SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File No. 0-23047
June 30, 2000
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 August 11, 2000 the registrant had outstanding 7,380,394 shares of common
stock outstanding.
<PAGE>
SIGA TECHNOLOGIES INC.
(A development stage company)
BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents ............................................................... $ 4,120,580 $ 1,758,541
Accounts receivable ..................................................................... 24,813 47,570
Prepaid expenses ........................................................................ 44,979 38,279
------------ ------------
Total current assets ................................................................... 4,190,372 1,844,390
Equipment, net .......................................................................... 1,206,480 1,366,362
Other assets ............................................................................ 151,248 147,002
------------ ------------
Total assets ........................................................................... $ 5,548,100 $ 3,357,754
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................................ 184,138 248,962
Accrued expenses ........................................................................ 111,985 104,096
Deferred revenue ........................................................................ 245,000 --
Capital lease obligations ............................................................... 298,167 280,092
------------ ------------
Total current liabilities .............................................................. 839,290 633,150
------------ ------------
Convertible debt, net of discount ....................................................... 454,607 --
Accrued interest ........................................................................ 37,500 --
Capital lease obligations, net of current portion ....................................... 366,680 520,424
------------ ------------
Total noncurrent liabilities ........................................................... 858,787 520,424
------------ ------------
Commitments and contingencies ........................................................... -- --
Stockholders' equity
Preferred stock ($.0001 par value, 10,000,000 shares authorized,
none issued and outstanding) .......................................................... -- --
Common stock ($.0001 par value, 50,000,000 and 25,000,000 shares authorized,
7,277,558 and 6,602,712 issued and outstanding at June 30, 2000
and December 31, 1999, respectively) .................................................. 728 661
Additional paid-in capital .............................................................. 22,018,799 16,855,499
Unearned compensation ................................................................... (432,873) --
Deficit accumulated during the development stage ........................................ (17,736,631) (14,651,980)
------------ ------------
Total stockholders' equity ............................................................. 3,850,023 2,204,180
------------ ------------
Total liabilities and stockholders' equity ............................................. $ 5,548,100 $ 3,357,754
============ ============
</TABLE>
Balance sheet data at December 31, 1999 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The accompanying notes are an integral part of these financial statements
1
<PAGE>
SIGA TECHNOLOGIES INC.
(A development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
June 30,
2000 1999
----------------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues - Research and development
contracts $ 90,373 $ 112,500
----------------------------
Operating expenses
General and administrative (inclusive of non-cash compensation 966,115 530,673
of $99,670, $14,620, $258,742, $29,240 and $1,011,890 for the three months
ended June 30, 2000 and 1999, the six months ended June 30, 2000 and 1999,
and the period December 28, 1995 to June 30, 2000, respectively)
Research and development (inclusive of non-cash compensation 391,703 519,049
of $10,077, $0, $233,077, $0, and $264,327 for the three months
ended June 30, 2000 and 1999, the six months ended June 30, 2000 and 1999,
and the period December 28, 1995 to June 30, 2000, respectively)
(including amounts to related parties of $18,750 for each of the three
months ended June 30, 2000 and 1999, and $37,500 for each of the six
months ended June 30, 2000 and 1999)
Patent preparation fees 37,780 60,764
Settlement of litigation -- --
----------------------------
Total operating expenses 1,395,598 1,110,486
----------------------------
Operating loss 1,305,225 (997,986)
----------------------------
Interest income/(expense) (141,494) 45,502
Net gain on sale of securities -- 42,570
----------------------------
Net loss $ (1,446,719) $ (909,914)
----------------------------
Other comprehensive income
Unrealized gains on available for sale securities -- 15,180
----------------------------
Comprehensive income/(loss) $ (1,446,719) $ (894,734)
Basic and diluted loss per share $ (0.20) $ (0.14)
----------------------------
Weighted average common shares outstanding used
for basic and diluted loss per share 7,273,165 6,577,712
----------------------------
<CAPTION>
For The Period
December 28,
1995 (Date of
Six months ended Inception) to
June 30, June 30,
2000 1999 2000
---------------------------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues - Research and development
contracts 171,173 225,000 $ 1,815,734
---------------------------- --------------
Operating expenses
General and administrative (inclusive of non-cash compensation 1,777,347 1,055,758 9,640,853
of $99,670, $14,620, $258,742, $29,240 and $1,011,890 for the three months
ended June 30, 2000 and 1999, the six months ended June 30, 2000 and 1999,
and the period December 28, 1995 to June 30, 2000, respectively)
Research and development (inclusive of non-cash compensation 1,154,630 1,072,753 8,821,611
of $10,077, $0, $233,077, $0, and $264,327 for the three months
ended June 30, 2000 and 1999, the six months ended June 30, 2000 and 1999,
and the period December 28, 1995 to June 30, 2000, respectively)
(including amounts to related parties of $18,750 for each of the three
months ended June 30, 2000 and 1999, and $37,500 for each of the six
months ended June 30, 2000 and 1999)
Patent preparation fees 64,117 122,703 1,194,961
Settlement of litigation 97,969
---------------------------- --------------
Total operating expenses 2,996,094 2,251,214 19,755,394
---------------------------- --------------
Operating loss (2,824,921) (2,026,214) (17,939,660)
---------------------------- --------------
Interest income/(expense) (259,730) 102,350 136,369
Net gain on sale of securities -- 66,660 66,660
---------------------------- --------------
Net loss (3,084,651) (1,857,204) $ (17,736,631)
---------------------------- --------------
Other comprehensive income
Unrealized gains on available for sale securities -- 34,816 --
---------------------------- --------------
Comprehensive income/(loss) $ (3,084,651) (1,822,388) $ (17,736,631)
Basic and diluted loss per share $ (0.44) $ (0.28)
----------------------------
Weighted average common shares outstanding used
for basic and diluted loss per share 6,961,228 6,577,712
----------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
SIGA TECHNOLOGIES INC.
(A development stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Period
December 28,
1995 (Date of
Six Months Ended Inception) to
June 30, June 30, June 30,
2000 1999 2000
------------ ------------ -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,084,651) $ (1,857,204) $(17,736,631)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 181,891 184,918 776,688
Stock, options & warrant compensation 491,819 29,240 1,276,217
Loss on write-off of capital equipment -- -- 97,969
Amortization of debt discount 275,103 -- 408,103
Write-off of in-process research and development -- 1,457,458
Realized gain on sale of marketable securities -- (66,660) (66,660)
Changes in assets and liabilities:
Accounts receivable 22,757 -- (24,813)
Prepaid expenses and other current assets (6,700) 116,879 (44,979)
Other assets (4,246) -- (151,248)
Accounts payable and accrued expenses (173,935) (68,990) 179,123
Deferred revenue 245,000 -- 245,000
Accrued interest 37,500 -- 37,500
------------ ------------ ------------
Net cash used in operating activities (2,015,462) (1,661,817) (13,546,273)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (22,009) (54,583) (2,081,137)
Sale (purchase) of minority interest -- -- 66,660
Proceeds from sale of securities 233,696 --
------------ ------------ ------------
Net cash flow used in investing activities (22,009) 179,113 (2,014,477)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 3,000,000 -- 17,480,056
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 35,505 -- 35,505
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 (135,669) (151,213) (474,238)
------------ ------------ ------------
Net cash provided from financing activities 4,399,510 (151,213) 19,681,330
------------ ------------ ------------
Net increase in cash and cash equivalents 2,362,039 (1,633,917) 4,120,580
Cash and cash equivalents at beginning of period 1,758,541 4,966,873 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 4,120,580 $ 3,332,956 $ 4,120,580
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
SIGA Technologies, Inc.
NOTES TO THE JUNE 30, 2000 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, 1999, included in the 1999 Form 10-KSB/A.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting of normal adjustments, necessary for a fair
presentation of results of operations for the interim periods. The results of
operations for the three months ended June 30, 2000 are not necessarily
indicative of the results of operations to be expected for the full year ending
December 31, 2000.
2. Change of Name
In January 2000, at the Annual Meeting of the Company's stockholders, the
shareholders of the Company approved the change of the Company's name from Siga
Pharmaceuticals, Inc., to Siga Technologies, Inc.
3. New Accounting Pronouncements
On December 6, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, Revenue Recognition ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. Management is in the process of evaluating the
future effect of SAB 101 on the Company's financial statements.
4. License and Research Support Agreements
In February of 1998, the Company entered into a research collaboration and
license agreement with Washington University (the "University"), under which the
Company was granted an exclusive world-wide license to make, use and sell
products derived from the licensed technology, in exchange for royalty payments
and certain milestone payments. In 1999, a dispute arose between the Company,
the University and a consultant of the University regarding, among other things,
the performance of the parties
4
<PAGE>
under the agreements. In February of 2000 the parties reached a settlement
agreement and mutual release of their obligations under the research
collaboration and licensing agreement entered into in February of 1998. Further,
all personal consulting agreements between the Company and Washington University
faculty members and employees were terminated. Under the terms of the settlement
agreement any payments owed by the Company under the research collaboration and
licensing agreement and any consulting agreements with the University faculty
members were cancelled.
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 during the quarter ended March 31, 2000 and is 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. In the six months
ended June 30, 2000, the Company recognized revenue of $20,000 and deferred the
remaining $20,000.
In May 2000 the Company received $225,000 from Wyeth-Ayerst. The Company
recorded the entire amount as deferred revenue on June 30, 2000 and will
recognize it as revenue under the terms of an agreement with Wyeth-Ayerst, once
the terms are finalized.
5. Stockholders' Equity
In January 2000 the shareholders of the Company approved an increase in the
number of authorized shares from 25,000,000 to 50,000,000.
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 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. 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.
5
<PAGE>
During the three months ended June 30, 2000, the Company recorded interest
expense of $129,980 related to the amortization of such debt discount.
In connection with this transaction, 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 amortized over the term of the debentures. During the three months
ended June 30, 2000, the Company recorded interest expense of $35,080 related to
the deferred charge amortization.
In March 2000 the Company raised gross proceeds of $3,000,000 in a private
offering of common stock and warrants to purchase shares of the Company's common
stock. The Company sold 600,000 shares of common stock and 450,000 warrants.
210,000, 120,000 and 120,000 of the warrants 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.
6. Employment Agreements
In January 2000, the Company entered into new employment agreements with its
Chief Executive Officer and its Chairman (the "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 Corporations' 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.
In January 2000, the Company and its Chief Financial Officer ("CFO") entered
into an amendment to the CFO's employment agreement, 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 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, except that the Company may terminate the agreement
upon 180 days written notice. Under the amendment the employee's title will be
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.
6
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7. Consulting Agreements
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 quarter ended June 30,
2000, the Company recorded a non-cash charge associated with such warrants in
the amount of $75,360.
In September 1999 the Company entered into a consulting agreement with one of
its directors under which the director provides 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 vested on the date of the grant and the remaining 50,000 will
vest on the first anniversary of the agreement. The Company recognized non-cash
compensation expense of $9,690 in the quarter ended June 30, 2000 related to
such warrants.
8. Product Development Agreement
In March 2000, the Company entered into an agreement with Open-i Media, Inc., a
software and web development company ("the Development Company") for creative
and technical services, and for business strategy consulting. In exchange, the
Company will pay the Development Company $280,000 and grant it 13,605 shares,
each payable in three installments. In the six months ended June 30, 2000, the
Company paid $140,000 in cash, and recorded an additional charge of $25,000 in
connection with shares of common stock to be issued under the agreement. Costs
related to this agreement are recognized as the services performed. In July 2000
the Company issued to Open-i an additional 62,500 shares of common stock and
$40,000 in cash for the completion of the development of the PeerFinder product.
In July 2000 the Company acquired a 12.5% equity position in Open-i Media, Inc.
Under the terms of the agreement, Open-i received: (i) $170,000 in cash; (ii)
approximately 40,000 shares of the Company's common stock; and (iii) certain
assets consisting of the instant messenger product, PeerFinder. The Company will
account for the investment utilizing the cost method of accounting.
9. Other Agreements
In May 2000 the Company entered into a binding letter of intent (the
"Letter") to acquire Israel-based Hypernix Technologies, Ltd. Hypernix is the
developer of Gooey, an integrated roving communication platform. 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 disclosed liabilities of Hypernix (not to exceed
$1,250,000), with Hypernix's creditors to be paid
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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 is
subject to interest at an annual rate of 10% and is secured by all the assets of
Hypernix.
The Company has 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 a charge of $261,000 for the
three months ended June 30, 2000 to reserve the amount advanced to Hypernix as
of that date and will record a charge of $250,000 to reserve the advance made to
Hypernix subsequent to June 30, 2000.
10. Segments
For the period three months ended June 30, 2000, the Company's operations were
principally managed in two business segments: biomedical research and
development, and an Internet initiative. For this period, the Internet segment
had no revenue, and generated operating expenses of approximately $102,130. For
the six months ended June 30, 2000 the Internet business segment had operating
expenses of approximately $640,560. The Internet segment had identifiable assets
of approximately $88,000 at June 30, 2000.
11. Subsequent Events
In May and August 2000 the Company was awarded two Phase I Small Business
Innovation Research (SBIR) grants from the National Institutes for Health in the
amounts of $26,000 and $96,000 respectively. The grants will support the
Company's antibiotic development programs.
In July 2000 the Company entered into an agreement with a consultant to serve as
the Company's public relations agency. The consultant received options to
purchase 75,000 shares of the Company's common stock and they will be paid a
monthly retainer of $6,000. The options can be exercised at the following
exercise prices: 25,000 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.
In August 2000 the Company entered into an agreement with a consultant to
provide the Company with advice and assistance with respect to financial
consulting, planning, structuring, business strategy, public relations 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. The agreement also grants the consultant warrants to purchase
500,000 shares of the Company's common stock with 200,000 warrants vesting upon
the date of the agreement with an exercise price of $3.63 per share. Of the
remaining 300,000
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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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. In
October of 1999, we began the development of a strategic alternative outside the
biotechnology area with an agreement with Open-i Media, Inc. ("Open-i"), a New
York based software and web developer to develop an instant messenger product to
be used over the Internet. In May 2000, we planned to expand our activities in
our Internet business segment when we signed a letter of intent to acquire
Hypernix Technologies, Ltd., the developer of Gooey, an integrated roving
communication platform. However in August, 2000, we terminated the letter of
intent. Since inception through June 30, 2000, we have sustained cumulative net
losses of $17,736,631, 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 from a third party in exchange for our
common stock. In addition, non-cash charges of $1,276,217 have been 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 June 30, 2000, research and development
expenses amounted to $8,821,611, patent preparation and prosecution expenses
totaled $1,194,961 and general and administration expenses amounted to
$9,640,853. From inception through June 30, 2000 revenues from research and
development agreements and government grants totaled $1,790,734.
In October of 1999, we entered into an agreement with Open-i for the
development and acquisition of the source code for a client/server chat and
instant messaging application. In March 2000, we entered into a second agreement
whereby Open-i would provide certain consulting and management services
associated with the development of our instant messenger product. Through June
30, 2000, we have paid Open-i $300,000 in cash for development work on an
instant messenger product. In addition Open-i has received 65,221 shares of Siga
common stock under the terms of our development agreements with them. Through
June 30, 2000 we have incurred cash expenses of approximately $675,546,
including payments to Open-i, for the development of our instant messenger
product. In addition we have incurred non-cash expenses of approximately
$254,000 for shares issued to Open-i in connection with our development
agreements with them. In July of 2000, we acquired a 12.5% equity interest in
Open-i in exchange for (i) $170,000 in cash; (ii) 40,336 shares of our common
stock; and (iii) certain assets consisting of our instant messenger product. We
expect to continue to incur substantial costs in the future associated with the
possible development and acquisition of additional Internet activities. General
and administrative expenses needed to support the Internet business division are
also expected to be substantial.
At the time we announced our decision to undertake the Internet business
alternative, we also announced that we would consolidate our biotechnology
assets and operations in our research facility in Corvallis, Oregon. Our goal is
to fund our ongoing vaccine and antibiotic programs through a combination of
government grants, corporate partnerships and strategic alliances. No assurance
can be given that we will be successful in obtaining funds from these sources.
Until such relationships are established, we expect to continue to incur
significant research and development costs and cost 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.
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<PAGE>
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.
Results of Operations
Three months ended June 30, 2000 to the three months ended June 30, 1999
Revenues from grants and research and development contracts were $90,373
for the three months ended June 30, 2000 compared to $112,500 for the same three
month period of 1999. The decrease in revenues from the 1999 three month period
was approximately 20%. Revenue in the three months ended June 30, 1999 were the
result of an agreement entered into in July of 1997 with Wyeth-Ayerst, under
which we received certain payments for research and development activities
sponsored by Wyeth-Ayerst. In the three months ended June 30, 2000 we recognized
$75,373 of revenue related to a Phase I Small Business Innovation Research
(SBIR) grant from the National Institutes of Health (NIH) and $15,000 related to
an option and research and development agreement with the Ross Products Division
of Abbott Laboratories. Also, in the three months ended June 30, 2000 we
received $225,000 from Wyeth-Ayerst for continued support of our research
efforts, however, pending completion of an agreement with them the entire amount
was recorded as deferred revenue.
Research and development expenses of $391,703 for the three months ended
June 30, 2000 were approximately 24.5% less than the $519,049 of expenses
incurred for the same period in 1999. The decrease in spending from the three
months ended June 30, 1999 was due to lower spending levels on our biotechnology
business segment, consistent with our goal of making this operation
self-sufficient. The reduction was largely achieved as the result of materially
reduced spending to support activities at third parties and universities.
Spending on the Internet division of our business was minimal in the current
year quarter.
General and administrative expenses increased approximately 82% for the
three months ended June 30, 2000 to $966,115 from $530,673 for the three months
ended June 30, 1999. The increase in spending is the result of a charge of
$261,000 taken to reserve the amount advanced to Hypernix in the three months
ended June 30, 2000, the addition of personnel to manage our instant messenger
product development activity and non-cash charges of $85,050 for warrant expense
associated with consulting agreements with two of our directors.
Patent preparation expense of $37,780 for the three months ended June 30,
2000 was approximately 38% lower than the $60,764 incurred for the three months
ending June 30, 1999. The decline in spending reflects the continuing trend
to reduce patent costs by focusing on our core biopharmaceutical technologies,
eliminating programs that we believe have less commercial value, and not
acquiring new technologies.
Total operating loss for the three months ended June 30, 2000 was
$1,305,225, an approximate 30.7% increase from the $997,986 loss incurred for
the three months ended June 30, 1999. The increase in our operating loss is the
result of lower revenues in the current year quarter and the charge taken to
reserve the amount advanced to Hypernix.
Net interest expense for the three months ended June 30, 2000 was $141,494
compared to interest income of $45,502 for the three months ended June 30, 1999.
The increase in interest expense is due to the accrual of interest associated
with our sale of $1,500,000 principal amount of 6% convertible debentures in
January of 2000. Further, the lower level of net interest income is the result
of the decrease in the cash available for investment in the current year period
as the funds raised in our September 1997 initial public offering (IPO) were
expended in accordance with our development plan.
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We recorded a net gain of $42,570 for the three months ended June 30, 1999
from the sale of certain securities held for investment purposes. No such income
was received in the three months ended June 30, 2000.
Six months ended June 30, 2000 to the six months ended June 30, 1999
Revenues from grants and research and development contracts declined
approximately 24% to $171,173 for the six months ended June 30, 2000 compared to
$225,000 for the six months ended June 30, 1999. Revenue in the six months ended
June 30, 1999 was the result of an agreement entered into in July of 1997 with
Wyeth-Ayerst, under which we received certain payments for research and
development activities sponsored by Wyeth-Ayerst. In the six months ended June
30, 2000 we recognized $151,173 of revenue from a Phase I Small Business
Innovation Research (SBIR) grant from the National Institutes of Health (NIH)
and $20,000 from an option and research development agreement with the Ross
Products Division of Abbott Laboratories. In the six months ended June 30, 2000
we received $225,000 from Wyeth-Ayerst for continued support of our research
efforts, however, pending completion of an agreement with them, the entire
amount has been recorded as deferred income.
Research and development expenses for the six months ended June 30, 2000
were $1,154,630, approximately 7.6% more than the $1,072,753 incurred in the six
months ended June 30, 1999. The increase in spending reflects expenses incurred
by the start up of our Internet research and development activities largely
offset by a decrease in spending on biotechnology research and development
activity. The reduction in the biotechnology division of our business was
achieved as the result of materially reduced spending to support activities at
third parties and universities.
General and administrative expenses increased approximately 68.3% for the
six months ended June 30, 2000 to $1,777,347 from $1,055,758 for the six months
ended June 30, 1999. The increase in spending was primarily the result of a
charge of $261,000 to reserve the amount advanced to Hypernix during the current
year period. Also contributing to the increase was the addition of personnel to
manage our internet business segment combined with non-cash charges of $229,502
for warrant expense associated with consulting agreements with two of our
directors.
Patent preparation expense declined to $64,117 for the six months ended
June 30, 2000 from $112,703 for the six months ended June 30, 1999. The decline
in spending from the prior year of approximately 48% reflects the continuing
trend to reduce patent costs by focusing on our core biopharmaceutical
technologies, eliminating programs that we believe have less commercial value,
and not acquiring new technologies.
Total operating loss for the six months ended June 30, 2000 was $2,824,921
an approximate 39.4% increase from the $2,026,214 loss incurred for the six
months ended June 30, 1999. The increased loss was primarily the result of
decreased revenue, the charge taken to reserve the funds advance Hypernix and
increased research and development and general and administrative expenses
associated with our entry into Internet business activities.
Net interest expense for the six months ended June 30, 2000 was $259,730
compared to interest income of $102,353 for the six months ended June 30, 1999.
The increase in interest expense is due to the accrual of interest associated
with our sale of $1,500,000 principal amount of 6% convertible debentures in
January of 2000. Further, the lower level of net interest income is the result
of the decrease in the cash available for investment in the current year period
as the funds raised in our September 1997 initial public offering (IPO) were
expended in accordance with our development plan.
We recorded a net gain of $66,660 for the six months ended June 30, 1999
from the sale of certain securities held for investment purposes. No such income
was received in the six months ended June 30, 2000.
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Liquidity and Capital Resources
As of June 30, 2000 we had $4,120,580 in cash and cash equivalents. In
July, August and September of 1998 we sold certain laboratory equipment,
computer equipment and furniture to a third party, for $493,329, $385,422 and
$260,333, respectively, under sale/leaseback arrangements. The leases have a
term of 42 months and require minimum monthly payments of $13,171, $10,290 and
$6,950, respectively. We have an option to purchase the equipment for Fair
Market Value (defined in the agreement as 15% of original cost) at the end of
the lease. In July of 1997 we entered into a collaborative two year research and
license agreement with Wyeth-Ayerst. Under the terms of the agreement, we have
granted Wyeth-Ayerst an exclusive worldwide license to develop, make, use and
sell products derived from specified technologies. If certain milestones are
met, the agreement requires Wyeth-Ayerst 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, in return for payments to Siga. Through June
30, 2000 we have received a total of $1,687,500 from Wyeth-Ayerst. In July and
October of 1999 we were awarded SBIR grants from the NIH. The grant received in
July was for a six month program for a total of $109,072. As of June 30, 2000 we
had received the full amount of the grant. The October grant is a twelve month
program for a total of $293,466, of which $197,626 was received at June 30,
2000. The remaining $95,840 due under the grants is expected be received during
the twelve months ending December 31, 2000.
In January of 2000 we completed a private placement of 6% convertible
debentures at an aggregate principal amount if $1,500,000 and 1,043,478 warrants
to purchase shares of the Company's common stock with a purchase price of $0.5
per warrant. We 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 Siga's common
stock, at our discretion upon conversion or at maturity. The warrants have a
term of five years and are exercisable at $3.4059 per share. We have 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 our 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. In connection with this transaction, we issued warrants to purchase a
total of 275,000 shares of common stock to the placement agent and the
investor's counsel (or their respective designees). These warrants have a term
of five years and are exercisable at $1.45 per share.
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 is obligated to pay us $120,000 in three
installments of $40,000. The first payment of $40,000 was received during the
quarter ended March 31, 2000. The remaining installments are contingent upon
certain milestones under the agreement. In the six months ended June 30, 2000,
we recognized revenue of $20,000 and deferred the remaining $20,000.
On March 28, 2000 we completed a private placement of an aggregate of
600,000 shares of common stock and 450,000 warrants. We received net proceeds of
$2,883,000 from the total gross proceeds of $3,000,000. The warrants have a term
of three years; 210,000 warrants are exercisable at $5.00 per share, 120,000 are
exercisable at $6.375 per share and 120,000 are exercisable at $6.90 per share.
The warrants have a term of three years and are redeemable at $0.01 each, by us
upon meeting certain conditions.
In May 2000 we entered into a binding letter of intent to acquire
Israel-based Hypernix Technologies, Ltd. Hypernix is the developer of Gooey, an
integrated roving communication platform. If the transaction was consummated, we
would have issued 3 million shares of our common stock to the stockholders and
certain employees of Hypernix and assume all of the disclosed liabilities of
Hypernix (not to exceed $1,250,000), with Hyoernix's creditors to be paid half
in cash and half in our common stock. Also, we were to lend Hypernix $250,000
per month for up to five months. This advance is subject to interest at an
annual rate of 10% and is secured by all the assets of Hypernix. We advanced
Hypernix $261,000 and $250,000 in May and July respectively, under the
agreement. In August, 2000, we terminated the letter of intent. We recorded a
charge of $261,000 for the three months ended June 30, 2000 to reserve the
amount advanced as of that date and we will record a charge of $250,000 to
reserve the advance made to Hypernix subsequent to June 30, 2000.
In July 2000 we acquired a 12.5% equity position in Open-i Media, Inc.
Under the terms of the agreement, Open-i received: (i) $170,000 in cash; (ii)
approximately 40,000 shares of our common stock; and (iii) certain assets
consisting of the instant messenger product, PeerFinder, an instant messaging
tool jointly developed by Siga and Open-i. We will account for this transaction
utilizing the cost method of accounting.
In July 2000 we entered into an agreement with Global Impact
Communications, Inc.(GIC). GIC will serve as our public relations agency. GIC
received options to purchase 75,000 shares of our common stock and they will
receive a monthly retainer of $6,000. Twenty five thousand options are
exercisable at $5.75 per share, 25,000 at $6.50 per share and 25,000 at $7.50
per share.
In July 2000 we received $112,500 from Wyeth-Ayerst to further support our
research and development on the programs begun under our July 1997 agreement
with Wyeth-Ayerst.
In August 2000 we entered into an agreement with The Kriegsman Group for
them to render advice and assistance with respect to financial consulting ,
planning, structuring, business strategy, public relations 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.
We paid Kriegsman a fee of $40,000 upon signing of the agreement, and will pay
them an additional $40,000 every two months for the term of the agreement. The
agreement also grants Kriegsman a warrant to purchase 500,000 shares of our
common stock with 200,000 warrants vesting upon the date of the agreement with
an exercise price of $3.63 per share. 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
100,00 vest on October 1, 2001 with an exercise price of $9.50 per share.
In May and August 2000 we were awarded two Phase I SBIR grants from the
National Institutes for Health in the amounts of $26,000 and $96,000,
respectively. The grants will support our antibiotic development activities at
Siga Research Labs, our research and development facility in Corvallis, Oregon.
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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 2001. 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, on commercially reasonable terms. If we are unable to
raise additional capital when needed, we may be forced to curtail certain
activities and programs or possibly cease operations altogether.
Our working capital and capital requirements will depend upon numerous
factors, including progress of the development of our Internet business
activities and the success of the products in the market, 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.
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PART II
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceed - 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
(a) Exhibit 27 Financial Schedule (EDGAR version only)
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fuly caused this report to be signed on it's behalf by the
undersigned, thereunto duly authorized.
Siga Technologies, Inc.
(Registrant)
Date: August 14, 2000 By: /s/ Thomas N. Konatich
--------------------------
Thomas N. Konatich
Chief Financial Officer
(Principal Accounting and
Financial Officer and Vice
President, Finance)
