siga_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
(Mark One)
| x |
|
Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 |
| |
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| |
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For the Quarterly Period Ended March 31,
2010 |
| OR |
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| o |
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Transition Report Pursuant To Section 13
or 15(d) of the Securities Exchange Act of 1934 |
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For the Transition
Period from __________ to __________ |
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Commission File No.
0-23047
____________________________
SIGA Technologies, Inc.
(Exact name of registrant as specified in its
charter)
| Delaware |
13-3864870 |
| (State or other jurisdiction
of |
(I.R.S. Employer Identification.
No.) |
| incorporation or organization) |
|
| |
|
| 35 East 62nd
Street |
10065 |
| New York, NY |
(zip code) |
| (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 o
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o No o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated filer x Non-accelerated filer o Smaller
reporting company o
(Do not check if a smaller reporting company)
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x
As of April 21, 2010
the registrant had 43,587,993 shares of common stock outstanding.
SIGA Technologies,
Inc.
Form 10-Q
Table of Contents
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Page No. |
| PART I – FINANCIAL
INFORMATION |
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| Item 1 – Financial Statements |
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2 |
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| Item 2 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations |
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11 |
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| Item 3 – Quantitative and Qualitative
Disclosures About Market Risk |
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14 |
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| Item 4 – Controls and
Procedures |
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15 |
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| PART II – OTHER
INFORMATION |
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| Item 1. |
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Legal Proceedings |
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16 |
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| Item 1A. |
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Risk Factors |
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16 |
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| Item 2. |
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Unregistered Sale of Equity Securities
and Use of Proceeds |
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16 |
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| Item 3. |
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Defaults upon Senior
Securities |
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16 |
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| Item 4. |
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Reserved |
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16 |
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| Item 5. |
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Other Information |
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16 |
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| Item 6. |
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Exhibits |
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16 |
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| SIGNATURES |
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17 |
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PART I – FINANCIAL
INFORMATION
Item 1 – Financial Statements.
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| |
|
March
31, |
|
December
31, |
|
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|
2010 |
|
2009 |
| ASSETS |
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| Current assets |
|
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Cash and cash equivalents |
|
$ |
8,508,027 |
|
|
$ |
14,496,313 |
|
| Short term investments |
|
|
8,749,925 |
|
|
|
4,999,300 |
|
| Accounts receivable |
|
|
3,308,935 |
|
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|
2,405,861 |
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| Prepaid expenses |
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|
608,450 |
|
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|
1,585,072 |
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| Other current assets |
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63,996 |
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|
- |
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Total current assets |
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21,239,333 |
|
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23,486,546 |
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| |
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| Property, plant and equipment,
net |
|
|
1,265,531 |
|
|
|
1,225,656 |
|
| Goodwill |
|
|
898,334 |
|
|
|
898,334 |
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| Other assets |
|
|
312,252 |
|
|
|
304,751 |
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Total assets |
|
$ |
23,715,450 |
|
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$ |
25,915,287 |
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| LIABILITIES AND STOCKHOLDERS'
EQUITY |
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| Current liabilities |
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| Accounts payable |
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$ |
3,963,926 |
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$ |
3,458,013 |
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| Accrued expenses and other |
|
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623,722 |
|
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|
740,333 |
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| Deferred revenue |
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|
662,211 |
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1,570,234 |
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| Common stock warrants |
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|
3,640,000 |
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|
3,260,000 |
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Total current
liabilities |
|
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8,889,859 |
|
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|
9,028,580 |
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| |
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| Common stock warrants |
|
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7,386,732 |
|
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6,398,216 |
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| Total liabilities |
|
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16,276,591 |
|
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15,426,796 |
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| |
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| Stockholders' equity |
|
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| Common stock ($.0001 par
value, 100,000,000 shares authorized, |
|
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|
|
|
|
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|
| 43,573,727 and 43,061,635 issued and
outstanding at March 31, 2010, |
|
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and December 31, 2009,
respectively) |
|
|
4,357 |
|
|
|
4,306 |
|
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Additional paid-in capital |
|
|
102,776,129 |
|
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|
101,417,677 |
|
| Accumulated other
comprehensive income |
|
|
1,323 |
|
|
|
- |
|
|
Accumulated deficit (See Note 2) |
|
|
(95,342,950 |
) |
|
|
(90,933,492 |
) |
|
Total stockholders'
equity |
|
|
7,438,859 |
|
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|
10,488,491 |
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Total liabilities and stockholders'
equity |
|
$ |
23,715,450 |
|
|
$ |
25,915,287 |
|
The accompanying notes
are an integral part of these unaudited financial statements.
2
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
|
Three
Months Ended |
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|
March
31, |
|
|
|
2010 |
|
2009 |
| Revenues |
|
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|
|
|
|
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| Research and
development |
|
$ |
5,075,211 |
|
|
$ |
1,925,777 |
|
| |
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| Operating expenses |
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| Selling, general and
administrative |
|
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1,968,791 |
|
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|
2,059,031 |
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Research and development |
|
|
5,827,023 |
|
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2,697,382 |
|
| Patent preparation
fees |
|
|
320,339 |
|
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|
109,130 |
|
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Total operating expenses |
|
|
8,116,153 |
|
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|
4,865,543 |
|
| |
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Operating loss |
|
|
(3,040,942 |
) |
|
|
(2,939,766 |
) |
| |
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| Increase in fair value of
common |
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stock rights and common stock warrants |
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(1,368,516 |
) |
|
|
(3,944,735 |
) |
|
Net loss |
|
$ |
(4,409,458 |
) |
|
$ |
(6,884,501 |
) |
| |
|
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| Unrealized gain (loss) on
securities |
|
|
1,323 |
|
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|
- |
|
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Comprehensive loss |
|
$ |
(4,408,135 |
) |
|
$ |
(6,884,501 |
) |
| |
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| Weighted average shares outstanding:
basic and diluted |
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43,196,362 |
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35,838,346 |
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| Net loss per share: basic and diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.19 |
) |
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The accompanying notes
are an integral part of these unaudited financial statements.
3
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
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Three Months Ended |
|
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March 31, |
|
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|
2010 |
|
2009 |
| Cash flows from operating
activities: |
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| Net loss |
|
$ |
(4,409,458 |
) |
|
$ |
(6,884,501 |
) |
| Adjustments to reconcile net loss to
net |
|
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|
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| cash used in operating
activities: |
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| Depreciation |
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|
128,439 |
|
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|
112,822 |
|
| Increase in fair value of rights and
warrants |
|
|
1,368,516 |
|
|
|
3,944,735 |
|
| Stock based compensation |
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|
244,662 |
|
|
|
384,766 |
|
| Changes in assets and
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(903,074 |
) |
|
|
712,336 |
|
|
Prepaid expenses |
|
|
976,622 |
|
|
|
(184,943 |
) |
|
Other current assets |
|
|
(63,996 |
) |
|
|
- |
|
|
Other assets |
|
|
(7,501 |
) |
|
|
(7,037 |
) |
|
Deferred revenue |
|
|
(908,023 |
) |
|
|
35,360 |
|
|
Accounts payable and accrued
expenses |
|
|
389,302 |
|
|
|
(165,497 |
) |
|
Net cash used in operating
activities |
|
|
(3,184,511 |
) |
|
|
(2,051,959 |
) |
| Cash flows from investing
activities: |
|
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|
|
|
|
|
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| Capital expenditures |
|
|
(168,314 |
) |
|
|
- |
|
| Purchases of short term
investments |
|
|
(3,749,302 |
) |
|
|
- |
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Net cash used in investing
activities |
|
|
(3,917,616 |
) |
|
|
- |
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| Cash flows from financing
activities: |
|
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|
|
|
|
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| Net proceeds from exercise of warrants and
options |
|
|
1,113,841 |
|
|
|
1,294,100 |
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Net cash provided by financing
activities |
|
|
1,113,841 |
|
|
|
1,294,100 |
|
| Net (decrease) increase in cash and cash equivalents |
|
|
(5,988,286 |
) |
|
|
(757,859 |
) |
| Cash and cash equivalents at beginning
of period |
|
|
14,496,313 |
|
|
|
2,321,519 |
|
| Cash and cash equivalents at end of period |
|
$ |
8,508,027 |
|
|
$ |
1,563,660 |
|
| |
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|
|
|
|
|
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|
The accompanying notes
are an integral part of these unaudited financial statements.
4
SIGA TECHNOLOGIES, INC.
Notes to the March 31, 2010 and 2009 Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
SIGA Technologies,
Inc. (“SIGA” or the “Company”) is a bio-defense company mainly engaged in the
discovery, development and commercialization of products for use in defense
against biological warfare agents such as smallpox and arenaviruses. The
Company’s anti-viral programs are designed to prevent or limit the replication
of viral pathogens.
The consolidated
financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and the rules and regulations of the
Securities and Exchange Commission (the “SEC”) for quarterly reports on Form
10-Q and should be read in conjunction with the Company's consolidated audited
financial statements and notes thereto for the year ended December 31, 2009,
included in the 2009 Annual Report on Form 10-K. All terms used but not defined
elsewhere herein have the meaning ascribed to them in the Company’s 2009 Annual
Report on Form 10-K filed on March 10, 2010. In the opinion of management, all
adjustments (consisting of normal and recurring adjustments) considered
necessary for a fair statement of the results of the interim periods presented
have been included. The 2009 year-end balance sheet data was derived from the
audited financial statements but does not include all disclosures required by
U.S. GAAP. The results of operations for the three months ended March 31, 2010
are not necessarily indicative of the results expected for the full
year.
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 capital
through a combination of commercial opportunities, collaborative agreements,
strategic alliances, research grants, and future equity and debt financing.
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 funds combined with cash flows primarily from continuing government
grants and contracts will be sufficient to support its operations for at least
the next twelve months. The success of the Company is dependent upon
commercializing its research and development programs and the Company’s ability
to obtain adequate future funding. If the Company is unable to raise adequate
capital and/or achieve profitable operations, future operations might need to be
scaled back or discontinued. 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 consolidated financial statements and related disclosures are
prepared in conformity with U.S. GAAP. 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 value of options and warrants granted or issued by the Company, the
realization of deferred tax assets, and impairment of goodwill. 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.
Reclassifications
Certain reclassifications of previously
reported amounts have been made to conform to the current year presentation.
Such reclassifications did not impact net income or shareholders’ equity as
previously reported.
5
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in
banks and highly liquid investments with original maturities of 90 days or
less.
Highly liquid
investments with maturities greater than 90 days and less than one year are
classified as short-term investments. Such investments are generally money
market funds, bank certificates of deposit, and U.S. Treasury
bills.
As of March 31, 2010
the Company’s short-term investments consisted of approximately $5.0 million and
$3.75 million invested in U.S. Treasury bills with maturity dates of April 1,
2010 and April 8, 2010, respectively. The Company classified these investments
as available for sale. As of March 31, 2010 the unrealized gain relating to this
investment was $1,323.
Revenue Recognition
The Company recognizes revenue from contract
research and development and research payments in accordance with FASB ASC 605,
Revenue Recognition, (“ASC 605”). In accordance with ASC 605,
revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, collectability 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 three months
ended March 31, 2010 and 2009, revenues from National Institutes of Health
(“NIH”) contracts and grants were 98% and 100%, respectively, of total revenues
recognized by the Company.
6
Net Loss per Common Share
The Company computes, presents and discloses
earnings per share in accordance with FASB ASC 260 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, which 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, unless the impact of such common shares
is anti-dilutive.
The Company incurred
losses for the three months ended March 31, 2010 and 2009. As a result, certain
equity instruments are excluded from the calculation of diluted loss per share.
At March 31, 2010 and 2009, outstanding options to purchase 5,766,352 and
7,176,346 shares, respectively, of the Company’s common stock with exercise
prices ranging from $0.94 to $9.32 have been excluded from the computation of
diluted loss per share as the effect of such shares is anti-dilutive. At March
31, 2010 and 2009, outstanding warrants to purchase 4,239,752 and 6,424,867
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.
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 warrants
which are classified as liabilities under the provisions of FASB ASC 815, Derivatives and Hedging (“ASC
815”), are recorded at their fair market value as of each reporting
period.
The Company applies
FASB ASC 820, Fair value Measurements and Disclosures (“ASC
820”) for financial assets
and liabilities that are required to be measured at fair value, and
non-financial assets and liabilities that are not required to be measured at
fair value on a recurring basis.
ASC 820 provides that
the measurement of fair value requires the use of techniques based on observable
and unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect our market assumptions.
The inputs create the following fair value hierarchy:
SIGA uses
model-derived valuations where inputs are observable in active markets to
determine the fair value of certain common stock warrants on a recurring basis
and classify such warrants in Level 2. SIGA utilizes the Black-Scholes model to
value the warrants and inputs include the closing price of SIGA’s common stock
at March 31, 2010, the remaining life of the warrant, the weighted average stock
price volatility of SIGA and comparable companies, and the risk free market
rate. At March 31, 2010 and December 31, 2009, the fair value of such warrants
was as follows:
|
|
|
March 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
| Common stock warrants classified as
current liabilities |
|
$ |
3,640,000 |
|
$
|
3,260,000 |
| Common stock warrants classified as long term liabilities |
|
$ |
7,386,732 |
|
|
6,398,216 |
| Total |
|
$ |
11,026,732 |
|
$ |
9,658,216 |
ASC 820-10 applies to
non-financial assets and non-financial liabilities measured on a nonrecurring
basis and was effective January 1, 2009. The adoption of this standard had no
impact on the Company.
As of March 31, 2010,
the Company held approximately $8.75 million in U. S. Treasury bills, classified
as a Level 1 security. SIGA does
not hold any Level 3 securities and there were no transfers between Level 1, 2,
or 3 during each of the three month periods ended March 31, 2010, and
2009.
7
Recent Accounting Pronouncements
In January 2010, FASB issued ASU No. 2010-06,
Improving Disclosures about Fair Value Measurements. This update provides
amendments to Subtopic 820-10 that requires new disclosure as follows: 1)
Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should present
separately information about purchases, sales, issuances, and settlements (that
is, on a gross basis rather than as one net number). This update provides
amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1)
Level of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in the statement of
financial position. A reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities. 2) Disclosures about inputs and
valuation techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. Those disclosures are required for
fair value measurements that fall in either Level 2 or Level 3. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Company has adopted some of the
requirements of the standard update, however, the Company does not expect the
adoption of this ASU to have a material impact on its financial
statements.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-13 (FASB ASU
09-13), “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (a consensus of the FASB Emerging Issues Task Force).” FASB ASU
09-13 updates the existing multiple-element arrangement guidance currently in
FASB Topic 605-25 (Revenue Recognition – Multiple-Element Arrangements). This
new guidance eliminates the requirement that all undelivered elements have
objective evidence of fair value before a company can recognize the portion of
the overall arrangement fee that is attributable to the items that have already
been delivered. Further, companies will be required to allocate revenue in
arrangements involving multiple deliverables based on the estimated selling
price of each deliverable, even though such deliverables are not sold separately
by either company itself or other vendors. This new guidance also significantly
expands the disclosures required for multiple-element revenue arrangements. The
revised guidance will be effective for the first annual period beginning on or
after June 15, 2010. We adopted the provisions of the update on January 1, 2010.
The adoption did not have an impact on our consolidated financial
statements.
3. Stockholders’ Equity
On March 31, 2010,
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.
2009 Financing
On December 9, 2009, the Company sold
2,725,339 shares of the Company’s common stock, par value $0.0001 per share, at
a purchase price of $7.35 per share. Net proceeds to the Company were
approximately $18.6 million.
2008 Financing
On June 19, 2008, SIGA entered into a letter
agreement (the “Letter Agreement”) with MacAndrews & Forbes, LLC
(“M&F”), a related party, for M&F’s commitment to invest, at SIGA’s
discretion, up to $8 million in exchange for (i) SIGA common stock at a per
share price equal to the lesser of (A) $3.06 and (B) the average of the
volume-weighted average price per share for the 5 trading days immediately
preceding each funding date, and (ii) warrants to purchase 40% of the number of
SIGA shares acquired by M&F. On April 29, 2009, SIGA and M&F agreed to
extend the Letter Agreement through June 19, 2010. M&F has the option,
during the term of the Letter Agreement, to invest in the Company under the same
investment terms. As of March 31, 2010, $5.5 million of the commitment remains
outstanding.
The Company follows
the provisions of ASC 815. The warrants issuable to M&F under the Letter
Agreement, which if issued, could be exercised either by payment of cash or
cashless exercise, would no longer be considered "indexed to the Company's own
stock” and therefore would be subject to the scope of ASC 815. As a result, such
warrants meet the definition of a derivative and must be recorded on the
Company's balance sheet. The Company applied the Black-Scholes model to
calculate the fair value of the respective derivative instruments using the
Monte Carlo simulation to estimate the price of the Company’s common stock on
the derivative’s expiration date. The expected volatility was estimated using
the Company’s historical volatility. The Company recorded a loss of $380,000, or
$.01 per share, for the three months ended March 31, 2010 representing the
increase in the fair value of the warrants from January 1, 2010 through March
31, 2010.
2006 and 2005
Placements
In 2006 and
2005 the Company sold shares of its common stock and warrants to purchase shares
of common stock. As of March 31, 2010, 1,000,000 warrants issued in 2006
with an initial exercise price of $4.99 per share and 579,192 warrants issued in
2005 with an initial exercise price of $1.18 per share were outstanding. These
warrants may be exercised through and including the seventh anniversary of their
respective issuance date.
8
The Company accounted
for the transactions under the provisions of ASC 815 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. ASC 815 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 March 31,
2010, the fair market value of the warrants issued in 2006 and 2005 was $4.2
million and $3.2 million, respectively. 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. For the three months ended March
31, 2010, SIGA recorded a loss of $1.0 million as a result of a net increase in
the 2005 and 2006 placement warrants’ fair value.
4. Research Agreements
In February 2010, the
Company was awarded a $2.8 million contract with options for up to $9.9 million
from the Department of Defense's Transformational Medical Technologies
Initiative (TMTI) through the Defense Threat Reduction Agency (DTRA) to support
the pre-clinical development and Investigation New Drug (IND) filing of a broad
spectrum antiviral drug candidate.
5. Related Parties
On June 19, 2008,
SIGA entered into a Letter Agreement with M&F, a related party, for
M&F’s commitment to invest, at SIGA’s discretion, up to $8 million. M&F
has the option, during the term of the Letter Agreement, to invest in the
Company under the investment terms outlined in the Letter Agreement (See Note
3).
On December 1, 2009
the Company entered into an Office Service Agreement with an affiliate of
M&F to occupy office space for approximately $8,000 per month. The agreement
is cancelable upon 60 days notice by SIGA or the affiliate.
A member of the
Company’s Board of Directors is a member of the Company’s outside counsel.
During the three months ended March 31, 2010 and 2009, the Company incurred
costs of $822,000, and $1.1 million respectively, related to services provided
by the outside counsel. On March 31, 2010, the Company’s outstanding payables
included $1.3 million payable to the outside counsel.
6. Stock Compensation Plans
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 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 three months
ended March 31, 2010 and 2009, the Company recorded compensation expense of
approximately $245,000 and $385,000 respectively, related to employees and
directors stock options. The total fair value of options vested during the three
months ended March 31, 2010 and 2009, was $99,035 and $88,736,
respectively. The total compensation cost not yet recognized related to
non-vested awards at March 31, 2010, is $1.7 million. The weighted average
period over which total compensation cost is expected to be recognized is 1.45
years.
9
7. Commitments and
Contingencies
In
December 2006, PharmAthene, Inc. (“PharmAthene”) filed an action against the
Company in the Delaware Court of Chancery captioned PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-N. In its amended complaint,
PharmAthene asks the Court to order the Company to enter into a license
agreement with PharmAthene with respect to ST-246®, as well as issue a
declaration that the Company is obliged to execute such a license agreement, and
award damages resulting from the Company’s 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 the Company during the
negotiation process. In January 2008, the Court of Chancery denied the Company’s
motion to dismiss the original complaint, and discovery proceeded. In May 2009,
PharmAthene amended its complaint with
respect to its claim for breach of an obligation to negotiate in good faith, and
the Company filed its answer to the amended complaint and counterclaim denying
the new claim and asserting defenses.
PharmAthene has submitted
expert reports asserting several alternative theories of damages, including
amounts in a wide range of up to one billion dollars. The Company believes that
the expert’s damages analyses are flawed and methodologically unsound. The
Company also continues to believe that it has meritorious defenses to the
claims. The Company filed a partial summary judgment motion on March 19, 2010,
regarding certain aspects to PharmAthene’s claims and damages assessments, which
is currently being briefed. No trial date has been set. It is not currently
possible to estimate a range of loss, if any.
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.
10
SIGA TECHNOLOGIES, INC.
Item 2 – Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion should be read in
conjunction with our consolidated 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 we were incorporated on December 28,
1995, SIGA has pursued the research, development and commercialization 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. Our lead product, ST-246®, is an orally
administered antiviral drug that targets orthopox viruses. In December 2006, the
Food and Drug Administration (“FDA”) granted Orphan Drug designation to ST-246
for the prevention and treatment of smallpox. In May 2009, we submitted a
response to a Request for Proposal (“RFP”) issued by the U.S. Biomedical
Research and Development Agency (“BARDA”) with respect to the purchase of 1.7
million courses of a smallpox antiviral (the “BARDA Smallpox RFP”), and, in June
2009, BARDA informed us that our response to the BARDA Smallpox RFP was deemed
technically acceptable and in the competitive range. There can be no assurance
that SIGA or any other company will receive an award pursuant to this RFP.
Further, any award on this RFP would be subject to negotiation of final contract
terms and specifications; thus, the final terms under any contract with BARDA
may be materially different than those indicated in the RFP.
Critical Accounting Policies and
Estimates
Note 2 of the Notes to the Consolidated
Financial Statements includes a summary of all of the significant accounting
policies. There were no significant changes to the critical accounting policies
described in the 2009 Annual Report on Form 10-K.
Cumulative Effect of Changes in Accounting
Principles
On
January 1, 2009, the Company adopted the provisions of Financial Accounting
Standards Board ASC 815, Derivates and Hedging (“ASC 815”). In accordance with ASC 815, the cumulative
effect of the change in accounting principle recorded by SIGA in connection with
certain warrants to acquire shares of the company’s common stock (see Note 3)
was recognized by SIGA as an adjustment to the opening balance of retained
earnings as summarized in the following table:
|
|
|
As reported on |
|
As adjusted on |
|
Effect of change in |
|
|
|
December 31, 2008 |
|
January 1, 2009 |
|
accounting principle |
| Common stock warrants |
|
$ |
- |
|
|
$ |
2,710,000 |
|
|
$ |
2,710,000 |
|
| Accumulated deficit |
|
$ |
(70,605,553 |
) |
|
$ |
(73,315,553 |
) |
|
$ |
(2,710,000 |
) |
11
Results of Operations
Three months ended March 31, 2010 and 2009
For the three months ended March 31, 2010 and
2009, revenue from research and development (“R&D”) grants and contracts was
$5.1 million and $1.9 million, respectively. The increase of $3.1 million, or
164%, is mainly due to a $2.4 million increase in revenue recognized from the
large scale manufacturing of ST-246. An increase of $338,000 in revenue was
recognized from the development of additional formulations and orthopox-related
indications of ST-246. For the three months ended March 31, 2010, we recognized
$305,000 in revenue from two new federal awards for the development of a
broad-spectrum anti-viral drug.
For the three months ended March 31, 2010 and
2009, General and Administrative expenses (“G&A”) were $2.0 million and $2.1
million, respectively, reflecting a decrease of approximately $100,000 or 4.4%.
The decrease is mainly due to lower employee related expenditures, including
non-cash stock-based compensation.
R&D expenses were $5.8 million and $2.7
million for the three months ended March 31, 2010 and 2009, respectively,
reflecting an increase of $3.1 million or 116%. The increase is mainly due to
costs associated with large scale manufacturing and clinical testing of ST-246
which increased $2.3 million from the same period in the prior year. Expenses
related to the development of our other lead drug candidates increased $546,000
from the three months ended March 31, 2009. Employee related expenses increased
$222,000 mainly due to the hiring of additional R&D personnel. As of March
31, 2010 and 2009, the Company had 51 and 40 full time R&D employees,
respectively.
During the three months ended March 31, 2010
and 2009, we spent $4.1 and $1.3 million, respectively, on the development of
our lead drug candidate, ST-246. For the three months ended March 31, 2010, we
spent $457,000 on internal human resources and $3.6 million mainly on
manufacturing and clinical testing. For the three months ended March 31, 2009,
we spent $338,000 on internal human resources and $975,000 mainly on clinical
testing. From inception of the ST-246 development program to-date, we expended a
total of $25.9 million related to the program, of which $5.2 million was spent
on internal human resources, and $20.7 million was spent on manufacturing,
clinical and pre-clinical work. These resources reflect SIGA’s R&D 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 Department of
Defense (“DoD”).
During the three months ended March 31, 2010
and 2009, we spent $107,000 and $130,000, 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 three months ended March 31, 2010, we spent $40,000
on internal human resources and $67,000 mainly on synthesis of the ST-193
candidates. For the three months ended March 31, 2009, we spent $60,000 on
internal human resources and $70,000 on pre-clinical testing. From inception of
our program to develop ST-193, ST-294 and other drug candidates for hemorrhagic
fevers, to-date, we spent a total of $6.0 million related to the program, of
which $2.3 million and $3.7 million were expended on internal human resources
and pre-clinical work, respectively. These resources reflect SIGA’s R&D
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 three months ended March 31, 2010,
we spent $155,000 to support the development of a broad-spectrum anti-viral drug
candidate, of which $50,000 was mainly spent on internal human resources, and
$105,000 mainly on medicinal chemistry. From the inception of our program to
develop a broad-spectrum anti-viral drug, to-date, we spent a total of $222,000
related to the program, of which $92,000 and $130,000 were mainly expended on
internal human resources and supporting medicinal chemistry, respectively. These
resources reflect SIGA’s R&D 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.
Patent preparation expenses increased to
$320,000 for the three months ended March 31, 2010, from $109,000 for the same
period in the prior year mainly as a result of our increased efforts to protect
our lead drug candidates in expanded geographic territories.
12
Changes in the fair value of certain warrants
to acquire common stock are recorded as gains or losses. For the three months
ended March 31, 2010 and 2009, we recorded losses of $1.4 million and $3.9
million, respectively, reflecting changes in the fair market value of warrants
to purchase common stock during the respective three month periods.
Liquidity and Capital Resources
On March 31, 2010, we had $8.5 million in cash
and cash equivalents and $8.7 million in short-term investments.
Operating
activities
Net cash used in operations during the three
months ended March 31, 2010 and 2009 was approximately $3.2 million and $2.1
million, respectively. Higher operating expenses incurred during the three
months ended March 31, 2010, mainly due to clinical trials and large scale
manufacturing of ST-246, accounted for the majority of the increase.
In February 2010, the Company was awarded a
$2.8 million contract with options for up to $9.9 million from the Department of
Defense's Transformational Medical Technologies Initiative (TMTI) through the
Defense Threat Reduction Agency (DTRA) to support the pre-clinical development
and Investigation New Drug (IND) filing of a broad spectrum antiviral drug
candidate.
Investing
activities
Capital expenditures of $168,000 during the
three months ended March 31, 2010 mainly supported acquisitions of laboratory
and computer equipment. In addition, SIGA invested $3.8 million in U.S. Treasury
bills that mature in April 2010.
Financing
activities
Cash provided by financing activities during
the three months ended March 31, 2010 and 2009 was $1.1 million and $1.3
million, respectively, generated from exercises of options and warrants to
purchase SIGA common stock.
Other
On June 19, 2008, SIGA entered into a letter
agreement (the “Letter Agreement”) expiring on June 19, 2010, with MacAndrews
& Forbes, LLC (“M&F”), a related party, for M&F’s commitment to
invest, at SIGA’s discretion, up to $8 million in exchange for (i) SIGA common
stock and (ii) warrants to purchase 40% of the number of SIGA shares acquired by
M&F. M&F has the option, during the term of the Letter Agreement, to
invest in the Company under the same investment terms. As of March 31, 2010,
$5.5 million of the commitment remains outstanding.
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. We will need additional funds to complete the development of our
products. Our plans with regard to these matters include continued development
of our products as well as seeking additional capital through a combination of
collaborative agreements, strategic alliances, research grants, and future
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 funds combined
with cash flows primarily from continuing government grants and contracts will
be sufficient to support our operations for at least the next 12 months. The
success of the Company is dependent upon commercializing its R&D programs
and the Company’s ability to obtain adequate future financing. If the Company is
unable to raise adequate capital and/or achieve profitable operations, future
operations might need to be scaled back or discontinued. 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.
Our technical operations are based in 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 grants, contracts and strategic alliances. While we
have had success in obtaining strategic alliances, contracts and grants, there
is no assurance 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 R&D 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 R&D will continue
to be significant in the future. We expect to incur operating losses for the
foreseeable future and there can be no assurance that we will ever achieve
profitable operations.
13
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
(i) the risk that 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, (ii) the risk that SIGA or its collaborators
will not obtain appropriate or necessary governmental approvals to market these
or other potential products, (iii) the risk that SIGA may not be able to obtain
anticipated funding for its development projects or other needed funding, (iv)
the risk that SIGA may not be able to secure funding from anticipated government
contracts and grants, (v) the risk that SIGA may not be able to secure or
enforce sufficient legal rights in its products, including patent protection,
for its products, (vi) the risk that any challenge to our patent and other
property rights, if adversely determined, could affect our business and, even if
determined favorably, could be costly, (vii) the risk that regulatory
requirements applicable to SIGA’s products may result in the need for further or
additional testing or documentation that will delay or prevent seeking or
obtaining needed approvals to market these products, (viii) the risk that BARDA
may not complete the procurement set forth in its solicitation for the
acquisition of smallpox antiviral for the strategic national stockpile, or may
complete it on different terms, (ix) the risk that the volatile and competitive
nature of the biotechnology industry may hamper SIGA’s efforts, (x) the risk
that the changes in domestic and foreign economic and market conditions may
adversely affect SIGA’s ability to advance its research or its products, and
(xi) the effect of federal, state, and foreign regulation on SIGA’s businesses.
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, 2009, 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. Forward-looking statements speak only as of the date they are
made, and except for our ongoing obligations under the United States of America
federal securities laws, we undertake no obligation to publicly update any
forward-looking statements whether as a result of new information, future events
or otherwise.
Item 3 – Quantitative and Qualitative
Disclosures About Market Risk.
Our investment portfolio includes cash, cash
equivalents and short-term investments. Our main investment objectives are the
preservation of investment capital and the maximization of after-tax returns on
our investment portfolio. We believe that our investment policy is conservative,
both in the duration of our investments and the credit quality of the
investments we hold. We do not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions to manage exposure to interest rate changes.
Accordingly, we believe that, while the securities we hold are subject to
changes in the financial standing of the issuer of such securities and our
interest income is sensitive to changes in the general level of U.S. interest
rates, we are not subject to any material risks arising from changes in interest
rates, foreign currency exchange rates, commodity prices, equity prices or other
market changes that affect market risk sensitive instruments.
14
Item 4 – Controls and Procedures.
(a) Disclosure Controls and Procedures. The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by
this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, the Company's disclosure controls and procedures are
effective.
(b) Changes in Internal Control Over Financial
Reporting. There have not been any changes in the Company's internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal period covered by this
Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
15
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
In December 2006,
PharmAthene, Inc. (“PharmAthene”) filed an action against us in the Delaware
Court of Chancery captioned PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-N. In its amended complaint,
PharmAthene asks the Court to order us to enter into a license agreement with
PharmAthene with respect to ST-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 we
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 us during the negotiation process. In January 2008, the Court of Chancery
denied our motion to dismiss the original complaint, and discovery proceeded. In
May 2009, PharmAthene amended its complaint with respect to its claim for breach
of an obligation to negotiate in good faith, and we filed our answer to the
amended complaint and counterclaim denying the new claim and asserting
defenses.
PharmAthene has
submitted expert reports asserting several alternative theories of damages,
including amounts in a wide range of up to one billion dollars. We believe that
the expert’s damages analyses are flawed and methodologically unsound. We also
continue to believe that we have meritorious defenses to the claims. We filed a
partial summary judgment motion on March 19, 2010, regarding certain aspects to
PharmAthene’s claims and damages assessments, which is currently being briefed.
No trial date has been set. It is not currently possible to estimate a range of
loss, if any.
Item 1A. Risk Factors.
There are no material changes to the Risk
Factors disclosed in our Annual report on Form 10-K for the fiscal year ended
December 31, 2009.
Item 2. Unregistered Sale of Equity Securities
and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Reserved.
Item 5. Other Information.
None.
Item 6. Exhibits.
| |
* |
|
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. |
*
Filed herein
16
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 4, 2010 |
By: |
/s/ Ayelet Dugary |
|
|
| |
Ayelet Dugary |
| |
Chief Financial
Officer |
17