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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 0-23047
December 31, 2001
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 620
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 18,
2002 as reported on the Nasdaq SmallCap Market was approximately $26,464,233. As
of March 18, 2002 the registrant had outstanding 10,139,553 shares of Common
Stock.
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SIGA Technologies, Inc.
Form 10-KSB
Table of Contents
Part I Page No.
Item 1 Business........................................................ 1
Item 2 Properties...................................................... 10
Item 3 Legal Proceedings............................................... 10
Item 4 Submission of Matters to a Vote of Security Holders............. 10
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 11
Item 6 Management's Discussion and Analysis for Financial Condition
and Results of Operations....................................... 13
Item 7 Financial Statements and Supplementary Data..................... 22
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 22
Part III
Item 9 Directors and Executive Officers of the Registrant.............. 23
Item 10 Executive Compensation.......................................... 25
Item 11 Security Ownership of Certain Beneficial Owners and Management.. 28
Item 12 Certain Relationships and Related Transactions.................. 31
Part IV
Item 13 Exhibits, Lists and Reports on Form 8-K......................... 32
Signatures................................................................. 36
PART I
Item 1. Business
Certain statements in this Annual Report on Form 10-KSB, including certain
statements contained in "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and SIGA cautions you that any
forward-looking information provided by or on behalf of SIGA is not a guarantee
of future performance. SIGA's actual results could differ materially from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond SIGA's control, in addition to those risks discussed below
and in SIGA's other public filings, press releases and statements by SIGA's
management, including (i) the volatile and competitive nature of the
biotechnology industry, (ii) changes in domestic and foreign economic and market
conditions, and (iii) the effect of federal, state and foreign regulation on
SIGA's businesses. All such forward-looking statements are current only as of
the date on which such statements were made. SIGA does not undertake any
obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
SIGA Technologies, Inc. is referred to throughout this report as "SIGA,"
"we" or "us."
Introduction
SIGA is a development stage biotechnology company. Our focus is on the
discovery, development and commercialization of vaccines, antibiotics and novel
anti-infectives for serious infectious diseases. Our lead vaccine candidate is
for the prevention of group A streptococcal pharyngitis or "strep throat." We
are developing a technology for the mucosal delivery of our vaccines which may
allow those vaccines to activate the immune system at the mucus lined surfaces
of the body -- the mouth, the nose, the lungs and the gastrointestinal and
urogenital tracts -- the sites of entry for most infectious agents. SIGA's
anti-infectives programs are aimed at the increasingly serious problem of drug
resistance; they are designed to block the ability of bacteria to attach to
human tissue, the first step in the infection process.
Technology
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from The Rockefeller University
("Rockefeller"), SIGA is developing certain commensal bacteria ("commensals") as
a means to deliver mucosal vaccines. Commensals are harmless bacteria that
naturally inhabit the body's surfaces with different commensals inhabiting
different surfaces, particularly the mucosal surfaces. Our vaccine candidates
use genetically engineered commensals to deliver antigens for a variety of
pathogens to the mucosal immune system. When administered, the genetically
engineered ("recombinant") commensals colonize the mucosal surface and
replicate. By activating a local mucosal immune response, our vaccine candidates
are designed to prevent infection and disease at the earliest possible stage. By
comparison, most conventional vaccines are designed to act after infection has
already occurred.
Our commensal vaccine candidates use Gram-positive bacteria, one of two
major classes of bacteria. Rockefeller scientists have identified a protein
region that is used by Gram-positive bacteria to anchor proteins to their
surfaces. We are using the proprietary technology licensed from Rockefeller to
combine antigens from a wide range of infectious organisms, both viral and
bacterial, with the surface protein anchor region of a variety of commensal
organisms. By combining a specific antigen with a specific commensal, vaccines
may be tailored to both the target pathogen and its mucosal point of entry.
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To target an immune response to a particular mucosal surface, a vaccine
would employ a commensal organism that naturally inhabits that surface. For
example, vaccines targeting sexually transmitted diseases might employ
Lactobacillus acidophilus, a commensal colonizing the female urogenital tract.
Vaccines targeting gastrointestinal ("GI") diseases could employ Lactobacillus
casei, a commensal colonizing the GI tract. We have conducted initial
experiments using Streptococcus gordonii ("S. gordonii"), a commensal that
colonizes the oral cavity and that may potentially be used in vaccines targeting
pathogens that enter through the upper respiratory tract, such as the influenza
virus.
By using an antigen unique to a given pathogen, the technology may
potentially be applied to any infectious agent that enters the body through a
mucosal surface. Our founding scientists have expressed and anchored a variety
of viral and bacterial antigens on the outside of S. gordonii, including the M6
protein from group A streptococcus, a group of organisms that cause a range of
diseases, including strep throat, necrotizing fasciitis, impetigo and scarlet
fever. In addition, proteins from other infectious agents, such as HIV and human
papilloma virus have also been expressed using this system. We believe this
technology will enable the expression of most antigens regardless of size or
shape. In animal studies, we have shown that the administration of a recombinant
S. gordonii vaccine prototype induces both a local mucosal immune response and a
systemic immune response.
We believe that mucosal vaccines developed using our proprietary commensal
delivery technology could provide a number of advantages, including:
o More complete protection than conventional vaccines: Mucosal vaccines in
general may be more effective than conventional parenteral (injectable)
vaccines, due to their ability to produce both a systemic and local
(mucosal) immune response.
o Safety advantage over other live vectors: A number of bacterial pathogens
have been genetically rendered less infectious, or attenuated, for use as
live vaccine vectors. Commensals, by virtue of their substantially
harmless nature, may offer a safer delivery vehicle without fear of
genetic reversion to the infectious state inherent in attenuated
pathogens.
o Non-injection administration: Oral, nasal, rectal or vaginal
administration of the vaccine eliminates the need for painful injections
with their potential adverse reactions.
o Potential for combined vaccine delivery: The Children's Vaccine
Initiative, a world wide effort to improve vaccination of children
sponsored by the World Health Organization (WHO), has called for the
development of combined vaccines, specifically to reduce the number of
needle sticks per child, by combining several vaccines into one injection,
thereby increasing compliance and decreasing disease. We believe our
commensal delivery technology can be an effective method of delivery of
multi-component vaccines within a single commensal organism that address
multiple diseases or diseases caused by multiple strains of an infectious
agent.
o Eliminating need for refrigeration: One of the problems confronting the
effective delivery of parenteral vaccines is the need for refrigeration at
all stages prior to injection. The stability of the commensal organisms in
a freeze-dried state would, for the most part, eliminate the need for
special climate conditions, a critical consideration, especially for the
delivery of vaccines in developing countries.
o Low cost production: By using a live bacterial vector, extensive
downstream processing is eliminated, leading to considerable cost savings
in the production of the vaccine. The potential for eliminating the need
for refrigeration would add considerably to these savings by reducing the
costs inherent in refrigeration for vaccine delivery.
Anti-Infectives Technology: Prevention of Attachment and Infectivity
The bacterial infectious process generally includes three steps:
colonization, invasion and disease. The adherence of bacteria to a host's
surface is crucial to establishing colonization. Bacteria adhere through a
number of mechanisms, but generally by using highly specialized surface
structures which, in turn, bind to specific structures or molecules on the
host's cells or, as discussed below, to inanimate objects residing in the host.
Once adhered, many bacteria will invade the host's cells and either establish
residence or continue invasion into deeper tissues. During any of these stages,
the invading bacteria can cause the outward manifestations of disease, in some
cases through the
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production and release of toxin molecules. The severity of disease, while
dependent on a large combination of factors, is often the result of the ability
of the bacteria to persist in the host. These bacteria accomplish this
persistence by using surface molecules which can alter the host's nonspecific
mechanisms or its highly specific immune responses to clear or destroy the
organisms.
Unlike conventional antibiotics, as discussed above, our anti-infectives
approaches aim to block the ability of pathogenic bacteria to attach to and
colonize human tissue, thereby preventing infection at its earliest stage. Our
scientific strategy is to inhibit the expression of bacterial surface proteins
required for bacterial infectivity. We believe that this approach has promise in
the areas of hospital-acquired drug-resistant infections and a broad range of
other diseases caused by bacteria.
Many special surface proteins used by bacteria to infect the host are
anchored in the bacterial cell wall. Scientists at Rockefeller University have
identified an amino acid sequence and related enzyme, a selective protease, that
are essential for anchoring proteins to the surface of most Gram-positive
bacteria. Published information indicates that this amino acid sequence is
shared by more than 50 different surface proteins found on a variety of
Gram-positive bacteria. This commonality suggests that this protease represents
a promising target for the development of a new class of antibiotic products for
the treatment of a wide range of infectious diseases. Experiments by our
founding scientists have shown that without this sequence, proteins cannot
become anchored to the bacterial surface and thus the bacteria are no longer
capable of attachment, colonization or infection. Such "disarmed" bacteria
should be readily cleared by the body's immune system. Our drug discovery
strategy is to use a combination of structure-based drug design and high
throughput screening procedures to identify compounds that inhibit the protease,
thereby blocking the anchoring process. If successful, this strategy should
provide relief from many Gram-positive bacterial infections, but may prove
particularly important in combating diseases caused by the emerging antibiotic
resistance of the Gram-positive organisms S. aureus, Streptococcus pneumoniae,
and the enterococci.
In contrast to the above program, which focuses on Gram-positive bacteria,
our pilicide program, based upon initial research performed at Washington
University, focuses on a number of new and novel targets all of which impact on
the ability of Gram-negative bacteria to assemble adhesive pili on their
surfaces. Pili are proteins on the surfaces of Gram-negative bacteria -- such as
E. coli, salmonella, and shigella -- that are required for the attachment of the
bacteria to human tissue, the first step in the infection process. This research
program is based upon the well-characterized interaction between a periplasmic
protein -- a chaperone -- and the protein subunits required to form pili. In
addition to describing the process by which chaperones and pili subunits
interact, we have developed the assay systems necessary to screen for potential
therapeutic compounds, and have provided an initial basis for selecting novel
antibiotics that work by interfering with the pili adhesion mechansism.
Surface Protein Expression System ("SPEX")
The ability to overproduce many bacterial and human proteins has been made
possible through the use of recombinant DNA technology. The introduction of DNA
molecules into E. coli has been the method of choice to express a variety of
gene products, because of this bacteria's rapid reproduction and well-understood
genetics. Yet despite the development of many efficient E. coli-based gene
expression systems, the most important concern continues to be associated with
subsequent purification of the product. Recombinant proteins produced in this
manner do not readily cross E. coli's outer membrane, and as a result, proteins
must be purified from the bacterial cytoplasm or periplasmic space. Purification
of proteins from these cellular compartments can be very difficult. Frequently
encountered problems include low product yields, contamination with potentially
toxic cellular material (i.e., endotoxin) and the formation of large amounts of
partially folded polypeptide chains in non-active aggregates termed inclusion
bodies.
To overcome these problems, we have taken advantage of our knowledge of
Gram-positive bacterial protein expression and anchoring pathways. This pathway
has evolved to handle the transport of surface proteins that vary widely in
size, structure and function. Modifying the approach used to create commensal
mucosal vaccines, we have developed methods which, instead of anchoring the
foreign protein to the surface of the recombinant Gram-positive bacteria, result
in it being secreted into the surrounding medium in a manner which is readily
amenable to simple batch purification. We believe the advantages of this
approach include the ease and lower cost of Gram-positive
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bacterial growth, the likelihood that secreted recombinant proteins will be
folded properly, and the ability to purify recombinant proteins from the culture
medium without having to disrupt the bacterial cells and liberating cellular
contaminants. Gram-positive bacteria may be grown simply in scales from those
required for laboratory research up to commercial mass production.
Our Product Candidates and Research and Discovery Programs
Mucosal Vaccines
Development of our mucosal vaccine candidates involves: (i) identifying a
suitable immunizing antigen from a pathogen; (ii) selecting a commensal that
naturally colonizes the mucosal point of entry for that pathogen; and (iii)
genetically engineering the commensal to express the antigen on its surface for
subsequent delivery to the target population.
Strep Throat Vaccine Candidate. Until the age of 15, many children suffer
recurrent strep throat infections. Up to three percent of ineffectively treated
strep throat cases progress to rheumatic fever, a debilitating heart disease,
which worsens with each succeeding streptococcal infection. Since the advent of
penicillin therapy, rheumatic fever in the United States has experienced a
dramatic decline. However, in the last decade, rheumatic fever has experienced a
resurgence in the United States. Part of the reason for this is the latent
presence of this organism in children who do not display symptoms of a sore
throat, and, therefore, remain untreated and at risk for development of
rheumatic fever. Based on data from the Centers for Disease Control and
Prevention, there are five to 10 million cases of pharyngitis due to group A
streptococcus in the United States each year. There are over 32 million children
in the principal age group targeted by us for vaccination. Worldwide, it is
estimated that one percent of all school age children in the developing world
have rheumatic heart disease. Additionally, despite the relative ease of
treating strep throat with antibiotics, the specter of antibiotic resistance is
always present. In fact, resistance to erythromycin, the second line antibiotic
in patients allergic to penicillin, has appeared in a large number of cases.
No vaccine for strep throat has been developed because of the problems
associated with identifying an antigen that is common to the more than 120
different serotypes of group A streptococcus, the bacterium that causes the
disease. We have licensed from Rockefeller a proprietary antigen which is common
to most types of group A streptococcus, including types that have been
associated with rheumatic fever. When this antigen was orally administered to
animals, it was shown to provide protection against multiple types of group A
streptococcal infection. Utilizing this antigen, we are seeking to develop a
mucosal vaccine for strep throat.
Our strep throat vaccine candidate expresses the strep throat antigen on
the surface of the commensal S. gordonii, which lives on the surface of the
teeth and gums. Pre-clinical research in mice and rabbits has established the
ability of this vaccine candidate to colonize and induce both a local and
systemic immune response. We are collaborating with the National Institutes of
Health (the "NIH") and the University of Maryland Center for Vaccine Development
on the clinical development of this vaccine candidate. In cooperation with the
NIH we filed an Investigational New Drug Application ("IND") with the United
States Food and Drug Administration (the "FDA") in December 1997. The first
stage of these clinical trials, utilizing the commensal delivery system without
the strep throat antigen, were completed at the University of Maryland in 2000.
The study showed the commensal delivery system to be well-tolerated and that it
spontaneously eradicated or was easily eradicated by conventional antibiotics. A
second clinical trial of the commensal delivery system without the strep throat
antigen was initiated in 2000 at the University of Maryland. The study was
completed in January 2002 and the results corroborated the results of the
earlier study regarding tolerance and spontaneous eradication.
STD Vaccine Candidates. One of the great challenges in vaccine research
remains the development of effective vaccines to prevent sexually transmitted
diseases (STDs). Two principal pathogens that are transmitted via this route are
chlamydia, the most common bacterial STD, and Neisseria, the causative agent of
gonorrhea. To date, a great deal of effort has been expended, without
appreciable success, to develop effective injectable prophylactic vaccines
versus these pathogens. Given that both of these pathogens enters the host
through the mucosa, we believe that induction of a vigorous mucosal response to
certain bacterial antigens may protect against acquisition of the initial
infection. To test this hypothesis, we have expressed newly discovered antigens
from these pathogens in our proprietary mucosal vaccine delivery system. These
live recombinant vaccines will be delivered to animals and
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tested for local and systemic immune response induction, and whether these
responses can block subsequent bacterial infections. We have licensed technology
from Oregon State University and Washington University in support of our
chlamydia and Neisseria programs, respectively. In February 2000 we entered into
an option agreement with the Ross Products Division of Abbott Laboratories
(Ross) which will provide funding to further development of an STD vaccine
product. The research program was completed in late 2001 and a report has been
sent of Ross. Ross is currently reviewing the data presented and the will decide
whether or not they will exercise their option under the agreement.,
Mucosal Vaccine Delivery System
We are developing our proprietary mucosal vaccine delivery system, which
is a component of our vaccine program, for license to other vaccine developers.
Our commensal vaccine candidates utilize Gram-positive bacteria as vectors for
the presentation of antigens. We are using proprietary technology to anchor
antigens from a wide range of infectious organisms, both viral and bacterial, to
the surface protein anchor region of a variety of commensal organisms. By
combining a specific antigen with a specific commensal, we believe that vaccines
can be tailored to both the target pathogen and its mucosal point of entry.
We have developed several genetic methods for recombining foreign
sequences into the genome of Gram-positive bacteria at a number of non-essential
sites. Various parameters have been tested and optimized to improve the level of
foreign protein expression and its immunogenicity. In pre-clinical studies,
recombinant commensals have been implanted into the oral cavities of several
animal species with no observed deleterious effects. The introduced vaccine
strains have taken up residence for prolonged periods of time and induce both a
local mucosal (IgA) as well as a systemic immune response (IgG and T-cell).
We have completed two early stage clinical evaluations of our mucosal
vaccine delivery system based on the commensal bacterium, S. gordonii. These
clinical studies were designed to test the safety of the formulation, to monitor
the extent and duration of colonization of the nasal and oral cavities and to
determine if the delivery system could be eradicated at the end of the study
with a regimen of conventional antibiotics. A total of 47 volunteers between the
ages of 18 and 40 completed the first study, performed in the United Kingdom, in
which S. gordonii was delivered to the nasal passage and oral cavity. A total of
60 volunteers completed a second study which was conducted at the University of
Maryland as part of our strep throat vaccine program as described above. The
results of the studies indicated the delivery system was well-tolerated and that
the delivery system spontaneously eradicated or was easily eradicated by
conventional antibiotics. The ongoing clinical studies at the University of
Maryland are also designed to evaluate S. gordonii as a commensal bacterial
delivery system for our vaccine targeting strep throat.
Anti-Infectives
Our anti-infectives program is targeted principally toward drug-resistant
bacteria and hospital-acquired infections. According to estimates from the
Centers for Disease Control, approximately two million hospital-acquired
infections occur each year in the United States.
Our anti-infectives approaches aim to block the ability of bacteria to
attach to and colonize human tissue, thereby blocking infection at the first
stage in the infection process. By comparison, antibiotics available today act
by interfering with either the structure or the metabolism of a bacterial cell,
affecting its ability to survive and to reproduce. No currently available
antibiotics target the attachment of a bacterium to its target tissue. By
preventing attachment, the bacteria should be readily cleared by the body's
immune system.
Gram-Positive Antibiotic Technology. Our lead anti-infectives program is
based on a novel target for antibiotic therapy. Our founding scientists have
identified an enzyme, a selective protease, utilized by most Gram-positive
bacteria to anchor certain proteins to the bacterial cell wall. These surface
proteins are the means by which certain bacteria recognize, adhere to and
colonize specific tissue. Our strategy is to develop protease inhibitors as
novel antibiotics. We believe protease inhibitors will have wide applicability
to Gram-positive bacteria in general, including antibiotic resistant
staphlyococcus and a broad range of serious infectious diseases including
meningitis and respiratory tract infections. In 1997, we entered into a
collaborative research and license agreement with Wyeth ("Wyeth") to identify
and develop protease inhibitors as novel antibiotics. In the first quarter of
2001 we received a
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milestone payment from Wyeth for delivery of the first quantities of protease
for screening, and high-throughput screening for protease inhibitors was
initiated. In connection with our effort on this program we have entered into a
license with the University of California at Los Angeles (UCLA) for certain
technology that may be incorporated into our development of products for Wyeth.
Gram-Negative Antibiotic Technology. We have entered into a set of
technology transfer and related agreements with MedImmune, Inc. ("MedImmune"),
Astra AB and The Washington University, St. Louis ("Washington University"),
pursuant to which we acquired rights to certain Gram-negative antibiotic
targets, products, screens and services developed at Washington University. In
February 2000, we ended our collaborative research and development relationship
with Washington University on this technology. (See "Collaborative Research and
Licenses"). We maintain a non-exclusive license to technology acquired through
these related agreements. We are using this technology in the development of
antibiotics against Gram-negative pathogens. These bacteria use structures
called pili to adhere to target tissue, and we plan to exploit the assembly and
export of these essential infective structures as novel anti-infective targets.
We continue to work on enhancing the intellectual property that we share with
Washington University.
Broad-Spectrum Antibiotic Technology. An initial host response to pathogen
invasion is the release of oxygen radicals, such as superoxide anions and
hydrogen peroxide. The DegP protease is a first-line defense against these toxic
compounds, which are lethal to invading pathogens, and is a demonstrated
virulence factor for several important Gram-negative pathogens: Salmonella
typhimurium, Salmonella typhi, Brucella melitensis and Yersinia enterocolitica.
In all of these pathogens it was demonstrated that organisms lacking a
functional DegP protease were compromised for virulence and showed an increased
sensitivity to oxidative stress. It was also recently demonstrated that in
Pseudomonas aeruginosa conversion to mucoidy, the so-called CF phenotype
involves two DegP homologues.
Scientists at SIGA recently demonstrated that the DegP protease is
conserved in most important Gram-positive pathogens, including S. pyogenes, S.
pneumoniae, S. mutans and S. aureus. Moreover, SIGA investigators have shown a
conservation of function of this important protease in Gram-positive pathogens
and believe that DegP represents a true broad-spectrum anti-infective
development target. SIGA research has uncovered a virulence-associated target of
the DegP protease that will be utilized to design an assay for high-throughput
screening for the identification of lead inhibitors of this potentially
important anti-infective target.
Biological Defense Program. The U.S. governments budget for the fiscal
year beginning October 1, 2002 proposes a $1.5 billion increase in federal
spending on bioterrorism related research and infrastructure which will bring
total spending in this area to more than $1.7 billion. One of the major concerns
is smallpox, although declared extinct in 1980 by the World Health Organization,
it is believed that rogue nations such as Iran, Iraq, Libya and North Korea may
have an illegal inventory of the virus that causes small pox. The only legal
inventory of the virus is held under extremely tight security at the Centers For
Disease Control in Atlanta, Georgia and at a laboratory in Russia. As a result
of this threat, the U.S. government will be making significant expenditures on
finding a way to counteract the virus if turned loose by terrorists or on a
battlefield. SIGA, in collaboration with Rockefeller University and Oregon State
University, is working on ways to disable the virus' ability to replicate. If
the virus can not replicate, it can not overwhelm the immune system and,
theoretically, can not kill its victims. The parties are also working on
developing nasal sprays and lozenges that could combat toxins such as anthrax.
In September 2000, we entered into a subcontract agreement with Oregon State
University. The subcontract agreement is part of a project targeted towards
developing novel antiviral drugs capable of preventing disease and pathology for
smallpox in the event this pathogen were to be used as an agent of bioterrorism.
The project is being funded by a grant from the NIH to Oregon State University.
The basic virology aspects of the project will be conducted at OSU and the drug
development will be performed by SIGA under subcontract.
Veterinary Vaccines
One application of our technology is the development of live vaccines that
are delivered to a specific mucosal niche where they can colonize and thereby
present antigen to the immune system and produce local immunity at the site
where the corresponding pathogen will eventually attempt to enter. Since the
proprietary expression pathway that we use is conserved in essentially all
Gram-positive bacteria, this should allow the same strategy to be
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employed in the development of veterinary vaccines. A commensal bacterium can be
isolated from the mucosa of the target species, engineered to express a desired
antigen and then reintroduced to the species in order to produce immunity
against subsequent infection by the corresponding pathogen. Examples of
potential targets for this technology in the area of animal health include
prevention of salmonid aquaculture disease problems or canine papilloma virus
infections.
Veterinary Program. We believe our vaccine and anti-infectives
technologies also provide opportunities to develop biopharmaceutical products
for the veterinary health care market. Based on sales of the major companies in
the veterinary market, we estimate the world wide veterinary market to have been
approximately $4 billion in 2001. In the U.S. alone, there are 120 million cats
and dogs, 2 million horses, 100 million cattle, 56 million hogs and 8 million
sheep and goats. In December 2000 we entered into a collaborative agreement with
Fort Dodge Animal Health, a division of Wyeth, focusing on the design of novel
vaccines for the prevention of veterinary diseases. The research collaboration
combines SIGA's bacterial commensal delivery technology with Fort Dodge's
proprietary veterinary antigens. SIGA will be responsible for the construction
and characterization of candidate vaccines while Fort Dodge will assess the
immunogenicity and protective capacity of the target animal species. We are in
discussions with a number of potential strategic partners to undertake
collaborative development agreements in this field. To date, we have not
concluded any agreements with these potential strategic partners.
Surface Protein Expression System
Our proprietary SPEX protein expression uses the protein export and
anchoring pathway of Gram-positive bacteria as a means to facilitate the
production and purification of biopharmaceutical proteins. We have developed
vectors which allow foreign genes to be inserted into the chromosome of
Gram-positive bacteria in a manner such that the encoded protein is synthesized,
transported to the cell surface and secreted into the medium. This system has
been used to produce milligram quantities of soluble antigenically authentic
protein that can be easily purified from the culture medium by affinity
chromatography. We believe this technology can be extended to a variety of
different antigens and enzymes.
We have commenced yield optimization and process validation of this
system. This program is designed to transfer the method from a laboratory scale
environment to a commercial production facility. Our business strategy is to
license this technology on a non-exclusive basis for a broad range of
applications.
Collaborative Research and Licenses
We sponsor research and development activities in laboratories at Oregon
State University and at the University of California, Los Angeles. We have a
research and development facility in Corvallis, Oregon. We have entered into the
following license agreements and collaborative research arrangements:
Rockefeller University. SIGA and Rockefeller have entered into an
exclusive worldwide license agreement whereby we have obtained the right and
license to make, use and sell mucosal vaccines based on gram-positive organisms
and products for the therapy, prevention and diagnosis of diseases caused by
streptococcus, staphylococcus and other organisms. The license covers two issued
United States patents and one issued European patent as well as 11 pending
United States patent applications and corresponding foreign patent applications.
The issued United States patents expire in 2005 and 2014, respectively. The
agreement generally requires us to pay royalties on sales of products developed
from the licensed technologies and fees on revenues from sublicensees, where
applicable, and we are responsible for certain milestone payments and for the
costs of filing and prosecuting patent applications. In the year ended December
31, 2001, we recognized revenue from sublicensees of $1,025,000.
Oregon State University. Oregon State is also a party to our license
agreement with Rockefeller whereby we have obtained the right and license to
make, use and sell products for the therapy, prevention and diagnosis of
diseases caused by streptococcus. Pursuant to a separate research support
agreement with Oregon State, we provided funding for sponsored research through
December 31, 1999, with exclusive license rights to all inventions and
discoveries resulting from this research. At this time, no additional funding is
contemplated under this agreement, however we retain the exclusive licensing
rights to the inventions and discoveries that may arise from this collaboration.
During 1999, we acquired an option to enter into a license with the University
in which we will
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acquire the rights to certain technology pertaining to the potential development
of a chlamydia vaccine. In February 2000, we exercised our option and pursuant
to an exclusive license agreement dated March, 2000, we have made certain
payments to the University as part of our obligation under the option.
In September 2000, we entered into a subcontract with Oregon State
University. The contract is for a project which is targeted towards developing
novel antiviral drugs capable of preventing disease and pathology for smallpox
in the event this pathogen were to be used as an agent of bioterrorism. The
project is being funded by a grant from the NIH. The basic virology aspects of
the project will be conducted at OSU and the drug development will be performed
by SIGA under the subcontract. The budget for the subcontract work will be
negotiated on a year by year basis with OSU depending on progress of the program
and funding available. In the year ended December 31, 2001 we recognized revenue
of $15,000. On October 5, 2001 the agreement was extended through August 31,
2002.
National Institutes of Health. We have entered into a clinical trials
agreement with the NIH pursuant to which the NIH, with our cooperation, will
conduct clinical trials of our strep throat vaccine candidate.
Wyeth. We have entered into a collaborative research and license agreement
with Wyeth in connection with the discovery and development of anti-infectives
for the treatment of gram-positive bacterial infections. Pursuant to the
agreement, Wyeth provided funding for a joint research and development program,
subject to certain milestones, through September 30, 1999 and is responsible for
additional milestone payments. In May 2001, we entered into an amendment to the
July 1, 1997 agreement. The amendment extended the term of the Agreement to
September 30, 2001. The extension provided for Wyeth to continue to pay the
Company at a rate of $450,000 per year through the term of the amended
agreement. During the term of the agreement as amended, we received $787,500
from Wyeth to support work performed by SIGA under the agreement and $237,500
for achieving a research milestone. For the year ended December 31, 2001 we
recognized revenue of $1,025,000. The agreement to fund additional research was
not extended beyond September 30, 2001.
In December 2000, we entered into a collaborative agreement with Fort
Dodge Animal Health, a division of Wyeth. The collaboration is focused on the
design of novel vaccines for the prevention of veterinary diseases. The research
collaboration combines SIGA's bacterial commensal delivery technology with Fort
Dodge's proprietary veterinary antigens. SIGA will be responsible for the
construction and characterization of candidate vaccines while Fort Dodge will
assess the immunogenicity and protective capacity of the target animal species.
Washington University. In February 1998, we entered into a research
collaboration and worldwide license agreement with Washington University
pursuant to which we obtained the right and license to make, use and sell
antibiotic products based on gram-negative technology for all human and
veterinary diagnostic and therapeutic uses. The license covered five pending
United States patent applications and corresponding foreign patent applications.
The agreement generally required us to pay royalties on sales of products
developed from the licensed technologies and fees on revenues from sublicensees,
where applicable, and we were responsible for certain milestone payments and for
the costs of filing and prosecuting patent applications. Pursuant to the
agreement, we agreed to provided funding to Washington University for sponsored
research through February 6, 2001, with exclusive license rights to all
inventions and discoveries resulting from this research. During 1999, a dispute
arose between the parties regarding their respective performance under the
agreement. In February 2000, the parties reached a settlement agreement and
mutual release of their obligations under the research collaboration agreement.
Under the terms of the settlement, we are released from any further payments to
the University and have disclaimed any rights to the patents licensed under the
original agreement. As part of the settlement agreement, we entered into a
non-exclusive license to certain patents covered in the original agreement.
Abbott Laboratories. In March 2000, we entered into an agreement with the
Ross Products Division of Abbott Laboratories ("Ross"). The agreement grants
Ross an exclusive option to negotiate an exclusive license to certain SIGA
technology and patents in addition to certain research development services. In
exchange for research services and the option, Ross was obligated to pay us
$120,000 in three installments of $40,000. The entire $120,000 was recognized in
our results of operations, $40,000 of which was recognized for the year ended
December 31, 2001.
Regents of the University of California. In December 2000, we entered into
an exclusive license agreement and a sponsored research agreement with the
Regents of the University of California ("Regents"). Under the license
- 8 -
agreement SIGA obtained rights for the exclusive commercial development, use and
sale of products related to certain inventions in exchange for a non-refundable
license issuance fee of $15,000 and an annual maintenance fee of $10,000. In the
event that the Company sub-leases the license, it shall pay Regents 15% of all
royalty payments made to SIGA. Under the agreement, SIGA will also pay Regents
15% of all royalties received from Wyeth.
Intellectual Property and Proprietary Rights
Protection of our proprietary compounds and technology is essential to our
business. Our policy is to seek, when appropriate, protection for our lead
compounds and certain other proprietary technology by filing patent applications
in the United States and other countries. We have licensed the rights to seven
issued United States patents and one issued European patent. We have also
licensed the rights to one allowed United States patent application, four
pending United States patent applications as well as corresponding foreign
patent applications. We are joint owner with Washington University of one
issued, one allowed application, and seven pending applications as well as
foreign counterparts. We are also exclusive owner of three pending U.S.
applications based on research conducted in our facility in Oregon.
The patents and patent applications licensed to us relate to all of the
core technology used in the development of our leading product candidates,
including the mucosal vaccine delivery system, the SPEX protein expression
system for producing biopharmaceutical products, the protective streptococcal
antigens and the antibiotic development target, as well as a variety of early
stage research projects. Each of our products represented by each of the patents
is in a very early stage in its development process.
We also rely upon trade secret protection for our confidential and
proprietary information. No assurance can be given that other companies will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or that we can
meaningfully protect our trade secrets.
Government Regulation
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
biopharmaceutical products that we may develop. The nature and the extent to
which such regulations may apply to us will vary depending on the nature of any
such products. Virtually all of our potential biopharmaceutical products will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous pre-clinical
and clinical testing and other approval procedures by the FDA and similar health
authorities in foreign countries. Various federal statutes and regulations also
govern or influence the manufacturing, safety, labeling, storage, record keeping
and marketing of such products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations requires the expenditure of substantial resources.
In order to test clinically, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug, a company must
file an IND and receive clearance from the FDA. This application is a summary of
the pre-clinical studies that were conducted to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies that are being proposed.
The pre-marketing program required for approval by the FDA of a new drug
typically involves a time-consuming and costly three-phase process. In Phase I,
trials are conducted with a small number of patients to determine the early
safety profile, the pattern of drug distribution and metabolism. In Phase II,
trials are conducted with small groups of patients afflicted with a target
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical
- 9 -
testing vary between two and ten years. Upon completion of such clinical
testing, a company typically submits a New Drug Application ("NDA") or Product
License Application ("PLA") to the FDA that summarizes the results and
observations of the drug during the clinical testing. Based on its review of the
NDA or PLA, the FDA will decide whether to approve the drug. This review process
can be quite lengthy, and approval for the production and marketing of a new
pharmaceutical product can require a number of years and substantial funding;
there can be no assurance that any approvals will be granted on a timely basis,
if at all.
Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and its effects. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained. Other countries in which any products
developed by us may be marketed, could impose a similar regulatory process.
Commercialization of animal health products can be accomplished more
rapidly than human health products. Unlike the human market, potential vaccine
or therapeutic products can be tested directly on the target animal as soon as
the product leaves the research laboratory. The data collected in these trials
is submitted to the U.S. Department of Agricultural for review and eventual
product approval.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
most of the major pharmaceutical companies, which have financial, technical and
marketing resources significantly greater than ours. Biotechnology and other
pharmaceutical competitors include Cubist Pharmaceuticals, Inc., Corixa
Corporation, Microcide Pharmaceuticals, Inc., ID Vaccines Ltd., Actinova PLC,
and Antex Biologics, Inc. Academic institutions, governmental agencies and other
public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on their
own or through joint venture. There can be no assurance that our competitors
will not succeed in developing products that are more effective or less costly
than any which are being developed by us or which would render our technology
and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 18, 2002 we had 12 full time employees. None of our employees
are covered by a collective bargaining agreement and we consider our employee
relations to be good.
Item 2. Properties
Our headquarters are located in New York, New York and our research and
development facilities are located in Corvallis, Oregon. In New York, we lease
approximately 5,200 square feet under a lease that expires in November 2002. In
Corvallis, we lease approximately 10,000 square feet under a lease that expires
in December 2004.
Item 3. Legal Proceedings
SIGA is not a party, nor is its property the subject of, any pending legal
proceedings other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
- 10 -
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock has been traded on the Nasdaq SmallCap Market since
September 9, 1997 and trades under the symbol "SIGA." Prior to that time there
was no public market for our common stock. The following table sets forth, for
the periods indicated, the high and low closing sales prices for the common
stock, as reported on the Nasdaq SmallCap Market.
Price Range
2000 High Low
First Quarter $9.38 $1.44
Second Quarter $5.50 $3.00
Third Quarter $4.88 $2.59
Fourth Quarter $5.31 $3.00
2001 High Low
First Quarter $4.09 $1.65
Second Quarter $4.24 $1.75
Third Quarter $4.05 $2.29
Fourth Quarter $4.00 $2.03
As of March 18, 2002, the closing sales price of our common stock was
$2.61 per share. There were 53 holders of record as of March 18, 2002. We
believe that the number of beneficial owners is substantially greater than the
number of record holders, because a large portion of common stock is held in
broker "street names."
We have paid no dividends on our common stock and we do not expect to pay
cash dividends in the foreseeable future. We are not under any contractual
restriction as to our present or future ability to pay dividends. We currently
intend to retain any future earnings to finance the growth and development of
our business.
Recent Sales of Unregistered Securities
In May, June and August 2001 holders of the Company's 6% convertible
debentures, consisting of an aggregate principal amount $1,375,000 and $105,719
of accrued interest, agreed to convert the debt and interest into convertible
preferred stock and common stock. The holders of debentures in the principal
amount of $1,350,000 received 1,011,593 shares of Series A Preferred Shares at a
conversion price of $1.4375 per share. The preferred shares have a cumulative
dividend of 6% per annum payable in cash or preferred stock at the Company's
discretion. The shares are convertible into common stock on a one-for-one basis.
Each holder of preferred stock is entitled to the number of votes into which the
shares of preferred stock are convertible into common stock. In July 2001,
holders of 617,327 shares of the Series A Convertible Preferred stock converted
their preferred shares and accrued dividends into 626,578 shares of common
stock. In November 2001 a holder of 14,972 shares of the preferred stock
converted a portion of his preferred shares and accumulated dividends into
15,141 shares of common stock.
On May 8, 2001, we completed a private placement of an aggregate of
425,000 shares of common stock and 425,000 warrants. We received gross proceeds
of $850,000. The warrants have a term of seven years and may be exercised at
$2.94 per share.
In June 2001, we entered into a one year consulting agreement, pursuant to
which a consultant will provide public relations services to SIGA in exchange
for 50,000 shares of restricted common stock. As of December 31, 2001, we
recorded charges to earnings of $77,333, based on the difference between the
fair value and the price of this restricted common stock.
In August 31, 2001, we completed a private placement of an aggregate of
409,636 shares of common stock
- 11 -
and 307,226 warrants to purchase common stock. The warrants may be exercised at
$3.55 per share and have a term of seven years. We received net proceeds
$1,145,470 from the transaction.
On October 12, 2001, we completed a private placement of an aggregate of
850,000 shares of common stock and 425,000 warrants to purchase common stock.
The warrants have a term of seven years and may be exercised at $3.60 per share.
We received net proceeds of approximately $1,145,470 out of the $2,550,000 gross
proceeds from the transaction.
Recent Developments
In March of 2002 we signed a non-binding letter of intent to acquire all
of the outstanding shares of Allergy Therapeutics (Holdings) Limited.
Additionally, as part of the transaction we will acquire an exclusive license
to certain vaccine-related property from Elan Corporation, through its
subsidiaries. Under the terms of the letter, we will issue shares to the
Allergy stockholders which will result in 47.5% ownership to each of the former
shareholders of Siga and the former shareholders of Allergy of the outstanding
common stock, on a fully diluted basis. Elan Corporation will own 5% of the
outstanding common stock on a fully diluted basis.
The transaction is subject to certain conditions, including, without
limitation, the completion of due diligence, the negotiation and execution of
definitive agreements, obtaining any necessary regulatory approvals and the
approval of the transaction by SIGA's and Allergy Therapeutics' respective
shareholders.
- 12 -
Item 6. Management's Discussion and Analysis of Financial Condition and Result
of Operations
The following discussion should be read in conjunction with our financial
statements and notes to those statements and other financial information
appearing elsewhere in this Annual Report. In addition to historical
information, the following discussion and other parts of this Annual Report
contain forward-looking information that involves risks and uncertainties.
Overview
We are a development stage, technology company, whose primary focus is in
biopharmaceutical product development. Since inception in December 1995 our
efforts have been principally devoted to research and development, securing
patent protection, obtaining corporate relationships and raising capital. Since
inception through December 31, 2001, we have sustained cumulative net losses of
$26,171,175, including non-cash charges in the amount of $1,457,458 for the
write-off of research and development expenses associated with the acquisition
of certain technology rights acquired from a third party in exchange for our
common stock. In addition, a non-cash charge of $2,875,743 was incurred for
stock option and warrant compensation expense. Our losses have resulted
primarily from expenditures incurred in connection with research and
development, patent preparation and prosecution and general and administrative
expenses. From inception through December 31, 2001, research and development
expenses amounted to $12,009,076, patent preparation and prosecution expenses
totaled $1,354,754, general and administration expenses amounted to $15,383,445.
From inception through December 31, 2001 revenues from research and development
agreements and government grants totaled $3,287,181.
Since inception, SIGA has had limited resources, has incurred cumulative
net operating losses of $26,171,175 and expects to incur additional losses to
perform further research and development activities. We do not have commercial
biomedical products, and we do not expect to have such for several years, if at
all. We believe that we will need additional funds to complete the development
of our biomedical products. Our plans with regard to these matters include
continued development of our products as well as seeking additional research
support funds and financial arrangements. Although we continue to pursue these
plans, there is no assurance that we will be successful in obtaining sufficient
financing on terms acceptable to us. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management
believes it has sufficient funds to support operations through the second
quarter of 2003.
Our biotechnology operations are run out of our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
vaccine and antibiotic programs through a combination of government grants and
strategic alliances. While we have had success in obtaining strategic alliances
and grants, no assurance can be given that we will continue to be successful in
obtaining funds from these sources. Until additional relationships are
established, we expect to continue to incur significant research and development
costs and costs associated with the manufacturing of product for use in clinical
trials and pre-clinical testing. It is expected that general and administrative
costs, including patent and regulatory costs, necessary to support clinical
trials and research and development will continue to be significant in the
future.
To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.
In March of 2002 we signed a non-binding letter of intent to acquire all
of the outstanding shares of Allergy Therapeutics (Holdings) Limited.
Additionally, as part of the transaction we will acquire an exclusive license to
certain vaccine-related property from Elan Corporation, through its
subsidiaries. Under the terms of the letter, we will issue shares to the Allergy
stockholders which will result in 47.5% ownership to each of the former
shareholders of Siga and the former shareholders of Allergy of the outstanding
common stock, on a fully diluted basis. Elan Corporation will own 5% of the
outstanding common stock on a fully diluted basis.
The transaction is subject to certain conditions, including, without
limitation, the completion of due diligence, the negotiation and execution of
definitive agreements, obtaining any necessary regulatory approvals and the
approval of the transaction by SIGA's and Allergy Therapeutics' respective
shareholders.
- 13 -
Significant Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of the Notes to the Financial Statements includes a
summary of the significant accounting policies and methods used in the
preparation of our Financial Statements. The following is a brief discussion of
the more significant accounting policies and methods used by us. In addition,
Financial Reporting Release No. 61 was recently released by the SEC to require
all companies to include a discussion to address, among other things, liquidity,
off-balance sheet arrangements, contractual obligations and commercial
commitments.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements (SAB 101), as amended by
SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. Under the provisions
of SAB 101 the Company recognizes revenue from government research grants,
contract research and development and progress payments as services are
performed, provided a contractual arrangement exists, the contract price is
fixed or determinable, and the collection of the resulting receivable is
probable.
Valuation of Investments
We periodically review the carrying value of our investments for continued
appropriateness. This review is based upon our projections of anticipated future
cash flows. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations.
SIGA does not have any off-balance sheet arrangements.
Results of Operations
Twelve Months ended December 31, 2001 and December 31, 2000.
Revenues from grants and research and development contracts were
$1,159,500 for the twelve months ended December 31, 2001 compared to $483,120
for the same period of 2000. The approximate 140% increase in revenue for the
period ended December 31, 2001 is primarily the result of an increase in revenue
from Wyeth. Upon consummation of an Amendment to extend our agreement with Wyeth
through September 30, 2001 we were able to recognize revenue of $450,000 from
payments made to fund research that had been recorded as deferred revenue at
December 31, 2000. In total, for the twelve months ended December 31, 2001,
$1,025,000 of revenue from research and milestones payments were recorded from
Wyeth under our agreement with them dated July 1997. For the twelve months ended
December 31, 2000 no revenue from Wyeth was recorded. Income for the twelve
months ended December 31, 2000 was primarily from payments made under Small
Business Innovation Research (SBIR) grants received from the National Institutes
of Health (NIH).
General and administrative expenses for the twelve months ended December
31, 2001 were $2,570,869, a decrease of approximately 47% from an expense of
$4,851,100 for the twelve months ended December 31, 2000. Included in the
expenses for the twelve months ended December 31, 2001 were non-cash charge of
$612,750 to reflect the granting of options to directors with an exercise price
that is less than the fair market value of our shares at the time of the grant.
For the twelve months ended December 31, 2000 there were non-cash charges of
$1,524,602 associated with grants of options and warrants to certain
consultants and directors and $511,000 to reserve the amount advanced to a third
party. Excluding these charges, expenses declined approximately 41%. The
- 14 -
decrease in expenditures was primarily the result of a significant reduction in
administrative payroll resulting from the elimination of staff associated with
the internet product and a non-cash credit taken for the cancellation of a
portion of a warrant grant to a certain consultant. An increase in legal
expenses associated with the "Change in Control" partially offset the decrease.
Research and development expenses decreased to $1,733,188 for the twelve
months ended December 31, 2001 from $2,608,907 for the same period in 2000. The
approximate 34% decline in expenses from the twelve months ended December 31,
2000 was primarily the result of the discontinuance of activities associated
with the Internet product. Research and development expenses for our core
biotechnology programs were essentially the same in both years.
In July 2000, we acquired 12.5% equity position in Open-I-media. Under the
terms of the agreement, Open-I-media received $170,000 in cash, 40,336 shares of
our common stock, and certain assets consisting of the instant messenger
product, PeerFinder and fixed fixed assets with a net book value of $80,697. At
December 31, 2001 and 2000 we assessed the value of our investment in
Open-I-media. We reviewed certain events and changes in circumstances indicating
that the carrying amount of the investment in Open-I-media may not be
recoverable in its entirety. In 2000, we elected to reduce the carrying amount
of our investment to reflect its recoverable value as of the year-end and
recorded an impairment charge of $156,000. At December 31, 2001, management
reviewed all available information and as a result of our analysis, we
determined that the carrying value of our investment should be written off. An
impairment charge of $256,106 was recorded for the year ended December 31, 2001.
Patent preparation expense of $117,264 for the twelve months ended
December 31, 2001 was approximately 10% higher than the $106,647 incurred for
the twelve months ending December 31, 2000. The increase in spending from the
prior year period reflects the result of an increase in cost associated with
foreign patent filings.
Total operating loss for the twelve months ended December 31, 2001 was
$3,729,606 an approximate 47% reduction from the $7,083,534 loss incurred for
the twelve months ended December 31, 2000. The decline in the operating loss was
primarily due to an increase in revenue and a material reduction in general and
administrative and research and development expense as described above.
Net interest expense for the twelve months ended December 31, 2001 was
$192,679 compared to an expense of $550,464 for the twelve months ended December
31, 2000. The 65% decrease in interest expense is the result of the conversion
of the remainder of the $1,500,000 principle amount of the 6% convertible
debenture and accrued interest during the twelve months ended December 31, 2001.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly statements of
operations data, in dollar amounts and as percentages of net revenue, for the
four quarters ended December 31, 2000 and for the four quarters ended December
31, 2001. This information has been prepared substantially on the same basis as
the audited financial statements appearing elsewhere in this annual statement,
and all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the unaudited
quarterly results of operations data. The quarterly data should be read with our
financial statement and then noted to those statements appearing elsewhere in
the annual statement.
2000
($ in 000's) Q1 Q2 Q3 Q4
-- -- -- --
Revenue $ 81 $ 91 $ 193 $ 118
G&A $ 811 $ 966 $1,808 $1,266
% of Revenue 1,001% 1,062% 937% 1,073%
R&D $ 763 $ 392 $ 876 $ 578
% of Revenue 942% 431% 454% 490%
Patent Prep. Costs $ 26 $ 38 $ 20 $ 22
% of Revenue 32% 42% 10% 19%
Operating Loss $1,519 $1,305 $2,511 $1,747
% of Revenue 1,875% 1,434% 1,301% 1,481%
Net Loss $1,638 $1,447 $2,658 $2,046
% of Revenue 2,022% 1,590% 1,377% 1,734%
Basic and
diluted loss
per share (0.25) (0.20) (0.36) (0.27)
- 15 -
2001
($ in 000's) Q1 Q2 Q3 Q4
-- -- -- --
Revenue $ 305 $ 683 $ 158 $ 15
G&A $ 65 $ 635 $1,259 $ 611
% of Revenue 21% 93% 797% 4,073%
R&D $ 431 $ 429 $ 498 $ 376
% of Revenue 141% 63% 315% 2,507%
Patent Prep. Costs $ 18 $ 63 $ (11) $ 47
% of Revenue 6% 9% (7)% 313%
Operating Loss $ 209 $ 445 $1,588 $1,019
% of Revenue 69% 65% 1,005% 6,793%
Net Loss $ 368 $ 520 $1,591 $1,251
% of Revenue 121% 76% 1,007% 8,340%
Basic and
diluted loss
per share (0.05) (0.07) (0.19) (0.13)
Liquidity and Capital Resources
As of December 31, 2001 we had $3,148,160 in cash and cash equivalents. In
July of 1997 we entered into a collaborative two year research and license
agreement with Wyeth. Under the terms of the agreement, we have granted Wyeth an
exclusive worldwide license to develop, make, use and sell products derived from
specified technologies. The agreement required Wyeth to sponsor further research
by us for the development of the licensed technologies for a period of two years
from the effective date of the agreement. On May 11, 2001, we entered into an
amendment to the July 1, 1997 agreement. The amendment extended the term of the
Agreement to September 30, 2001. The extension provided for Wyeth to continue to
pay the Company at a rate of $450,000 per year through the term of the amended
agreement. During the amended term of the agreement, September 30, 1999 through
September 30, 2001, we have received $787,500 from Wyeth to support work
performed by SIGA under the agreement. In addition, we received $237,000 for
achieving a research milestone. The agreement to fund additional research was
not extended beyond September 30, 2001. Since the inception of the agreement
through December 31, 2001 we have recorded a total of $2,725,000 of revenue from
Wyeth.
In May, June and August 2001 holders of the Company's 6% convertible
debentures, consisting of an aggregate principal amount $1,375,000 and $105,719
of accrued interest, agreed to convert the debt and interest into convertible
preferred stock and common stock. The holders of debentures in the principal
amount of $1,350,000 received 1,011,593 shares of Series A Convertible Preferred
Shares at a conversion price of $1.4375 per share. The preferred shares have a
cumulative dividend of 6% per annum payable in cash or preferred stock at the
Company's discretion. The shares are convertible into common stock on a one for
one basis. Each holder of preferred stock is entitled to the number of votes
into which the shares of preferred stock are convertible into common stock. In
July 2001 holders of 617,327 shares of the Series A Convertible Preferred Shares
converted their preferred shares and accrued dividends into 626,578 shares of
common stock. In November 2001 a holder of the preferred shares converted a
portion of his preferred shares and accumulated dividends into 15,141 shares of
common stock.
On May 8, 2001, we completed a private placement of an aggregate of
425,000 shares of common stock and 425,000 warrants. We received gross proceeds
of $850,000. The warrants have a term of seven years and may be exercised at
$2.94 per share.
In August 31, 2001, we completed a private placement of an aggregate of
409,636 shares of common stock and 307,226 warrants to purchase common stock.
The warrants may be exercised at $3.55 per share and have a term of seven years.
We received net proceeds $1,145,470 from the transaction.
On October 12, 2001, we completed a private placement of an aggregate of
850,000 shares of common stock and 425,000 warrants to purchase common stock.
The warrants have a term of seven years and may be exercised at $3.60 per share.
We received net proceeds of approximately $2,361,500 out of the $2,550,000 gross
proceeds
- 16 -
from the transaction.
In March of 2002 we signed a non-binding letter of intent to acquire all
of the outstanding shares of Allergy Therapeutics (Holdings) Limited.
Additionally, as part of the transaction we will acquire an exclusive license to
certain vaccine-related property from Elan Corporation, through its
subsidiaries. Under the terms of the letter, we will issue shares to the Allergy
stockholders which will result in 47.5% ownership to each of the former
shareholders of Siga and the former shareholders of Allergy of the outstanding
common stock, on a fully diluted basis. Elan Corporation will own 5% of the
outstanding common stock on a fully diluted basis.
The transaction is subject to certain conditions, including, without
limitation, the completion of due diligence, the negotiation and execution of
definitive agreements, obtaining any necessary regulatory approvals and the
approval of the transaction by SIGA's and Allergy Therapeutics' respective
shareholders.
We anticipate that our current resources will be sufficient to finance our
currently anticipated needs for operating and capital expenditures approximately
through the second quarter of 2003. 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.
The Company leases certain facilities and office space under operating
leases. Minimum future rental commitments under operating leases having
noncancelable lease terms are $226,333, $105,002 and $108,152 for the years
ending December 31, 2002, 2003 and 2004, respectively. Future minimum leases
payments for equipment under capital leases amount to $192,196 for the year
ended December 31, 2002.
Risk Factors That May Affect Results of Operations and Financial Condition
We have incurred operating losses since our inception and expect to incur
net losses and negative cash flow for the foreseeable future. We incurred net
losses of $3.7 million and $7.8 million for the years ended December 31, 2001
and 2000, respectively. As of December 31, 2001 and December 31, 2000, our
accumulated deficit was $26.1 million and $22.4 million, respectively. We expect
to continue to incur significant operating and capital expenditures and, as a
result, we will need to generate significant revenues to achieve and maintain
profitability.
We cannot guarantee that we will achieve sufficient revenues for
profitability. Even if we do achieve profitability, we cannot guarantee that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenues grow slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, our business, results
of operations and financial condition will be materially and adversely affected.
Because our strategy includes acquisitions of other businesses, acquisition
expenses and any cash used to make these acquisitions will reduce our available
cash.
We are in various stages of product development and there can be no
assurance of successful commercialization. Our research and development programs
are at an early stage of development. The United States Food and Drug
Administration has not approved any of our biopharmaceutical product candidates.
Any drug candidates developed by us will require significant additional research
and development efforts, including extensive pre-clinical and clinical testing
and regulatory approval, prior to commercial sale. We cannot be sure our
approach to drug discovery will be effective or will result in the development
of any drug. We cannot expect that any drugs that do result from our research
and development efforts will be commercially available for many years.
We have limited experience in conducting pre-clinical testing and clinical
trials. Even if we receive initially positive pre-clinical results, such results
do not mean that similar results will be obtained in the later stages of drug
development, such as additional pre-clinical testing or human clinical trials.
All of our potential drug candidates are
- 17 -
prone to the risks of failure inherent in pharmaceutical product development,
including the possibility that none of our drug candidates will or can:
o be safe, non-toxic and effective;
o otherwise meet applicable regulatory standards;
o receive the necessary regulatory approvals;
o develop into commercially viable drugs;
o be manufactured or produced economically and on a large scale;
o be successfully marketed;
o be reimbursed by government and private consumers; and
o achieve customer acceptance.
In addition, third parties may preclude us from marketing our drugs
through enforcement of their proprietary rights, or third parties may succeed in
marketing equivalent or superior drug products. Our failure to develop safe,
commercially viable drugs would have a material adverse effect on our business,
financial condition and results of operations.
Most of our immediately foreseeable future revenues are contingent upon
collaborative and license agreements and we may not achieve sufficient revenues
from these agreements to attain profitability. Until and unless we successfully
make a product, our ability to generate revenues will largely depend on our
ability to enter into additional collaborative and license agreements with third
parties and maintain the agreements we currently have in place. We will receive
little or no revenues under our collaborative agreements if our collaborators'
research, development or marketing efforts are unsuccessful, or if our
agreements are terminated early. Additionally, if we do not enter into new
collaborative agreements, we will not receive future revenues from new sources.
Our future receipt of revenues from collaborative arrangements will be
significantly affected by the amount of time and effort expended by our
collaborators, the timing of the identification of useful drug targets and the
timing of the discovery and development of drug candidates. Under our existing
agreements, we may not earn significant milestone payments until our
collaborators have advanced products into clinical testing, which may not occur
for many years, if at all.
We may not find sufficient acquisition candidates to implement our
business strategy. As part of our business strategy we expect to enter into
business combinations and acquisitions. We compete for acquisition candidates
with other entities, some of which have greater financial and other resources
than we have. Increased competition for acquisition candidates may make fewer
acquisition candidates available to us and may cause acquisitions to be made on
less attractive terms, such as higher purchase prices. Acquisition costs may
increase to levels that are beyond our financial capability or that would
adversely affect our results of operations and financial condition. Our ability
to make acquisitions will depend in part on the relative attractiveness of
shares of our common stock as consideration for potential acquisition
candidates. This attractiveness may depend largely on the relative market price,
our ability to register common stock and capital appreciation prospects of our
common stock. If the market price of our common stock were to decline materially
over a prolonged period of time, our acquisition program could be materially
adversely affected.
The biopharmaceutical market in which we compete and will compete is
highly competitive. The biopharmaceutical industry is characterized by rapid and
significant technological change. Our success will depend on our ability to
develop and apply our technologies in the design and development of our product
candidates and to establish and maintain a market for our product candidates.
There also are many companies, both public and private, including major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, research and development, and human
resources than us. Competitors may develop products or other technologies that
are more effective than any that are being developed by us or may obtain FDA
approval for products more rapidly than us. If we commence commercial sales of
products, we still must compete in the manufacturing and marketing of such
products, areas in which we have no experience. Many of
- 18 -
these companies also have manufacturing facilities and established marketing
capabilities that would enable such companies to market competing products
through existing channels of distribution.
Benefits of SIGA's acquisition of Allergy Therapeutics may not be
realized. If SIGA and Allergy Therapeutics executed definitive agreements and
complete the proposed acquisition, Allergy Therapeutics will become a SIGA
subsidiary. Both enterprises have previously operated independently. A
successful combination will require, among other things, integration of their
products and services, sales and marketing, information and software systems,
coordination of employee retention, hiring and training, and coordination of
ongoing and future product development, collaborative and licensing efforts. The
consolidation of functions, the integration of departments, systems and
procedures, and the relocation of staff may present management challenges. We
may not be able to integrate the operations of Allergy Therapeutics with our
operations without encountering difficulties. The integration may not be
completed as rapidly as we expect and the integration may not achieve the
benefits we currently anticipate.
Because we must obtain regulatory clearance to test and market our
products in the United States and foreign jurisdictions, we cannot predict
whether or when we will be permitted to commercialize our products. The
pharmaceutical industry is subject to stringent regulation by a wide range of
authorities in the geographic areas where we intend to develop and commercialize
products. A pharmaceutical product cannot be marketed in the United States until
it has completed rigorous preclinical testing and clinical trials and an
extensive regulatory clearance process implemented by the FDA. Satisfaction of
regulatory requirements typically takes many years, is dependent upon the type,
complexity and novelty of the product and requires the expenditure of
substantial resources.
Before commencing clinical trials in humans, we must submit and receive
clearance from the FDA by means of an IND application. Clinical trials are
subject to oversight by institutional review boards and the FDA and:
o must be conducted in conformance with the FDA's good laboratory
practice regulations;
o must meet requirements for institutional review board oversight;
o must meet requirements for informed consent;
o must meet requirements for good clinical and manufacturing
practices;
o are subject to continuing FDA oversight;
o may require large numbers of test subjects; and
o may be suspended by us or the FDA at any time if it is believed that
the subjects participating in these trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the
IND application or the conduct of these trials.
Before receiving FDA clearance to market a product, we must demonstrate
that the product is safe and effective on the patient population that will be
treated. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. Additionally, we have limited experience in conducting and managing
the clinical trials and manufacturing processes necessary to obtain regulatory
clearance.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. This foreign regulatory approval process includes analogous risks
to those associated with FDA clearance described above.
If our technologies or those of our collaborators are alleged or found to
infringe the patents or proprietary rights of others, we may be sued or have to
license those rights from others on unfavorable terms.
- 19 -
Our commercial success will depend significantly on our ability to operate
without infringing the patents and proprietary rights of third parties. Our
technologies along with our licensors' and our collaborators' technologies may
infringe the patents or proprietary rights of others. An adverse outcome in
litigation or an interference to determine priority or other proceeding in a
court or patent office could subject us to significant liabilities, require
disputed rights to be licensed from or to other parties and/or require us, our
licensors or our collaborators to cease using a technology necessary to carry
out research, development and commercialization.
Litigation to establish the validity of patents, to defend against patent
infringement claims of others and to assert infringement claims against others
can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to us or one
of our licensors or collaborators may have a material adverse effect on us. We
could incur substantial costs if we are required to defend ourselves in patent
suits brought by third parties, if we participate in patent suits brought
against or initiated by our licensors or collaborators or if we initiate such
suits. We may not have sufficient funds or resources in the event of litigation.
Additionally, we may not prevail in any such action.
Any conflicts resulting from third-party patent applications and patents
could significantly reduce the coverage of the patents owned, optioned by or
licensed to us or our collaborators and limit our ability or that of our
collaborators to obtain meaningful patent protection. If patents are issued to
third parties that contain competitive or conflicting claims, we, our licensors
or our collaborators may be legally prohibited from pursuing research,
development or commercialization of potential products or be required to obtain
licenses to these patents or to develop or obtain alternative technology. We,
our licensors and/or our collaborators may be legally prohibited from using
patented technology, may not be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or may not be able
to obtain or develop alternative technologies.
In addition, like many biopharmaceutical companies, we may from time to
time hire scientific personnel formerly employed by other companies involved in
one or more areas similar to the activities conducted by us. We or these
individuals may be subject to allegations of trade secret misappropriation or
other similar claims as a result of their prior affiliations.
Our ability to compete may decrease if we do not adequately protect our
intellectual property rights. Our commercial success will depend in part on our
and our collaborators' ability to obtain and maintain patent protection for our
proprietary technologies, drug targets and potential products and to effectively
preserve our trade secrets. Because of the substantial length of time and
expense associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the type and breadth
of claims allowed in these patents.
We also rely on copyright protection, trade secrets, know-how, continuing
technological innovation and licensing opportunities. In an effort to maintain
the confidentiality and ownership of trade secrets and proprietary information,
we require our employees, consultants and some collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These agreements may not provide meaningful protection for
our trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information, and adequate remedies may
not exist in the event of such unauthorized use or disclosure.
We may have difficulty managing our growth. We expect to experience growth
in the number of our employees and the scope of our operations. This growth has
placed, and may continue to place, a significant strain on our management and
operations. Our ability to manage this growth will depend upon our ability to
broaden our management team and our ability to attract, hire and retain skilled
employees. Our success will also depend on the ability of our officers and key
employees to continue to implement and improve our operational and other systems
and to hire, train and manage our employees.
We depend on key employees in a competitive market for skilled personnel.
We are highly dependent on the principal members of our management, operations
and scientific staff. The loss of any of their services would
- 20 -
have a material adverse effect on our business. We currently have employment
agreements with individuals who we consider to be "Key Employees." We do not
maintain a key person life insurance policy on the life of any employee.
Our future success also will depend in part on the continued service of
our key scientific, software, bioinformatics and management personnel and our
ability to identify, hire and retain additional personnel, including customer
service, marketing and sales staff. We experience intense competition for
qualified personnel. We may not be able to continue to attract and retain
personnel necessary for the development of our business.
Our activities involve hazardous materials and may subject us to
environmental regulatory liabilities. Our biopharmaceutical research and
development involves the controlled use of hazardous and radioactive materials
and biological waste. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
these materials and certain waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with legally
prescribed standards, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of an accident, we could
be held liable for damages, and this liability could exceed our resources.
We believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently do not expect to
make material additional capital expenditures for environmental control
facilities in the near term. However, we may have to incur significant costs to
comply with current or future environmental laws and regulations.
Our potential products may not be acceptable in the market or eligible for
third party reimbursement resulting in a negative impact on our future financial
results. Any products successfully developed by us or our collaborative partners
may not achieve market acceptance. The antibiotic products which we are
attempting to develop will compete with a number of well-established traditional
antibiotic drugs manufactured and marketed by major pharmaceutical companies.
The degree of market acceptance of any of our products will depend on a number
of factors, including:
o the establishment and demonstration in the medical community of the
clinical efficacy and safety of such products,
o the potential advantage of such products over existing treatment
methods, and
o reimbursement policies of government and third-party payors.
Physicians, patients or the medical community in general may not accept or
utilize any products that may be developed by us or our collaborative partners.
Our ability to receive revenues and income with respect to drugs, if any,
developed through the use of our technology will depend, in part, upon the
extent to which reimbursement for the cost of such drugs will be available from
third-party payors, such as government health administration authorities,
private health care insurers, health maintenance organizations, pharmacy
benefits management companies and other organizations. Third-party payors are
increasingly disputing the prices charged for pharmaceutical products. If
third-party reimbursement was not available or sufficient to allow profitable
price levels to be maintained for drugs developed by us or our collaborative
partners, it could adversely affect our business.
If our products harm people, we may experience product liability claims
that may not be covered by insurance. We face an inherent business risk of
exposure to potential product liability claims in the event that drugs, if any,
developed through the use of our technology are alleged to have caused adverse
effects on patients. Such risk exists for products being tested in human
clinical trials, as well as products that receive regulatory approval for
commercial sale. We may seek to obtain product liability insurance with respect
to drugs developed by us and our collaborative partners. However, we may not be
able to obtain such insurance. Even if such insurance is obtainable, it may not
be available at a reasonable cost or in a sufficient amount to protect us
against liability.
We may be required to perform additional clinical trials or change the
labeling of our products if we or others identify side effects after our
products are on the market, which could harm sales of the affected products. If
we or others identify side effects after any of our products, if any, after they
are on the market, or if manufacturing problems occur,
- 21 -
o regulatory approval may be withdrawn;
o reformulation of our products, additional clinical trials, changes
in labeling of our products may be required;
o changes to or re-approvals of our manufacturing facilities may be
required;
o sales of the affected products may drop significantly;
o our reputation in the marketplace may suffer; and
o lawsuits, including class action suits, may be brought against us.
Any of the above occurrences could harm or prevent sales of the affected
products or could increase the costs and expenses of commercializing and
marketing these products.
Difficult Manufacturing Requirements. The manufacture of commensals is a
time-consuming and complex process. Our management believes that we have the
ability to acquire or produce quantities of commensals sufficient to support our
present needs for research and our projected needs for our initial clinical
development programs. However, we believe that improvements in our manufacturing
technology will be required to enable us to meet the volume and cost
requirements needed for certain commercial applications of commensal products.
Products based on commensals have never been manufactured on a commercial scale.
The manufacture of all of our products will be subject to current GMP
requirements prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. There can be no assurance
that we will be able to manufacture products, or have products manufactured for
it, in a timely fashion at acceptable quality and prices, that they or third
party manufacturers can comply with GMP or that they or third party
manufacturers will be able to manufacture an adequate supply of product.
The future issuance of preferred stock may adversely effect the rights of
the holders of our common stock. Our certificate of incorporation allows our
Board of Directors to issue up to 10,000,000 shares of preferred stock and to
fix the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of these shares without any further vote or action
by the stockholders. The rights of the holders of common stock will be subject
to, and could be adversely affected by, the rights of the holders of any
preferred stock that we may issue in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock, thereby delaying, deferring or preventing a change in control.
Item 7. Financial Statements and Supplementary Data
The financial statements required by Item 7 are included in this Annual
Report beginning on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- 22 -
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Position
----- ---- -------
Donald G. Drapkin 54 Chairman of the Board
Thomas N. Konatich 56 Acting Chief Executive Officer, Chief Financial
Officer, Secretary and Treasurer
Dennis E. Hruby, Ph.D. 50 Chief Scientific Officer
Gabriel M. Cerrone 30 Director
Thomas E. Constance 65 Director
Mehmet C. Oz, M.D. 40 Director
Eric A. Rose, M.D. 50 Director
Michael Weiner, M.D. 55 Director
Donald G. Drapkin has served as Chairman of the Board and a Director of
SIGA since April 19, 2001. Mr. Drapkin has been a Director and Vice Chairman of
MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987.
Prior to joining MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm
of Skadden, Arps, Slate, Meagher & Flom LLP for more than five years. Mr.
Drapkin is also a Director of the following corporations which file reports
pursuant to the Securities Exchange Act of 1934: Anthracite Capital, Inc.; Black
Rock Asset Investors; The Molson Companies Limited; Panavision, Inc.; Playboy
Enterprises, Inc.; Playboy.com, Inc.; Revlon Consumer Products Corporation;
Revlon, Inc.; and The Warnaco Group, Inc.
Thomas N. Konatich has served as Vice President, Chief Financial Officer
and Treasurer since April 1, 1998. He was named Secretary of SIGA on June 29,
2001 and has been our Acting Chief Executive Officer since October 5, 2001. From
November 1996 through March 1998, Mr. Konatich served as Chief Financial Officer
and a Director of Innapharma, Inc., a privately held pharmaceutical development
company. From 1993 through November 1996, Mr. Konatich served as Vice President
and Chief Financial Officer of Seragen, Inc., a publicly traded
biopharmaceutical development company. From 1988 to 1993, he was Treasurer of
Ohmicron Corporation, a venture capital financed environmental biotechnology
firm. Mr. Konatich has an MBA from the Columbia Graduate School of Business.
Dennis F. Hruby, Ph.D. has served as Vice-President - Chief Scientific
Officer since June 2000. From April 1, 1997 through June 2000 Dr. Hruby was our
Vice President of Research. From January 1996 through March 1997, Dr. Hruby
served as a senior scientific advisor to SIGA. Dr. Hruby is a Professor of
Microbiology at Oregon State University, and from 1990 to 1993 was Director of
the Molecular and Cellular Biology Program and Associate Director of the Center
for Gene Research and Biotechnology. Dr. Hruby specializes in virology and cell
biology research, and the use of viral and bacterial vectors to produce
recombinant vaccines. He is a member of the American Society of Virology, the
American Society for Microbiology and a fellow of the American Academy of
Microbiology. Dr. Hruby received a Ph.D. in microbiology from the University of
Colorado Medical Center and a B.S. in microbiology from Oregon State University.
Gabriel M. Cerrone has served as a Director of SIGA since April 19, 2001.
Mr. Cerrone has been Senior Vice President of Investments of Fahnestock & Co.,
Inc., a financial services firm since March 1999. From March 1998 to March 1999,
Mr. Cerrone was Managing Director of Investments at Barington Capital, L.P., a
merchant bank, and, from June 1994 to February 1998, he was Senior Vice
President of Investments at Blair & Company, a financial services firm focusing
on microcap companies. Mr. Cerrone is a Director of the following privately-held
companies: Callisto Pharmaceuticals, Inc. and Macro Holdings, LLC. He is also
the sole general partner of Panetta Partners, Ltd., a firm which acts as an
investor in, and consultant to, primarily emerging technology companies. Mr.
Cerrone is a 1994 graduate of New York University's Stern School of Business.
- 23 -
Thomas E. Constance has served as a Director of SIGA since April 19, 2001.
Mr. Constance is Chairman and a partner of Kramer Levin Naftalis & Frankel LLP,
a law firm in New York City. Mr. Constance is a Director of the following
corporations which file reports pursuant to the Securities Exchange Act of 1934:
Uniroyal Technology Corp. and Kroll Inc. Mr. Constance is also a Director of
Callisto Pharmaceuticals, Inc., a privately-held company. Mr. Constance serves
as a Trustee of the M.D. Sass Foundation and St. Vincent's Services. He also
serves on the Advisory Board of Barington Capital, L.P.
Mehmet C. Oz, M.D. has served as a Director of SIGA since April 19, 2001.
Dr. Oz has been a Cardiac Surgeon at Columbia University Presbyterian Hospital
since 1993 and an Associate Professor of Surgery there since July 2000. Dr. Oz
directs the following programs at Columbia University Presbyterian Hospital: the
Cardiovascular Institute, the complementary medicine program, the clinical
profusion program and clinical trials of new surgical technology. Dr. Oz
received his undergraduate degree from Harvard University in 1982, and, in 1986,
he received a joint M.D. and M.B.A. from the University of Pennsylvania Medical
School and the Wharton School of Business.
Eric A. Rose, M.D. has served as a Director of SIGA since April 19, 2001.
From April 19, 2001 until June 21, 2001, Dr. Rose served as Interim Chief
Executive Officer of SIGA. Dr. Rose is currently Chairman of the Department of
Surgery and Surgeon-in-Chief of the Columbia Presbyterian Center of New York
Presbyterian Hospital, a position he has held since August 1994. Dr. Rose is a
past President of the International Society for Heart and Lung Transplantation.
Dr. Rose was recently appointed as Morris & Rose Milstein Professor of Surgery
at Columbia University's College of Physicians and Surgeons' Department of
Surgery. Dr. Rose is also a Director of the following corporation that files
reports pursuant to the Securities Exchange Act of 1934: Nexell Therapeutics
Inc. (f/k/a VimRx). Dr. Rose is a graduate of both Columbia College and Columbia
University College of Physicians & Surgeons.
Michael Weiner, M.D. has served as a Director of SIGA since April 19,
2001. Dr. Weiner has been a Professor of Pediatrics at Columbia University
College of Physicians and Surgeons since 1996. Dr. Weiner is also the Director
of Pediatric Oncology at New York Presbyterian Hospital. Dr. Weiner was formerly
a Director of Nexell Therapeutics, Inc. (f/k/a VimRx) from March 1996 to
February 1999. Dr. Weiner is a 1972 graduate of the New York State Health
Sciences Center at Syracuse, and he was a post graduate student at New York
University and Johns Hopkins.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports that they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations from certain of the Company's executive
officers and directors that no other such reports were required, the Company
believes that during the fiscal year ended December 31, 2001 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with on a timely basis.
- 24 -
Item 10. Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 2001, 2000 and 1999 for each person who acted as
SIGA's Chief Executive Officer at any time during the year ended December 31,
2001 and its most highly compensated executive officers, other than its Chief
Executive Officer, whose salary and bonus for the fiscal year ended December 31,
2001 were in excess of $100,000 each.
Summary Compensation Table
Annual Compensation
------------------------------------------------------
Long-Term
Compensation
Other Annual Securities
Compensation Underlying Options
------------ -------------------
Name and Principal Position Year Salary ($) ($) (#)
Thomas N. Konatich, 2001 177,542 -- --
Chief Financial Officer and Acting CEO 2000 170,000 -- 100,000
1999 170,000 -- --
Joshua D. Schein (1) 2001 92,852 -- --
Chief Executive Officer 2000 250,000 -- 500,000
1999 225,000 -- 150,000
Eric A. Rose, M.D. (1) 2001 -- -- 600,000
Interim Chief Executive Officer 2000 -- -- --
1999 -- -- --
Philip N. Sussman (1) 2001 99,483 -- 420,000
Chief Executive Officer 2000 -- --
1999 -- -- --
Dennis E. Hruby 2001 196,055 -- --
Chief Scientific Officer 2000 180,000 -- 125,000
1999 170,000 -- --
Judson A. Cooper (1) 2001 92,852 -- --
Executive Vice President 2000 250,000 -- 500,000
1999 225,000 -- 150,000
(1) No longer employed by SIGA at December 31, 2001
- 25 -
Option Grants for the Year Ended December 31, 2001
The following table sets forth grants of stock options during the year
ended December 31, 2001 to anyone who served as Chief Executive Officer during
the year. The exercise price at the time of the grant to Mr. Sussman was the
equal to the fair market value at the time of the grant. The grant to Dr. Rose
as at a discount of approximately 7% to the fair market value at the time of the
grant.
Common Stock % of Total
Underlying Options Granted Exercise Expiration
Name Options Granted to Employees Price Per Share Date
---- ----------- --------- ----------- --------
Eric A. Rose, M.D...................... 600,000 16.4% $ 2.50 8/15/11
Philip N. Sussman (1).................. 420,000 11.5% $ 3.94 6/22/11
(1) Mr. Sussman was not employed by SIGA at December 31, 2001. The options
granted have been forfeited.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of December 31, 2001 by SIGA's Chief Executive Officer and its
four most highly compensated executive officers, other than its Chief Executive
Officer. No options were exercised during fiscal 2001 by any of the officers.
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options # at Fiscal Year-End($)(1)
--------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----- ----------- ------------- ----------- -------------
Thomas N. Konatich 195,000 0 90,000 0
Eric A. Rose, M.D. 600,000 0 240,000 0
Philip N. Sussman 0 0 0 0
Joshua D. Schein 700,001 0 739,584 0
Dennis Hruby 115,000 60,000 67,500 45,000
Judson A. Cooper 700,001 0 739,584 0
(1) Based upon the closing price on December 31, 2001 as reported on the
Nasdaq SmallCap Market and the exercise price per option.
Stock Option Plan
As of January 1, 1996, we adopted our 1996 Incentive and Non-Qualified
Stock Option Plan. An amendment and restatement of such plan, as amended, was
adopted on May 3, 2001 and was further refined by the Board of Directors on June
29, 2001 (the "Plan"). The Plan was approved by our stockholders at an annual
meeting on August 15, 2001. Stock options may be granted to key employees,
consultants and outside directors pursuant to the Plan.
The Plan is administered by a committee (the "Committee") comprised of
disinterested directors. The Committee determines persons to be granted stock
options, the amount of stock options to be granted to each such person, and the
terms and conditions of any stock options as permitted under the Plan. The
members of the Committee are Mehmet C. Oz, M.D. and Michael Weiner, M.D.
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Any Incentive Option granted under the Plan will have an
exercise price of not less than 100% of the fair market value of the shares on
the date on which such option is granted. With respect to an Incentive Option
granted to an employee who owns more than 10% of the total combined voting stock
of SIGA or of any parent or subsidiary of SIGA, the exercise price for such
option must be at least 110% of the fair market value of the shares subject to
the option on the date the option is granted.
- 26 -
The Plan, as amended, provides for the granting of options to purchase
7,500,000 shares of common stock, of which 5,139,811 options were outstanding as
of December 31, 2001.
Employment Contracts and Directors Compensation
Thomas N. Konatich, SIGA's Vice President, Chief Financial Officer,
Secretary, Treasurer and Acting Chief Executive Officer, is employed by SIGA
under an employment agreement that was to expire April 1, 2000. On January 19,
2000 the employment agreement was amended, and in October, 2000, the agreement
was amended and restated. The amended agreement would have expired on April 1,
2002 but was further amended as of January 31, 2002 to expire on December 31,
2002 and is cancelable by SIGA only for cause, as defined in the agreement. Mr.
Konatich receives an annual base salary of $182,500. He received options to
purchase 95,000 shares of common stock, at $4.44 on April 1, 1998. The options
vested on a pro rata basis on the first, second, third and fourth anniversaries
of the agreement. On January 19, 2000 he received an additional grant to
purchase 100,000 shares at an exercise price of $2.00 per share. The options
vest on a pro rata basis each quarter through January 19, 2002. Mr. Konatich is
also eligible to receive additional stock options and bonuses at the discretion
of the Board of Directors. Under the amended and restated agreement, as the
result of the change in control on April 19, 2001, Mr. Konatich would, upon
termination within 18 months of such change in control, be paid his compensation
for the remainder of his employment term and will receive a tax gross-up
payment. Under the terms of the amended agreement, upon a change in control, Mr.
Konatich was entitled to have funds in the amount of such remaining salary and
gross-up payment placed in escrow in his name although no such escrow fund was
established. Additionally, as the result of the change of control, all unvested
options held by Mr. Konatich have become exercisable. As of January 31, 2002,
Mr. Konatich signed an amendment and waiver to his employment agreement. Under
the amendment and waiver, the term of Mr. Konatich's agreement was extended
through December 31, 2002 and he agreed to waive the provision regarding the
escrow and gross-up of the unpaid portion of the compensation due for the term
of his agreement created by the change of control that occurred on April 19,
2001. Mr. Konatich also agreed to certain exceptions from the "Change of
Control" provision of his employment agreement. On January 31, 2002 Mr. Konatich
was granted and "Incentive Stock Option" to purchase 50,000 shares at an
exercise price of $3.94 per share. Such options vest in four equal annual
installments beginning on August 15, 2002.
Dr. Dennis Hruby, Chief Scientific Officer ("CSO"), is employed by SIGA
under an employment agreement that was to expire on December 31, 2000. In May
2000, the employment agreement was amended, extending Mr. Hruby's employment
until December 31, 2002, except that the Company may terminate the agreement
upon 180 days written notice, and changing Mr. Hruby's title from Vice President
of Research to CSO. Dr. Hruby received options to purchase 10,000 shares of
common stock at an exercise price of $5.00 per share on April 1, 1997 and 40,000
shares of common stock at an exercise price of $4.63 per share on April 1, 1998.
The options become exercisable on a pro rata basis on the first, second, third
and fourth anniversaries of the agreement. Dr. Hruby is eligible to receive
additional stock options and bonuses at the discretion of the Board of
Directors. Under the amendment, Dr. Hruby was granted options to purchase
125,000 shares of the Company's common stock at $2.00 per share. The options
vest ratably over the remaining term of the amendment. As of January 31, 2002,
SIGA and Dr. Hruby entered into a third amendment to Dr. Hruby's employment
agreement. The amendment changed the terms of the lock-up agreed to in the prior
amendment to the employment agreement. On January 31, 2002 Dr. Hruby was granted
and "Incentive Stock Option" to purchase 50,000 shares at an exercise price of
$3.94 per share. Such options vest in four equal annual installments beginning
on August 15, 2002.
Dr. Joshua Schein, SIGA's former Chief Executive Officer, resigned as
Chief Executive Officer effective as of April 19, 2001. Prior to his
resignation, Dr. Schein was employed under an agreement through December 31,
1999 which had a base annual salary of $225,000 and granted him 16,667 options
per year, exercisable at the fair market value on the date of the grant. In
January 2000 he entered into a new employment agreement with SIGA, which
agreement was amended and restated as of October 6, 2000, expires January 2005
and is cancelable by SIGA only for cause, as defined in the agreement. The
agreement is renewable for additional one year terms unless cancelled by either
party in writing 180 days prior to cancellation. Dr. Schein receives an annual
base salary of $250,000 and he was granted 500,000 fully vested stock options
upon signing the new agreement. The options are exercisable at $2.00 per share,
the fair market value on the date of grant. He is eligible to receive additional
stock options and bonuses at the discretion of the Board of Directors. Under the
amended and restated agreement, in the event of a
- 27 -
change in control, Dr. Schein will be paid his compensation for the remainder of
his employment term and will receive a tax gross-up payment, and all unvested
options held by Dr. Schein will become vested and exercisable. In addition, Dr.
Schein will receive a cash payment equal to 1.5% of the total consideration
received by SIGA in a sale of all or substantially all of the assets or stock of
SIGA, or a transaction where the holders of the voting capital stock of SIGA
immediately prior to the transaction own less than a majority of the voting
capital stock of the acquiring or surviving entity. In the event of a sale,
merger or public spin-out of any subsidiary or material asset of SIGA, Dr.
Schein shall receive a fee equal to 1.5% of the value of SIGA's shares of the
subsidiary or material asset. Pursuant to the Separation Agreement between Dr.
Schein and SIGA, dated as of March 31, 2001, the employment agreement between
Dr. Schein and SIGA was terminated.
Judson Cooper, SIGA's former Chairman of the Board and Executive Vice
President, resigned those positions effective as of April 19, 2001. Prior to his
resignation, Mr. Cooper was employed under an employment agreement through
December 31, 1999 which had a base annual salary of $225,000 and granted him
16,667 options per year, exercisable at the fair market value on the date of the
grant. In January 2000 he entered into a new employment agreement, which
agreement was amended and restated as of October 6, 2000, expires January 2005
and is cancelable by SIGA only for cause, as defined in the agreement. The
agreement is renewable for additional one year terms unless cancelled by either
party in writing 180 days prior to cancellation. Mr. Cooper receives an annual
base salary of $250,000 and he was granted 500,000 fully vested stock options
upon signing the new agreement. The options are exercisable at $2.00 per share,
the fair market value on the date of grant. He is eligible to receive additional
stock options and bonuses at the discretion of the Board of Directors. Under the
amended and restated agreement, in the event of a change in control, Mr. Cooper
will be paid his compensation for the remainder of his employment term and will
receive a tax gross-up payment, and all unvested options held by Mr. Cooper will
become vested and exercisable. In addition, Mr. Cooper will receive a cash
payment equal to 1.5% of the total consideration received by SIGA in a sale of
all or substantially all of the assets or stock of SIGA, or a transaction where
the holders of the voting capital stock of SIGA immediately prior to the
transaction own less than a majority of the voting capital stock of the
acquiring or surviving entity. In the event of a sale, merger or public spin-out
of any subsidiary or material asset of SIGA, Mr. Cooper shall receive a fee
equal to 1.5% of the value of SIGA's shares of the subsidiary or material asset.
Pursuant to the Separation Agreement between Mr. Cooper and SIGA, dated as of
March 31, 2001, the employment agreement between Mr. Cooper and SIGA was
terminated.
Philip N. Sussman, SIGA's former President and Chief Executive Officer,
resigned those positions effective October 5, 2001. Prior to his resignation, he
was employed under an employment agreement that he entered into on June 22, 2001
and was to expire on June 21, 2003. The annual base salary due to Mr. Sussman
under the agreement was $300,000. Under the terms of the agreement, SIGA granted
to Mr. Sussman on June 29, 2001 non-qualified options to purchase 420,000 shares
of SIGA stock at an exercise price of $3.94 per share. The options were to have
become exercisable on a pro rata basis on the first, second, third and fourth
anniversaries of the agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information regarding the
beneficial ownership of SIGA's voting securities as of December 31, 2001 of (i)
each person known to SIGA to beneficially own more than 5% of the applicable
class of voting securities, (ii) each director and director nominee of SIGA,
(iii) each Named Officer, and (iv) all directors and officers of SIGA as a
group. As of March 18, 2002, a total of 10,139,553 shares of common stock and a
total of 379,294 shares of Series A preferred stock were outstanding. Each share
of common stock and Series A preferred stock is entitled to one vote on matters
on which common stockholders are eligible to vote. The column entitled
"Percentage of Total Voting Stock" shows the percentage of total voting stock
beneficially owned by each listed party.
- 28 -
Ownership of Common Stock
Percentage of Percentage of
Name and Address of Amount of Beneficial Common Stock Total Voting
Beneficial Owner (1) Ownership (2) Outstanding Stock Outstanding
Judson Cooper 1,152,117(3) 10.6% 10.3%
Howard Gittis
35 East 62nd Street
New York, NY 10021 1,005,902(4) 9.7% 9.3%
Panetta Partners, Ltd.(5)
265 E. 66th St. Suite 16G
New York, NY 10021 790,472(6) 7.3% 7.1%
Joshua D. Schein 1,178,517(3) 10.9% 10.5%
Thomas N. Konatich 195,000(7) 1.9% 1.9%
Dennis E. Hruby 115,000(7) 1.1% 1.1%
Philip N. Sussman
145 W. 86th Street
New York, NY 10024 0 * *
Donald G. Drapkin
35 East 62nd Street
New York, NY 10021 2,855,058(8)(9)(10) 23.4% 22.7%
Gabriel M. Cerrone(5)
265E. 66th Street, Suite 16G
New York, NY 10021 1,926,972(6)(11) 16.2% 15.7%
Thomas E. Constance
919 Third Avenue, 41st Floor
New York, NY 10022 253,467(12) 2.4% 2.4%
Mehmet C. Oz, M.D
177 Fort Washington Ave
New York, NY 10032 125,000(13) 1.2% 1.2%
Eric A. Rose, M.D
122 East 78th Street
New York, NY 10021 790,090(14) 7.3% 7.0%
Michael Weiner, M.D
161 Fort Washington Ave
New York, NY 10032 125,000(13) 1.2% 1.2%
All Officers and Directors as a
group (nine persons) 6,385,587(15) 42.4% 41.3%
* Less than 1%
- 29 -
(1) Unless otherwise indicated the address of each beneficial owner identified
is 420 Lexington Avenue, Suite 620, New York, NY 10170.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(3) Includes options to purchase 700,001 shares of common stock owned directly
and beneficial ownership of options to purchase 12,500 shares of common
stock, held by Prism Ventures LLC, an entity jointly owned by Mr. Cooper
and Dr. Schein.
(4) Includes 260,178 shares issuable upon exercise of a warrant.
(5) Mr. Cerrone, as the sole general partner of Panetta Partners, Ltd., may be
deemed to beneficially own the shares owned by Panetta Partners, Ltd.
(6) Includes 649,388 shares issuable upon exercise of warrants.
(7) Messrs. Konatich and Hruby own no shares of common stock. All shares
listed as beneficially owned by Messrs. Konatich and Hruby are shares
issuable upon exercise of stock options.
(8) Includes 1,125,000 shares of common stock issuable upon exercise of
options and 30,500 shares issuable upon exercise of warrant.
(9) Mr. Drapkin has entered into a management restructuring agreement,
pursuant to which he has been granted proxies giving him voting power over
an aggregate of 905,632 shares of common stock, included in the figures in
the above table.
(10) Mr. Drapkin holds, inter alia, a warrant (an "Investor Warrant") to
purchase 347,826 shares of common stock. However, the Investor Warrant
provides that, with certain limited exceptions, it is not exercisable if,
as a result of such exercise, the number of shares of common stock
beneficially owned by Mr. Drapkin and his affiliates (other than shares of
common stock which may be deemed beneficially owned through the ownership
of the unexercised portion of such Investor Warrant) would exceed 9.99% of
the outstanding shares of common stock. As a result of the restrictions
described in the immediately preceding sentence and the other securities
which Mr. Drapkin may be deemed beneficially to own, Mr. Drapkin's
Investor Warrant is not presently exercisable. If not for the 9.99% limit,
Mr. Drapkin could be deemed to beneficially own 3,202,884 shares of common
stock, or 25.5% of the outstanding shares of common stock and 24.8% of the
total shares of voting stock outstanding.
(11) Includes 790,472 shares held by and issuable upon exercise of warrants
held by Panetta Partners and 1,075,000 shares issuable upon exercise of
options.
(12) Includes 12,200 shares issuable upon exercise of warrants and 225,000
shares of common stock issuable upon exercise of options.
(13) Includes 12,500 shares issuable upon exercise of warrants and 100,000
shares issuable upon exercise of options.
(14) Includes 88,610 shares issuable upon exercise of warrants and 600,000
shares of common stock issuable upon exercise of options.
(15) See footnotes (5), (6), (7), (8), (9), (10), (11), (12), (13) and (14).
- 30 -
Item 12. Certain Relationships and Related Transactions
Effective January 15, 1998, we entered into a consulting agreement with
Prism Ventures LLC pursuant to which Prism has agreed to provide certain
business services to SIGA, including business development, operations and other
advisory services, licensing, strategic alliances, merger and acquisition
activity, financings and other corporate transactions. Pursuant to the terms of
the agreement, Prism receives an annual fee of $150,000 and 16,667 stock options
per year. The agreement expired on January 15, 2001, and was cancelable by SIGA
only for cause as defined in the agreement. Mr. Cooper and Dr. Schein are the
members of Prism. In October of 1998, SIGA and Prism agreed to suspend the
agreement for as long as the two principals are employed by SIGA under the
provisions of their amended employment agreements. Pursuant to separation
agreements entered into by Dr. Schein and Mr. Cooper and SIGA, dated as of March
31, 2001, their employment agreements with SIGA have been terminated. During
2001, Prism received no payments pursuant to the agreement.
Effective September 9, 1999 we entered into a consulting agreement with
Stefan Capital, LLC pursuant to which Stefan has agreed to provide certain
business services to SIGA. Pursuant to the terms of the agreement, Stefan
received five year warrants to purchase 100,000 shares of our common stock at an
exercise price of $1.00. As of December 31, 2001, 50,000 warrants have been
exercised. Mr. Jeffrey Rubin, one of SIGA's directors until his resignation on
April 19, 2001, is a principal of Stefan.
Effective January 19, 2000, SIGA entered into a consulting agreement with
Mr. Scott Eagle, a former director. Mr. Eagle provided consulting services
concerning SIGA's strategic review and development of alternate internet and
related technologies. The agreement expired on January 19, 2001. Pursuant to the
terms of the agreement, Mr. Eagle received five year warrants to purchase 50,000
shares of SIGA common stock at an exercise price of $1.00 per share.
Thomas E. Constance, a director of SIGA, is Chairman of Kramer Levin
Naftalis & Frankel LLP, a law firm in New York City, which SIGA retained to
provide legal services during fiscal year 2001.
- 31 -
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K
3(a) Restated Articles of Incorporation of the Company (Incorporated by
reference to Form S-3 Registration Statement of the Company dated May 10,
2000 (No. 333-36682)).
3(b) Bylaws of the Company (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
3(c) Certificate of Designations of Series and Determination of Rights and
Preferences of Series A Convertible Preferred Stock of the Company dated
July 2, 2001 (Filed herewith).
4(a) Form of Common Stock Certificate (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(b) Warrant Agreement dated as of September 15, 1996 between the Company and
Vincent A. Fischetti (1) (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
4(c) Warrant Agreement dated as of November 18, 1996 between the Company and
David de Weese (1) (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
4(d) Registration Rights Agreement between the Company and MedImmune, Inc.,
dated as of February 10, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
4(e) Warrant Agreement between the Company and Stefan Capital, dated September
9, 1999 (Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
10(a) License and Research Support Agreement between the Company and The
Rockefeller University, dated as of January 31, 1996; and Amendment to
License and Research Support Agreement between the Company and The
Rockefeller University, dated as of October 1, 1996(2) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March
10, 1997 (No. 333-23037)).
10(b) Research Agreement between the Company and Emory University, dated as of
January 31, 1996(2) (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(c) Research Support Agreement between the Company and Oregon State
University, dated as of January 31, 1996(2) (Incorporated by reference to
Form SB-2 Registration Statement of the Company dated March 10, 1997 (No.
333-23037)). Letter Agreement dated as of March 5, 1999 to continue the
Research Support Agreement. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999).
10(d) Option Agreement between the Company and Oregon State University, dated as
of November 30, 1999 and related Amendments to the Agreement (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(e) Amended and Restated Employment Agreement between the Company and Dr.
Joshua D. Schein, dated as of October 6, 2000 (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended December
31, 2000).
10(f) Amended and Restated Employment Agreement between the Company and Judson
A. Cooper, dated as of October 6, 2000 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
- 32 -
10(g) Employment Agreement between the Company and Dr. Kevin F. Jones, dated as
of January 1, 1996 (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(h) Employment Agreement between the Company and David de Weese, dated as of
November 18, 1996(1) (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(i) Consulting Agreement between the Company and CSO Ventures LLC, dated as of
January 1, 1996 (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(j) Consulting Agreement between the Company and Dr. Vincent A. Fischetti,
dated as of January 1, 1996 (Incorporated by reference to Form SB-2
Registration Statement of the Company dated March 10, 1997 (No.
333-23037)).
10(k) Consulting Agreement between the Company and Dr. Dennis Hruby, dated as of
January 1, 1996 (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(l) Letter Agreement between the Company and Dr. Vincent A. Fischetti, dated
as of March 1, 1996 (Incorporated by reference to Form SB-2 Registration
Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(m) Employment Agreement between the Company and Dr. Dennis Hruby, dated as of
April 1, 1997 (Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(n) Clinical Trials Agreement between the Company and National Institute of
Allergy and Infectious Diseases, dated as of July 1, 1997 (Incorporated by
reference to Amendment No. 1 to Form SB-2 Registration Statement of the
Company dated July 11, 1997 (No. 333-23037)).
10(o) Research Agreement between the Company and The Research Foundation of
State University of New York, dated as of July 1, 1997(2) (Incorporated by
reference to Amendment No. 1 to Form SB-2 Registration Statement of the
Company dated July 11, 1997 (No. 333-23037)).
10(p) Collaborative Research and License Agreement between the Company and
Wyeth, dated as of July 1, 1997(2) (Incorporated by reference to Amendment
No. 3 to Form SB-2 Registration Statement of the Company dated September
2, 1997 (No. 333-23037)).
10(q) Collaborative Evaluation Agreement between the Company and Chiron
Corporation, dated as of July 1, 1997 (Incorporated by reference to
Amendment No. 1 to Form SB-2 Registration Statement of the Company dated
July 11, 1997 (No. 333-23037)).
10(r) Consulting Agreement between the Company and Dr. Scott Hultgren, dated as
of July 9, 1997 (Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(s) Letter of Intent between the Company and MedImmune, Inc., dated as of July
10, 1997 (Incorporated by reference to Amendment No. 1 to Form SB-2
Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(t) Research Collaboration and License Agreement between the Company and The
Washington University, dated as of February 6, 1998 (2). (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10(u) Settlement Agreement and Mutual Release between the Company and The
Washington University, dated as of February 17, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999).
- 33 -
10(v) Technology Transfer Agreement between the Company and MedImmune, Inc.,
dated as of February 10, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1997).
10(w) Employment Agreement between the Company and Dr. Dennis Hruby, dated as
of January 1, 1998. (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997). Amendment
to the Agreement, dated as of October 15, 1999 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999). Amendment to the Agreement dated as of June
12, 2000).
10(x) Employment Agreement between the Company and Dr. Walter Flamenbaum,
dated as of February 1, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1997).
10(y) Employment Agreement between the Company and Thomas Konatich, dated as
of April 1, 1998. (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997). Extension
and Amendment of the Agreement, dated as of January 19, 2000
(Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999). Amendment and Restatement of the
Agreement, dated as of October 6, 2000 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
10(z) Consulting Agreement between the Company and Prism Ventures LLC, dated
as of January 15, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
10(aa) Small Business Innovation Research Grant to the Company by the National
Institutes for Health, dated June 21, 1999 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999).
10(bb) Small Business Innovation Research Grant to the Company by the National
Institutes for Health, dated September 27, 1999 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(cc) Software Application Development Services Agreement between the Company
and Open-i Media, Inc., dated October 15, 1999 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999).
10(dd) Media Development Agreement Services Agreement between the Company and
Open-i Media, Inc., dated March 15, 2000 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999).
10(ee) Option Agreement between the Company and Ross Products Division of
Abbott Laboratories, dated February 28, 2000 (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999).
10(ff) Consulting Agreement between the Company and Stefan Capital, dated
September 9, 1999 (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999).
10(gg) Stock Purchase Agreement between the Company and MedImmune, Inc., dated
as of February 10, 1998. (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997).
10(hh) Small Business Innovation Research Grant to the Company by the National
Institutes for Health, dated May 3, 2000. (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 2000).
- 34 -
10(ii) Small Business Innovation Research Grant to the Company by the National
Institutes for Health, dated August 1, 2000. (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000).
10(jj) Small Business Innovation Research Grant to the Company by the National
Institutes for Health, dated August 21, 2000. (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000).
10(kk) Stock Purchase Agreement between the Company and Open-i Media, Inc.
dated July 7, 2000. (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000).
10(ll) Agreement between the Company and Oregon State University for the
Company to provide contract research services to the University dated
September 24, 2000. (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000).
10(mm) Agreement between the Company and Maxygen, Inc. dated October 17, 2000.
(Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2000).
10(nn) License and Research Agreements between the Company and the Regents of
the University of California dated December 6, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000).
10(oo) Research Agreement between the Company and the University of Maryland
dated January 3, 2001) (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10(pp) Amended and Restated 1996 Incentive and Non-Qualified Stock Option Plan
dated August 15, 2001 (Filed herewith).
10(qq) Letter Agreement among the Company, Donald G. Drapkin, Gabriel Cerrone,
Thomas E. Constance, Eric A. Rose, Judson A. Cooper and Joshua D. Schein
dated March 30, 2001 (Filed herewith).
10(rr) Separation Agreement between the Company and Joshua D. Schein dated as
of March 30, 2001 (Filed herewith).
10(ss) Separation Agreement between the Company and Judson A. Cooper dated as
of March 30, 2001 (Filed herewith).
10(tt) Employment Agreement between the Company and Philip Sussman dated June
22, 2001 (Filed herewith).
10(uu) Amendment to Employment Agreement between the Company and Dr. Dennis
Hruby dated as of January 31, 2002 (Filed herewith).
10(vv) Amendment and Waiver to Employment Agreement between the Company and
Thomas Konatich dated as of January 31, 2002 (Filed herewith).
------------------
(1) These agreements were entered into prior to the reverse split of the
Company's Common Stock and, therefore, do not reflect such reverse split.
(2) Confidential information is omitted and identified by an * and filed
separately with the SEC with a request for Confidential Treatment.
(b) Reports on Form 8-K
On October 12, 2001, the Company filed an amendment to a Current Report on
Form 8-K/A, reporting adjustments to its June 30, 2001 Balance Sheet.
- 35 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGA TECHNOLOGIES, INC.
(Registrant)
Date: April 1, 2002 By: /s/ Thomas N. Konatich
--------------------------------
Thomas N. Konatich
Chief Financial Officer & Acting
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
-------- -------- ----
/s/ Donald G. Drapkin Chairman of the Board March 29, 2002
--------------------------------
Donald G. Drapkin
/s/ Thomas N. Konatich Acting Chief Executive Officer, March 29, 2002
-------------------------------- Chief Financial Officer and Secretary
Thomas N. Konatich
/s/ Gabriel M. Cerrone Director March 29, 2002
--------------------------------
Gabriel M. Cerrone
/s/ Thomas E. Constance Director March 29, 2002
--------------------------------
Thomas E. Constance
Director March 29, 2002
--------------------------------
Mehmet C. Oz, M.D.
/s/ Eric A. Rose Director March 29, 2002
--------------------------------
Eric A. Rose, M.D.
/s/ Michael Weiner Director March 29, 2002
--------------------------------
Michael Weiner, M.D.
- 36 -
SIGA Technologies, Inc.
(A development stage company)
Financial Statements
December 31, 2001 and 2000
SIGA Technologies, Inc.
(A development stage company)
Index to Financial Statements
Report of Independent Accountants F-2
Balance Sheets as of December 31, 2001 and 2000 F-3
Statement of Operations for the years ended December 31, 2001
and 2000, and for the period from inception through December 31, 2001 F-4
Statement of Changes in Stockholders' Equity for the period
from inception through December 31, 2001 F-5
Statement of Cash Flows for the years ended December 31, 2001,
and 2000, and for the period from inception through December 31, 2001 F-7
Notes to Financial Statements F-8
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders
of SIGA Technologies, Inc.
In our opinion, the accompanying balance sheets and related statements of
operations, of cash flows and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of SIGA
Technologies, Inc. (a development stage company) at December 31, 2001 and 2000,
and the results of its operations and cash flows for the years ended December
31, 2001 and 2000, and for the period from December 28, 1995 ("Inception")
through December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 15, 2002, except as to note 14 which is as of March 11, 2002.
F-2
SIGA Technologies, Inc.
(A development stage company)
Balance Sheet
December 31,
2001 2000
------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 3,148,160 $ 1,707,385
Accounts receivable 55,000 37,800
Prepaid expenses 153,416 5,644
------------ ------------
Total current assets 3,356,576 1,750,829
Equipment, net 703,239 1,027,702
Investment in Open-i Media -- 275,106
Other assets 147,873 156,556
------------ ------------
Total assets $ 4,207,688 $ 3,210,193
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 210,391 $ 209,278
Accrued expenses 263,616 305,912
Capital lease obligations 192,196 391,407
Deferred revenue -- 450,000
------------ ------------
Total current liabilities 666,203 1,356,597
6% Convertible debt, net of unamortized debt discount -- 719,561
Accrued Debenture Interest -- 80,281
Non current capital lease obligations -- 129,018
------------ ------------
Total liabilities 666,203 2,285,457
Commitments and contingencies -- --
Stockholders' equity:
Series A Convertible preferred stock ($.0001 par value, 10,000,000
shares authorized, 379,294 and 0 issued and outstanding at
December 31, 2001 and 2000 respectively) 398,441 --
Common stock ($.0001 par value, 50,000,000 shares authorized,
10,139,553 and 7,471,837 issued and outstanding at December 31,
2001 and December 31, 2000, respectively) 1,016 747
Additional paid-in capital 29,348,786 23,793,983
Deferred Compensation (35,583) (428,425)
Deficit accumulated during the development stage (26,171,175) (22,441,569)
------------ ------------
Total stockholders' equity 3,541,485 924,736
------------ ------------
Total liabilities and stockholders' equity $ 4,207,688 $ 3,210,193
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SIGA Technologies, Inc.
(A development stage company)
Statement of Operations
For the Period
December 28,
1995 (Date of
Year Ended December 31, Inception) to
------------------------- December 31,
2001 2000 2001
Revenues:
Research and development contracts $ 1,159,500 $ 483,120 $ 3,287,181
----------- ----------- ------------
Operating expenses:
General and administrative 2,570,869 4,851,100 15,383,445
Research and development (including amounts to
related parties of $104,000, $75,000 and $488,581
for the years ended December 31, 2001 and 2000,
and for the period from the date of inception of
December 31, 2001, respectively) 1,733,188 2,608,907 12,009,076
Patent preparation fees 117,264 106,647 1,354,754
----------- ----------- ------------
Total operating expenses 4,421,321 7,566,654 28,747,275
----------- ----------- ------------
Operating loss (3,261,821) (7,083,534) (25,460,094)
Interest income/(expense) (192,679) (550,464) (347,044)
Loss on impairment of investment (275,106) (155,591) (430,697)
Other income/gain on sale of securities -- -- 66,660
----------- ----------- ------------
Net loss $(3,729,606) $(7,789,589) $(26,171,175)
=========== =========== ============
Basic and diluted loss per share $ (.44) $ (1.08)
----------- -----------
Weighted average common shares outstanding
used for basic and diluted loss per share 8,499,961 7,202,856
=========== ===========
Comprehensive loss:
Net loss $(3,729,606) $(7,789,589) $(26,171,175)
----------- ----------- ------------
Total comprehensive loss $(3,729,606) $(7,789,589) $(26,171,175)
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-4
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
--------------------------------------------------------------------------------
Series A
Convertible
Preferred Stock Common Stock Additional
--------------------------- ------------------------- Paid-in
Shares Amount Shares Amount Capital
Issuance of common stock at inception $ 2,079,170 $ 208 $ 1,040
Net loss -- -- --
---------- ----------- ------------ ------- -----------
Balances at December 31, 1995 -- 2,079,170 208 1,040
Net proceeds from issuance and sale
of common stock ($1.50 per share) 1,038,008 104 1,551,333
Net proceeds from issuance and sale
of common stock ($3.00 per share) 250,004 25 748,985
Receipt of stock subscriptions outstanding -- -- --
Issuance of compensatory options and warrants -- -- 367,461
Net loss -- -- -- --
---------- ----------- ------------ ------- -----------
Balances at December 31, 1996 -- 3,367,182 337 2,668,819
Net proceeds from issuance and sale
of common stock ($5.00 per share) 2,875,000 287 12,179,322
Issuance of warrants with bridge notes -- -- 133,000
Stock option and warrant compensation -- -- 68,582
Net loss -- -- --
---------- ----------- ------------ ------- -----------
Balance at December 31, 1997 -- 6,242,182 624 15,049,723
Issuance of common stock to acquire third party's
right to certain technology ($4.34 per share) 335,530 34 1,457,424
Issuance of compensatory options and warrants -- -- 175,870
Stock option and warrant compensation -- -- 14,407
Unrealized losses on available for sale securities -- -- --
Net loss -- -- --
---------- ----------- ------------ ------- -----------
Balance at December 31, 1998 -- 6,577,712 658 16,697,424
Issuance of common stock for software development
($1.25 per share) 25,000 3 31,247
Issuance of compensatory common stock, options
and warrants -- 51,550
Stock option and warrant compensation -- 75,278
Unrealized gains on available for sale securities
Net loss
---------- ----------- ------------ ------- -----------
Balance at December 31, 1999 -- 6,602,712 661 16,855,499
---------- ----------- ------------ ------- -----------
Deficit Unrealized
Accumulated Gains (Losses) Total
Stock During the on Available Stockholders'
Deferred Subscriptions Development for Sale of Equity
Compensation Outstanding Stage Securities (Deficit)
Issuance of common stock at inception $ -- $ (1,248) --
Net loss -- -- $ (1,000) -- $ (1,000)
----------- -------- ------------ ------- -----------
Balances at December 31, 1995 -- (1,248) (1,000) -- (1,000)
Net proceeds from issuance and sale
of common stock ($1.50 per share) -- -- -- 1,551,437
Net proceeds from issuance and sale
of common stock ($3.00 per share) -- -- 749,010
Receipt of stock subscriptions outstanding 1,248 -- -- 1,248
Issuance of compensatory options and warrants -- -- -- 367,461
Net loss -- (2,268,176) -- (2,268,176)
----------- -------- ------------ ------- -----------
Balances at December 31, 1996 -- -- (2,269,176) -- 399,980
Net proceeds from issuance and sale
of common stock ($5.00 per share) 12,179,609
Issuance of warrants with bridge notes -- -- -- 133,000
Stock option and warrant compensation -- -- -- 68,582
Net loss -- -- (2,194,638) -- (2,194,638)
----------- -------- ------------ ------- -----------
Balance at December 31, 1997 -- -- (4,463,814) -- 10,586,533
Issuance of common stock to acquire third party's
right to certain technology ($4.34 per share) 1,457,458
Issuance of compensatory options and warrants -- -- -- 175,870
Stock option and warrant compensation -- -- -- 14,407
Unrealized losses on available for sale securities -- -- (34,816) (34,816)
Net loss -- -- (6,551,666) -- (6,551,666)
----------- -------- ------------ ------- -----------
Balance at December 31, 1998 -- -- (11,015,480) (34,816) 5,647,786
Issuance of common stock for software development
($1.25 per share) 31,250
Issuance of compensatory common stock, options
and warrants 51,550
Stock option and warrant compensation 75,278
Unrealized gains on available for sale securities 34,816 34,816
Net loss (3,636,500) (3,636,500)
----------- -------- ------------ ------- -----------
Balance at December 31, 1999 -- -- (14,651,980) -- 2,204,180
----------- -------- ------------ ------- -----------
(Continued)
F-5
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
--------------------------------------------------------------------------------
Series A
Convertible
Preferred Stock Common Stock Additional
---------------------------- ------------------------------ Paid-in
Shares Amount Shares Amount Capital
Net proceeds from exercising of stock options $ 19,875 $ 2 $ 52,772
Net proceeds from the issuance of common stock
($5.0 per share) 600,000 60 2,882,940
Issuance of common stock in connection
with software development 102,721 10 500,334
Issuance of common shares in connection
with acquisition of 12.5%
equity interest in a private company 40,336 4 179,996
Issuance of common shares upon conversion
of debentures 90,193 9 49,246
Warrants granted in connection with the issuance
of debentures 1,320,170
Issuance of compensatory options and warrants
to non-employees 1,218,145
Issuance of compensatory options to employees 278,750
Stock options and warrants compensation related
to services received from non-employees 185,876
Amortization of deferred compensation
Issuance of shares in exchange for services 16,000 1 (1)
Amendment of warrants issued to a non-employee
for services 270,256
Net loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 7,471,837 747 23,793,983
------------ ------------ ------------ ------------ ------------
Issuance of preferred stock upon conversion
of debentures 1,011,593 1,036,707
Common stock issued upon conversion of preferred
series A stock (632,299) (638,266) 641,719 64 651,735
Net proceeds from issuance of common stock
($2.00 to $3.00 per share) 1,684,636 169 4,356,801
Issuance of common shares upon conversion
of stock options 167,250 17 196,846
Issuance of common shares upon exercising
of warrants 70,000 7 159,613
Issuance of restricted common stock to non-employee 50,000 5 77,328
Issuance of common shares upon cashless
warrant exercise 35,640 4 (4)
Issuance of common stock upon conversion
of debentures 18,471 3 15,916
Issuance of compensatory stock options
to the board of directors 612,750
Cancellation of warrants issued to consultant (783,598)
Compensation charge relating to common stock
issued below fair value market 103,040
Compensation charge relating to modification
of options to acquire common shares 72,660
Amortization of deferred compensation
Stock options issued to non-employee 79,054
Warrants issued to a non-employee 28,318
Forfeiture of options issued to a director (15,656)
Net loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 379,294 $ 398,441 10,139,553 $ 1,016 $ 29,348,786
============ ============ ============ ============ ============
Deficit Unrealized
Accumulated Gains (Losses) Total
Stock During the on Available Stockholders'
Deferred Subscriptions Development for Sale of Equity
Compensation Outstanding Stage Securities (Deficit)
Net proceeds from exercising of stock options $ 52,774
Net proceeds from the issuance of common stock
($5.0 per share) 2,883,000
Issuance of common stock in connection
with software development 500,344
Issuance of common shares in connection
with acquisition of 12.5%
equity interest in a private company 180,000
Issuance of common shares upon conversion
of debentures 49,255
Warrants granted in connection with the issuance
of debentures 1,320,170
Issuance of compensatory options and warrants
to non-employees $ (1,218,145) --
Issuance of compensatory options to employees (278,750) --
Stock options and warrants compensation related
to services received from non-employees 185,876
Amortization of deferred compensation 1,068,470 1,068,470
Issuance of shares in exchange for services --
Amendment of warrants issued to a non-employee
for services 270,256
Net loss $ (7,789,589) (7,789,589)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 (428,425) -- (22,441,569) -- 924,736
------------ ------------ ------------ ------------ ------------
Issuance of preferred stock upon conversion
of debentures 1,036,707
Common stock issued upon conversion of preferred
series A stock 13,533
Net proceeds from issuance of common stock
($2.00 to $3.00 per share) 4,356,970
Issuance of common shares upon conversion
of stock options 196,863
Issuance of common shares upon exercising
of warrants 159,620
Issuance of restricted common stock to non-employee 77,333
Issuance of common shares upon cashless
warrant exercise --
Issuance of common stock upon conversion
of debentures 15,919
Issuance of compensatory stock options
to the board of directors 612,750
Cancellation of warrants issued to consultant 248,713 (534,885)
Compensation charge relating to common stock
issued below fair value market 103,040
Compensation charge relating to modification
of options to acquire common shares 72,660
Amortization of deferred compensation 121,389 121,389
Stock options issued to non-employee 79,054
Warrants issued to a non-employee 7,084 35,402
Forfeiture of options issued to a director 15,656 --
Net loss (3,729,606) (3,729,606)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 $ (35,583) $ -- $(26,171,175) $ -- $ 3,541,485
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-6
SIGA Technologies, Inc.
(A development stage company)
Statement of Cash Flows
For the Period
December 28,
Year Ended 1995 (Date of
December 31, December 31, Inception) to
-------------------------- December 31,
2001 2000 2001
Cash flows from operating activities:
Net loss $(3,729,606) $(7,789,589) $(26,171,175)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 324,463 356,089 1,275,349
Stock, options and warrant compensation 566,743 1,524,602 2,875,743
Loss on impairment of investment 275,106 155,591 430,697
Loss on write-off of capital equipment -- -- 97,969
Amortization of debt discount 232,393 589,312 954,705
Write-off of in-process research and development -- -- 1,457,458
Realized gain on sale of marketable securities -- -- (66,660)
Non-cash research and development -- 500,344 500,344
Changes in assets and liabilities:
Accounts receivable (17,200) 9,770 (55,000)
Prepaid expenses and other current assets (147,772) 32,635 (153,416)
Other assets 8,683 (9,554) (147,872)
Accounts payable and accrued expenses (27,649) 162,132 487,539
Deferred Revenue (450,000) 450,000 --
Accrued Interest 20,390 80,281 100,672
----------- ----------- ------------
Net cash used in operating activities (2,944,449) (3,938,387) (18,413,647)
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures -- (98,126) (2,157,254)
Sale (purchase) of investment securities -- -- 66,660
Investment in Open-I-Media -- (170,000) (170,000)
----------- ----------- ------------
Net cash flow used in investing activities -- (268,126) (2,260,594)
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 4,356,970 2,883,000 21,720,026
Receipts of stock subscriptions outstanding -- -- 1,248
Gross proceeds from sale of convertible debentures -- 1,500,000 1,500,000
Proceeds from exercise of stock options and
warrants to acquire common stock 356,483 52,774 409,257
Net proceeds from sale of warrants -- 52,174 52,174
Convertible debentures and warrants issuance costs -- (52,500) (52,500)
Proceeds from bridge notes -- -- 1,000,000
Repayment of bridge notes -- -- (1,000,000)
Proceeds from sale and leaseback of equipment -- -- 1,139,085
Principal payments on capital lease obligations (328,229) (280,091) (946,889)
----------- ----------- ------------
Net cash provided from financing activities 4,385,224 4,155,357 23,822,401
----------- ----------- ------------
Net increase in cash and cash equivalents 1,440,775 (51,156) 3,148,160
Cash and cash equivalents at beginning of period 1,707,385 1,758,541 --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 3,148,160 $ 1,707,385 $ 3,148,160
=========== =========== ============
Supplemental disclosure of non-cash
investing and financing activities:
Fixed assets exchanged in acquisition $ $ 80,697 $ 80,697
=========== =========== ============
Fair value of common shares exchanged in acquisition $ $ 180,000 $ 180,000
=========== =========== ============
Notes payable converted into equity $ 1,375,000 $ 125,000 $ 1,500,000
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-7
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") was incorporated in the
State of Delaware on December 28, 1995 ("Inception") as SIGA
Pharmaceuticals, Inc. The Company is engaged in the discovery, development
and commercialization of vaccines, antibiotics, and novel anti-infectives
for the prevention and treatment of infectious diseases. The Company's
technologies are licensed from third parties.
Basis of presentation
The Company's activities since inception have consisted primarily of
sponsoring and performing research and development, performing business
and financial planning, preparing and filing patent applications and
raising capital. Accordingly, the Company is considered to be a
development stage company.
The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Since inception the
Company has incurred cumulative net operating losses of $22,171,175 and
expects to incur additional losses to perform further research and
developement activities. The Company does not have commercial biomedical
products and mangement believes that it will need additional funds to
complete the development of its biomedical products. Management's plans
with regard to these matters include continued developement of its
products as well as seeking additional research support funds and
financial arrangements. Although, management continues to pursue these
plans, there is no assurance that the Company will be successful in
obtaining sufficient financing on terms acceptable to the Company.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid
investments, with original maturities of less than three months when
purchased and are stated at cost. Interest is accrued as earned.
Equipment
Equipment is stated at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the respective assets, which are
as follows:
Laboratory equipment 5 years
Leasehold improvements Life of lease
Computer equipment 3 years
Furniture and fixtures 7 years
Revenue recognition
The Company applies the guidance provided by Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements ("SAB 101"). Under the
provisions of SAB 101 the Company recognizes revenue from government
research grants, contract research and development and progress payments
as services are performed, provided a contractual arrangement exists, the
contract price is fixed or determinable, and the collection of the
resulting receivable is probable. In situations where the Company receives
payment in advance of the performance of services, such amounts are
deferred and recognized as revenue as the related services are performed.
Non-refundable fees are recognized as revenue over the term of the
arrangement or based on the percentage of costs incurred to date,
estimated costs to complete and total expected contract revenue.
Research and development
Research and development costs are expensed as incurred and include costs
of third parties who conduct research and development, pursuant to
development and consulting agreements, on
F-8
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
behalf of the Company. Costs related to the acquisition of technology
rights, for which development work is still in process, and that have no
alternative future uses, are expensed as incurred and considered a
component of research and development costs.
Income taxes
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if
it is more likely than not that some or all of the deferred tax asset will
not be realized.
Net loss per common share
Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period. The computation of Diluted
EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings.
At December 31, 2001, 379,294 shares of the Company's convertible Series A
preferred stock have been excluded from the computation of diluted loss
per share as they are antidulutive. At December 31, 2001 and 2000,
outstanding options to purchase 5,139,811 and 2,167,061 shares of the
Company's common stock, respectively, with exercise prices ranging from
$1.0 to $5.5 have been excluded from the computation of diluted loss per
share as they are antidilutive. Outstanding warrants to purchase 4,231,428
and 3,694,202 shares of the Company's common stock, at December 31, 2001
and 2000, respectively, with exercise prices ranging from $1.00 to $8.25
were also antidilutive and excluded from the computation of diluted loss
per share.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the
reporting period. Significant estimates include the value of options and
warrants granted by the Company. Actual results could differ from those
estimates.
Fair value of financial instruments
The carrying value of cash and cash equivalents, and accounts payable and
accrued expenses approximates fair value due to the relatively short
maturity of these instruments.
F-9
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
Concentration of credit risk
The Company has cash in bank accounts that exceed the FDIC insured limits.
The Company has not experienced any losses on its cash accounts. No
allowance has been provided for potential credit losses because management
believes that any such losses would be minimal.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As provided
for by SFAS 123, the Company has elected to continue to account for its
stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation expense has been recognized to
the extent of employee or director services rendered based on the
intrinsic value of compensatory options or shares granted under the plans.
The Company has adopted the disclosure provisions required by SFAS 123.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation. The impact of these changes is not material and did not
affect net loss.
Recent pronouncements
In June of 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 141 ("FAS 141"), Business
Combinations. FAS 141 requires that the purchase method of accounting be
used for all business combinations for which the date of acquisition is
after June 30, 2001, establishes specific criteria for the recognition of
intangible assets separately from goodwill, and requires unallocated
negative goodwill to be written off immediately as an extraordinary gain
(instead of being deferred and amortized). The Company has not
historically engaged in transactions that qualify for the use of the
pooling of interests method and therefore, this aspect of the new standard
will not have an impact on the financial results.
Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill
and Other Intangible Assets, also issued in 2001, addresses the accounting
for goodwill and intangible assets subsequent to their acquisition. FAS
142 requires that goodwill and indefinite lived intangible assets will no
longer be amortized; goodwill will be tested for impairment at least
annually at the reporting unit level; intangible assets deemed to have an
indefinite life will be tested for impairment at least annually; and the
amortization period of intangible assets with finite lives will no longer
be limited to forty years. The provisions of FAS 142 will be effective for
fiscal years beginning after December 31, 2001 and must be applied
prospectively.
The Company will adopt FAS 141 and 142 on January 1, 2002 and will apply
their provisions to future transactions.
In August 2001, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards (FAS) No. 143, "Accounting for Asset
Retirement Obligations," ("SFAS No. 143") which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Statement applies to legal obligations associated with the retirement of
long-lived assets that result from the
F-10
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. The effective
date for SFAS No. 143 is for financial statements issued for fiscal years
beginning after June 15, 2002. The Company does not expect that the
adoption of the provisions of FAS 143 will have a material impact on its
results of its operations or financial position.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assts and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". The Company does not
expect that the adoption of the provisions of SFAS No. 144 will have
material impact on its results of it operations or financial position.
3. Equipment
Equipment consisted of the following at December 31, 2001 and 2000
Laboratory equipment $ 862,005 $ 862,005
Leasehold improvements 618,315 618,315
Computer equipment 153,360 153,360
Furniture and fixtures 291,637 291,637
----------- -----------
1,925,317 1,925,317
Less - Accumulated depreciation (1,222,078) (897,615)
----------- -----------
Equipment, net $ 703,239 $ 1,027,702
=========== ===========
Depreciation expense for the years ended December 31, 2001 and December
31, 2000 was $324,463 and $356,089, respectively.
At December 31, 2001 and 2000, laboratory equipment, computer equipment
and furniture included approximately $730,500, $117,000 and $291,600,
respectively, of equipment acquired under capital leases. Accumulated
depreciation related to such equipment approximated $538,300, $144,000 and
$149,171 respectively, at December 31, 2001, and $392,200, $105,000 and
$107,514 respectively, at December 31, 2000.
4. Stockholders' Equity
At December 31, 2001, 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.
F-11
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
In September and October 1997, the Company completed an initial public
offering of 2,875,000 shares of its common stock at an offering price of
$5.00 per share. The Company realized gross proceeds of $14,375,000 and
net proceeds, after deducting underwriting discounts and commissions, and
other offering expenses payable by the Company, of $12,179,609.
In October 2001, the Company raised gross proceeds of $2.55 million in a
private offering of common stock and warrants to purchase the Company's
common stock. The Company sold 850,000 shares of common stock and 425,000
warrants. The warrants are exercisable at $3.60 and have a term of seven
years. In connection with the offering the Company issued 100,000 warrants
to purchase shares of the Company's common stock to consultants. The
warrants are exercisable at a price of $3.60 and have a term of five
years. The fair value of the warrants on the date of grant was
approximately $221,300.
In August 2001, the Company raised gross proceeds of $1,159,500 in a
private offering of 409,636 shares of common stock and 307,226 warrants to
purchase shares of the Company's common stock. The warrants are
exercisable at $3.55 per share and have a term of seven years.
In June 2001, the Company entered into a one year consulting agreement
under which the consultant assists the Company with public relations
efforts in Europe in exchange for 50,000 shares of the Company's
restricted common stock. The restricted stock vests at an equal rate over
the period of the agreement. As the restricted stock vests, the Company
will record charges to earnings based upon the difference between the fair
value and the price of the restricted stock. As of December 31, 2001, the
Company has recorded charges to earnings in the amount of $77,333.
In May 2001, the Company raised gross proceeds of $850,000 in a private
offering of common stock and warrants to purchase shares of the Company's
common stock. The Company sold 425,000 shares of common stock and 425,000
warrants. The warrants are exercisable at $2.94 and have a term of seven
years. The investors consisted of members of the board of directors,
existing investors and new investors representing 43.4%, 5.9% and 50.8% of
the investors in the transaction, respectively. The Company recorded a
charge to earnings in the amount of $103,040 representing the intrinsic
value of the restricted stock purchased by members of the board of
directors.
In March 2000 the Company entered into an agreement to sell 600,000 shares
of the Company's common stock and 450,000 warrants to acquire shares of
the Company's common stock (the "March Financing") for gross proceeds of
$3,000,000. Of the warrants issued, 210,000, 120,000 and 120,000 are
exercisable at $5.00, $6.38 and $6.90, respectively. The warrants have a
term of three years and are redeemable at $0.01 each by the Company upon
meeting certain conditions. Offering expenses of $117,000 were paid in
April 2000. At December 31, 2000, all 450,000 warrants were outstanding.
In connection with the March financing, Siga issued a total of 379,000
warrants to purchase shares of the Company's common stock to Fahnestock &
Co. (the"Fahnestock Warrants") in consideration for services related to
the March financing. The warrants had an exercise price of $5.00 per share
and are exercisable at any time until March 28, 2005. In November 2000,
the Company entered into a one year consulting agreement with Fahnestock
and Co. under which the Company will receive marketing, public relations
acquisitions and strategic planning service. In
F-12
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
exchange for such services, the Company canceled the Fahnestock Warrants
and reissued them to effectuate an amendment to the exercise price to
$2.00 per share. In connection with such amendment, the Company recorded a
charge of approximately $270,000 in the year ended December 31, 2000.
In January 2000 the Company completed a private placement of 6%
convertible debentures at an aggregate principal amount of $1,500,000 and
1,043,478 warrants to purchase shares of the Company's common stock with a
purchase price of $0.05 per warrant (the "January Financing"). The Company
received net proceeds of $1,499,674 from the total $1,552,174 gross
proceeds raised. The debentures are convertible into common stock at
$1.4375 per share. Interest at the rate of 6% per annum is payable on the
principal of each convertible debenture in cash or shares of the Company's
common stock, at the discretion of the Company upon conversion or at
maturity. The warrants have a term of five years and are exercisable at
$3.4059 per share.
The Company has the right to require the holder to exercise the warrants
within five days under the following circumstances: (i) a registration
statement is effective; and (ii) the closing bid price for the Company's
common stock, for each of any 15 consecutive trading days is at least 200%
of the exercise price of such warrants. If the holder does not exercise
the warrants after notice is given, the unexercised warrants will expire.
The warrants are exercisable for a period of five years.
In connection with the placement of the debentures and warrants, the
Company recorded debt discount of approximately $1.0 million. Such amount
represents the value of the warrants calculated using the Black-Scholes
valuation model. The discount is amortized over the term of the
debentures. Additionally, during the years ended December 31, 2001 and
2000, the Company recorded interest expense of $232,393 and $589,312
respectively, related to the amortization of such debt discount. In 2001
and 2000, debentures with a principal amount of $1,375,000 and $108,664,
respectively, along with accrued interest, were converted into 1,011,593
and 108,884 shares of the Company's preferred and common stock,
respectively.
In connection with the January Financing, the Company issued warrants to
purchase a total of 275,000 shares of common stock to the placement agent
and the investors' counsel (or their respective designees). These warrants
have a term of five years and are exercisable at $1.45 per share. In
connection with the issuance of such warrants, the Company recorded a
deferred charge of $280,653, which is being amortized over the term of the
debentures.
Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at the annual rate of 6% payable when and if declared
by the Company's board of directors; (ii) in the event of liquidation of
the Company, each holder is entitled to receive $1.4375 per share (subject
to certain adjustment) plus all accrued but unpaid dividends; (iii)
convert each share of Series A to a number of fully paid and
non-assessable shares of common stock as calculated by dividing $1.4375 by
the Series A Conversion Price (shall initially be $1.4375); and (iv) vote
with the holders of other classes of shares on an as converted basis.
As of December 31, 2001, all of the debentures were converted into shares
of the Company's preferred or common stock.
F-13
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
In November 1999, 16,000 shares of the Company's common stock were issued
in exchange for professional services. The Company recognized non-cash
compensation expense of $21,500 for the year ended December 31, 1999 based
upon the fair value of the stock on the date of grant. The Company issued
the shares in 2000.
Stock option plan and warrants
In January 1996, the Company implemented its 1996 Incentive and
Non-Qualified Stock Option Plan (the "Plan"). The Plan as amended provided
for the granting of up to 1,500,000 shares of the Company's common stock
to employees, consultants and outside directors of the Company. In
November 2000 and August 2001, the shareholders of the Company approved
increases in the number of options to purchase common shares available for
grant under the plan to 7,500,000. The exercise period for options granted
under the Plan, except those granted to outside directors, is determined
by a committee of the Board of Directors. Stock options granted to outside
directors pursuant to the Plan must have an exercise price equal to or in
excess of the fair market value of the Company's common stock at the date
of grant and become exercisable over a period of three years with a third
of the grant being exercisable at the completion of each year of service
subsequent to the grant.
In May 2001, subject to approval by the shareholders, the Company granted
3,225,000 options, at an exercise price of $2.50 per share, to the members
of the new board of directors. Subsequent to the approval by the
shareholders the Company recorded charges to earnings in the amount of
$612,750 based upon the difference between the fair market value and the
exercise price of the options.
F-14
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2001 and 2000
Transactions under the Plan are summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
Granted in 1996 through December 31, 1998 673,895 $ 3.94
Forfeited (133,334) 4.14
--------- --------
Outstanding at December 31, 1998 540,561 3.88
Granted 612,500 1.12
Forfeited (22,500) 1.37
--------- --------
Outstanding at December 31, 1999 1,130,561 2.42
Granted 1,144,000 2.00
Forfeited (107,500) 1.19
--------- --------
Outstanding at December 31, 2000 2,167,061 2.26
Granted 3,660,000 2.67
Forfeited (500,125) 3.60
Exercised (187,125) 1.26
--------- --------
Total outstanding at December 31, 2001 5,139,811 $ 2.50
========= ========
Options available for future grant at December 31, 2001 2,173,064
Weighted average fair value of options granted during 2000 $ 1.85
Weighted average fair value of options granted during 2001 $ 1.84
The following table summarizes information about options outstanding at December
31, 2001:
Weighted Number
Number Average Weighted Exercisable Weighted
Outstanding Remaining Average at Average
December 31, Contractual Exercise December 31, Exercise
2001 Life (Years) Price 2001 Price
$ 1.00 10,000 8.22 1.00 10,000 1.00
1.13 325,000 7.83 1.13 325,000 1.13
1.50 33,334 4.00 1.50 33,334 1.50
2.00 - 2.50 4,385,250 9.17 2.37 4,374,375 2.36
4.00 - 7.50 386,227 2.56 4.72 376,227 4.60
--------- ---------
5,139,811 5,118,936
========= =========
The following table summarizes information about warrants outstanding at
December 31, 2001:
Number
of Warrants Exercise
Outstanding Price
100,000 $ 1.00
405,000 1.45 - 1.50
359,000 2.00
2,551,212 2.94 - 3.63
16,216 4.63
310,000 5.00
240,000 6.38 - 6.90
250,000 8.25
---------
4,231,428
=========
On December 31, 2001, options granted outside of the plan included 125,000
options granted to an employee and 300,000 options granted to consultants. These
options are outstanding at December 31, 2001.
F-15
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
In August 2000 the Company entered into an agreement with a consultant to
provide the Company with financial consulting, planning, structuring,
business strategy, and public relations services and raising equity
capital. The term of the agreement is for a period of fifteen months with
a guarantee of a six-month retention from August 1, 2000, through February
1, 2001. The consultant was paid a fee of $40,000 upon signing of the
agreement, and will be paid an additional $40,000 every two months for the
term of the agreement unless terminated by the Company at the end of the
initial six month period. Under the provisions of the agreement, the
consultant received warrants to purchase 500,000 shares of the Company's
common stock. 200,000 warrants with an exercise price of $3.63 per share
vested upon the date of the agreement. Of the remaining 300,000 warrants,
100,000 warrants will vest on May 1, 2001 with an exercise price of $6.50
per share, 100,000 vest on August 1, 2001 with an exercise price of $7.50
per share and 100,000 vest on October 1, 2001 with an exercise price of
$9.50 per share. The warrants will become exercisable over a period of
five years. Unvested warrants will terminate in the event the agreement is
terminated. During the year ended December 31, 2000, the Company recorded
a non-cash charge associated with such warrants in the amount of $645,786.
In January 2001 the Company and the consultant terminated their
arrangement. In addition to the cancellation of 300,000 unvested warrants,
the consultant agreed to return 150,000 of its vested warrants to the
Company. In connection with the cancellation and return of the invested
warrants, the Company recorded a non-cash benefit of $535,000 in the
results of its operations for the year ended December 31, 2001.
In July 2000 the Company entered into an agreement with a consultant to
serve as the Company's public relations agent. The consultant is paid a
monthly retainer of $6,000 and received options to purchase 75,000 shares
of the Company's common stock: 25,000 are exercisable at $5.75 per share,
25,000 at $6.50 per share and 25,000 at $7.50 per share. After an initial
four-month term, the Company may terminate the agreement on thirty days
notice. During the year ended December 31, 2000, the Company recorded a
non-cash charge associated with such options in the amount of $160,314.
The options were vested and exercisable at December 31, 2000. No charge
was recorded for the year ended December 31, 2001.
In connection with the development of its licensed technologies the
Company entered into a consulting agreement with the scientist who
developed such technologies, under which the consultant serves as the
Company's Chief Scientific Advisor. The scientist, who is a stockholder,
has been paid an annual consulting fee of $75,000. The agreement, which
commenced in January 1996 and is only cancelable by the Company for cause,
as defined in the agreement, had an initial term of two years and provided
for automatic renewals of three additional one year periods unless either
party notifies the other of its intention not to renew. Research and
development expense incurred under the agreement amounted to $75,000 and
$75,000 for the years ended December 31, 2000 and 1999, respectively. In
June 2001, the Company entered into an amended consulting agreement with
the scientist under which the scientist will provide services to the
Company for a three year period commencing on September 10, 2001. In
consideration for the consulting services the scientist will be paid an
annual fee of $50,000 payable quarterly. In addition, the Company granted
the scientist options to purchase 225,000 shares of common stock at $3.94
per share. On September 10, 2001, ten percent of the options vested and
the remaining shall vest in 36 monthly installments beginning on October
10, 2001. For the year ended December 31, 2001, the Company recorded a
charge of $79,000.
F-16
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
In January 2000 the Company entered into a one year consulting agreement
with a member of its Board of Directors. In exchange for the consulting
services, the Company granted the member of the Board warrants to purchase
50,000 shares of common stock at an exercise price of $1.00. The warrants
vested immediately and will become exercisable on January 19, 2001. During
the year ended December 31, 2001 and December 31, 2000, the Company
recorded a non-cash charge associated with such warrants in the amount of
$35,402 and $134,598, respectively.
In September 1999 the Company entered into a consulting agreement with one
of its directors under which the director will provide the Company with
business valuation services in exchange for warrants to purchase 100,000
shares of the Company's common stock, at an exercise price of $1.00 per
share. Of these warrants, 50,000 were exercisable on the date of grant and
the remaining 50,000 on the first anniversary of the consulting agreement.
The warrants must be exercised on or prior to September 9, 2004. The
Company recognized non-cash compensation expense of $108,202 and $46,848
for the years ended December 31, 2000 and 1999, respectively, based upon
the fair value of such warrants. All the warrants were vested and
exercisable at December 31, 2000.
In June 1998 the Company granted a consultant options to purchase 150,000
shares of the Company's common stock at an exercise price of $5.00 per
share. 50,000 options vested immediately, and the remaining 100,000 vest
pro rata over a period of ten quarters. The options have a term of five
years. The Company recognized non-cash compensation expense of $41,424 and
$58,480 for the years ended December 31, 2000 and 1999, respectively,
based upon the fair value of the options on the date of the grant.
In May 1998, the Company granted a consultant options to purchase 5,000
shares of the Company's common stock, at an exercise price of $4.25. The
Company recognized non-cash compensation expense of $15,655 for the year
ended December 31, 1998 based upon the fair value of such options on the
date of the grant.
In January 1998 the Company issued warrants to a third party to purchase
16,216 shares of the Company's common stock, at an exercise price of $4.60
per share in connection with an operating lease. The Company recognized a
non-cash charge of $57,875 for the year ended December 31, 1998 based upon
the fair value of such warrants on the date the grant.
In September 1997, in connection with the Company's IPO, the Company
issued the underwriters warrants to purchase 225,000 shares of common
stock at an exercise price of $8.25 per share. All the warrants, which
have a term of five years, are exercisable at December 31, 1999.
In November 1996, the Company entered into an employment agreement with
its former President and Chief Executive Officer. Under the terms of the
agreement, the employee received warrants to purchase 461,016 shares of
common stock at $3.00 per share (see Note 6). These warrants expire on
November 18, 2006. Upon termination of the employment agreement on April
21, 1998, 230,508 unvested warrants were surrendered to the Company.
230,508 of the warrants are still outstanding at December 31, 2001.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for warrants issued to employees
F-17
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
and stock options granted under the Plan. Had compensation cost for
warrants issued and stock options granted been determined based upon the
fair value at the grant date for awards, consistent with the methodology
prescribed under SFAS 123, the Company's net loss and loss per share would
have been increased by approximately $7,163,483, or $0.84 per share for
the year ended December 31, 2001, and approximately $1,922,000, or $0.27
per share for the year ended December 31, 2000.
The fair value of the options and warrants granted to employees and
consultants during 2001 and 2000 ranged from $1.55 to $4.71 on the date of
the respective grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used for 2001: no dividend
yield, expected volatility of 100%, risk free interest rates of
3.85%-4.74%, and an expected term of 3 to 5 years. The following
weighted-average assumptions were used for 2000: no dividend yield,
expected volatility of 100%, risk free interest rates of 5.94%-6.3%, and
an expected term of 3 to 5 years.
5. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $16,575,000 and $13,866,000,
respectively, at December 31, 2001 and 2000 for federal and state income
tax purposes. These carryforwards are available to offset future taxable
income and begin expiring in 2010 for federal income tax purposes. As a
result of a previous change in stock ownership, the annual utilization of
the net operating loss carryforwards is subject to limitation.
The net operating loss carryforwards and temporary differences, arising
primarily from deferred research and development expenses result in a
noncurrent deferred tax asset at December 31, 2001 and December 31, 2000
of approximately $9,811,000 and $8,888,000, respectively. In consideration
of the Company's accumulated losses and the uncertainty of its ability to
utilize this deferred tax asset in the future, the Company has recorded a
valuation allowance of an equal amount on such date to fully offset the
deferred tax asset.
For the years ended December 31, 2001 and December 31, 2000, the Company's
effective tax rate differs from the federal statutory rate principally due
to net operating losses and other temporary differences for which no
benefit was recorded, state taxes and other permanent differences.
6. Related Parties
Employment agreements
In September 1998, the Company and its Chief Executive Officer and
Chairman ("EVPs") entered into employment agreements commencing October 1,
1998 and expiring on December 31, 2000. Under the agreements, the EVPs
were each paid an annual minimum compensation of $225,000, and were
granted a minimum of 16,666 options to purchase shares of the Company's
common stock per annum. The Company incurred $450,000 of expense for the
year ended December 31, 1999 pursuant to these agreements.
In November 1999, the EVPs were each granted non-qualified stock options
to purchase 150,000 shares under the Company's 1996 Incentive and
Non-Qualified Stock Option Plan, at an exercise
F-18
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
price of $1.30, which expire in ten years. 37,500 options vested
immediately. 75,000 will vest in November 2000, and the remaining 37,500
will vested in November 2001.
In January 2000, the Company entered into new employment agreements with
its EVPs, expiring in January 2005. The new agreements provide for an
annual salary of $250,000, with annual increases of at least 5%. In
addition, both of the EVPs were granted fully-vested options to purchase
500,000 shares of the Company's common stock at $2.00 per share. Under the
provisions of the agreements, the EVPs would each receive a cash payment
equal to 1.5% of the total consideration received by the Company in a
transaction resulting in a greater than 50% change in ownership of the
outstanding common stock of the Company.
On March 30, 2001, the Company, its EVPs and certain investors (the
"Investors") in the Company entered into an agreement under which the
EVP's agreed to resign from Siga and use their best efforts to cause each
of the current directors of Siga to resign. Under the agreement, certain
Investors were to be appointed as Chairman of the Board and as Chief
Executive Officer. In addition, as prescribed in the agreement, the
amended employment agreement entered into by the Company and the EVPs in
October 2000 was terminated with no cost to the Company, the vesting of
37,500 options granted to the EVPs was accelerated, exercise terms were
extended and the EVPs are entitled to certain benefits until April 2003.
In addition, each of the parties to the agreement have agreed to lock up
their respective shares of common stock and options of Siga for 24 months
subject to certain release provisions. In connection with the amendment of
the terms of the EVP's options, the Company recorded a non-cash charge of
$73,000 in the year ended December 31, 2001.
In January 2000, the Company amended its employment agreement with its
CFO, extending his employment until April 2002. Under this amendment, the
CFO received options to purchase 100,000 shares of the Company's common
stock at $2.00 per share. The options vest ratably over two years and
expire in January 2010.
In October 2000, the Company entered into an amended and restated
employment agreements with its Chief Executive Officer, its Chairman and
its CFO. Under the amended agreements, in the event of a change in
control, the EVPs and the CFO will be paid their respective compensation
for the remainder of their employment terms and will receive a tax
gross-up payment. In addition, in such event, all unvested options held by
the EVPs and the CFO will become vested and exercisable. In the event of a
merger or consolidation where the holders of the voting capital stock of
the Company immediately prior to the transaction own less than a majority
of the voting capital stock of the surviving entity, the EVPs will each
receive a one time cash payment of 1.5% of the total consideration
received by the Company and a tax gross-up payment. In the event of a
sale, merger or public spin-out of any subsidiary or material asset of the
Company, the EVPs shall each receive a fee equal to 1.5% of the value of
the Company's shares of the subsidiary or material asset and a tax
gross-up payment.
In January 2002, the Company and it Chief Financial Officer ("CFO")
entered into an amendment to the CFO's employment agreement, extending his
employment until December 31, 2002.
In May 2000, the Company and its Vice President for Research entered into
an amendment of the Vice Presidents employment agreement, extending his
employment until December 31, 2002,
F-19
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
except that the Company may terminate the agreement upon 180 days written
notice. Under the amendment the employee's title was changed to Chief
Scientific Officer ("CSO"). The CSO was granted options to purchase
125,000 shares of the Company's common stock at $2.00 per share. The
options vest ratably over the remaining term of the amendment. During the
year ended December 31, 2001 and 2000, the Company recorded non-cash
compensation charges of $112,168 and $130,999 related to these options,
respectively.
In November 1999, the Company entered into two year employment agreements
with three newly-hired Vice Presidents ("VPs"), of Business Development,
Investor Relations, and Marketing, at annual salaries of $95,000,
$100,000, and $120,000, respectively. Each VP was also granted options to
purchase 100,000 shares of the Company's common stock at an exercise price
of $1.125 per share, to vest ratably over two years. As of December 31,
2001, the VPs were no longer with the Company, 12,500 and 100,000 unvested
options were forfeited by the Company at December 31, 2001 an 2000,
respectively.
In June 2001, the Company entered into an employment agreement with an
individual to serve as the Company's President and Chief Executive Officer
(the "Executive"), expiring in June 2003. The agreement provides for an
annual salary of $300,000. In addition the Executive was granted options
to purchase 420,000 shares of the Company's common stock at $3.94 per
share.
In October, 2001, the Company and the Executive entered into a separation
and release agreement under which the Company will pay the Executive
$40,000 over a period through October 5, 2002. Options previously granted
to the Executive have been cancelled.
7. Technology Purchase Agreement
In February 1998, the Company entered into an agreement with a third party
pursuant to which the Company acquired the third party's right to certain
technology, intellectual property and related rights in the field of gram
negative antibiotics in exchange for 335,530 shares of the Company's
common stock. Research and development expense related to this agreement
amounted to $1,457,458 for the year ended December 31, 1998.
8. Collaborative Research and License Agreement
In July 1997, the Company entered into a collaborative research and
license agreement with Wyeth (the "Collaborator"). Under the terms of the
agreement, the Company has granted the collaborator an exclusive worldwide
license to develop, make, use and sell products derived from specified
technologies. The agreement required the collaborator to sponsor further
research by the Company for the development of the licensed technologies
for a period of two years from the effective date of the agreement, in
return for payments totaling $1,200,000. In consideration of the license
grant the Company is entitled to receive royalties equal to specified
percentages of net sales of products incorporating the licensed
technologies. The royalty percentages increase as certain cumulative and
annual net sales amounts are attained. The Company could receive milestone
payments, under the terms of the agreement of up to $13,750,000 for the
initial product and $3,250,000 for the second product developed from a
single compound derived from the licensed technologies. Such milestone
payments are contingent upon the Company making project milestones set
forth in the agreement, and, accordingly, if the Company is unable to make
such milestones, the Company will not receive such milestone payments.
During 1999, the
F-20
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
Company recognized $337,500 in revenue related to this agreement. In 2000,
the Company received $450,000 from the Collaborator. The Company recorded
the entire amount as deferred revenue on December 31, 2000 and recognized
it in its results of operations upon the signing of an amendment to the
agreement in May 2001. In addition, for the year ended December 31, 2001,
the Company recorded $575,000 in revenue relating to the agreement of
which $237,500 reflected a milestone payment. The agreement expired in
September 2001.
9. License and Research Support Agreements
On December 6, 2000 the company entered into an exclusive license
agreement and a sponsored research agreement with the Regents of the
University of California (the "Regents"). Under the license agreement the
Company obtained rights for the exclusive commercial development, use and
sale of products related to certain inventions in exchange for a
non-refundable license issuance fee of $15,000 and an annual maintenance
fee of $10,000. In the event that the Company sub-leases the license, it
shall pay Regents 15% of all royalty payments made to Siga. Under the
agreement, Siga is required to pay Regents 15% of all funds received from
Wyeth and a minimum annual amount of $250,000 for the continued
development of the inventions for a period of three years. Under the
sponsored research agreement Siga is required to provide the Regents with
funding in the total amount of $300,000 over a period of two years to
support certain research. The Company recorded total research and
development charges in the amount of $52,500 for the year ended December
31, 2000, related to the two agreements.
In February 2001, the Company entered into a subcontract agreement with
the Oregon State University. Under the agreement, the Oregon State
University subcontracted to Siga certain duties it has under a grant
received from the National Institute of Health for the development of
Proxvirus Proteinase Inhibitors. The term of the agreement lapsed on
August 31, 2001. On October 5, 2001, the agreement was extended through
August 31, 2002.
In March 2000 the Company entered into an agreement with the Ross Products
Division of Abbott Laboratories (Ross), under which the Company granted
Ross an exclusive option to negotiate an exclusive license to certain
Company technology and patents, in addition to certain research
development services. In exchange for the research services and the
option, Ross is obligated to pay the Company $120,000 in three
installments of $40,000. The first payment of $40,000 was received in
March 2000 and is being recognized ratably, over the expected term of the
arrangement. The remaining installments are contingent upon meeting
certain milestones under the agreement and will be recognized as revenue
upon completion and acceptance of such milestones. The first milestone was
met, and the Company received an additional payment of $40,000 in the
quarter ended September 30, 2000. During the year ended December 31, 2001
and 2000, the Company recognized revenue in the amount of $45,000 and
$80,000, respectively.
In May, August and September 2000 the Company was awarded three Phase I
Small Business Innovation Research (SBIR) grants from the National
Institutes for Health in the amounts of $26,000, $96,000 and $125,000
respectively. The grants are for the periods May 3, 2000 to August 31,
2000, August 1, 2000 to January 31, 2001, and September 15, 2000 to March
14, 2001 respectively, and will support the Company's antibiotic and
vaccine development programs. For the years ending December 31, 2001 and
2000, the Company has recognized revenue from the grants in the amount of
$64,500 and $182,643 respectively.
F-21
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
In July and September, 1999 the Company was awarded two Phase I research
grants by the Small Business Innovation Research Program (SBIR) of
$109,072 and $293,446 respectively. The first grant was to help support
the Company's antibiotic discovery efforts for the period July 1, 1999
through December 31, 1999. The second grant provides support for the
Company's effort to develop a vaccine targeting strep throat, in
collaboration with the National Institutes of Health (NIH). The grant
award is for a period of twelve months beginning on October 1, 1999. For
the years ending December 31, 2000 and 1999 the Company had recognized
revenue from the two grants of $220,457 and $182,061, respectively.
10. Product Development Agreement
In October 1999 the Company entered into an agreement with Open-iMedia, a
software and web development company ("Development Company"). Under the
terms of the agreement the Company was to acquire and the Development
Company was to develop, the source code for a client/server chat and
instant messaging application. In March 2000, the Company entered into an
agreement with the Development Company for creative and technical
services, and for business strategy consulting in exchange for $280,000 in
cash and 13,605 shares of the Company's common stock.
During the year ended December 31, 2000 the Company recognized charges of
$180,000 and $500,334 associated with cash paid and 102,721 shares of the
Company's common stock, respectively, paid and granted under the
agreements. Costs related to this agreement were recognized as the
services were performed or upon meeting certain milestones as defined
under the agreements. The Company recorded all amounts paid under the
development agreements, including the fair value of shares issued in
research and development expenses.
In July 2000 the Company acquired a 12.5% equity position in the
Development Company. Under the terms of the agreement, the Development
Company received: (i) $170,000 in cash; (ii) 40,336 shares of the
Company's common stock; and (iii) certain assets consisting of the instant
messenger product, PeerFinder and fixed assets with a net book value of
$80,697. In addition, the Company received the right to appoint one
director to the Development Company's board of directors. At December 31,
2001 and 2000, the Company reassessed the value of its investment in
Open-I. The Company reviewed certain events and changes in circumstances
indicating that the carrying amount of the investment in Open-I may not be
recoverable in its entirety. In 2000, management elected to reduce the
carrying amount of its investment to reflect its recoverable value as of
the year-end and recorded an impairment charge of $156,000. At December
31, 2001, management reviewed all available information and as a result of
its analysis determined that the carrying value of its investment should
be written off.
11. Other Agreements
In May 2000, the Company entered into a letter of intent (the "Letter") to
acquire Hypernix Technologies, Ltd, an Israel-based entity. Under the
letter, in the event that the transaction was consummated, Siga was to
issue 3 million shares of its common stock to the stockholders and certain
employees of Hypernix and assume all of the liabilities of Hypernix (not
to exceed $1,250,000),with Hypernix's creditors to be paid half in cash
and half in common stock of Siga. Also under the letter, Siga was to lend
Hypernix $250,000 per month for up to five months. This advance was
subject to interest at an annual rate of 10% and was collateralized by all
the assets of
F-22
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements December 31, 2001 and 2000
Hypernix. The Company advanced Hypernix $261,000 and $250,000 in May and
July 2000,respectively, under the agreement. On August 10, 2000, the
Company terminated the letter of intent. Siga recorded charges of $261,000
and $250,000 for the three months ended June 30, 2000 and September 30,
2000 respectively, to reserve the amounts advanced to Hypernix.
In March 2001, the Company received a payment from Hypernix in the amount
of $84,375.
12. Commitments and Contingencies
Operating lease commitments
The Company leases certain facilities and office space under operating
leases. Minimum future rental commitments under operating leases having
noncancelable lease terms in excess of one year are as follows:
Year ended December 31,
2002 $ 226,333
2003 105,002
2004 108,152
2005 and thereafter --
-----------
$ 439,487
===========
Capital lease commitments
In July, August and September 1998, the Company sold certain laboratory
equipment, computer equipment and furniture to a third party for $493,329,
$385,422 and $260,333, respectively, under sale-leaseback agreements. The
leases have terms of 42 months and require minimum monthly payments of
$13,171, $10,290 and $6,950, respectively. The Company has an option to
purchase the equipment at 15% of the original cost at the end of the lease
term.
F-23
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2001 and 2000
Future minimum lease payments for assets under capital leases at
December 31, 2000 are as follows:
Year ended December 31,
2002 $ 195,053
-----------
Total Minimum Payments 195,053
Less: amounts representing interest 2,857
-----------
Present value of future minimum lease payments 192,196
Less current portion of capital lease obligations 192,196
-----------
Capital lease obligations, net current portion $ -
===========
13. Segments
Since the announcement in September 1999 that the Company intended
to pursue an Internet initiative, the Company operated its Internet
initiative as a separate segment. The Internet segment generated
operating expenses of approximately $1,018,000 during 2000 and has
no identifiable assets at December 31, 2001 and 2000. At December
31, 2001 and 2000 the Company has no internet related operations.
14. Subsequent Events
In March 2002, the Company entered into a non-binding Letter of Intent
(the "Letter") to acquire all of the outstanding shares of Allergy
Therapeutics (Holdings) Limited. ("Allergy"). Under the terms of the
letter, Siga will issue shares to the Allergy Stockholders which will
result in 47.5% ownership to each of the former shareholders of Siga and
former shareholders of Allergy of the outstanding common stock, on a fully
diluted basis. As part of the transaction, Elan Pharma International
Limited ("Elan") will enter into an exclusive license for certain
technology with Siga in exchange for 5% of the Company's common stock on a
fully diluted basis.
F-24