SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File No. 0-23047
September 30, 2002
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 [ ].
As of November 5, 2002 the registrant had outstanding 11,177,553 shares of
Common Stock.
SIGA TECHNOLOGIES INC.
(A development stage company)
UNAUDITED BALANCE SHEET
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents ................................... $ 1,083,208 $ 3,148,160
Accounts receivable ......................................... 91,940 55,000
Prepaid expenses ............................................ 86,240 153,416
------------ ------------
Total current assets .................................... 1,261,388 3,356,576
Equipment, net .............................................. 503,294 703,239
Other assets ................................................ 143,810 147,873
------------ ------------
Total assets ............................................ $ 1,908,492 $ 4,207,688
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................ $ 397,343 $ 210,391
Accrued expenses ............................................ 90,897 263,616
Capital lease obligations ................................... 52,616 192,196
Deferred Revenue ......................................... -- --
------------ ------------
Total current liabilities ................................ 540,856 666,203
Commitments and contingencies .................................. -- --
Stockholders' equity
Preferred stock ($.0001 par value, 10,000,000 shares
authorized, 408,864 and 379,294 issued and outstanding
at September 30, 2002 and December 31, 2001, respectively) 443,674 398,441
Common stock ($.0001 par value, 25,000,000 shares authorized,
11,177,553 and 10,139,553 issued and outstanding at
September 30, 2002 and December 31, 2001, respectively) ... 1,121 1,016
Subscription receivable ..................................... (931,250) --
Additional paid-in capital .................................. 30,324,064 29,348,786
Deferred Compensation .................................... (5,477) (35,583)
Deficit accumulated during the development stage ............ (28,464,496) (26,171,175)
------------ ------------
Total stockholders' equity ............................... 1,367,636 3,541,485
------------ ------------
Total liabilities and stockholders' equity ............... $ 1,908,492 $ 4,207,688
============ ============
The accompanying notes are an integral part of these financial statements
1
SIGA TECHNOLOGIES INC.
(A development stage company)
UNAUDITED STATEMENT OF OPERATIONS
For The Period
December 28,
1995 (Date of
Three months ended Nine months ended Inception) to
September 30, September 30, September 30,
2002 2001 2002 2001 2002
------------ ----------- ------------ ----------- ------------
Unaudited Unaudited Unaudited Unaudited Unaudited
Revenues
Research and Development Contracts $ 89,738 $ 157,500 $ 229,057 $ 1,144,500 $ 3,516,238
------------ ----------- ------------ ----------- ------------
Operating expenses
General and administrative 273,280 1,259,110 1,282,040 1,959,710 16,665,485
Research and development 423,850 497,739 1,194,453 1,357,285 13,203,528
Patent preparation fees 26,918 (11,046) 72,332 69,892 1,427,087
------------ ----------- ------------ ----------- ------------
Total operating expenses 724,048 1,745,803 2,548,825 3,386,887 31,296,100
------------ ----------- ------------ ----------- ------------
Operating loss (634,310) (1,588,303) (2,319,768) (2,242,387) (27,779,862)
Interest income/(expense) 4,672 (2,220) 26,447 (235,985) (320,597)
Loss on impairment of investment -- -- -- -- (430,697)
Other Income/Gain on sale of securities -- -- -- -- 66,660
------------ ----------- ------------ ----------- ------------
Net loss $ (629,638) $(1,590,523) $(2,293,321) $(2,478,372) $(28,464,496)
============ =========== ============ =========== ============
Weighted average shares outstanding: basic and diluted 10,174,256 8,574,094 10,151,268 7,972,269
------------ ----------- ------------ -----------
Net Loss per Share: basic and diluted $ (0.06) $ (0.19) $ (0.23) $ (0.31)
The accompanying notes are an integral part of these financial statements
2
SIGA TECHNOLOGIES INC.
(A development stage company)
UNAUDITED STATEMENT OF CASH FLOWS
For The Period
December 28,
1995 (Date of
Nine months ended Inception) to
September 30, September 30,
2002 2001 2002
--------------------------- -------------
Cash flows from operating activities:
Net loss $(2,293,321) $(2,478,371) $ (28,464,496)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 236,646 221,516 1,511,995
Stock, options & warrant compensation 73,677 470,989 2,949,420
Loss on impairment of investment -- 430,697
Loss on write-off of capital equipment -- 97,969
Amortization of debt discount 232,393 954,705
Purchase of rights to certain technology -- 1,457,458
Realized gain on marketable securities -- (66,660)
Non-cash research and development -- 500,344
Changes in assets and liabilities:
Accounts receivable (36,940) (44,482) (91,940)
Prepaid expenses and other current assets 67,176 (133,023) (86,239)
Other assets 4,063 (14,480) (143,810)
Accounts payable and accrued expenses 59,466 297,704 547,005
Deferred Revenue -- (450,000) --
Accrued Interest -- 20,391 100,672
--------------------------- -------------
Net cash used in operating activities (1,889,233) (1,877,363) (20,302,880)
--------------------------- -------------
Cash flows from investing activities:
Capital expenditures (36,701) -- (2,193,955)
Sale (purchase) of investment securities -- -- 66,660
Investment in Open-I-Media -- -- (170,000)
--------------------------- -------------
Net cash flow used in investing activities (36,701) -- (2,297,295)
--------------------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock -- 1,995,474 21,720,026
Receipts of stock subscriptions outstanding -- -- 1,248
Gross proceeds from sale of convertible debentures -- -- 1,500,000
Proceeds from exercise of options 562 189,783 409,819
Net proceeds from sale of warrants -- -- 52,174
Convertible debentures and warrants issuance costs -- -- (52,500)
Proceeds from bridge notes -- -- 1,000,000
Repayment of bridge notes -- -- (1,000,000)
Proceeds from sale & leaseback of equipment -- -- 1,139,085
Principal payments on capital lease obligations (139,580) (234,293) (1,086,469)
--------------------------- -------------
Net cash provided from financing activities (139,018) 1,950,964 23,683,383
--------------------------- -------------
Net increase in cash and cash equivalents (2,064,952) 73,601 1,083,208
Cash and cash equivalents at beginning of period 3,148,160 1,707,385 --
--------------------------- -------------
Cash and cash equivalents at end of period $ 1,083,208 $ 1,780,986 $ 1,083,208
--------------------------- -------------
The accompanying notes are an integral part of these financial statements
3
Notes to the September 30, 2002 Financial Statements
1. Basis of Presentation
The financial statements of SIGA Technologies, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on forms 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 2001, included in the 2001 Form 10-KSB.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting of normal adjustments, necessary for a fair
presentation of the results of operations for the interim periods. The results
of operations for the three and nine months ended September 30, 2002 are not
necessarily indicative of the results of operations to be expected for the full
year ending December 31, 2002.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. Management believes that current
resources will be sufficient to support its planned operations through the end
of September 30, 2003. The Company does not have commercial biomedical products,
and does not expect to have such for several years, if at all. The Company
believes that it will need additional funds to complete the development of its
biomedical products. If additional financing can not be obtained, long-term
operations will need to be scaled back or discontinued.
2. Private Financing
On September 27, 2002 the Company completed a private financing and issued
1,037,500 shares of its common stock and warrants to acquire 518,750 shares of
common stock for $2.25 per share, exercisable for a period of five years. The
Company received net proceeds of $931,220 on October 4, 2002.
3. License and Research Support Agreement
In May, 2002, the Company was awarded a Phase II Small Business Innovation
Research (SBIR) grants from the National Institutes for Health in the amount
$865,000. The grant is for a three-year period, and will support the Company's
antibiotic and vaccine development programs. The Company recognized
approximately $88,800 of related revenue during the quarter ended September 30,
2002.
4. New Accounting Pronouncements
In July 2002, SFAS 146, Accounting for Costs Associates with Exit or Disposal
Activities, was issued. SFAS 146 addresses the recognition, measurement and
reporting of costs associated with exit or disposal activities, that are
currently accounted for pursuant to EITF Issue No. 94-3, Liabilities Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
Under SFAS No. 146, such liabilities, with the exception of certain one-time
termination benefits, will be recognized and measured initially at their fair
value in the period in which the liability is incurred. SFAS No. 146 is
effective for the fiscal years beginning after December 31, 2002.
4
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 Quarterly Report. In addition to historical
information, the following discussion and other parts of this Quarterly Report
contain forward-looking information that involves risks and uncertainties.
Overview
We are a development stage technology company, whose primary focus is in
biopharmaceutical product development. Since our 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 September 30, 2002, we have sustained cumulative net losses of
$28,464,496 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. Also included in the cumulative loss to date, are non-cash charges
of $2,949,420 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 September 30, 2002, research and
development expenses amounted to $13,203,528, patent preparation and prosecution
expenses totaled $1,427,087, general and administration expenses amounted to
$16,665,485. From inception through September 30, 2002 revenues from research
and development agreements and government grants totaled $3,516,238.
Since inception, SIGA has had limited resources, has incurred cumulative
net operating losses of $27,779,862 and expects to incur additional losses to
perform further research and development activities. We do not have any
biomedical products which are commercially available, and we do not expect to
have such products for several years, if at all. We believe that we will need
additional funds to complete the development of our biomedical products. Our
plans with regard to these matters include continued development of our products
as well as seeking additional research support funds and financial arrangements.
Although we continue to pursue these plans, there is no assurance that we will
be successful in obtaining sufficient financing on terms acceptable to us. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management believes it has sufficient funds to
support operations through the third quarter of 2003. In the event that we are
unable to raise additional capital at that time, future operations will need to
be scaled back or discontinued.
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 development 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 in a
stock-for-stock transaction. In July of 2003 we announced the termination of the
letter of intent to acquire all the shares of Holdings due to the unfavorable
market conditions that existed at the time of the termination. We incurred
approximately $550,000 of expenses in connection with this contemplated
transaction, some of which were still outstanding as of September 30, 2002.
5
Results of Operations
Three Months ended September 30, 2002 and September 30, 2001.
Revenue for the three months ended September 30, 2002 was $89,738 an
approximate 43% decline from the $157,500 revenue recognized for the three
months ended September 30, 2001. Revenue for the three months ended September
30, 2001 included the final payment of $112,500 from Wyeth-Ayerst under our R&D
agreement with Wyeth-Ayerst. Revenue for the three months ended September 30,
2002 included $88,838 from the Small Business Innovation Research (SBIR) grant
from the National Institutes of Health (NIH) which we received in May of 2002.
This grant is for a total of approximately $865,000 to support research over a
two-year period. Of the total grant, approximately $521,000 has been allotted
for work to be performed in the first twelve months of the grant.
General and administrative expense for the three months ended September
30, 2002 was $273,280, a decrease of approximately 78% from the $1,259,109
expense incurred for the three months ended September 30, 2001. Expenses for the
three months ended September 30, 2001 included a non-cash charge of $612,750 to
reflect granting of options to directors with an exercise price that was less
than the fair market value of our shares at the time the award was approved by
stockholders. Excluding this non-cash charge, general and administrative expense
for the three months ended September 30, 2002 declined by approximately 57%.
This decrease was primarily the result of lower payroll, rent, legal and
accounting expenses.
Research and development expenses decreased 14.8% to $423,850 for the
three months ended September 30, 2002 from $497,739 for the three months ended
September 30, 2001. The reduction is primarily the result of a decrease in
sponsored research and lower spending for laboratory supplies.
Patent preparation expense of $26,918 for the three months ended September
30, 2002 was approximately 344% higher than the credit of $11,046 recognized for
the three months ended September 30, 2001. The credit recognized for the three
months ended September 30, 2001 was the result of patent expenses that were made
in periods prior to the September 30, 2001 that were to be reimbursed by
Wyeth-Ayerst and Washington University. The three months ended September 30,
2002 reflect only reimbursement of expenses incurred in that period.
Net interest income was $4,672 for the three months ended September 30,
2002 compared to net interest expense of $2,220 for the three months ended
September 30, 2001. The improvement in net interest was the result of the
conversion of the remainder of the $1,500,000 principle amount of the 6%
convertible debenture and accrued interest into equity in the second half of
2001.
Net loss for the three months September 30, 2002 was $629,638, an
approximate 60% decrease from the $1,590,521 loss for the three months ended
September 30, 2001. The decrease in the net loss was the primarily the result of
substantially lower general and administration expense as discussed above.
Nine Months ended September 30, 2002 and September 30, 2001.
Revenue for the nine months ended September 30, 2002 was $229,057 compared
to $1,144,500 for the nine months ended September 30, 2001, an approximate 80%
decrease. Revenue for the nine-month period of the prior year included
recognition of $562,500 from payments made by Wyeth-Ayerst that had been made to
fund research in prior periods and were recorded as deferred revenue pending
signing an extension of our research agreement with Wyeth. In total we
recognized $912,500 in research and milestone payments from Wyeth-Ayerst for the
nine months ended September 30, 2001. No payments were made in the nine-month
period ended September 30, 2002. Revenue in the current year nine-month period
include $149,057 from a Phase II SBIR grant from the NIH and $75,000 from a
subcontract with Oregon State University.
General and administrative expense for the nine months ended September 30,
2002 was $1,282,040, a decrease of approximately 35% from the $1,959,708
incurred for the nine months ended September 30, 2001. The nine months ended
September 30, 2001 included a non-cash charge of $612,750 to reflect the
granting of options to directors with an exercise price less than the fair
market value of our shares at the time the option plan was approved by
stockholders. In addition, lower payroll costs in the current year nine-month
period offset increased legal and accounting costs associated with the
terminated "letter of intent" to acquire Allergy Therapeutics Holdings, Ltd.
6
Research and development expenses decreased approximately 12% to
$1,194,453 for the nine months ended September 30, 2002 from $1,357,286 for the
nine months ended September 30, 2001. The decline in expenses was the result of
lower expenses for payroll, laboratory supplies and sponsored research.
Patent preparation expense for the nine months ended September 30, 2002
was $72,332 compared to $69,891 for the nine months ended September 30, 2001, an
increase of 3.5%. Patent activities, as well as the reimbursement of certain
patent expenses by Wyeth-Ayerst and Washington University was essentially the
same in both nine-month periods.
Net interest income was $26,447 for the nine months ended September 30,
2002 compared to net interest expense of $235,985 for the nine months ended
September 30, 2001. The improvement in net interest was the result of the
conversion of the remainder of the $1,500,000 principle amount of the 6%
convertible debenture and accrued interest into equity in the second half of
2001.
Net loss for the nine months ended September 30, 2002 was $2,293,321,
compared to a loss of $2,478,372 for the nine months ended September 30, 2001.
The approximate 8% decrease from the prior year period was largely the result
reduced general and administration expenses and reduced interest expense
offsetting reduced levels of revenue as presented in detail above.
Liquidity and Capital Resources
As of September 30, 2002 we had $1,083,208 in cash and cash equivalents
and a subscription receivable of $931,250 representing net proceeds from a
subscription to purchase units which were comprised of our common stock and
warrants to purchase stock.
In March of 2002, we signed a non-binding letter of intent to acquire all
the outstanding shares of Allergy Therapeutics (Holdings) Limited in a
stock-for-stock transaction. In July of 2002 the letter of intent was terminated
due to changes in market conditions. We incurred approximately $550,000 of
expenses in connection with this contemplated transaction, some of which were
still outstanding as of September 30, 2002.
In May of 2002, we received a Small Business Innovation Research (SBIR)
grant from the National Institutes of Health (NIH). The grant is for a total of
approximately $865,000 to support research over a two-year period. Of the total
grant, approximately $521,000 has been allotted for work to be performed in the
first twelve months of the grant. During the nine months ended September 30,
2002, we recorded revenue in the amount of $149,057 relating to the grant.
As discussed above, in September 2002, we received subscriptions from a
private placement of units consisting of 1,037,500 shares of our common stock
and warrants to purchase 518,750 shares of common stock at an exercise price of
$2.25 per share to a group of private investors. In October 2002, we received
the net proceeds of $931,250 from the placement.
We anticipate that our current resources and the funding available through
the SBIR grant will be sufficient to finance our currently anticipated needs for
operating and capital expenditures through the third quarter of 2003. In
addition, we will attempt to generate additional working capital through a
combination of collaborative agreements, strategic acquisitions, 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. In the event we are
unable to raise additional capital, operations will need to be scaled back or
discontinued.
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.
7
Controls and Procedures
Within the 90 day period prior to the filing date of this report, our
management has conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Acting Chief Executive Officer ("CEO") & Chief Financial Officer
("CFO") concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this quarterly
report has been made known to him in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the CEO & CFO completed his
evaluation.
8
Part II
Other information
Item 1. Legal Proceedings - SIGA is not a party, nor is its property the subject
of, any legal proceedings other than routine litigation incidental to its
business.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - Report Dated September 30, 2002.
Item 7. Exhibit 99.1 - Certification of Acting Chief Executive Officer.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGA Technologies, Inc.
(Registrant)
Date: November 14, 2002 By: /s/ Thomas N. Konatich
---------------------------------
Thomas N. Konatich
Chief Financial Officer
(Principal Accounting Officer and
Financial Officer and Vice
President, Finance)
10
CERTIFICATIONS
I, Thomas Konatich, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SIGA
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions);
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significant affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date November 14, 2002
----------------------------------
By /s/ Thomas N. Konatich
----------------------------------
Acting Chief Executive Officer
and Chief Financial Officer
11