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UNITED STATES
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 Commission File No. 0-23047
March 31, 2005
SIGA Technologies, Inc.
A Delaware Corporation IRS Employer No. 13-3864870
420 Lexington Avenue, Suite 408, New York, NY 10170
Telephone Number (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 |_|.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.
As of May 10, 2005 the registrant had 24,500,648 shares of common stock
outstanding.
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SIGA Technologies, Inc.
Form 10-Q
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........10
Item 3. Quantitative and Qualitative Disclosure About Market Risk......................................14
Item 4. Controls and Procedures........................................................................14
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................15
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities...............15
Item 3. Defaults Upon Senior Securities................................................................15
Item 4. Submission of Matters to Vote of Security Holders..............................................15
Item 5. Other Information..............................................................................15
Item 6. Exhibits.......................................................................................15
SIGNATURES.............................................................................................16
1
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2005 2004
------------ ------------
ASSETS
Current assets
Cash and cash equivalents ............................................... $ 1,031,101 $ 2,020,938
Accounts receivable ..................................................... 62,730 108,904
Prepaid expenses ........................................................ 234,369 278,547
------------ ------------
Total current assets ................................................... 1,328,200 2,408,389
Property, plant and equipment, net ...................................... 831,983 508,015
Goodwill ................................................................ 898,334 898,334
Intangible assets, net .................................................. 1,789,449 2,114,297
Other assets ............................................................ 243,376 181,725
------------ ------------
Total assets ........................................................... $ 5,091,342 $ 6,110,760
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................ $ 1,440,066 $ 1,148,277
Accrued expenses and other .............................................. 199,290 403,072
------------ ------------
Total liabilities ...................................................... 1,639,356 1,551,349
Commitments and contingencies
Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, 68,038 issued and outstanding at March 31, 2005
and December 31, 2004) ................................................ 58,672 58,672
Common stock ($.0001 par value, 50,000,000 shares authorized,
24,500,648 issued and outstanding at March 31, 2005
and December 31, 2004) ................................................ 2,450 2,450
Additional paid-in capital .............................................. 48,679,650 48,679,650
Accumulated deficit ..................................................... (45,288,786) (44,181,361)
------------ ------------
Total stockholders' equity ............................................. 3,451,986 4,559,411
------------ ------------
Total liabilities and stockholders' equity ............................. $ 5,091,342 $ 6,110,760
============ ============
The accompanying notes are an integral part of these financial statements.
2
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31,
2005 2004
------------ ------------
Revenues
Research and development ....................... $ 1,458,565 $ 161,217
------------ ------------
Operating expenses
Selling, general and administrative ............ 844,709 1,005,860
Research and development ....................... 1,551,640 1,019,541
Patent preparation fees ........................ 175,038 91,839
------------ ------------
Total operating expenses .................... 2,571,387 2,117,240
------------ ------------
Operating loss .............................. (1,112,822) (1,956,023)
Other income, net .................................... 5,397 16,455
------------ ------------
Net loss .................................... $ (1,107,425) $ (1,939,568)
============ ============
Weighted average shares outstanding: basic and diluted 24,500,648 23,010,544
============ ============
Net loss per share: basic and diluted ................ $ (0.05) $ (0.08)
============ ============
The accompanying notes are an integral part of these financial statements.
3
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss ......................................... $(1,107,425) $(1,939,568)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation .................................. 39,497 89,153
Amortization of intangible assets ............. 324,848 146,731
Changes in assets and liabilities:
Accounts receivable ......................... 46,174 (2,719)
Prepaid expenses ............................ 44,178 --
Other assets ................................ (61,651) (2,396)
Accounts payable and accrued expenses ....... 88,007 293,120
----------- -----------
Net cash used in operating activities ....... (626,372) (1,415,679)
----------- -----------
Cash flows from investing activities:
Capital expenditures ............................. (363,465) (18,367)
----------- -----------
Net cash used in investing activities ....... (363,465) (18,367)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ....... -- 6,784,607
Proceeds from exercise of options and warrants ... -- 16,876
----------- -----------
Net cash provided from financing activities . -- 6,801,483
----------- -----------
Net increase (decrease) in cash and cash equivalents (989,837) 5,367,437
Cash and cash equivalents at beginning of period ... 2,020,938 1,440,724
----------- -----------
Cash and cash equivalents at end of period ......... $ 1,031,101 $ 6,808,161
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
Notes to the March 31, 2005 Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The financial statements of SIGA Technologies, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Forms 10-Q 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, 2004, included in the 2004 Form 10-K. In the
opinion of management, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the results of the
interim periods presented have been included. The results of operations for the
three months ended March 31, 2005 are not necessarily indicative of the results
expected for the full year.
The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The Company has incurred cumulative net losses
and expects to incur additional losses to perform further research and
development activities. The Company does not have commercial products and has
limited capital resources. Management's plans with regard to these matters
include continued development of its products as well as seeking additional
research support funds and financial arrangements. Although management continues
to pursue these plans, there is no assurance that the Company will be successful
in obtaining sufficient financing on terms acceptable to the Company. Management
believes that its cash flows are sufficient to support its operations beyond
March 31, 2006, and that sufficient cash flows will be available to meet the
Company's business objectives. In the event that sufficient funds are not
available, the Company will need to postpone or discontinue planned operations
and projects. 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. Significant Accounting Policies
Use of Estimates
The financial statements and related disclosures are prepared in conformity with
accounting principles generally accepted in the United States of America.
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and revenue and expenses
during the period reported. These estimates include the realization of deferred
tax assets, useful lives and impairment of tangible and intangible assets, and
the value of options and warrants granted 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 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
5
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 three month periods ended March 31, 2005 and 2004 revenues from National
Institute of Health ("NIH") SBIR grants approximated 94% and 45%, 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 March 31, 2005 and December 31, 2004 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 employees related costs,
materials, supplies, depreciation on and maintenance of research equipment, the
cost of services provided by outside contractors, and facility costs, such as
rent, utilities, and general support services. All costs associated with
research and development are expensed as incurred. Costs related to the
acquisition of technology rights, for which development work is still in
process, and that have no alternative future uses, are expensed as incurred.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired.
The Company performs an annual review in the fourth quarter of each year, or
more frequently if indicators of potential impairment exist, to determine if the
carrying value of the recorded goodwill is impaired. Goodwill impairment is
determined using a two-step approach in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). The impairment review process compares the fair value of the reporting
unit in which goodwill resides to its carrying value.
Identified Intangible Assets
Acquisition-related intangible assets include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 3.5-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. Changes in events or circumstances that may affect
long-lived assets include, but are not limited to, cancellations or terminations
of research contracts or pending government grants.
Income taxes
Income taxes are accounted for under the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or all
of the deferred tax asset will not be realized.
Net loss per common share
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
6
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 three months ended March 31, 2005 and March
31, 2004 and as a result, certain equity instruments are excluded from the
calculation of diluted loss per share. At March 31, 2005 and 2004, 68,038 and
81,366 shares, respectively, of the Company's Series A convertible preferred
stock have been excluded from the computation of diluted loss per share as they
are anti-dilutive. At March 31, 2005 and 2004, outstanding options to purchase
9,562,061 and 6,452,477 shares, respectively, of the Company's common stock with
exercise prices ranging from $1.00 to $5.50 have been excluded from the
computation of diluted loss per share as they are anti-dilutive. At March 31,
2005 and 2004, outstanding warrants to purchase 8,469,594 and 8,703,310 shares,
respectively, of the Company's common stock, with exercise prices ranging from
$1.00 to $3.63 have been excluded from the computation of diluted loss per share
as they are anti-dilutive.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts payable and accrued
expenses approximates fair value due to the relatively short maturity of these
instruments.
Concentration of credit risk
The Company has cash in bank accounts that exceed the Federal Deposit Insurance
Corporation insured limits. The Company has not experienced any losses on its
cash accounts. No allowance has been provided for potential credit losses
because management believes that any such losses would be minimal.
Stock compensation
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its stock-based
compensation program. Accordingly, employees' and directors' related
compensation expense is recognized only to the extent of the intrinsic value of
the compensatory options or shares granted.
The following table illustrates the effect on net income (loss) available to
common stockholders and earnings (loss) per share as if the Company had applied
the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), as amended by SFAS 148, "Accounting for
Stock-Based Compensation - Transaction and Disclosure, an amendment to FASB
Statement No. 123."
Three Months Ended
March 31,
2005 2004
----------- -----------
Net loss applicable to common shareholders, as reported ($1,107,425) ($1,939,568)
=========== ===========
Add: Stock-based employee compensation expense
recorded under APB No. 25 ............................. -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects ................ (211,136) (98,150)
----------- -----------
Pro forma net loss applicable to common shareholders .. ($1,318,561) ($2,037,718)
=========== ===========
Net loss per share:
Basic and diluted -as reported ........................ $ (0.05) $ (0.08)
=========== ===========
Basic and diluted -pro forma .......................... $ (0.05) $ (0.09)
=========== ===========
No options were granted during the three months ended March 31, 2005 and 2004.
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
7
information with respect to separate product areas or by location and only has
one reportable segment as defined by SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information".
Recent accounting pronouncements
In December of 2004, the FASB revised its FASB Statement No. 123, Accounting for
Stock Based Compensation (SFAS 123) and renamed it FASB Statement No. 123,
Share-Based Payment (SFAS 123R). SFAS 123R requires that compensation expense
relating to share-based payment transactions be recognized in financial
statements at estimated fair value. The scope of SFAS 123R includes a wide range
of share-based compensation arrangements, including share options, restricted
share plans, performance based awards, share appreciation rights, and employee
share purchase plans. This standard replaces SFAS 123 and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees. The Company is currently
assessing the provisions of SFAS 123R. The Company previously elected not to
adopt the fair value based method of accounting for stock-based employee
compensation as permitted by SFAS 123. The adoption of SFAS 123R will result in
the recording of non-cash compensation expenses, which is not currently
recognized in the Company's financial statements. In accordance with SFAS 123,
the Company discloses pro forma net income and earnings per share adjusted for
non-cash compensation expenses arising from the estimated fair value of
share-based payment transactions.
On April 15, 2005, the SEC issued Release No. 33-8568, Amendment to Rule 4-01a
of Regulation S-X Regarding the Compliance Date for Statement of Financial
Accounting Standards No. 123 (Revised 2004), and Share-Based Payment. The SEC
Release amends the effective date for compliance with SFAS 123R from July 1,
2005, to January 1, 2006.
On March 29, 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107,
"Share-Based Payment" (SAB 107). SAB 107 provides guidance to assist registrants
in the initial implementation of SFAS 123R. SAB 107 includes, but is not limited
to, interpretive guidance related to shared-based payment transactions with
non-employees, valuation methods and underlying expected volatility and expected
term assumptions, the classification of compensation expenses and accounting for
the income tax effects of share-based arrangements upon adopting the SFAS 123R.
The Company is currently assessing the guidance provided in SAB 107 in
connection with the implementation of SFAS 123R.
3. Intangible Assets
Amortization expense recorded for the three months ended March 31, 2005 and 2004
was as follows:
Three Months Ended
March 31,
2005 2004
-------- --------
Acquired grants $245,336 $ --
Customer contract and grants 8,357 41,072
Covenants not to compete 50,500 50,782
Acquired technology 20,655 54,877
-------- --------
$324,848 $146,731
======== ========
4. Stockholders' Equity
At March 31, 2005, the Company's authorized share capital consisted of
60,000,000 shares, of which 50,000,000 are designated common shares and
10,000,000 are designated preferred shares. The Company's Board of Directors is
authorized to issue preferred shares in series with rights, privileges and
qualifications of each series determined by the Board.
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.
8
In January 2004, MacAndrews & Forbes Inc. (formerly MacAndrews & Forbes Holdings
Inc.) ("MacAndrews & Forbes"), a holding company of which the Company's Chairman
of the Board of Directors is Vice Chairman and a director, and TransTech Pharma,
Inc., a related party to the Company and an affiliate of MacAndrews & Forbes
("TransTech Pharma"), completed the final portion of their investment, following
the approval of the Company's stockholders at its annual meeting of stockholders
held on January 8, 2004. Immediately following the stockholders' meeting,
MacAndrews & Forbes invested $1,840,595 in exchange for 1,278,191 shares of
common stock at a price of $1.44 per share, and warrants to purchase up to an
additional 639,095 shares of common stock at an exercise price of $2.00 per
share; and TransTech Pharma invested $5,000,000 in exchange for 3,472,222 shares
of common stock and warrants to purchase up to an additional 1,736,111 shares of
common stock on the same terms. In addition, as part of the investment,
MacAndrews & Forbes and TransTech Pharma each were given the right to appoint
one board member to the Board of Directors, subject to certain terms and
conditions. On January 8, 2004, in accordance with the terms of the investment,
the respective designees of MacAndrews & Forbes and TransTech Pharma were
appointed to serve on SIGA's board of directors.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our financial
statements and notes to those statements and other financial information
appearing elsewhere in this Quarterly Report. In addition to historical
information, the following discussion and other parts of this Quarterly Report
contain forward-looking information that involves risks and uncertainties.
Overview
Since our inception in December 1995, we have been principally engaged in
the research and development of novel products for the prevention and treatment
of serious infectious diseases, including products for use in the defense
against biological warfare agents such as Smallpox and Arenaviruses. The effort
to develop a drug for Smallpox is being aided by SBIR grants from the NIH
totaling approximately $5.8 million that were awarded in the third quarter of
2004 and a $1.6 million contract with the U.S. Army which began in January 2003.
The Arenavirus program is being supported by SBIR grants from the NIH totaling
approximately $6.3 million that were awarded in the third quarter of 2004.
Our anti-viral programs are designed to prevent or limit the replication
of the viral pathogen. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance. These programs are designed to
block the ability of bacteria to attach to human tissue, the first step in the
infection process. We are also developing a technology for the mucosal delivery
of our vaccines which may allow the vaccines to activate the immune system at
the mucus lined surfaces of the body -- the mouth, the nose, the lungs and the
gastrointestinal and urogenital tracts -- the sites of entry for most infectious
agents.
We do not have commercial biomedical products, and we do not expect to
have such products for several years, if at all. We believe that we will need
additional funds to complete the development of our biomedical products. Our
plans with regard to these matters include continued development of our products
as well as seeking additional research support funds and financial arrangements.
Although we continue to pursue these plans, there is no assurance that we will
be successful in obtaining sufficient financing on terms acceptable to us. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management believes it has sufficient funds and
projected cash flows to support operations beyond March 31, 2006.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
antiviral, antibiotic and vaccine programs through a combination of government
contracts and grants and strategic alliances. While we have had success in
obtaining strategic alliances, contract and grants, no assurance can be given
that we will continue to be successful in obtaining funds from these sources.
Until additional relationships are established, we expect to continue to incur
significant research and development costs and costs associated with the
manufacturing of product for use in clinical trials and pre-clinical testing. It
is expected that general and administrative costs, including patent and
regulatory costs, necessary to support clinical trials and research and
development will continue to be significant in the future.
To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.
Critical Accounting Estimates
The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our financial
statements, which we discuss under the heading "Results of Operations" following
this section of our MD&A. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include the assessment of recoverability of goodwill, which impacts
goodwill impairments; assessment of recoverability of long-lived assets, which
primarily impacts operating income when we impair intangible assets. Below, we
discuss these policies further, as well as the estimates and judgments involved.
We also have other policies that we consider key
10
accounting policies, such as for revenue recognition; however, these policies do
not require us to make estimates or judgments that are difficult or subjective.
Revenue Recognition
The Company recognizes revenue from contract research and development and
research progress payments in accordance with SEC Staff Accounting Bulletin No.
104, Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed 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 is earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired.
The Company performs an annual review in the fourth quarter of each year,
or more frequently if indicators of potential impairment exist, to determine if
the carrying value of the recorded goodwill is impaired. Goodwill impairment is
determined using a two-step approach in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). The impairment review process compares the fair value of the reporting
unit in which goodwill resides to its carrying value. In 2004, the Company
operated as one business and one reporting unit. Therefore, the goodwill
impairment analysis was performed on the basis of the Company as a whole using
the market capitalization of the Company as an estimate of its fair value. The
estimated fair values might produce significantly different results if other
reasonable assumptions and estimates were to be used.
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 3.5-4 years.
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets.
11
Contractual Obligations, Commercial Commitments and Purchase Obligations
As of March 31, 2005, our purchase obligations are not material. We lease
certain facilities and office space under operating leases. Minimum future
rental commitments under operating leases having non-cancelable lease terms in
excess of one year are as follows:
Year ended December 31,
2005 $ 239,700
2006 255,400
2007 261,800
2008 133,200
2009 135,900
2010 22,700
----------
Total $1,048,700
==========
Results of Operations
Three months ended March 31, 2005 and March 31, 2004
Revenues from grants and research and development contracts were
approximately $1.5 million for the three months ended March 31, 2005, compared
to $161,000 for the three months ended March 31, 2004. The increase relates to
the award of two Phase I and two Phase II SBIR grants by the NIH during the
third quarter of 2004. The Phase II grants are for a two year period ending in
the third quarter of 2006. The total award for these grants was approximately
$12.1 million. For the three months ended March 31, 2005 we recorded revenue of
$1.3 million from these grants. We also received a one year SBIR grant from the
NIH for $252,000 in August 2004 to support our Strep vaccine program. For the
three months ended March 31, 2005 we recorded revenue of $66,800 from this
grant. Revenue from our contract with the U.S. Army approximated $94,100 for the
three month period ending March 31, 2005; compared to $88,400 for the same
period in 2004. During the three months ending March 31, 2004 we recognized
revenue of $72,900 from an SBIR grant for our DegP anti infective that we
completed in the second quarter of 2004.
Selling, general and administrative expenses ("SG&A") for the three months
ended March 31, 2005 and 2004 approximated $845,000 and $1.0 million,
respectively. The decline of 16% is mainly attributed to a decline of $208,000
in legal fees, a decline of $40,000 in accounting fees and a decline of $63,000
in consulting fees. The declines were partially offset by an increase of
$109,000 in payroll and related benefits primarily due to the addition of a
Chief Executive Officer and a Vice President of Business Development during the
third quarter of 2004. Higher legal fees during the three months ending March
31, 2004 were due to the review and amendment of our corporate governance
policies and procedures to ensure compliance with Sarbanes Oxley and NASDAQ
requirements. Legal expenses in the first quarter of 2004 were also incurred in
connection with a review of a potential business combination and a legal action
that the Company initiated against a former founder.
Research and development expenses were $1.6 million for the three months
ended March 31, 2005; an increase of approximately 52% from the $1.0 million of
expenses incurred for the three months ended March 31, 2004. Approximately
$366,000 of the increase related to preclinical development work in connection
with our lead product programs. Amortization of intangible assets in the amount
of $274,300 and $96,000 for the three months ended March 31, 2005 and 2004,
respectively, represented approximately 34% of the increase.
All of our product programs are in the early stage of development. At this
stage of development, we cannot estimate the potential cost for any program to
be completed or the time it will take to complete the project. There is a high
risk of non-completion for any program because of the lead time to program
completion and uncertainty relating to costs. Net cash inflows from any products
developed from these 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.
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The risk of failure to complete any program is high, as each is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the Smallpox anti-viral, could be available for sale in
one to three years. We believe the products directed toward this market are on
schedule. We expect the future research and development cost of this program to
increase as the potential products enter animal studies and safety testing.
Funds for future development will be partially paid for by NIH SBIR grants, the
contract we have with the U.S. Army, additional government funding and from
future financing. If we are unable to obtain additional federal grants and
contracts or funding in the required amounts, the development timeline for these
products would slow or possibly be suspended. Delay or suspension of any of our
programs could have an adverse impact on our ability to raise funds in the
future, enter into collaborations with corporate partners or obtain additional
federal funding from contracts or grants.
Patent preparation expenses for the three months ended March 31, 2005 were
$175,000 compared to $91,800 for the three months ended March 31, 2004. The 90%
increase is the result of increased costs arising from the Plexus Vaccine Inc.
and ViroPharma Incorporated asset acquisitions.
Other income, reflecting mainly interest income, was $5,400 and $16,500
for the three months ended March 31, 2005 and 2004, respectively. The decline is
the result of lower cash balances in the three months ended March 31, 2005
compared to the prior year period.
Liquidity and Capital Resources
As of March 31, 2005 we had $1,031,101 in cash and cash equivalents. We
believe that these funds and our projected cash flows are sufficient to support
our operations beyond March 31, 2006, and that sufficient cash flows will be
available to meet our business objectives.
We anticipate that our current resources will be sufficient to finance our
currently anticipated needs for operating and capital expenditures approximately
beyond March 31, 2006. In addition, we will attempt to generate additional
working capital through a combination of collaborative agreements, strategic
alliances, research grants, equity and debt financing. However, no assurance can
be provided that additional capital will be obtained through these sources or,
if obtained, will be on commercially reasonable terms.
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.
Off-Balance Sheet Arrangements
SIGA does not have any off-balance sheet arrangements.
Safe Harbor Statement
This report contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, as amended,
including statements regarding the efficacy of potential products, the timelines
for bringing such products to market and the availability of funding sources for
continued development of such products. Forward-looking statements are based on
management's estimates, assumptions and projections, and are subject to
uncertainties, many of which are beyond the control of SIGA. Actual results may
differ materially from those anticipated in any forward-looking statement.
Factors that may cause such differences include the risks that (a) potential
products that appear promising to SIGA or its collaborators cannot be shown to
be efficacious or safe in subsequent pre-clinical or clinical trials, (b) SIGA
or its collaborators will not obtain appropriate or necessary governmental
approvals to market these or other potential products, (c) SIGA may not be able
to obtain promised funding for its development projects or other needed funding,
(d) SIGA may not be able to secure or enforce adequate legal protection,
including patent protection, for its products and (e) unanticipated internal
control deficiencies or weaknesses or ineffective disclosure controls and
procedures. More detailed information about SIGA and risk factors that may
affect the realization of forward-looking statements, including the
forward-looking statements in this presentation, is set forth in SIGA's filings
with the Securities and Exchange Commission, including SIGA's Annual Report on
Form 10-K for the fiscal year ended December 31, 2004, and in other documents
that SIGA has filed with the Commission. SIGA urges investors and security
holders to read those documents free of charge at the Commission's Web site at
http://www.sec.gov. Interested parties may also obtain those documents free of
charge from SIGA. SIGA does not undertake to publicly update or revise its
forward-looking statements as a result of new information, future events or
otherwise.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
None
Item 4. Controls and Procedures
As of the end of the fiscal quarter ended March 31, 2005, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the Company's disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective.
There have been no changes in the Company's internal control over
financial reporting identified in connection with the evaluation by the Chief
Executive Officer and Chief Financial Officer that occurred during the Company's
first fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
14
Part II
Other information
Item 1. Legal Proceedings - SIGA is not a party, nor is its property the subject
of, any legal proceedings other than routine litigation incidental to its
business.
Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity
Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits
10.1 Service Agreement, dated as of April 27, 2005, between SIGA
Technologies, Inc. and TransTech Pharma, Inc. (Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed May 3,
2005)
10.2 Master Security Agreement, dated as of April 29, 2005, between
General Electric Capital Corporation and SIGA Technologies, Inc.
(Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K
filed May 3, 2005)
10.3 Non-Employee Director Compensation Summary Sheet
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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SIGNATURES
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 Technologies, Inc.
(Registrant)
Date: May 13, 2005 By: /s/ Thomas N. Konatich
---------------------------
Thomas N. Konatich
Chief Financial Officer
16