Pursuant to the Merger Agreement, the Company closed the Mergers with PharmAthene on May 4, 2017. In accordance with the terms of the Merger Agreement, PharmAthene issued 0.02497 (the “share exchange ratio”) of a share of PharmAthene common stock for each share of Private Altimmune’s common stock (“common stock”) outstanding as of the closing date. All historical share and per share information including common and preferred stock, restricted stock, common stock warrants, and stock options, has been retroactively adjusted to reflect the effect of the share exchange ratio. In addition, Private Altimmune’s stock options and warrants were also replaced with options and warrants to purchase PharmAthene’s common stock at the same share exchange ratio of 0.02497 share. Immediately prior to closing, 19,976 shares of Series B convertible preferred stock (“convertible preferred stock”) converted into Private Altimmune common stock on a 1-for-1 basis. Due to the convertible preferred stock having unique terms and conditions, the convertible preferred stock outstanding in periods prior to the Mergers continues to be presented separately on our balance sheet for periods prior to conversion. In addition, outstanding principal and accrued interest on the Notes converted into 10,558 shares of Private Altimmune common stock. Further, 1,325 shares of Private Altimmune common stock were issued pursuant to the accelerated vesting of restricted stock, and 22,024 shares of Private Altimmune common stock were issued as a result of warrant exercises, both in accordance with their original terms. Upon the closing of the Mergers, Private Altimmune common stock totaling 229,450 shares were exchanged for 229,450 shares of PharmAthene common stock.

Although PharmAthene was the issuer of the shares and considered the legal acquirer in the Mergers, following the closing, shareholders of Private Altimmune held 58.2% of the equity interest of the combined entity and assumed control of the combined entity. As a result, the transaction has been accounted for as a reverse merger, with Private Altimmune considered the accounting acquirer, and the assets and liabilities of PharmAthene have been recorded at their estimated fair value. The unadjusted purchase price allocated to PharmAthene’s assets and liabilities was estimated to be $44,742,737 as of the closing date and consisted of the shares of the combined company retained by PharmAthene shareholders, and the estimated fair value of vested PharmAthene stock options and warrants which remained outstanding as of the closing date. Also at the closing, 252 outstanding unvested options of PharmAthene with an estimated fair value of $15,173 remained subject to vesting and service requirements. These unvested options are recorded as operating expense as the services are delivered and the options vest.

Headquartered in Annapolis, Maryland, PharmAthene was incorporated in Delaware in April 2005. PharmAthene was a biodefense company engaged in Phase 2 clinical trials in developing a next generation anthrax vaccine. The next generation vaccine is intended to have more rapid time to protection, fewer doses for protection and less stringent requirements for temperature-controlled storage and handling than the currently used vaccine. The Mergers enable the combined company to become a fully integrated, commercially-focused immunotherapeutics company with the ability to create more value than either company could achieve individually. As a publicly listed entity, the Mergers also provide us with additional capital financing alternatives to support the combined entity’s planned research and development activities.

In addition to the operating assets and liabilities of PharmAthene, Private Altimmune also acquired PharmAthene’s tax attributes, which primarily consisted of a tax refund receivable and $965,583 of net operating losses (“NOLs”) which were limited under Section 382 of the U.S. Internal Revenue Service and were fully reserved, which will expire in 2023. The Company initially recorded a deferred tax liability related to future tax benefits arising from an in-process research and development asset (“IPR&D”) acquired in the Mergers. Goodwill generated from the Mergers is not expected to be deductible for tax purposes.

For accounting purposes, the historical financial statements of Private Altimmune have not been adjusted to reflect the Mergers, other than adjustments to the capital structure of Private Altimmune to reflect the historical capital structure of PharmAthene. Private Altimmune incurred $2,183,671 of transaction costs, which were expensed as incurred in the accompanying consolidated financial statements in the year ended December 31, 2017.

The following table lists the various securities of PharmAthene which were outstanding as of May 4, 2017 and whose rights and obligations were assumed by the combined entity following the Mergers:

Outstanding PharmAthene common stock		229,450
Outstanding PharmAthene stock options		4,100
Outstanding PharmAthene stock warrants		155
Per share fair value of PharmAthene common stock	$	195.00
Weighted average per share fair value of PharmAthene stock options, vested and unvested	$	7.80
Per share fair value of PharmAthene stock warrants	$	0.30
Aggregate fair value of consideration	$	44,757,910
Less fair value of unvested common stock options		(15,173	)
Total fair value of consideration	$	44,742,737

Through December 31, 2017, the Company recorded adjustments to the allocation of the purchase consideration that included a $44,700 adjustment to increase our tax refund receivable and a $4,535 adjustment to reduce our deferred tax liabilities, with a total adjustment of $49,235 resulting in an increase in goodwill. The adjustments were the result of a change in the tax rate being applied from 34% to 35%. These purchase price adjustments were reflected in the accompanying consolidated balance sheet as of December 31, 2017.

During the year ended December 31, 2018, the Company recorded additional adjustments to the purchase price allocation resulting in a net decrease in tax refunds receivable, with a corresponding net increase in goodwill, of $490,676, which was immediately written off and included within impairment charges within the statement of operations during the year ended December 31, 2018. The initial tax receivable was recorded based on an estimate of taxable loss for PharmAthene’s operations from January 1, 2017 to May 4, 2017 prior to the Mergers. During the preparation of its tax return, management revised its taxable loss calculations for warrant expenses and state tax refunds, resulting in the decrease to tax refunds receivable.

The measurement period ended on the one-year anniversary of the Merger, and accordingly the purchase price allocation is considered final. The final adjusted allocation of the purchase consideration is as follows:

Cash and cash equivalents	$	13,684,535
Accounts receivable		1,124,462
Prepaid expenses and other current assets		597,172
Tax refund receivable		1,556,558
Property and equipment		75,779
IPR&D		22,389,000
Goodwill		16,064,498
Total assets acquired		55,492,004
Accounts payable and accrued expenses		(2,193,785	)
Deferred tax liability		(8,555,482	)
Total liabilities assumed		(10,749,267	)
Net assets acquired	$	44,742,737

The Company relied on significant Level 3 unobservable inputs to estimate the fair value of acquired IPR&D assets using management’s estimate of future revenue and expected profitability of the products after taking into account an estimate of future expenses, net of contract revenue and other funding, necessary to bring the products to completion. These projected cash flows were then discounted to their present values using a discount rate of 23%, which was considered commensurate with the risks and stages of development of the products.

From the date of the Mergers through December 31, 2017, the Company experienced a significant decline in the trading price of its common stock which indicated potential impairment of goodwill. Based on the results of our impairment tests performed during 2017, we had concluded that our goodwill was impaired and its full carrying value, including goodwill generated from the Mergers, was written off as an impairment charge during the year ended December 31, 2017. During the year ended December 31, 2018, as discussed above, the Company recorded an additional goodwill impairment charge of $490,676 as a result of the purchase price allocation adjustments recorded during the period. There was no goodwill balance outstanding at December 31, 2018.

The operating activities of PharmAthene have been included in the accompanying consolidated financial statements from the date of the Mergers. For the period from May 4, 2017 to December 31, 2017, revenues and net loss of PharmAthene included in the accompanying consolidated financial statements aggregated $1,765,212 and $36,003, respectively.

The following unaudited pro forma information for the year ended December 31, 2017 gives effect to the acquisition of PharmAthene as if the Mergers had occurred at the beginning of the respective full annual reporting period:

Pro forma revenue and grants and contracts	$	11,844,273
Pro forma net (loss) income attributable to common stockholders	$	(52,315,978	)
Pro forma weighted average common shares outstanding, basic		518,262
Pro forma net (loss) income per share, basic	$	(100.95	)
Pro forma weighted average common shares outstanding, diluted		518,262
Pro forma net (loss) income per share, diluted	$	(100.95	)

Significant nonrecurring pro forma adjustments included the reversal of (i) acquisition costs of $1,512,423; (ii) PharmAthene stock compensation expenses of $66,180; (iii) the change in fair value of derivatives of $90,191; (iv) $148,521 of interest expense from notes to be converted; and (v) $163,068 of dividends accrued which would not have happened for the year ended December 31, 2017 or would have been incurred prior to the pro forma acquisition date had the Mergers occurred on January 1, 2017.