Note 1 - Organization and Business

We have been engaged in the biodefense business through our predecessor entity since our inception in 2001.

We are incorporated under the laws of the State of Delaware and are a biodefense company focused on developing next generation medical counter measures against biological and chemical threats. We are subject to those risks associated with any biopharmaceutical company that has substantial expenditures for research and development. In addition, we operate in an environment of rapid technological change and are largely dependent on the services and expertise of our employees, consultants and other third parties.

On September 9, 2014, we signed a contract with the National Institutes of Allergy and Infectious Diseases (“NIAID”) for the development of a next generation lyophilized anthrax vaccine based on the Company’s proprietary technology platform which contributes the recombinant protective antigen (“rPA”) bulk drug substance that is used in the liquid SparVax^® formulation. The contract is incrementally funded. Over the base period of the contract, we were awarded initial funding of approximately $5.2 million, which includes a cost reimbursement component and a fixed fee component payable upon achievement of certain milestones. NIAID exercised the first and second options under this agreement in September 2015 and December 2015, respectively. The exercised options provide additional funding of approximately $4.9 million and an extension of the period of performance through April 30, 2017. The contract has a total value of up to approximately $28.1 million, if all technical milestones are met and all eight contract options are exercised by NIAID. If NIAID exercises all options, the contract would last approximately five years. If NIAID does not exercise any additional options, the contract would expire by its terms on April 30, 2017.

On March 9, 2015, our Board of Directors approved our realignment plan (the “Realignment Plan”) with the goal of preserving and maximizing, for the benefit of our stockholders, the value of any proceeds from our litigation with SIGA Technologies, Inc. (“SIGA”) and our existing biodefense assets. The plan eliminated approximately two-thirds of our workforce and aimed to preserve sufficient cash and cash equivalents to finance our continued operations through a period of time that is expected to extend beyond our collection of the amount awarded to us by the Delaware Chancery Court’s affirmed judgment. We intend to maintain sufficient resources and personnel so that we can seek partners, co-developers or acquirers for our biodefense programs and continue to execute under our government contract with NIAID. Total severance payments to executives and non-executives in connection with the Realignment Plan amount to approximately $2 million (all of which was expensed during the year ended December 31, 2015). Approximately $1.9 million of such severance expenses were paid in 2015. Historically, the Company has performed under government contracts and grants and raised funds from investors (including additional debt and equity issued in 2015 and 2014) to sustain our operations. The Company has spent substantial funds in the research, development, clinical and preclinical testing in excess of revenues, to support the Company’s product candidates and to market and sell its products. We have incurred losses in each year since inception, and have an accumulated deficit of $223.7 million. If we continue to incur losses and are not able to raise adequate funds to cover those losses, we may be required to cease operations.

On July 6, 2015, we signed a license agreement with ImmunoVaccine Technologies (“IMV”) for the exclusive use of the DepoVax^TM vaccine platform (“DPX”), to develop an anthrax vaccine utilizing PharmAthene’s rPA. IMV is a clinical-stage vaccine development company located in Halifax, Nova Scotia, Canada. PharmAthene will reimburse up to $210,000 to IMV for their efforts in developing this vaccine and, in addition, PharmAthene will pay to IMV annual payments of $200,000, additional payments for the achievement of certain milestones relating to contracting with the U.S. Government as well as achieving certain clinical/regulatory and commercial milestones, and achievement of sales targets, and royalties on sales related to the use of DepoVax^TM.

On September 2, 2015, the Company entered into a sublease agreement with a third party with respect to a portion of its leased office space in Annapolis, Maryland. See Note 7 – Commitments and Contingencies – Leases.

As of December 31, 2015, our cash balance was $15.6 million, our accounts receivable (billed and unbilled) balance was $1.5 million, and our current liabilities were $2.2 million. As of December 31, 2015, we had approximately $3.0 million of remaining availability under our controlled equity offering arrangement, although we did not sell any shares of common stock under such facility during the year ended December 31, 2015 (see Note 8 – Stockholders’ Equity – Controlled Equity Offering). We believe, based on the operating cash requirements and capital expenditures expected for 2016, the Company’s cash on hand at December 31, 2015 is adequate to fund operations for at least the next twelve months. On September 3, 2015, we satisfied in full our remaining obligations under our March 2012 Loan Agreement with General Electric Capital Corporation (“GE Capital”), as discussed further in Note 6- Financing Transactions.

We can offer no assurances that we have correctly estimated the resources or personnel necessary to seek partners, co-developers or acquirers for our biodefense programs or execute under our NIAID contract. If a larger workforce or one with a different skillset is ultimately required to implement our Realignment Plan successfully, we may be unable to maximize the value of the SIGA litigation and our existing biodefense assets. In addition, in connection with the Realignment Plan, executive officers who have served the Company for many years have been terminated, and, with the exception of Mr. Richman’s continued service on the Board, will no longer be available to guide the Company. We also cannot assure you that we have accurately estimated the cash and cash equivalents necessary to finance our operations until we have received SIGA’s payment, if any. If revenues from our NIAID contract are less than we anticipate, if operating expenses exceed our expectations or cannot be adjusted accordingly, or if we have underestimated the time it will take for us to enforce payment of or collect any damages award from SIGA, then our business, results of operations, financial condition and cash flows will be materially and adversely affected.

In addition, we may raise additional capital to strengthen our financial position. There can be no assurances that we would be successful in raising additional funds on acceptable terms or at all. Additional sales of common stock may be made at prices that are dilutive to existing stockholders.