessarily indicative of the results of operations to be expected for the full
year ending December 31, 1998.
2. New Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards number 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 is effective for all
financial statements of all fiscal years beginning after June 15, 1999. FAS 133
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of derivatives
(i.e., gains and losses) depends on the intended use of the derivative and the
resulting designations. The adoption of FAS 133 is not expected to have a
material impact on the Company's financial statements.
Effective January 31, 1998 the Company adopted Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which requires
the presentation of the components of comprehensive income in the company's
financial statement for reporting periods beginning subsequent to December 15,
1997. Comprehensive income is defined as the change in the company's equity
during a financial reporting period from transactions and other circumstances
from non-owner sources (including cumulative translation adjustments, minimum
pension liabilities and unrealized gains/losses on available for sale
securities). The adoption of FAS 130 did not have a material impact on the
Company's financial statements.
Effective January 31, 1998 the Company adopted Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"), which requires disclosure of information about
operating segments in annual financial statements for reporting periods
beginning subsequent to December 15, 1997. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The adoption of
FAS 131 did not have a material impact on the Company's financial statements.
3. License and Research Support Agreements
In January 1996, the Company entered into research agreements with third
parties. Under the terms of the agreements, the Company had agreed to fund
further research by the third parties in the annual amount of approximately
$496,000. The agreements expired in January 1998; however, the Company is
continuing its relationship with one of the third parties under similar terms
and with another under modified terms.
In February 1998, the Company entered into a research collaboration and
license agreement with a third party. Under the terms of the agreement, the
Company has been granted an exclusive world-wide license to make, use and sell
products derived from the licensed technology, in exchange for royalty payments
equal to a certain percentage of net sales of products incorporating the
licensed technology, and certain milestone payments. In addition, the Company
agreed to sponsor further research by the third party for the development of the
licensed technologies in the amounts of approximately $187,000, $387,000 and
$403,000, for the years ending December 31, 1998, 1999 and 2000. During the six
months ended June 30, 1998 the Company incurred sponsored research expense in
the amount of $93,598
4. Technology Purchase Agreement
In February 1998, the Company entered into an agreement with a third party
pursuant to which the Company acquired the third party's rights to certain
technology, intellectual property and related rights in the field of gram
negative antibiotics in exchange for 335,530 shares of the Company's common
stock. Write-off of in-process research and development related to this
agreement amounted to $1,457,458 for the six months ended June 30, 1998.
5. Employment Agreements
In February 1998, the Company entered into two-year employment agreements
with two officers. Under the terms of the agreements, the officers receive
aggregate annual base compensation of $395,000 per year. In addition, the
Company has granted
the officers options to purchase an aggregate of 195,000 shares of the Company's
common stock. In April 1998, the Company entered into a two-year employment
agreement with an officer upon which the officer receives annual base
compensation of $170,000 per year. In addition, the Company has granted the
officer options to purchase 95,000 shares of the Company's common stock.
6. Related Party Transactions
In March, 1998, the Company entered into a consulting agreement with a
limited liability company in which two of the Company's executive officers are
principals. The agreement is effective January 15, 1998, has an initial term of
three years and provides for automatic renewals of additional one year periods.
Pursuant to the agreement, the limited liability company will receive an annual
consulting fee of $150,000 and annual stock option grants to purchase 16,667
shares of the Company's common stock.
7. Other Agreements
In June 1998, the Company entered into an agreement with a third party upon
which it will provide the Company with Investor and Public Relations services.
The agreement has an initial term of thirty months. The third party will receive
a monthly retainer of $8,000. In addition, the Company granted the third party
options to purchase 150,000 shares of the Company's common stock at an exercise
price of $5.00 per share. 50,000 options vested as of the date of the agreement
and the remaining 100,000 options vest ratably on a quarterly basis over term of
the agreement.
8. Subsequent events
In July and August 1998, the Company sold certain laboratory equipment,
computer equipment and furniture to a third party, for $493,329 and $385,423,
respectively, under sale/leaseback arrangements. The leases have a term of 42
months and require minimum monthly payments of $13,171 and $10,290,
respectively. The Company has an option to purchase the equipment at fair market
value (defined in the agreement as 15% of the original cost) at the end of the
lease.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company is a development stage, biopharmaceutical company. Since its
inception in December 1995, the Company's efforts have been principally devoted
to research and development, securing patent protection, obtaining corporate
relationships and raising capital. Since its inception through June 30, 1998,
the Company has sustained cumulative losses of $8,596,033, including non-cash
charges in the amount of $1,457,458 for the write-off of research and
development expenses associated with the acquisition of certain technology
rights acquired from a third party in exchange for the Company's common stock.
In addition, a non-cash charge of $450,450 was incurred for stock option and
warrant compensation expense. The Company's losses have resulted primarily from
expenditures incurred in connection with research and development, patent
preparation and prosecution and general and administrative expenses. From
inception through June 30, 1998, research and development expenses amounted to
$3,211,070, patent preparation and prosecution expenses totaled $826,928,
general and administration expenses amounted to $3,789,663. From inception
through June 30, 1998, total revenues from research and development agreements
totaled $900,000.
The Company expects to continue to incur substantial research and development
costs in the future resulting form ongoing research and development programs,
manufacturing of products for use in clinical trials and pre-clinical testing of
the Company's products. The Company also expects that general and administrative
costs, including patent and regulatory costs, necessary to support clinical
trials, research and development, will increase in the future. Accordingly, the
Company expects to incur increasing operating losses for the foreseeable future.
There can be no assurance that the Company will ever achieve profitable
operations.
To date, the Company has not marketed, or generated revenues from the
commercialization of, any products. The Company's current product candidates are
not expected to be commercially available for several years.
Results of Operations
Three months ended June 30, 1998 to the three months ended June 30, 1997
Revenues from research and development contracts were $112,500 for the three
months ended June 30, 1998 compared to no revenue for the same period of 1997.
The revenue was the result of a payment made to the Company under an agreement
entered into in
July of 1997 with Wyeth-Ayerst, whereby the Company receives certain payments
for research and development activities sponsored by Wyeth-Ayerst.
Research and development expenses increased to $1,089,863 for the three months
ended June 30, 1998 from $228,709 for the same period in 1997. The increase of
approximately 377% in this area is consistent with the Company's plan to expand
its research and development activities including the opening of the Company's
research facility in Corvalis, Oregon in June 1998. The increase is primarily
the result of additional agreements to fund research and development with third
parties in exchange for licenses to their technology, initiation of clinical
trials and the production of product for use in trials and research activities.
General and administrative expenses increased approximately 139% in the three
months ended June 30, 1998 to $905,342 from $379,160 for the three months ended
June 30, 1997. The increase is due to an increase in staff, higher accounting
and legal expenses associated with being a public company, and higher spending
levels needed to support the Company's expanded research and development effort.
Patent expense of $46,444 for the three months ended June 30, 1998 represents an
increase of approximately 35% from the $34,219 level of the prior year. The
increase is due to the Company's increase in spending for research and
development which has resulted in the need to spend more for the preparation and
prosecution of patents for the added technologies developed internally and
obtained from third parties.
Total operating loss increased by $1,258,248 to $1,929,149 for the three months
ended June 30, 1998 from $670,901 for the same period of 1997. The increase in
the operating loss is the result of the increased spending for research and
development, general and administrative activities and patent preparation and
prosecution.
Interest income for the three months ended June 30, 1998 was $167,676 compared
to interest expense of $91,337 for the prior year period. The change is the
result of repayment of debt outstanding in the prior year period from the
proceeds of the Company's initial public offering and the interest income earned
on the investment of the proceeds from that offering in the three month period
ended June 30, 1998.
Net loss per common share of $0.23 for the three months ended June 30, 1997
increased to $0.27 per share for the three months ended June 30, 1998. The
relatively modest increase in loss per share, 17.4%, is the result of the
increase in the weighted average number of shares outstanding from the Initial
Public Offering and the issuance of 335,530 shares to MedImmune virtually
offsetting the increased net loss.
Six months ended June 30, 1998 to the six months ended June 30, 1997
Revenues from research and development contracts were $225,500 for the six
months ended June 30, 1998 compared to no revenue for the same period of 1997.
The revenue
was the result of a payment made to the Company under an agreement entered into
in July of 1997 with Wyeth-Ayerst, whereby the Company receives certain payments
for research and development activities sponsored by Wyeth-Ayerst.
Research and development expenses increased to $1,602,080 for the six months
ended June 30, 1998 from $432,668 for the same period in 1997. The approximate
270% increase is consistent with the Company's plan to expand its research and
development activities. The Company has entered into additional agreements to
fund research and development with third parties in exchange for licenses to
their technology. In June the Company opened its research facility in Corvalis,
Oregon. The Company also incurred a non-cash charge for the six months ended
June 30, 1998 totaling $1,457,458 for the write-off of in-process research and
development associated with the acquisition of certain technology purchased from
MedImmune, Inc. in exchange for 335,530 shares of the Company's common stock. No
similar charges were incurred in the same period of 1997.
General and administrative expenses increased approximately 113% in the six
months ended June 30, 1998 to $1,446,160 from $680,122 for the six months ended
June 30, 1997. The increase is due to a growth in staff and higher spending
levels needed to support the Company's expanded research and development effort
and the higher level of legal and accounting expenses associated with being a
public company.
Patent expense of $86,722 for the six months ended June 30, 1998 represents an
increase of approximately 75% from the $49,681 level of the prior year. The
higher spending level in 1998 is due to the Company's increase in spending for
research and development. This has resulted in the need to spend more for the
preparation and prosecution of patents for the added technologies that have been
obtained from third parties as well as patents for technology developed directly
by the Company.
Total operating loss increased by approximately $3.2 million to $4,381,827 for
the six months ended June 30, 1998 from $1,191,284 for the same period of 1997.
The increase in the operating loss is the result of the increased spending for
research and development, general and administrative activities and patent
preparation and prosecution.
Interest income for the six months ended June 30, 1998 was $249,608 compared to
interest expense of $121,727 for the prior year period. The change is the result
of repayment of debt outstanding in the prior year period from the proceeds of
the Company's initial public offering and the interest income earned on the
investment of the proceeds from that offering in the six month period ended June
30, 1998.
Net loss per common share of 0.39 for the six months ended June 30, 1997
increased to 0.64 per share for the six months ended June 30, 1998. The loss per
share was approximately 64% greater in 1998. This reflects the approximate 214%
increase in the Company's net loss and an approximate 93% increase in the
weighted average number of common shares outstanding. The share increase
reflects the successful completion of the
Company's IPO in the second half of 1997 and the issuance of 335,530 shares to
MedImmune, Inc. in the first quarter of 1998 for the purchase of certain
technology.
Liquidity and Capital Resources
As of June 30, 1998 the Company had $6,714,048 in cash and cash equivalents and
$6,354,324of working capital. In July and August, the Company sold certain
laboratory equipment, computer equipment and furniture to a third party, for
$493,329 and $385,423, respectively, under sale/leaseback arrangements. The
leases have a term of 42 months and require minimum monthly payments of $13,171
and $10,290, respectively. The Company has an option to purchase the equipment
for Fair Market Value (defined in the agreement as 15% of original cost) at the
end of the lease. In July of 1997 the Company entered into a collaborative
research and license agreement with Wyeth-Ayerst. Under the terms of the
agreement, the Company has granted Wyeth-Ayerst an exclusive worldwide license
to develop, make, use and sell products derived from specified technologies. The
agreement requires Wyeth-Ayerst to sponsor further research by the Company for
the development of the licensed technologies for a period of two years from the
effective date of the agreement, in return for payments to the Company totaling
$1,200,000. Through June 30, 1998 the Company has received a total of $900,000
from Wyeth-Ayerst.
The Company anticipates that its current resources along with receipts from the
sale and leaseback of its equipment and furniture will be sufficient to finance
the Company's currently anticipated needs for operating and capital expenditures
through at least 1999. In addition, the Company will attempt to generate
additional working capital through a combination of collaborative agreements,
strategic alliances and equity financings. However, no assurance can be provided
that additional capital will be obtained through these sources. In addition,
until September of 1998, prior written consent of Sunrise Securities Corp, an
underwriter of the Company's Initial Public Offering, is required if the Company
seeks to raise additional funds through the issuance of equity.
The Company's working capital and capital requirements will depend upon numerous
factors, including progress of the Company's research and development programs;
pre-clinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and the ability of the Company to establish collaborative
arrangements with other organizations.
Part II
Other Information
Item 1 Legal Proceedings NONE
Item 2 Changes in Securities NONE
Item 3 Defaults upon Senior Securities NONE
Item 4 Submission of Matters to Vote of Security Holders NONE
Item 5 Other Information NONE
Item 6 Exhibits and Reports on Form 8-K
The Company's Current Report on Form 8-K, dated April 22, 1998, filed
pursuant to Section 13 of the Securities Act, which described a series
of key management changes, including the naming of Joshua Schein and
Judson Cooper as interim Chief Executive Officer and Chairman,
respectively, following the resignation of David de Weese, former
Chairman and Chief Executive Officer of the Company.
SIGNATURE PAGE
Pursuant to the requirements 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 PHARMACEUTICALS, INC.
Dated: August 13, 1998
by: /s/ Thomas N.Konatich
--------------------------------------------
Thomas N. Konatich
Chief Financial Officer
(Principal Accounting and Financial Officer)
and Vice President, Finance