NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed Consolidated Financial Statements
The financial statements of SIGA Technologies, Inc. (“we,” “our,” “us,” “SIGA” or the “Company”) are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2021, included in the Company's 2021 Annual Report on Form 10-K filed on March 3, 2022 (the "2021 Form 10-K"). All terms used but not defined elsewhere herein have the meaning ascribed to them in the 2021 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement of the results of the interim periods have been included. The 2021 year-end condensed consolidated balance sheet data were derived from the audited financial statements but do not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
All of the Company’s revenue is derived from long-term contracts that span multiple years. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). In all transactions, the Company is the principal as it controls the specified good or service before it is transferred to the customer and therefore recognizes revenue on a gross basis. A contract’s transaction price is allocated to distinct performance obligations and recognized as revenue when, or as, a performance obligation is satisfied. The Company accounts for shipping and handling activities as fulfillment costs rather than as an additional promised service. As of June 30, 2022, the Company's active contractual performance obligations are referenced in Note 3 and consist of the following: five performance obligations relate to research and development services; and six relate to manufacture and delivery of product. The aggregate amount of the transaction price allocated to remaining performance obligations was $64.8 million as of June 30, 2022. Remaining performance obligations represent the transaction price for which work has not been performed and excludes unexercised contract options. The Company expects to recognize this amount as revenue within the next three years as the specific timing for satisfying performance obligations is subjective and largely outside the Company's control.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Contract modifications may occur during the course of performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. All of the Company’s revenue related to current research and development performance obligations is recognized over time, because the customer simultaneously receives and consumes the benefits provided by the services as the Company performs these services. The Company recognizes revenue related to these services based on the progress toward complete satisfaction of the performance obligation and measures this progress under an input method, which is based on the Company’s cost incurred relative to total estimated costs. Under this method, progress is measured based on the cost of resources consumed (i.e., cost of third-party services performed, cost of direct labor hours incurred, and cost of materials consumed) compared to the total estimated costs to completely satisfy the performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. The incurred and estimated costs used in the measure of progress include third-party services performed, direct labor hours, and material consumed.
Contract Balances
The timing of revenue recognition, billings and cash collections may result in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) in the condensed consolidated balance sheets. Generally, amounts are billed as work progresses in accordance with agreed-upon contractual terms either at periodic intervals (monthly) or upon achievement of contractual milestones; as of June 30, 2022, the accounts receivable balance in the condensed balance sheet includes approximately $14.0 million of unbilled receivables. This amount includes net proceeds, net of Meridian fee (as defined below) from international sales, which will be billed and collected by Meridian and paid to SIGA. Under typical payment terms of fixed price arrangements, the customer pays the Company either performance-based payments or progress payments. For the Company’s cost-type arrangements, the customer generally pays the Company for its actual costs incurred, as well as its allocated overhead and general and administrative costs. Such payments occur within a short period of time from billing. When the Company receives consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. During the six months ended June 30, 2022, the Company recognized $3.0 million of revenue that was included in deferred revenue at the beginning of the period.
Repurchase of shares
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. The excess of the purchase price above par value of repurchased shares that are retired is presented as an increase to accumulated deficit (or a reduction of retained earnings, if any).
3. Procurement Contracts and Research Agreements
19C BARDA Contract
On September 10, 2018, the Company entered into a contract with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile"), and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to 212,000 courses of the intravenous (IV) formulation of TPOXX® (“IV TPOXX®”). Additionally, the contract includes funding from BARDA for a range of activities, including: advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of June 30, 2022, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $602.5 million of payments, of which approximately $51.7 million of payments are included within the base period of performance of five years, approximately $239.7 million of payments are related to exercised options and up to approximately $311.1 million of payments are currently specified as unexercised options. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term, including during the base period of performance.
The base period of performance specifies potential payments of approximately $51.7 million for the following activities: payments of approximately $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $8.0 million for the manufacture of 20,000 courses of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $32.0 million to fund advanced development of IV TPOXX®; and payments of approximately $0.6 million for supportive procurement activities. As of June 30, 2022, the Company has received $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS, $4.3 million for the delivery of IV FDP to the Strategic Stockpile and $15.5 million for other base period activities. IV BDS has been used for the manufacture of courses of IV FDP. The $3.2 million received for the completed manufacture of IV BDS had been recorded as deferred revenue as of December 31, 2021, but with the delivery of IV FDP to the Strategic Stockpile during the six months ended June 30, 2022, $2.9 million was recognized as revenue. The remaining $0.3 million of deferred revenue will be recognized as IV FDP containing such IV BDS is delivered to the Strategic Stockpile.
The options that have been exercised to date provide for payments up to approximately $239.7 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials used in the 2020 manufacture of certain courses of oral TPOXX®; payments up to $213.9 million for the delivery of up to 726,140 courses of oral TPOXX®; and payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of June 30, 2022, the Company has delivered approximately $225.1 million (including the value of raw materials) of oral TPOXX® to the Strategic Stockpile, of which approximately $112.5 million was delivered in 2021; and $7.6 million has been received or billed for in connection with post-marketing activities for oral TPOXX®.
Unexercised options specify potential payments up to approximately $311.1 million in total (if all such options are exercised). There are options for the following activities: payments of up to $225.1 million for the delivery of oral TPOXX® to the Strategic Stockpile; payments of up to $76.8 million for the manufacture of courses of IV FDP, of which up to $30.7 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to approximately $5.6 million for supportive procurement activities.
The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of 64,000 courses of IV TPOXX®; and three separate IV FDP Options, each providing for 64,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $76.8 million. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 64,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP.
Revenues in connection with the 19C BARDA Contract are recognized either over time or at a point in time. Performance obligations related to product delivery generate revenue at a point in time. Revenue from other performance obligations under the 19C BARDA Contract are recognized over time using an input method using costs incurred to date relative to total estimated costs at completion. For the three months ended June 30, 2022 and 2021, the Company recognized revenues of $1.3 million and $0.8 million, respectively, on an over time basis. For the six months ended June 30, 2022 and 2021, the Company recognized revenues of $1.9 million and $1.7 million, respectively, on an over time basis. Revenue recognized for product delivery, and therefore at a point in time, for the six months ended June 30, 2022 was $7.2 million. In contrast, no revenue was recognized for product delivery, and therefore no revenue was recognized at a point in time, for the three months ended June 30, 2022 or for the three and six months ended June 30, 2021.
U.S. Department of Defense Procurement Contract (“DoD Contract”)
On May 12, 2022, the Company announced a procurement contract with the U.S. Department of Defense (“DoD”). The DoD Contract includes a firm commitment for the DoD to procure approximately $3.6 million of oral TPOXX®, and an option, exercisable at the sole discretion of the DoD, for the procurement of approximately $3.8 million of oral TPOXX®. In the second quarter of 2022, the Company delivered and recognized revenue of $3.6 million for the delivery of oral TPOXX® to the DoD and fulfilled the firm commitment order noted above.
International Procurement Contracts
This year, through July 31, the Company has received firm commitment orders from ten international jurisdictions (including Canada) for the delivery of approximately $60 million of oral TPOXX®, of which approximately $39 million is for Canada and approximately $21 million is for jurisdictions in Europe, Asia Pacific, Asia and the Middle East. Additionally, the contract with CDND (defined below) has an option, exercisable at the sole discretion of CDND, for the purchase of up to an additional $6 million of oral TPOXX®. With respect to the $60 million of firm commitment orders that have been received this year, approximately $5 million of oral TPOXX® was delivered in the three months ended June 30, 2022. Through an International Promotion Agreement (defined below), Meridian Medical Technologies, Inc. (“Meridian”) is the counterparty to international contracts under which orders are placed for the purchase of oral TPOXX®. The Public Health Agency of Canada (“PHAC”) and the Canadian Department of National Defence (“CDND”) are among the contracting parties for the purchase of oral TPOXX® (see below for a summary description of these contracts).
On January 13, 2021, PHAC awarded a contract to Meridian (the “PHAC Contract”) for the purchase of up to approximately $33 million of oral TPOXX® (tecovirimat) within five years. In March 2022 and July 2022, PHAC executed amendments in which total procurement of oral TPOXX® under the PHAC Contract was increased to an amount of approximately $45 million. Prior to 2022, approximately $10 million of oral TPOXX® had been ordered and delivered to PHAC. No courses of oral TPOXX® were delivered under this contract for the first six months of 2022. In July 2022, $16 million of oral TPOXX® was delivered to PHAC. As of July 31, 2022, after the delivery of $16 million of oral TPOXX® in mid- July, there are approximately $19 million of firm commitment orders that remain to be delivered under this contract.
On April 3, 2020, the Company announced that the CDND awarded a contract (the "Canadian Military Contract") to Meridian, pursuant to which the CDND would purchase up to approximately $14 million of oral TPOXX® over four years. Prior to 2022, approximately $4 million of oral TPOXX® had been ordered and delivered to CDND. No courses of oral TPOXX® were delivered under this contract for the first six months of 2022. As of June 30, 2022, an approximate firm commitment order of $4 million remains to be delivered under this contract. Additionally, there are approximately $6 million of unexercised options, exercisable at the sole discretion of CDND, remaining under this contract.
The above-listed contract awards were coordinated between SIGA and Meridian under the international promotion agreement (as amended, the "International Promotion Agreement") that was entered into by the parties on June 3, 2019. Under the International Promotion Agreement, Meridian is the counterparty in connection with international contracts for oral TPOXX® and SIGA is responsible for manufacture and delivery of any oral TPOXX® purchased thereunder.
Under the terms of the International Promotion Agreement, Meridian was granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian has agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. SIGA retains ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, also retains sales and marketing rights with respect to oral TPOXX®. SIGA’s consent is required for the entry into any sales arrangement pursuant to the International Promotion Agreement.
The fee Meridian retains pursuant to the International Promotion Agreement is a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for calendar years in which customer collected amounts net of such expenses are less than or equal to a specified threshold, and a higher specified percentage of such collected net proceeds for calendar years in which such net collected amounts exceed the specified threshold. It is probable that we will exceed the specified threshold in 2022 and, as a result, the Company has recorded and will continue to record the higher specified percentage for all International Promotion Agreement sales in 2022.
Revenue in connection with international procurement contracts for the delivery of product are recognized at a point in time on a gross basis, as the Company acts as the principal in the transaction. During the three and six months ended June 30, 2022, the Company recognized $5.0 million of sales in connection with international contracts. During the three and six months ended June 30, 2021, the Company recognized $6.9 million and $10.3 million of sales, respectively, for delivery to PHAC.
Research Agreements and Grants
In July 2019, the Company was awarded a multi-year research contract valued at a total of $19.5 million, with an initial award of $12.4 million, from the DoD to support work in pursuit of a potential label expansion for oral TPOXX® that would include post-exposure prophylaxis ("PEP") of smallpox (such work known as the "PEP Label Expansion Program" and the contract referred to as the "PEP Label Expansion R&D Contract"). In subsequent modifications, the DoD increased the scope and the available funding under the PEP Label Expansion R&D Contract to approximately $27 million. The period of performance for this contract, as modified, terminates on January 31, 2025. As of June 30, 2022, remaining revenue to be recognized in the future under the PEP Label Expansion R&D Contract is up to $15.4 million. Revenue from the performance obligation under the PEP Label Expansion R&D Contract is recognized over time using an input method using costs incurred to date relative to total estimated costs at completion. For the three months ended June 30, 2022 and 2021, the Company, under the PEP Label Expansion R&D Contract, recognized revenue of $6.6 million and $0.5 million, respectively, on an over time basis. For the six months ended June 30, 2022 and 2021, the Company, under the PEP Label Expansion R&D Contract, recognized revenue of $8.9 million and $0.6 million, respectively, on an over time basis.
Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’s discretion. Moreover, contracts and grants contain customary terms and conditions including the U.S. Government’s right to terminate or restructure a contract or grant for convenience at any time. As such, the Company may not be eligible to receive all available funds.
4. Inventory
Inventory includes costs related to the manufacture of TPOXX®. Inventory consisted of the following:
|
|
As of |
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Raw materials |
|
$ |
22,047 |
|
|
$ |
22,047 |
|
Work in-process |
|
|
9,287,024 |
|
|
|
17,453,358 |
|
Finished goods |
|
|
7,122,311 |
|
|
|
2,034,974 |
|
Inventory |
|
$ |
16,431,382 |
|
|
$ |
19,510,379 |
|
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| | As of | |
| | June 30, 2022 | | | December 31, 2021 | |
Leasehold improvements | | $ | 2,420,028 | | | $ | 2,420,028 | |
Computer equipment | | | 473,386 | | | | 511,062 | |
Furniture and fixtures | | | 377,859 | | | | 377,859 | |
Operating lease right-of-use assets | | | 3,678,647 | | | | 3,678,647 | |
| | | 6,949,920 | | | | 6,987,596 | |
Less - accumulated depreciation and amortization | | | (4,840,200 | ) | | | (4,621,639 | ) |
Property, plant and equipment, net | | $ | 2,109,720 | | | $ | 2,365,957 | |
Depreciation and amortization expense on property, plant, and equipment was $0.3 million for each of the six months ended June 30, 2022 and 2021.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
As of |
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
Deferred revenue |
|
$ |
7,035,354 |
|
|
$ |
3,764,696 |
|
Research and development vendor costs |
|
|
3,657,403 |
|
|
|
256,397 |
|
Compensation |
|
|
1,424,067 |
|
|
|
2,811,700 |
|
Other |
|
|
934,745 |
|
|
|
938,082 |
|
Professional fees |
|
|
808,246 |
|
|
|
527,026 |
|
Lease liability, current portion |
|
|
507,140 |
|
|
|
466,830 |
|
Inventory |
|
|
477,875 |
|
|
|
488,081 |
|
Accrued expenses and other current liabilities |
|
$ |
14,844,830 |
|
|
$ |
9,252,812 |
|
7. Financial Instruments
2016 Warrant
On September 2, 2016, the Company entered into a loan and security agreement (as amended from time to time, the “Loan Agreement”) with OCM Strategic Credit SIGTEC Holdings, LLC (“Lender”). The Company voluntarily prepaid this Loan Agreement in 2020. Upon such prepayment and release, the Loan Agreement was terminated. In connection with the entry into the Loan Agreement, the Company issued a warrant (the “Warrant”) to the Lender on September 2, 2016 to purchase a number of shares of the Company’s common stock equal to $4.0 million divided by the lower of (i) $2.29 per share and (ii) the subscription price paid in connection with the Rights Offering. The Warrant provides for weighted average anti-dilution protection and is exercisable in whole or in part for ten (10) years from the date of issuance. The per share subscription price paid was $1.50 in connection with the Rights Offering; accordingly, the exercise price of the Warrant was set at $1.50 per share, and there were 2.7 million shares underlying the Warrant. Taking into account partial exercises of the Warrant, there were approximately 1.0 million shares underlying the outstanding Warrant as of December 31, 2021.
During the three months ended June 30, 2022, the Warrant was fully exercised, and therefore there are no remaining underlying shares as of June 30, 2022. See Note 8. For the three months ended June 30, 2022, we recorded a gain of approximately $50,000, reflecting a decrease in the fair value of the liability-classified warrant primarily due to the decrease in our stock price prior to the exercise of the Warrant.
As of December 31, 2021, there were approximately 1.0 million shares underlying the outstanding Warrant and the fair value of the Warrant was $6.5 million. The fair value of the liability-classified Warrant was calculated using the following assumptions: risk-free interest rate of 1.21%; no dividend yield; an expected life of 4.7 years; and a volatility factor of 55%.
8. Fair Value of Financial Instruments
The carrying value of cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and income tax payable approximates fair value due to the relatively short maturity of these instruments. Prior to being fully exercised, common stock warrants, which were classified as a liability, were recorded at their fair market value as of each reporting period.
The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:
| • | Level 1 – Quoted prices for identical instruments in active markets. |
| • | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable. |
| • | Level 3 – Instruments where significant value drivers are unobservable to third parties. |
There were no transfers between levels of the fair value hierarchy for the six months ended June 30, 2022. As of each of June 30, 2022 and December 31, 2021, the Company had approximately $0.1 million of cash equivalents classified as Level 1 financial instruments. There were no Level 2 financial instruments as of June 30, 2022.
The following table presents changes in the liability-classified warrant measured at fair value using Level 3 inputs:
| | Fair Value Measurements of Level 3 liability-classified warrant | |
Warrant liability at December 31, 2021 | | $ | 6,521,441 | |
Decrease in fair value of Warrant liability | | | (400,663 | ) |
Exercise of Warrant | | | (6,120,778 | ) |
Warrant liability at June 30, 2022 | | $ | - | |
9. Per Share Data
The Company computes, presents and discloses earnings per share in accordance with the authoritative guidance, which specifies the computation, presentation and disclosure requirements for earnings per share of entities with publicly held common stock or potential common stock. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income (loss) by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, except that it also gives effect to all potentially dilutive common shares outstanding during the period.
The following is a reconciliation of the basic and diluted loss per share computation:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income/(loss) for basic earnings per share |
|
$ |
2,037,062 |
|
|
$ |
169,200 |
|
|
$ |
1,676,012 |
|
|
$ |
(642,905 |
) |
Less: Change in fair value of warrants and cash-based RSUs |
|
|
49,559 |
|
|
|
428,128 |
|
|
|
400,663 |
|
|
|
1,346,929 |
|
Net income/(loss), adjusted for change in fair value of warrants and cash-based RSUs for diluted earnings per share |
|
$ |
1,987,503 |
|
|
$ |
(258,928 |
) |
|
$ |
1,275,349 |
|
|
$ |
(1,989,834 |
) |
Weighted-average shares |
|
|
72,678,333 |
|
|
|
75,810,641 |
|
|
|
72,873,366 |
|
|
|
76,281,211 |
|
Effect of potential common shares |
|
|
654,555 |
|
|
|
849,413 |
|
|
|
825,860 |
|
|
|
847,762 |
|
Weighted-average shares: diluted |
|
|
73,332,888 |
|
|
|
76,660,054 |
|
|
|
73,699,226 |
|
|
|
77,128,973 |
|
Income/(loss) per share: basic |
|
$ |
0.03 |
|
|
$ |
0.00 |
|
|
$ |
0.02 |
|
|
$ |
(0.01 |
) |
Income/(loss) per share: diluted |
|
$ |
0.03 |
|
|
$ |
(0.00 |
) |
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
For the three and six months ended June 30, 2022, the diluted earnings per share calculation reflects the effect of the exercise of outstanding warrants and any corresponding elimination of the impact included in operating results from the change in fair value of the warrants. Weighted-average diluted shares include the dilutive effect of in-the-money options, stock-settled RSUs and warrants. The dilutive effect of warrants, stock-settled RSUs and options is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the average amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible, are collectively assumed to be used to repurchase shares. Cash-settled RSUs were presumed to be cash-settled and therefore excluded from the diluted earnings per share calculations for the three and six months ended June 30, 2022 because the net effect of their inclusion, including the elimination of the impact in the operating results of the change in fair value of these RSUs, would have been anti-dilutive. For the three and six months ended June 30, 2022, the weighted average number of shares under the cash-settled RSUs excluded from the calculation of diluted earnings per share were 51,930 and 53,353, respectively.
For the three and six months ended June 30, 2021, the Company incurred losses and as a result, the equity instruments listed below were excluded from the calculation of diluted earnings (loss) per share as the effect of the exercise, conversion or vesting of such instruments would have been anti-dilutive. The weighted average number of equity instruments excluded consists of:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2021 |
|
|
2021 |
|
Stock options |
|
|
123,667 |
|
|
|
154,617 |
|
Restricted stock units (stock settled) |
|
|
166,683 |
|
|
|
165,309 |
|
10. Commitments and Contingencies
From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although such claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of such current pending matters, if any, will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.
Purchase Commitments
In the course of our business, the Company regularly enters into agreements with third party organizations to provide contract manufacturing services and research and development services. Under these agreements, the Company issues purchase orders, which obligate the Company to pay a specified price when agreed-upon services are performed. In connection with many CMO purchase orders, reimbursement by CMOs for inventory losses is limited. Commitments under the purchase orders do not exceed our planned commercial and research and development needs. As of June 30, 2022, the Company had approximately $21.7 million of purchase commitments associated with manufacturing obligations.
11. Related Party Transactions
Board of Directors and Outside Counsel
A former member of the Company’s Board of Directors who did not stand for re-election at the Company's 2021 annual meeting of stockholders is a partner at a law firm used by the Company. The Company did not incur any expenses related to services provided by the outside counsel during the three months ended June 30, 2022 and 2021 or the six months ended June 30, 2022. During the six months ended June 30, 2021, the Company incurred $0.1 million of expenses related to services provided by the outside counsel. The Company had no outstanding payables or accrued expenses related to services performed by the outside counsel as of June 30, 2022.
Real Estate Leases
On May 26, 2017, the Company and MacAndrews & Forbes Incorporated (“M&F”) entered into a ten-year Office Lease agreement (the “HQ Lease”), pursuant to which the Company agreed to lease 3,200 square feet at 31 East 62nd Street, New York, New York. The Company is utilizing premises leased under the HQ Lease as its new corporate headquarters. The Company's rental obligations consist of a fixed rent of $25,333 per month in the first sixty-three months of the term, subject to a rent abatement for the first six months of the term. From the first day of the sixty-fourth month of the term through the expiration or earlier termination of the lease, the Company's rental obligations consist of a fixed rent of $29,333 per month. In addition to the fixed rent, the Company will pay a facility fee in consideration of the landlord making available certain ancillary services, commencing on the first anniversary of entry into the lease. The facility fee was $3,333 per month for the second year of the term and increases by five percent each year thereafter, to $4,925 per month in the final year of the term. During the three and six months ended June 30, 2022, the Company paid expenses associated with this lease of $0.1 million and $0.2 million, respectively.
12. Revenues by Geographic Region
Revenues by geographic region were as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
United States |
|
$ |
11,715,302 |
|
|
$ |
1,673,083 |
|
|
$ |
22,254,602 |
|
|
$ |
2,911,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific |
|
|
4,929,423 |
|
|
|
— |
|
|
|
4,929,423 |
|
|
|
— |
|
Canada |
|
|
— |
|
|
|
6,980,206 |
|
|
|
— |
|
|
|
10,555,578 |
|
Other |
|
|
22,320 |
|
|
|
— |
|
|
|
22,320 |
|
|
|
— |
|
Total International |
|
|
4,951,743 |
|
|
|
6,980,206 |
|
|
|
4,951,743 |
|
|
|
10,555,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
16,667,045 |
|
|
$ |
8,653,289 |
|
|
$ |
27,206,345 |
|
|
$ |
13,467,033 |
|
13. Income Taxes
The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.
For the three months ended June 30, 2022 and 2021, we incurred pre-tax income of $3.2 million and $0.5 million, respectively, and a corresponding income tax provision of $1.2 million and $0.3 million, respectively.
For the six months ended June 30, 2022 and 2021, we incurred pre-tax income of $2.1 million and losses of ($0.6) million, respectively, and a corresponding income tax provision of $0.5 million and $0.1 million, respectively.
The effective tax rate for the three months ended June 30, 2022 was 36.2% compared to 63.8% for the three months ended June 30, 2021. The effective tax rate for the three months ended June 30, 2022 differs from the U.S. statutory rate of 21% primarily as a result of state taxes, various non-deductible expenses, including executive compensation under Internal Revenue Code Section 162(m) and a non-taxable adjustment for the fair market value of the Warrant.
The effective tax rate for the six months ended June 30, 2022 was 21.2% compared to (11.3)% for the six months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 differs from the U.S. statutory rate of 21% primarily as a result of state taxes, various non-deductible expenses, including executive compensation under Internal Revenue Code Section 162(m) and a non-taxable adjustment for the fair market value of the Warrant.
14. Equity
The tables below present changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021.
| | Common Stock | | | Additional Paid-in | | | Accumulated | | | Other Comprehensive | | | Total Stockholders' | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Equity | |
Balances at March 31, 2022 | | | 72,566,367 | | | $ | 7,256 | | | $ | 226,426,529 | | | $ | (58,696,989 | ) | | $ | — | | | $ | 167,736,796 | |
Net income | | | | | | | — | | | | — | | | | 2,037,062 | | | | — | | | | 2,037,062 | |
Repurchase of common stock | | | (494,979 | ) | | | (49 | ) | | | — | | | | (3,576,873 | ) | | | — | | | | (3,576,922 | ) |
Issuance of common stock upon vesting of RSUs | | | 127,856 | | | | 13 | | | | (13 | ) | | | — | | | | — | | | | — | |
Issuance of common stock upon exercise of warrants | | | 824,903 | | | | 82 | | | | 6,120,696 | | | | — | | | | — | | | | 6,120,778 | |
Cash dividend ($0.45 per share) | | | — | | | | — | | | | — | | | | (32,944,314 | ) | | | — | | | | (32,944,314 | ) |
Stock-based compensation | | | — | | | | — | | | | 395,454 | | | | — | | | | — | | | | 395,454 | |
Balances at June 30, 2022 | | | 73,024,147 | | | $ | 7,302 | | | $ | 232,942,666 | | | $ | (93,181,114 | ) | | $ | — | | | $ | 139,768,854 | |
| | Common Stock | | | Additional Paid-in | | | Accumulated | | | Other Comprehensive | | | Total Stockholders' | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Equity | |
Balances at December 31, 2021 | | | 73,543,602 | | | $ | 7,354 | | | $ | 226,070,308 | | | $ | (51,763,255 | ) | | $ | — | | | $ | 174,314,407 | |
Net income | | | — | | | | — | | | | — | | | | 1,676,012 | | | | — | | | | 1,676,012 | |
Repurchase of common stock | | | (1,474,781 | ) | | | (147 | ) | | | — | | | | (10,149,557 | ) | | | — | | | | (10,149,704 | ) |
Payment of common stock tendered for employee stock-based compensation tax obligations | | | (1,973 | ) | | | — | | | | (12,533 | ) | | | — | | | | — | | | | (12,533 | ) |
Issuance of common stock upon vesting of RSUs | | | 132,396 | | | | 13 | | | | (13 | ) | | | — | | | | — | | | | — | |
Issuance of common stock upon exercise of warrants | | | 824,903 | | | | 82 | | | | 6,120,696 | | | | — | | | | | | | | 6,120,778 | |
Cash dividend ($0.45 per share) | | | — | | | | | | | | — | | | | (32,944,314 | ) | | | | | | | (32,944,314 | ) |
Stock-based compensation | | | — | | | | — | | | | 764,208 | | | | — | | | | — | | | | 764,208 | |
Balances at June 30, 2022 | | | 73,024,147 | | | $ | 7,302 | | | $ | 232,942,666 | | | $ | (93,181,114 | ) | | $ | — | | | $ | 139,768,854 | |
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Total Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income |
|
|
Equity |
|
Balances at March 31, 2021 |
|
|
76,240,439 |
|
|
$ |
7,625 |
|
|
$ |
225,211,481 |
|
|
$ |
(102,534,239 |
) |
|
$ |
— |
|
|
$ |
122,684,867 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
169,200 |
|
|
|
— |
|
|
|
169,200 |
|
Repurchase of common stock |
|
|
(956,022 |
) |
|
|
(96 |
) |
|
|
— |
|
|
|
(6,600,414 |
) |
|
|
— |
|
|
|
(6,600,510 |
) |
Issuance of common stock upon vesting of RSUs |
|
|
105,000 |
|
|
|
10 |
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
467,405 |
|
|
|
— |
|
|
|
— |
|
|
|
467,405 |
|
Balances at June 30, 2021 |
|
|
75,389,417 |
|
|
$ |
7,539 |
|
|
$ |
225,678,876 |
|
|
$ |
(108,965,453 |
) |
|
$ |
— |
|
|
$ |
116,720,962 |
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated |
|
|
Other Comprehensive |
|
|
Total Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income |
|
|
Equity |
|
Balances at December 31, 2020 |
|
|
77,195,704 |
|
|
$ |
7,720 |
|
|
$ |
224,978,430 |
|
|
$ |
(95,192,881 |
) |
|
$ |
— |
|
|
$ |
129,793,269 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(642,905 |
) |
|
|
— |
|
|
|
(642,905 |
) |
Repurchase of common stock |
|
|
(1,913,927 |
) |
|
|
(191 |
) |
|
|
— |
|
|
|
(13,129,667 |
) |
|
|
— |
|
|
|
(13,129,858 |
) |
Payment of common stock tendered for employee stock-based compensation tax obligations |
|
|
(1,902 |
) |
|
|
— |
|
|
|
(13,361 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13,361 |
) |
Issuance of common stock upon vesting of RSUs |
|
|
109,542 |
|
|
|
10 |
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
713,817 |
|
|
|
— |
|
|
|
— |
|
|
|
713,817 |
|
Balances at June 30, 2021 |
|
|
75,389,417 |
|
|
$ |
7,539 |
|
|
$ |
225,678,876 |
|
|
$ |
(108,965,453 |
) |
|
$ |
— |
|
|
$ |
116,720,962 |
|
On August 2, 2021, the Company's Board of Directors authorized a share repurchase program ("New Repurchase Authorization") under which the Company may repurchase up to $50 million of the Company's common stock through December 31, 2023. The Company started repurchasing shares under this program in the fourth quarter of 2021. Repurchases under the New Repurchase Authorization may be made from time to time at the Company's discretion in open market transactions, through block trades, in privately negotiated transactions and pursuant to any trading plan that may be adopted by the Company's management in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise. The timing and actual number of shares repurchased will depend on a variety of factors, including: timing of exercise of procurement options under government contracts; alternative opportunities for strategic uses of cash; the stock price of the Company’s common stock; market conditions; alternative capital management uses of cash; and other corporate liquidity requirements and priorities. During the three and six months ended June 30, 2022, the Company repurchased approximately 0.5 million and 1.5 million shares of common stock under the New Repurchase Authorization for approximately $3.6 million and $10.1 million, respectively.
Prior to the effective date of the New Repurchase Authorization, the Company repurchased shares under a program that was announced in March 2020. Under this program, $50 million of the Company's common stock was repurchased, including approximately 1.0 million shares of common stock for approximately $6.6 million that was repurchased during the three months ended June 30, 2021, and 1.9 million shares of common stock for approximately $13.1 million that was repurchased during the six months ended June 30, 2021.
On May 5, 2022, the Board of Directors declared a special dividend of $0.45 per share on the common stock of the Company, which resulted in an overall dividend payment of $32.9 million. The special dividend was paid on June 2, 2022 to shareholders of record at the close of business on May 17, 2022.
15. Leases
The Company leases its Corvallis, Oregon, facilities and office space under an operating lease, which was signed on November 3, 2017 and commenced on January 1, 2018. The initial term of this lease was to expire on December 31, 2019 after which the Company had two successive renewal options; one for two years and the other for three years. In the second quarter of 2019, the Company exercised the first renewal option, which extended the lease expiration date to December 31, 2021. In the second quarter of 2021, the Company exercised the second renewal option, which extended the lease expiration date to December 31, 2024. In connection with the exercise of the second renewal option, the Company recorded an increase to operating lease right-of-use assets and operating lease liabilities of approximately $0.7 million in the second quarter 2021.
On May 26, 2017 the Company and M&F entered into the HQ Lease, a ten-year office lease agreement, pursuant to which the Company agreed to lease 3,200 square feet in New York, New York. The Company is utilizing premises leased under the HQ Lease as its corporate headquarters. The Company has no leases that qualify as finance leases.
Operating lease costs totaled $0.1 million for each of the three months ended June 30, 2022 and 2021. Operating lease costs totaled $0.3 million for each of the six months ended June 30, 2022 and 2021. Cash paid for amounts included in the measurement of lease liabilities from operating cash flows was $0.2 million for each of the three months ended June 30, 2022 and 2021. Cash paid for amounts included in the measurement of lease liabilities from operation cash flows was $0.3 million for each of the six months ended June 30, 2022 and 2021. As of June 30, 2022, the weighted-average remaining lease term of the Company’s operating leases was 4.10 years while the weighted-average discount rate was 4.53%.
Future cash flows under operating leases as of June 30, 2022 are expected to be as follows:
2022 | | $ | 272,625 | |
2023 | | | 669,048 | |
2024 | | | 678,627 | |
2025 | | | 406,994 | |
2026 | | | 409,971 | |
Thereafter | | | 165,916 | |
Total undiscounted cash flows under leases | | | 2,603,181 | |
Less: Imputed interest | | | (251,805 | ) |
Present value of lease liabilities | | $ | 2,351,376 | |
As of June 30, 2022, approximately $1.8 million of the lease liability is included in Other liabilities on the condensed consolidated balance sheet with the current portion included in accrued expenses.