UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June
30, 2015
or
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-32587
PHARMATHENE, INC.
(Exact name of registrant as specified in
its charter)
Delaware |
|
20-2726770 |
(State or other jurisdiction of incorporation or) |
|
(I.R.S. Employer Identification No.) |
|
|
|
One Park Place, Suite 450, Annapolis, Maryland |
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21401 |
(Address of principal executive offices) |
|
(Zip Code) |
|
|
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(410) 269-2600
(Registrant’s telephone number, including area code)
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 ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer ¨ |
|
Accelerated Filer x |
|
|
|
Non-Accelerated Filer ¨ |
|
Smaller Reporting Company ¨ |
(Do not check if a smaller reporting company) |
|
|
|
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date: The number of shares of the registrant’s
Common Stock, par value $0.0001 per share, outstanding as of August 3, 2015 was 64,224,374.
PHARMATHENE, INC.
TABLE OF CONTENTS
Item 1. Financial Statements
PHARMATHENE, INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
June 30 | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 18,411,839 | | |
$ | 18,643,351 | |
Billed accounts receivable | |
| 387,635 | | |
| 110,656 | |
Unbilled accounts receivable | |
| 790,185 | | |
| 297,431 | |
Prepaid expenses and other current assets | |
| 316,014 | | |
| 199,194 | |
Total current assets | |
| 19,905,673 | | |
| 19,250,632 | |
| |
| | | |
| | |
Property and equipment, net | |
| 308,256 | | |
| 325,772 | |
Other long-term assets and deferred costs | |
| 53,384 | | |
| 53,384 | |
Goodwill | |
| 2,348,453 | | |
| 2,348,453 | |
Total assets | |
$ | 22,615,766 | | |
$ | 21,978,241 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 208,456 | | |
$ | 391,396 | |
Accrued expenses and other liabilities | |
| 1,904,387 | | |
| 1,195,412 | |
Accrued restructuring expenses | |
| 790,617 | | |
| - | |
Short-term debt | |
| 249,491 | | |
| 746,146 | |
Other short-term liabilities | |
| 74,233 | | |
| 70,326 | |
Current portion of derivative instruments | |
| 108,302 | | |
| 178,509 | |
Total current liabilities | |
| 3,335,486 | | |
| 2,581,789 | |
| |
| | | |
| | |
Other long-term liabilities | |
| 462,621 | | |
| 493,137 | |
Derivative instruments, less current portion | |
| 481,747 | | |
| 629,170 | |
Total liabilities | |
| 4,279,854 | | |
| 3,704,096 | |
| |
| | | |
| | |
Stockholders' equity: | |
| | | |
| | |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 63,912,193 and 63,603,303 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively | |
| 6,391 | | |
| 6,360 | |
Additional paid-in-capital | |
| 239,490,378 | | |
| 238,780,633 | |
Accumulated other comprehensive loss | |
| - | | |
| (229,528 | ) |
Accumulated deficit | |
| (221,160,857 | ) | |
| (220,283,320 | ) |
Total stockholders' equity | |
| 18,335,912 | | |
| 18,274,145 | |
Total liabilities and stockholders' equity | |
$ | 22,615,766 | | |
$ | 21,978,241 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
PHARMATHENE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Contract revenue | |
$ | 1,149,570 | | |
$ | 3,658,933 | | |
$ | 8,218,316 | | |
$ | 7,401,458 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 1,222,527 | | |
| 2,372,687 | | |
| 2,836,154 | | |
| 5,799,687 | |
General and administrative | |
| 1,819,241 | | |
| 2,419,909 | | |
| 4,015,361 | | |
| 5,097,361 | |
Restructuring expense | |
| 35,982 | | |
| - | | |
| 2,096,791 | | |
| - | |
Depreciation | |
| 36,687 | | |
| 36,208 | | |
| 73,793 | | |
| 76,147 | |
Total operating expenses | |
| 3,114,437 | | |
| 4,828,804 | | |
| 9,022,099 | | |
| 10,973,195 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
$ | (1,964,867 | ) | |
$ | (1,169,871 | ) | |
$ | (803,783 | ) | |
$ | (3,571,737 | ) |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (13,279 | ) | |
| (56,554 | ) | |
| (38,604 | ) | |
| (126,426 | ) |
Realization of cumulative translation adjustment | |
| (229,192 | ) | |
| - | | |
| (229,192 | ) | |
| - | |
Change in fair value of derivative instruments | |
| (120,615 | ) | |
| 782,549 | | |
| 217,630 | | |
| 1,025,190 | |
Other income (expense) | |
| (1,911 | ) | |
| (1,912 | ) | |
| 7,285 | | |
| (1,550 | ) |
Total other income (expense) | |
| (364,997 | ) | |
| 724,083 | | |
| (42,881 | ) | |
| 897,214 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss before income taxes | |
| (2,329,864 | ) | |
| (445,788 | ) | |
| (846,664 | ) | |
| (2,674,523 | ) |
Income tax (provision) benefit | |
| (11,068 | ) | |
| 6,668 | | |
| (30,873 | ) | |
| (23,037 | ) |
Net loss | |
$ | (2,340,932 | ) | |
$ | (439,120 | ) | |
$ | (877,537 | ) | |
$ | (2,697,560 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.04 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.05 | ) |
Weighted average shares used in calculation of basic and diluted net loss per share | |
| 63,745,834 | | |
| 54,670,870 | | |
| 63,691,214 | | |
| 53,861,988 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
PHARMATHENE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net loss | |
$ | (2,340,932 | ) | |
$ | (439,120 | ) | |
$ | (877,537 | ) | |
$ | (2,697,560 | ) |
Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| (1,410 | ) | |
| (636 | ) | |
| 336 | | |
| (1,293 | ) |
Realization of cumulative translation adjustment included in net loss | |
| 229,192 | | |
| - | | |
| 229,192 | | |
| - | |
Comprehensive loss | |
$ | (2,113,150 | ) | |
$ | (439,756 | ) | |
$ | (648,009 | ) | |
$ | (2,698,853 | ) |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
PHARMATHENE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
| |
Six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating activities | |
| | | |
| | |
Net loss | |
$ | (877,537 | ) | |
$ | (2,697,560 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Realization of cumulative translation adjustment | |
| 229,192 | | |
| - | |
Share-based compensation expense | |
| 333,231 | | |
| 891,983 | |
Change in fair value of derivative instruments | |
| (217,630 | ) | |
| (1,025,190 | ) |
Depreciation expense | |
| 73,793 | | |
| 76,147 | |
Deferred income taxes | |
| 30,873 | | |
| 23,037 | |
Non-cash interest expense | |
| 17,879 | | |
| 49,311 | |
Gain on the disposal of property and equipment | |
| (7,600 | ) | |
| (5,393 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Billed accounts receivable | |
| (276,979 | ) | |
| 1,427,113 | |
Unbilled accounts receivable | |
| (492,754 | ) | |
| 1,582,129 | |
Prepaid expenses and other current assets | |
| (127,433 | ) | |
| (278,333 | ) |
Accounts payable | |
| (182,940 | ) | |
| (690,790 | ) |
Accrued restructuring expenses | |
| 790,617 | | |
| - | |
Accrued expenses and other liabilities | |
| 647,233 | | |
| (1,838,131 | ) |
Deferred revenue | |
| - | | |
| (341,723 | ) |
Net cash used in operating activities | |
| (60,055 | ) | |
| (2,827,400 | ) |
Investing activities | |
| | | |
| | |
Purchases of property and equipment | |
| (56,277 | ) | |
| (79,227 | ) |
Proceeds from the sale of property and equipment | |
| 7,600 | | |
| 8,000 | |
Net cash used in investing activities | |
| (48,677 | ) | |
| (71,227 | ) |
Financing activities | |
| | | |
| | |
Repayment of debt | |
| (499,998 | ) | |
| (499,998 | ) |
Net repayment of revolving credit agreement | |
| - | | |
| (1,091,740 | ) |
Proceeds from issuance of common stock, net of offering costs | |
| 376,545 | | |
| 5,275,584 | |
Net cash (used in) provided by financing activities | |
| (123,453 | ) | |
| 3,683,846 | |
Effects of exchange rates on cash | |
| 673 | | |
| (1,116 | ) |
(Decrease) increase in cash and cash equivalents | |
| (231,512 | ) | |
| 784,103 | |
Cash and cash equivalents, at beginning of period | |
| 18,643,351 | | |
| 10,480,979 | |
Cash and cash equivalents, at end of period | |
$ | 18,411,839 | | |
$ | 11,265,082 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information | |
| | | |
| | |
Cash paid for interest | |
$ | 21,452 | | |
$ | 77,797 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
PHARMATHENE, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
June 30, 2015
Note 1 – Business, Liquidity and Organization
Since 2001, PharmAthene, Inc. ("we",
the "Company") has been a biodefense company engaged in the development of next generation medical counter measures against
biological and chemical threats. During this time, we have devoted substantial effort and resources to the development of the prevention
and treatment of anthrax infection and nerve agent poisoning.
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 the
adjudication of SIGA’s appeal. 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 the
National Institutes of Allergy and Infectious Diseases (“NIAID”). The Company estimates total severance payments
to executives and non-executives in connection with the Realignment Plan to amount to approximately $2.0 million (all of
which was expensed and accrued as of June 30, 2015), with substantially all such severance expenses expected to be 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 $221.2 million. While we have undertaken efforts to reduce expenses, and expect that our operating
expenses will continue to decrease as a result of our Realignment Plan, we expect continuing losses in the future. 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.
As of June 30, 2015, our cash balance
was $18.4 million, our accounts receivable balance (billed and unbilled) was $1.2 million, and our current liabilities were
$3.3 million. As of June 30, 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 three and six months
ended June 30, 2015 (see Note 6 – Financing Transactions – Controlled Equity Offering). We believe,
based on the operating cash requirements and capital expenditures expected for 2015, the Company’s cash on hand at June
30, 2015 is adequate to fund operations through at least the end of 2016. We currently owe General Electric Capital
(“GE Capital”) an aggregate of approximately $0.3 million under our Loan Agreement with them. This amount is
payable at maturity in September 2015.
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 SIGA’s appeal has been adjudicated and 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 prevail in
SIGA’s appeal, or enforce payment of or collect any damages award from SIGA, or if we do not prevail on appeal, then
our business, results of operations, financial condition and cash flows will be materially and adversely affected.
In addition, we may voluntarily elect to
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.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
Our unaudited condensed consolidated financial
statements include the accounts of PharmAthene, Inc. and its wholly-owned subsidiary. All significant intercompany transactions
and balances have been eliminated in consolidation. Our unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management,
the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring
adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The condensed
consolidated balance sheet at December 31, 2014 has been derived from audited consolidated financial statements at that date. The
interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information
and footnote disclosure normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed
or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”).
We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited
condensed consolidated financial statements are read in conjunction with the Consolidated Financial Statements and Notes included
in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC. We currently operate in one business
segment.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Our unaudited condensed consolidated financial statements include significant
estimates for our share-based compensation and the value of our financial instruments, among other things. Because of the use of
estimates inherent in the financial reporting process, actual results could differ significantly from those estimates.
Foreign Currency Translation
The functional currency of our wholly-owned
foreign subsidiary, PharmAthene UK Limited, is its local currency. Assets and liabilities of our foreign subsidiary are translated
into United States dollars based on the exchange rate at the end of the reporting period. Income and expense items are translated
at the weighted average exchange rates prevailing during the reporting period. Translation adjustments for subsidiaries that have
not been sold, substantially liquidated or otherwise disposed of, are accumulated in other comprehensive loss, a component of stockholders’
equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive loss at December 31,
2014. Transaction gains or losses are included in the determination of net income (loss).
In June 2015, we substantially completed
the liquidation of PharmAthene UK Limited, our United Kingdom subsidiary, which we had acquired in 2008. Prior to substantially
liquidating the UK subsidiary, currency fluctuations were recorded as foreign currency translation adjustments, a component of
other comprehensive income. As a result of the substantially completed liquidation, we realized an approximate loss of $0.2 million
in our condensed consolidated statements of operations, which represents the amount of previously recorded foreign currency translation
adjustments related to our UK subsidiary.
Cash and Cash Equivalents
Cash and cash equivalents are stated
at cost which approximates market value and include investments in money market funds with financial institutions which are
stated at market value. The Company maintains cash balances with financial institutions in excess of insured limits. The
Company does not anticipate any losses on such cash balances.
Revolving Line of Credit and Term Loan
As discussed further in Note 6- Financing
Transactions, we entered into a loan agreement with GE Capital in March 2012. As part of that agreement, we issued a
stock purchase warrant to GE Capital that expires in March 2022. The fair value of the warrant was charged to additional
paid-in-capital, resulting in a debt discount to the term loan at the date of issuance. The debt discount and the financing
costs incurred in connection with the agreement are being amortized over the term of the loan using the effective interest
method and are included in interest expense, net in the unaudited condensed consolidated statements of operations.
Significant Customers and Accounts Receivable
Our primary customers are NIAID, and the Biomedical Advanced Research Development Authority ("BARDA"). As of June 30, 2015
and December 31, 2014, the Company's receivable balances (both billed and unbilled) were comprised of receivables from these
customers.
Goodwill
Goodwill represents
the excess of purchase price over the fair value of net identifiable assets associated with acquisitions. We review the recoverability
of goodwill annually at the end of our fiscal year and whenever events or changes in circumstances indicate that it is more likely
than not that impairment exists. Recoverability of goodwill is reviewed by comparing our market value (as measured by our stock
price multiplied by the number of outstanding shares as of the end of the year) to the net book value of our equity. If our market
value exceeds our net book value, no further analysis is required. We completed our annual impairment assessment of goodwill on
December 31, 2014 and determined that there was no impairment as of that date.
Changes in our business
strategy or adverse changes in market conditions could impact the impairment analyses and require the recognition of an impairment
charge equal to the excess of the carrying value over its estimated fair value.
Restructuring Expense
As a result of the Realignment Plan, we
recorded approximately $0.04 million and $2.1 million of restructuring expense during the three and six months ended June 30, 2015,
respectively, including approximately $2.0 million of related severance expense, and the remainder being legal and other employee related expenses. Accrued restructuring expenses decreased $1.1 million
during the three months ended June 30, 2015.
Financial Instruments
Our financial instruments, and/or embedded
features contained in those instruments, often are classified as derivative liabilities and are recorded at their fair values.
The determination of fair value of these instruments and features requires estimates and judgments. Some of our stock purchase
warrants are considered to be derivative liabilities due to the presence of net settlement features and/or non-standard anti-dilution
provisions; the fair value of our warrants is determined based on the Black-Scholes option pricing model. Use of the Black-Scholes
option pricing model requires the use of unobservable inputs such as the expected term, anticipated volatility and expected dividends.
See Note 3 – Fair Value Measurements for further details.
Revenue Recognition
We generate our revenue from different
types of contractual arrangements: cost-plus-fee contracts and fixed price contracts.
Revenues on cost-plus-fee contracts are
recognized in an amount equal to the costs incurred during the period plus an estimate of the applicable fee earned. The estimate
of the applicable fee earned is determined by reference to the contract: if the contract defines the fee in terms of risk-based
milestones and specifies the fees to be earned upon the completion of each milestone, then the fee is recognized when the related
milestones are earned, as further described below; otherwise, we estimate the fee earned in a given period by using a proportional
performance method based on costs incurred during the period as compared to total estimated project costs and application of the
resulting fraction to the total project fee specified in the contract.
Under the milestone method of revenue recognition,
milestone payments (including milestone payments for fees) contained in research and development arrangements are recognized as
revenue when: (i) the milestones are achieved; (ii) no further performance obligations with respect to the milestone exist; (iii)
collection is reasonably assured; and (iv) substantive effort was necessary to achieve the milestone.
Milestones are considered substantive if
all of the following conditions are met:
| · | it is commensurate with either our performance to meet the milestone or the enhancement of the
value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone, |
| · | it relates solely to past performance, and |
| · | the value of the milestone is reasonable relative to all the deliverables and payment terms (including
other potential milestone consideration) within the arrangement. |
If a milestone is deemed not to be substantive,
the Company recognizes the portion of the milestone payment as revenue that correlates to work already performed using the proportional
performance method; the remaining portion of the milestone payment is deferred and recognized as revenue as the Company completes
its performance obligations.
Revenue on fixed price contracts (without
substantive milestones as described above) is recognized on the percentage-of-completion method. The percentage-of-completion method
recognizes income as the contract progresses (generally related to the costs incurred in providing the services required under
the contract). The use of the percentage-of-completion method depends on the ability to make reasonable dependable estimates and
the fact that circumstances may necessitate frequent revision of estimates does not indicate that the estimates are unreliable
for the purpose for which they are used.
As a result of our revenue recognition
policies and the billing provisions contained in our contracts, the timing of customer billings may differ from the timing of recognizing
revenue. Amounts invoiced to customers in excess of revenue recognized are reflected on the balance sheet as deferred revenue.
Amounts recognized as revenue in excess of amounts billed to customers are reflected on the balance sheet as unbilled accounts
receivable.
Upon notice of termination of a contract
from the government, all related termination costs are expensed. Revenue is recognized on the termination costs to the extent those
costs are allowable and billable under the contract. Because the government may require an audit of incurred costs, revenue is
recognized when the Company is reasonably assured of collection.
Share-Based Compensation
We expense the estimated fair value of
share-based awards granted to employees, non-employee directors, and consultants under our stock compensation plans. The fair value
of stock options granted to employees and non-employee directors is determined at the grant date using the Black-Scholes option
pricing model. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected
volatility of our stock price. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the employee’s requisite service period.
The fair value of share-based awards granted
to consultants is determined at the grant date using the Black-Scholes option pricing model and re-measured at each quarterly reporting
date over their requisite service period. The value of awards that are ultimately expected to vest is recognized as expense on
a straight-line basis over their requisite service period.
The fair value of restricted stock grants
is determined based on the closing price of our common stock on the award date and is recognized as expense ratably over the requisite
service period.
Share-based compensation expense recognized
in the three months and six months ended June 30, 2015 and 2014 was calculated based on awards ultimately expected to vest and
has been reduced for estimated forfeitures.
Share-based compensation expense for the
three months ended June 30, 2015 and 2014 was:
| |
Three months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Research and development | |
$ | 12,490 | | |
$ | 87,304 | |
General and administrative | |
| 121,114 | | |
| 275,801 | |
Total share-based compensation expense | |
$ | 133,604 | | |
$ | 363,105 | |
During the three months ended June
30, 2015, we made no grants of options or shares of restricted stock to employees and consultants. During the three months
ended June 30, 2014, we granted options to purchase 140,000 shares of common stock to employees and consultants and made
no restricted stock grants.
Share-based compensation expense for the
six months ended June 30, 2015 and 2014 was:
| |
Six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Research and development | |
$ | 73,225 | | |
$ | 277,221 | |
General and administrative | |
| 313,747 | | |
| 614,762 | |
Restructuring benefit | |
| (53,741 | ) | |
| - | |
Total share-based compensation expense | |
$ | 333,231 | | |
$ | 891,983 | |
As a result of the restructuring and termination
of employees, during the six months ended June 30, 2015, we recognized approximately $75,000 of share-based compensation expense
resulting from our agreement to extend the exercise period of the vested stock options for several of the executives who were terminated.
In addition, approximately $129,000 of previously recognized share-based compensation expense was reversed for unvested stock options
forfeited as a result of the restructuring and termination of employees. The $54,000 net reversal of share-based compensation expense
is reflected in restructuring benefit in the above table.
During the six months ended June
30, 2015, we granted options to purchase 12,000 shares of common stock and 117,500 shares of restricted stock to employees.
During the six months ended June 30, 2014, we granted options to purchase 1,357,755 shares of common stock to employees
and consultants and made no restricted stock grants.
At June 30, 2015, we had total unrecognized
share-based compensation expense related to unvested awards of approximately $0.9 million net of estimated forfeitures, which we
expect to recognize as expense over a weighted-average period of 2.5 years.
Income Taxes
We account for income taxes using the asset
and liability approach, which requires the recognition of future tax benefits or liabilities on the temporary differences between
the financial reporting and tax bases of our assets and liabilities. A valuation allowance is established when necessary to reduce
deferred tax assets to the amounts expected to be realized. We also recognize a tax benefit from uncertain tax positions only if
it is “more likely than not” that the position is sustainable based on its technical merits. Our policy is to recognize
interest and penalties on uncertain tax positions as a component of income tax expense. As of June 30, 2015 and December 31, 2014,
we had recognized a full valuation allowance since the likelihood of realization of our tax deferred assets does not meet the more
likely than not threshold.
Income tax expense (benefit) was $0.01
million and $(0.01) million during the three months ended June 30, 2015 and 2014, respectively, and $0.03 million and $0.02 million
during the six months ended June 30, 2015 and 2014, respectively, relating exclusively to the generation of a deferred tax liability
associated with the tax amortization of goodwill, which is included as a component of other long-term liabilities on our condensed
consolidated balance sheets. The income tax expense results from the difference between the treatment of goodwill for income tax
purposes and for U.S. GAAP.
Basic and Diluted Net Loss Per Share
Income (loss) per share: Basic income
(loss) per share is computed by dividing consolidated net income (loss) by the weighted average number of common shares outstanding
during the period, excluding unvested restricted stock.
For periods of net income when the effects
are not anti-dilutive, diluted earnings per share is computed by dividing our net income by the weighted average number of shares
outstanding and the impact of all potential dilutive common shares, consisting primarily of stock options, unvested restricted
stock and stock purchase warrants. The dilutive impact of our potentially dilutive common shares resulting from stock options and
stock purchase warrants is determined by applying the treasury stock method. For periods of net loss, diluted loss per share is
calculated similarly to basic loss per share because the impact of all potentially dilutive common shares is anti-dilutive due
to the net losses.
A total of approximately 7.2 million and
12.4 million potentially dilutive securities have been excluded in the calculation of diluted net income (loss) per share in the
three months ended June 30, 2015 and 2014, respectively, because their inclusion would be anti-dilutive.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 clarifies
the principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance
affects entities that enter into contracts with customers to transfer goods or services, and supersedes prior GAAP guidance,
namely Accounting Standards Codification Topic 605 - Revenue Recognition. On July 9, 2015, the FASB voted and approved to
defer the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 will be effective for fiscal years beginning
after December 15, 2017, with early adoption permitted but not prior to the original effective date of annual periods beginning
after December 15, 2016. ASU No. 2104-09 is to be applied retrospectively, or on a modified retrospective basis. We are currently
evaluating the impact of adopting ASU No. 2014-09 on our consolidated financial statements.
In April 2015, the FASB issued ASU
No. 2015-03, Interest – Imputation of Interest, or ASU No. 2015-03. To simplify presentation of debt issuance costs,
the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The
amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015,
and interim periods within those fiscal years. We expect that the impact of adoption on our consolidated
financial statements will be immaterial.
Note 3 - Fair Value Measurements
The carrying amounts of our short term
financial instruments, which primarily include cash and cash equivalents, accounts receivable (billed and unbilled), and accounts
payable approximate their fair values due to their short term maturities. We define fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants at the measurement date. We report assets and liabilities that
are measured at fair value using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This
hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
| · | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| · | Level 3 — Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies
and similar techniques that use significant unobservable inputs. |
An asset’s or liability’s level
within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At
each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets
and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently
and therefore have little or no price transparency are classified as Level 3.
We have segregated our financial assets
and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs
used to determine the fair value at the measurement date in the table below. We have no non-financial assets and liabilities that
are measured at fair value on a recurring basis.
The following table represents the Company’s
fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:
| |
As of June 30, 2015 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Balance | |
| |
| | |
| | |
| | |
| |
Assets | |
| | | |
| | | |
| | | |
| | |
Investment in money market funds(1) | |
$ | 6,429,777 | | |
$ | - | | |
$ | - | | |
$ | 6,429,777 | |
Total investment in money market funds | |
$ | 6,429,777 | | |
$ | - | | |
$ | - | | |
$ | 6,429,777 | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Current portion of derivative instruments related to stock purchase warrants | |
$ | - | | |
$ | - | | |
$ | 108,302 | | |
$ | 108,302 | |
Non-current portion of derivative instruments related to stock purchase warrants | |
| - | | |
| - | | |
| 481,747 | | |
| 481,747 | |
Total derivative instruments related to stock purchase warrants | |
$ | - | | |
$ | - | | |
$ | 590,049 | | |
$ | 590,049 | |
| |
As of December 31, 2014 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Balance | |
| |
| | |
| | |
| | |
| |
Assets | |
| | | |
| | | |
| | | |
| | |
Investment in money market funds(1) | |
$ | 6,429,104 | | |
$ | - | | |
$ | - | | |
$ | 6,429,104 | |
Total investment in money market funds | |
$ | 6,429,104 | | |
$ | - | | |
$ | - | | |
$ | 6,429,104 | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Current portion of derivative instruments related to stock purchase warrants | |
$ | - | | |
$ | - | | |
$ | 178,509 | | |
$ | 178,509 | |
Non-current portion of derivative instruments related to stock purchase warrants | |
| - | | |
| - | | |
| 629,170 | | |
| 629,170 | |
Total derivative instruments related to stock purchase warrants | |
$ | - | | |
$ | - | | |
$ | 807,679 | | |
$ | 807,679 | |
| (1) | Included in cash and cash equivalents on the accompanying condensed consolidated balance sheets. |
The following table sets forth a summary of changes in the fair
value of the Company’s Level 3 liabilities for the six months ended June 30, 2015 and 2014:
| |
Balance as of | | |
Unrealized | | |
Balance as of | |
| |
December 31, | | |
(Gains) | | |
June 30, | |
Description | |
2014 | | |
2015 | | |
2015 | |
Derivative liabilities related to stock purchase warrants | |
$ | 807,679 | | |
$ | (217,630 | ) | |
$ | 590,049 | |
| |
Balance as of | | |
Unrealized | | |
Balance as of | |
| |
December 31, | | |
(Gains) | | |
June 30, | |
Description | |
2013 | | |
2014 | | |
2014 | |
Derivative liabilities related to stock purchase warrants | |
$ | 1,740,235 | | |
$ | (1,025,190 | ) | |
$ | 715,045 | |
At June 30, 2015 and 2014, derivative liabilities
are comprised of warrants to purchase 1,775,419 and 2,899,991 shares of common stock, respectively. The warrants are considered
to be derivative liabilities due to the presence of net settlement features and/or non-standard anti-dilution provisions, and as
a result, are recorded at fair value at each balance sheet date, with changes in fair value recorded in the accompanying unaudited
condensed consolidated statements of operations. The fair value of our warrants is determined based on the Black-Scholes option
pricing model. Use of the Black-Scholes option pricing model requires the use of unobservable inputs such as the expected term,
anticipated volatility and expected dividends. Changes in any of the assumptions related to the unobservable inputs identified
above may change the stock purchase warrants’ fair value; increases in expected term, anticipated volatility and expected
dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases
in fair value. Unrealized gains and losses on the fair value adjustments for these derivative instruments are classified in other
income (expense) as the change in fair value of derivative instruments in the accompanying unaudited condensed consolidated statements
of operations.
Quantitative Information about Level 3 Fair Value Measurements |
Fair Value at June 30, 2015 | | |
Valuation Technique | |
Unobservable Inputs |
$ | 590,049 | | |
Black-Scholes option pricing model | |
Expected term |
| | | |
| |
Expected dividends |
| | | |
| |
Anticipated volatility |
Assets Measured at Fair Value on a Nonrecurring Basis
The Company measures its long-lived assets,
including, property and equipment and goodwill, at fair value on a nonrecurring basis. These assets are recognized at fair value
when they are deemed to be other-than-temporarily impaired. As of June 30, 2015, the Company had no other assets or liabilities
that were measured at fair value on a nonrecurring basis.
Note 4 - Commitments and Contingencies
SIGA Litigation
In December 2006, we filed a complaint
against SIGA in the Delaware Court of Chancery. The complaint alleged, among other things, that we have the exclusive right to
license, development and marketing rights for SIGA’s drug candidate, Arestvyr™ (Tecovirimat), pursuant to
a merger agreement between the parties that was terminated in 2006. The complaint also alleged that SIGA failed to negotiate in
good faith the terms of such a license pursuant to the terminated merger agreement with SIGA.
In September 2011, the Delaware Court of
Chancery issued an opinion in the case finding that SIGA had breached certain contractual obligations to us upholding our claims
of promissory estoppel, and awarding us damages. SIGA appealed aspects of the decision to the Delaware Supreme Court. In response,
we cross-appealed other aspects of the decision. In May 2013, the Delaware Supreme Court issued its ruling on the appeal, affirming
the Delaware Court of Chancery’s finding that SIGA had breached certain contractual obligations to us, reversed its finding
of promissory estoppel, and remanded the case back to the Delaware Court of Chancery to reconsider the remedy and award in light
of the Delaware Supreme Court’s opinion.
On August 8, 2014, the Delaware Court of
Chancery issued a Memorandum Opinion and Order, or August 2014 Order, finding that we are entitled to receive lump sum expectation
damages for the value of the Company’s lost profits for Tecovirimat. In addition, the Delaware Court of Chancery found that
the Company is entitled to receive pre-judgment interest and varying percentages of the Company’s reasonable attorneys’
and expert witness fees. On October 17, 2014, the Company and SIGA each filed opinions of our respective financial experts and
Draft Orders and Judgments in accordance with the instructions of the August 2014 Order.
On September 16, 2014, SIGA announced that
it filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York. In connection therewith, SIGA filed with the Bankruptcy Court an affidavit indicating, among
other things, that it expects to continue to perform under its contract with BARDA. SIGA’s petition for bankruptcy initiated
a process whereby its assets are protected from creditors, including us.
On January 7, 2015, the Delaware Court
of Chancery issued a letter Opinion and Order, directing the Company to submit a Revised Proposed Judgment that reflects a lump
sum award of approximately $113 million in contract expectation damages, plus pre-judgment interest on that amount from 2006 through
the date of such order. In accordance with the instructions of the court, the Company submitted a draft Revised Proposed Judgment
under seal on January 9, 2015.
On January 15, 2015, the Delaware Court
of Chancery issued a Final Order and Judgment, finding that we are entitled to receive a lump sum award of $194.6 million, or the
Total Judgment, comprised of (1) expectation damages of $113.1 million for the value of the Company’s lost profits for Tecovirimat,
also known as ST-246® (formerly referred to as “Arestvyr™” and referred to by SIGA
in its recent SEC filings as “Tecovirimat”), plus (2) pre-judgment interest on that amount from 2006 and varying percentages
of the Company’s reasonable attorneys’ and expert witness fees, totaling $81.5 million. Under the Final Order and Judgment,
PharmAthene is also entitled to post-judgment simple interest. PharmAthene’s entitlement to interest from and after SIGA’s
bankruptcy filing may be negatively impacted by the proceedings under the Bankruptcy Code.
SIGA filed a notice of appeal with the Delaware Supreme Court in which it challenges various findings of the Court of Chancery
and seeks to set aside the Final Order and Judgment, and we filed a notice of cross-appeal. On March 2, 2015, SIGA filed their
opening brief, and PharmAthene filed a response on April 1, 2015. SIGA took the opportunity to file their reply brief on May
1, 2015, and PharmAthene filed their reply brief on cross-appeal on May 11, 2015. As a result, the decision could be reversed,
remanded or otherwise changed.
While we believe that we may have a
right to receive a significant amount under a possible damages award, because SIGA has filed a notice of appeal with the
Delaware Supreme Court and because there can be no assurance that SIGA will not be successful in any such appeal, we have not
yet recorded any amount due from SIGA in relation to this case. There can be no assurances if or when the Company will
receive any payments from SIGA as a result of the Judgment. SIGA has stated publicly that it does not currently have cash
sufficient to satisfy the award. It is also uncertain whether SIGA will have such cash in the future. PharmAthene’s
ability to collect the Judgment depends upon a number of factors, including SIGA’s financial and operational success,
which is subject to a number of significant risks and uncertainties (certain of which are outlined in SIGA’s filings
with the SEC), as to which we have limited knowledge and which we have no ability to control, mitigate or fully evaluate.
SIGA disclosed in its Current Report on Form 8-K filed April 29, 2015 that it entered into a modification to its contract
with BARDA on April 29, 2015 to increase the provisional dosage of Tecovirimat and extend the delivery schedule. The
modification was subject to approval by the Bankruptcy Court, which was granted on April 27, 2015. Furthermore, because SIGA
has filed for protection under the federal bankruptcy laws, the Company is automatically stayed from taking any enforcement
action in the Delaware Court of Chancery. By agreement of the parties, and with the approval of the Bankruptcy Court, the
automatic stay has been lifted for the sole purpose of allowing the Delaware Court of Chancery to enter a money judgment and
to allow the parties to exercise their appellate rights. The Company’s ability to collect a money judgment from SIGA,
if any, remains subject to further proceedings in the Bankruptcy Court. The Company has not recognized any potential proceeds
from these actions in its financial statements to date.
Government Contracting
Payments to the Company on cost-plus-fee
contracts are provisional. The accuracy and appropriateness of costs charged to U.S. Government contracts are subject to regulation,
audit and possible disallowance by the Defense Contract Audit Agency (“DCAA”) and other government agencies such as
BARDA. Accordingly, costs billed or billable to U.S. Government customers are subject to potential adjustment upon audit by such
agencies.
We have agreed to rate provisions with
DCAA for 2006, 2007 and 2008. In 2014, BARDA audited indirect costs or rates charged by us on the SparVax® contract
for the years 2008 through 2013. As a result of the audit, in March of 2015, we were able to record revenue, and invoice BARDA
for the amount, of $5.8 million in connection with these costs, all of which was collected in April 2015.
BARDA has notified us that we can anticipate,
in 2015, an audit of our 2014 costs related to the partial termination for convenience of the SparVax® contract.
While we do not currently believe the results of this audit will have an adverse effect on the Company, we cannot provide assurances
that it will not have such an effect. The Company has billed and recognized revenue using the provisional rates as defined in the
contract. While the actual rates for 2014, which reflect the actual costs incurred by us, have been higher than the provisional
rates, we have no assurance on either the amount of additional funds we may receive as a result of these higher rates or the amount
of time it may take to recover these funds. The amount of any such funds is determined as a result of future audits by BARDA.
Changes in government policies, priorities
or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely
affect the Company’s financial condition or results of operations. Furthermore, contracts with the U.S. Government may be
terminated or suspended by the U.S. Government at any time, with or without cause. Such contract suspensions or terminations could
result in unreimbursable expenses or charges or otherwise adversely affect the Company’s financial condition and/or results
of operations.
Registration Rights Agreements
We entered into a Registration Rights Agreement
with the investors who participated in the July 2009 private placement of convertible notes and related warrants. We subsequently
filed two registration statements on Form S-3 with the SEC to register the resale of the shares issuable upon conversion of the
convertible notes and exercise of the related warrants, which have been declared effective. We are obligated to maintain the registration
statements effective until the date when such shares (and any other securities issued or issuable with respect to or in exchange
for such shares) have been sold or are eligible for resale without restrictions under Rule 144. The convertible notes were converted
or extinguished in 2010. The warrants expired on January 28, 2015.
Under the terms of the convertible notes,
which were converted or extinguished in 2010, if after the 2nd consecutive business day (other than during an allowable blackout
period) on which sales of all of the securities required to be included on the registration statement cannot be made pursuant to
the registration statement (a “Maintenance Failure”), we will be required to pay to each selling stockholder a one-time
payment of 1.0% of the aggregate principal amount of the convertible notes relating to the affected shares on the initial day of
a Maintenance Failure. Our total maximum obligation under this provision at June 30, 2015, which is not probable of payment, would
be approximately $0.2 million.
Following a Maintenance Failure, we will
also be required to make to each selling stockholder monthly payments of 1.0% of the aggregate principal amount of the convertible
notes relating to the affected shares on every 30th day after the initial day of a Maintenance Failure, in each case prorated for
shorter periods and until the failure is cured. Our total maximum obligation under this provision, which is not probable of payment,
would be approximately $0.2 million for each month until the failure, if it occurs, is cured.
We have separate registration rights agreements
with investors, under which we have obligations to keep the corresponding registration statements effective until the registrable
securities (as defined in each agreement) have been sold, and under which we may have separate obligations to file registration
statements in the future on either a demand or “piggy-back” basis or both.
Note 5 - Stockholders’ Equity
Long-Term Incentive Plan
In 2007, the Company’s stockholders
approved the 2007 Long-Term Incentive Compensation Plan (the “2007 Plan”) which provides for the granting of incentive
and non-qualified stock options, stock appreciation rights, performance units, restricted stock awards and performance bonuses
(collectively “awards”) to Company officers and employees. Additionally, the 2007 Plan authorizes the granting of non-qualified
stock options and restricted stock awards to Company directors and to independent consultants.
In 2008, our stockholders approved amendments
to the 2007 Plan, increasing from 3.5 million shares to 4.6 million shares the maximum number of shares authorized for issuance
under the plan and adding an evergreen provision pursuant to which the number of shares authorized for issuance under the plan
would increase automatically in each year, beginning in 2009, in accordance with certain limits set forth in the 2007 Plan. Under
the terms of the evergreen provision, the annual increases were to continue through 2015, subject, however, to an aggregate limitation
on the number of shares that could be authorized for issuance pursuant to such increases. This aggregate limitation was reached
on January 1, 2014, so that the number of shares authorized for issuance under the plan did not automatically increase on January
1, 2015. At June 30, 2015, there are approximately 10.3 million shares approved for issuance under the 2007 Plan, of which approximately
3.7 million shares are available for grant. The Board of Directors in conjunction with management determines who receives awards,
the vesting conditions and the exercise price. Options may have a maximum term of ten years.
Warrants
At June 30, 2015 and 2014 there were warrants
outstanding to purchase 1,922,781 and 5,620,128 shares of our common stock, respectively.
Warrants to purchase 2,572,775 shares of
common stock expired on January 28, 2015 without being exercised. The warrants were classified as equity.
The warrants outstanding as of June 30, 2015,
all of which are exercisable, were as follows:
Number of Common Shares Underlying Warrants As of June 30, 2015 | | |
Issue Date | |
Exercise Price | | |
Expiration Date |
| 100,778 | (1) | |
March 2007 | |
$ | 3.97 | | |
March 2017 |
| 500,000 | (2) | |
April 2010 | |
$ | 1.89 | | |
October 2015 |
| 903,996 | (2) | |
July 2010 | |
$ | 1.63 | | |
January 2017 |
| 371,423 | (2) | |
June 2011 | |
$ | 3.50 | | |
June 2016 |
| 46,584 | (1) | |
March 2012 | |
$ | 1.61 | | |
March 2022 |
| 1,922,781 | | |
| |
| | | |
|
| (1) | These warrants to purchase common stock are classified as equity. |
| (2) | Because of the presence of net settlement provisions, these warrants to purchase common stock are classified as derivative
liabilities. The fair value of these liabilities (see Note 3 – Fair Value Measurements) is remeasured at the end of
every reporting period and the change in fair value is reported in the accompanying unaudited condensed consolidated statements
of operations as other income (expense). |
Note 6 – Financing Transactions
Controlled Equity Offering
On March 25, 2013, we entered into a controlled
equity offering sales agreement with a sales agent, and filed with the SEC a prospectus supplement, dated March 25, 2013 to our
prospectus dated July 27, 2011, or the 2011 Prospectus, pursuant to which we could offer and sell, from time to time, through the
agent, shares of our common stock having an aggregate offering price of up to $15.0 million.
On May 23, 2014, we entered into an
amendment, or the 2014 Amendment, to the controlled equity offering sales agreement with the sales agent, pursuant to which
we may offer and sell, from time to time, through the agent, shares of our common stock having an aggregate offering price of
up to an additional $15.0 million. On that day, we filed a prospectus supplement to the 2011 Prospectus for use in any sales
of these additional shares of common stock through July 26, 2014, the date the underlying registration statement (File No.
333-175394) expired. As a result of this expiration, the 2011 Prospectus, as supplemented on March 25, 2013 and May 23, 2014,
may no longer be used for the sale of shares of common stock under the controlled equity offering sales agreement, as
amended. On May 23, 2014, we also filed a new universal shelf registration statement (File No. 333-196265) containing, among
other things, a prospectus, or the 2014 Prospectus, for use in sales of the common stock under the 2014 Amendment. This
registration statement was declared effective on May 30, 2014. Since the expiration of the 2011 Prospectus, all sales under
the controlled equity offering sales agreement, as amended, are being effected under the 2014 Prospectus.
Under the controlled equity offering sales
agreement, as amended, the agent may sell shares by any method permitted by law and deemed to be an “at-the-market”
offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on NYSE
MKT, or any other existing trading market for our common stock or to or through a market maker. Subject to the terms and conditions
of that agreement, the agent will use commercially reasonable efforts, consistent with its normal trading and sales practices and
applicable state and federal law, rules and regulations and the rules of NYSE MKT, to sell shares from time to time based upon
our instructions. We are not obligated to sell any shares under the arrangement. We are obligated to pay the agent a commission
of 3.0% of the aggregate gross proceeds from each sale of shares under the arrangement.
As of June 30, 2015, shares having an aggregate
offering price of $3.0 million remained available under the controlled equity offering sales agreement, as amended. During the
three and six months ended June 30, 2015, we did not sell any shares of our common stock under this arrangement.
Loan Agreement with GE Capital
On March 30, 2012, we entered into a Loan
Agreement with GE Capital. The Loan Agreement provides for a senior secured debt facility including a $2.5 million term loan and
a revolving line of credit of up to $5.0 million based on our outstanding qualified accounts receivable. On March 30, 2012, the
term loan was funded for an aggregate amount of $2.5 million.
Under the terms of the revolving line of
credit, the Company may draw down from the revolving line of credit up to 85% of qualified billed accounts receivable and 80% of
qualified unbilled accounts receivable. As of June 30, 2015, the total amount available to draw was approximately $0.5 million,
of which none was drawn and outstanding.
The fixed interest rate on the term loan
is 10.14% per annum. The revolving line of credit has an adjustable interest rate based upon the 3-month London Interbank Offered
Rate (“LIBOR”), with a floor of 1.5%, plus 5%. As of June 30, 2015, the interest rate was 6.5%. Both the term loan
and the revolving line of credit mature in September 2015. Payments on the term loan were originally interest-only for the first
10 months (which was extended to 12 months pursuant to terms of the agreement); subsequently, the term loan began fully amortizing
over its remaining term. Remaining principal payments on the term loan are scheduled as follows:
Year | |
Principal Payments | |
2015 | |
$ | 250,009 | |
The term loan, net of discount, is recorded
on the accompanying unaudited condensed consolidated balance sheet as of June 30, 2015 as follows:
If we prepay the term loan and terminate
the revolving line of credit prior to the scheduled maturity date, we are obligated to pay a prepayment premium equal to 2% of
the then outstanding principal amount of the term loan. In addition, we are obligated to pay a final payment fee of 3% of the term
loan balance. The final payment fee is being accrued and expensed over the term of the agreement, using the effective interest
method and is included in other short-term liabilities on the unaudited condensed consolidated balance sheets.
Our obligations under the Loan Agreement
are collateralized by a security interest in substantially all of our assets. While the security interest does not, except in limited
circumstances, cover our intellectual property, it does cover any proceeds received by us from the use or sale of our intellectual
property.
In connection with the Loan
Agreement, we issued to GE Capital a warrant to purchase 46,584 shares of the Company’s common stock at an exercise
price of $1.61 per share. The warrant was exercisable immediately and subject to customary and standard anti-dilution
adjustments. The warrant is classified in equity and, as a result, the fair value of the warrant was charged to additional
paid-in-capital resulting in a debt discount at the date of issuance. The debt discount is being amortized over the term of
the loan agreement using the effective interest method. Financing costs incurred in connection with this agreement are also
being amortized over the term of the agreement using the effective interest method.
We currently owe GE Capital an aggregate
of approximately $0.3 million under the GE Loan Agreement. As a result of the receipt of the notice that we received from BARDA
on April 4, 2014 advising us of its decision to de-scope the current SparVax® anthrax vaccine contract through a
partial termination for convenience, GE Capital could assert that there has occurred an event of default under the GE Loan Agreement,
which would allow GE Capital to terminate the commitment and the loans under the GE Loan Agreement and declare any or all of the
obligations thereunder to be immediately due and payable. We have not received notice from GE Capital that an event of default
has occurred.
The Company determined that the fair value
of the term loan approximated its carrying value as of June 30, 2015 based on market comparables and is in Level 2 of the fair
value hierarchy.
Note 7 - Subsequent Events
On July 6, 2015, PharmAthene signed a
license agreement with Immunovaccine for the exclusive use of the DepoVaxTM vaccine platform, to develop an anthrax
vaccine utilizing PharmAthene's recombinant protective antigen (“rPA”). Immunovaccine is a clinical-stage vaccine
development company located in Halifax, Nova Scotia. PharmAthene will reimburse Immunovaccine for their efforts in developing
this vaccine. In addition, Immunovaccine will receive annual payments of $200,000, and 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. Additionally, Immunovaccine will receive a royalty on sales related to the use of
DepoVaxTM.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. This information may involve known and unknown risks, uncertainties and other factors that are difficult
to predict and may cause our actual results, performance or achievements to be materially different from future results, performance
or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include, but
are not limited to, risks associated with the following:
| · | our interest in the judgment relating to SIGA’s Tecovirimat, also known
as ST-246® (formerly referred to as “Arestvyr™” and referred to by SIGA in its recent
SEC filings as “Tecovirimat”), including the risk that we will not be able to collect any amounts related thereto, |
| · | our continuing ability to recognize cost reductions, |
| · | the reliability of the results of the studies relating to human safety and possible adverse
effects resulting from the administration of our product candidates, |
| · | funding delays, reductions in or elimination of U.S. Government funding and/or non-renewal of
expiring funding under our September 2014 contract with NIAID after we receive funding of approximately $5.2 million over the base
period (if all technical milestones are met), |
| · | our net operating loss carryforwards, or NOLs, |
| · | delays caused by third parties challenging government contracts awarded to us, |
| · | unforeseen safety and efficacy issues, |
| · | accomplishing any future strategic partnerships or business combinations, |
| · | continuing funding requirements and dilution relating thereto, |
| · | our ability to continue to satisfy the listing requirements of the NYSE MKT, |
as well as risks detailed under the caption “Risk
Factors” in our annual report on Form 10-K and in our other reports filed with the U.S. Securities and Exchange Commission,
or the SEC, from time to time hereafter.
In particular, in its August 2014 decision, the Delaware
Court of Chancery awarded to us lump sum expectation damages for the value of lost profits for Tecovirimat. On January 15, 2015,
the Delaware Court of Chancery issued its Final Order and Judgment, finding that we are entitled to receive the Total Judgment,
comprised of (1) expectation damages of $113.1 million for the value of the Company’s lost profits for Tecovirimat, plus
(2) pre-judgment interest on that amount from 2006 and varying percentages of the Company’s reasonable attorneys’ and
expert witness fees, totaling $81.5 million. Under the Final Order and Judgment, PharmAthene is also entitled to post-judgment
simple interest. PharmAthene’s entitlement to interest from and after SIGA’s bankruptcy filing may be negatively impacted
by the proceedings under the Bankruptcy Code.
SIGA filed a notice of appeal with the Delaware Supreme Court in which it challenges various findings of the Court of Chancery
and seeks to set aside the Final Order and Judgment, and we filed a notice of cross-appeal. On March 2, 2015, SIGA filed their
opening brief, and PharmAthene filed a response on April 1, 2015. SIGA took the opportunity to file their reply brief on May
1, 2015, and PharmAthene filed their reply brief on cross-appeal on May 11, 2015. As a result, the decision could be reversed,
remanded or otherwise changed.
There can be no assurances if
or when we will receive any payments from SIGA as a result of the Judgment. SIGA has stated publicly that it does not
currently have cash sufficient to satisfy the potential award. It is also uncertain whether SIGA will have such cash in the
future. PharmAthene’s ability to collect the Judgment depends upon a number of factors, including SIGA’s
financial and operational success, which is subject to a number of significant risks and uncertainties (certain of which are
outlined in SIGA’s filings with the SEC), as to which we have limited knowledge and which we have no ability
to control, mitigate or fully evaluate. SIGA disclosed in its Current Report on Form 8-K filed April 29, 2015 that it entered
into a modification to its contract with BARDA on April 29, 2015 to increase the provisional dosage of Tecovirimat and extend
the delivery schedule. Furthermore, because SIGA has filed for protection under the federal bankruptcy laws, we are
automatically stayed from taking any enforcement action in the Delaware Court of Chancery. By agreement of the parties, and
with the approval of the Bankruptcy Court, the automatic stay has been lifted for the sole purpose of allowing the Delaware
Court of Chancery to enter a money judgment and to allow the parties to exercise their appellate rights. Our ability to
collect a money judgment from SIGA, if any, remains subject to further proceedings in the Bankruptcy Court.
Moreover, at this point, future government funding to
support the development of Valortim®, recombinant butyrylcholinesterase (“rBChE”) bioscavenger and liquid
SparVax® is unlikely. Even if we received such funding, significant additional non-clinical animal studies, human
clinical trials, and manufacturing development work remain to be completed for our product candidates. It is also uncertain whether
any of our product candidates will be shown to be safe and effective and approved by regulatory authorities for use in humans.
Forward-looking statements describe management’s
current expectations regarding our future plans, strategies and objectives and are generally identifiable by use of the words “may,”
“will,” “should,” “could,” “expect,” “anticipate,” “estimate,”
“believe,” “intend,” “project,” “potential” or “plan” or the negative
of these words or other variations on these words or comparable terminology. Such statements include, but are not limited to, statements
relating to:
| · | anticipated
results of pending legal proceedings, |
| · | potential payments under government contracts or grants, |
| · | potential future government contracts or grant awards, |
| · | potential regulatory approvals, |
| · | future product advancements, and |
| · | anticipated financial or operational results. |
Finally, PharmAthene can offer
no assurances that it has correctly estimated the resources necessary to execute under its NIAID contract and seek partners,
co-developers or acquirers for its other programs under its realignment plan. If a larger workforce or one with a different
skillset is ultimately required to implement the realignment plan successfully, or if PharmAthene inaccurately estimated the
cash and cash equivalents necessary to finance its operations until SIGA’s appeal has been adjudicated and it has
received SIGA’s payment, if PharmAthene prevails on appeal, its business, results of operations, financial condition
and cash flows may be materially and adversely affected.
Forward-looking statements are based on assumptions that
may be incorrect, and we cannot assure you that the projections included in the forward-looking statements will come to pass.
We have based the forward-looking statements included
in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation
to update any such forward-looking statements, other than as required by law. Although we undertake no obligation to revise or
update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult
any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
All forward-looking statements included herein are expressly
qualified in their entirety by the cautionary statements contained or referred to above. Unless otherwise indicated, the information
in this quarterly report is as of June 30, 2015.
The following discussion should be read
in conjunction with our unaudited condensed consolidated financial statements which present our results of operations for the three
and six months ended June 30, 2015 and 2014, as well as our financial positions at June 30, 2015 and December 31, 2014, contained
elsewhere in this quarterly report on Form 10-Q. The following discussion should also be read in conjunction with the annual report
on Form 10-K for the year ended December 31, 2014, including the condensed consolidated financial statements contained therein.
Overview
Since 2001, we have been a biodefense company
engaged in the development of next generation medical counter measures against biological and chemical threats. Our efforts are
focused on the development of the improved anthrax vaccines utilizing our base recombinant PA technology platform. We currently
have one active program funded by NIAID under a contract awarded in September 2014 for up to $28.1 million assuming all options
are exercised.
Realignment Plan
On March 9, 2015, our Board of Directors
approved a plan to preserve and maximize, for the benefit of our stockholders, the value of any proceeds from our litigation with 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 expected to extend beyond the adjudication
of SIGA’s appeal of the decision of the Delaware Chancery Court awarding us $194.6 million plus post-judgment interest. We
refer to the plan as the “Realignment Plan.” Under the Realignment Plan, 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 anthrax government contract with NIAID.
As part of the Realignment Plan, our Board
terminated Eric Richman as President and Chief Executive Officer and Linda Chang as Chief Financial Officer, Treasurer and Secretary,
as well as our executive officers Francesca Cook and Wayne Morges. Mr. Richman remains a member of our Board of Directors, and,
as such, will continue to play a key role in managing the ongoing litigation, other legal matters and any strategic transactions.
In addition, Messrs. Joel McCleary and Brian Markison resigned from our Board of Directors effective March 11, 2015, and our Board
has reduced the number of directors from eight to six.
John Gill, a member of our Board of
Directors, began serving as President and Chief Executive Officer effective March 12, 2015, Vice President, Corporate
Development Jeffrey M. Jones, Ph.D. began serving as Chief Operating Officer effective March 12, 2015, and Vice President and
Controller Philip MacNeill began serving as Chief Financial Officer, Treasurer and Secretary effective May 1, 2015. Mr. Gill
is expected to devote the necessary time to carry out his duties as President and Chief Executive Officer, and although he
does not have other employment, he is not expected to devote his full time to the business of the Company, which is reflected
in his compensation.
The terminations of the departing executive
officers were without “cause” as defined under their respective employment agreements and the departing officers will
therefore receive cash payments in accordance with the terms of such agreements. The Company estimates total severance payments
to executives and non-executives in connection with the Realignment Plan to amount to approximately $2.0 million, with substantially
all such severance expenses expected to be paid in 2015. Mr. Richman, Ms. Chang, Ms. Cook and Dr. Morges furthermore entered into
separation agreements with the Company. These agreements extend exercise periods of options and health benefits. In light of his
continuing service as director, Mr. Richman’s options will continue vesting for as long as he serves on our Board of Directors,
with his then-vested options terminating 90 days after Mr. Richman leaves our Board. Ms. Chang’s, Dr. Morges’ and Ms.
Cook’s options will remain exercisable for the duration of their respective severance periods under their employment agreements.
Changes to the exercise period of these options were made in accordance with the terms of the Company’s 2007 Long-Term Incentive
Compensation Plan, as amended. We recognized approximately $75,000 of share-based compensation expense resulting from our agreement
to extend the exercise period. In addition, to the extent that the executive officers elect COBRA coverage, the premiums payable
by the officers during their respective severance periods will equal those payable by active employees of the Company for the same
level of group health coverage, and will be deducted from the officers’ severance pay. The separation agreements contain
releases by the executive officers and the Company. The agreements with Ms. Chang, Dr. Morges and Ms. Cook furthermore obligate
them to cooperate with the Company in connection with the SIGA litigation. The agreement with Dr. Morges also provides that for
six months following termination, Dr. Morges may be called upon from time to time to assist the Company with matters relating to
his duties and responsibilities prior to termination at an hourly rate of $169.
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, 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 SIGA’s appeal has been adjudicated and we have received SIGA’s payment, if we
prevail on appeal. 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 prevail in
SIGA’s appeal, or enforce payment of or collect any damages award from SIGA, if we do prevail, then our business, results of operations,
financial condition and cash flows will be materially and adversely affected.
Other Recent Developments
On January 15, 2015, the Delaware
Court of Chancery issued a Final Order and Judgment, finding that we are entitled to receive the Total Judgment, comprised of
(1) expectation damages of $113.1 million, for the value of the Company’s lost profits for Tecovirimat, plus (2)
pre-judgment interest on that amount from 2006 and varying percentages of the Company’s reasonable attorneys’ and
expert witness fees, totaling $81.5 million. Under the Final Order and Judgment, PharmAthene is also entitled to
post-judgment simple interest. PharmAthene’s entitlement to interest from and after SIGA’s bankruptcy filing may
be negatively impacted by the Bankruptcy Code. SIGA filed a notice of appeal with the Delaware Supreme Court in which it
challenges various findings of the Court of Chancery and seeks to set aside the Final Order and Judgment, and we filed a
notice of cross-appeal. Subsequently, both SIGA and PharmAthene have filed appeals and reply briefs. As a result, the
decision could be reversed, remanded or otherwise changed.
There can be no assurances if or when
the Company will receive any payments from SIGA as a result of the Judgment. SIGA has stated publicly that it does
not currently have cash sufficient to satisfy the potential award. It is also uncertain whether SIGA will have such cash in
the future. PharmAthene’s ability to collect the Judgment depends upon a number of factors, including
SIGA’s financial and operational success, which is subject to a number of significant risks and uncertainties (certain
of which are outlined in SIGA’s filings with the SEC), as to which we have limited knowledge and which we have no
ability to control, mitigate or fully evaluate. SIGA disclosed in its Current Report on Form 8-K filed April 29, 2015 that it
entered into a modification to its contract with BARDA on April 29, 2015 to increase the provisional dosage of Tecovirimat
and extend the delivery schedule. Furthermore, because SIGA has filed for protection under the federal bankruptcy laws,
PharmAthene is automatically stayed from taking any enforcement action in the Delaware Court of Chancery. By agreement of the
parties, and with the approval of the Bankruptcy Court, the automatic stay has been lifted for the sole purpose of allowing
the Delaware Court of Chancery to enter a money judgment and to allow the parties to exercise their appellate rights. The
Company’s ability to collect a money judgment from SIGA, if any, remains subject to further proceedings in the
Bankruptcy Court, and the Company therefore has not recorded any potential proceeds to date.
Critical Accounting Policies
A “critical accounting policy”
is one that is both important to the portrayal of our financial condition and results of operations and that requires management’s
most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the effect
of matters that are inherently uncertain. The preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
We believe that the disclosures provided
herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements
are read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K
for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission.
There were no significant changes in critical
accounting policies from those at December 31, 2014.
Results of Operations
Revenue
We recognized revenue of $1.1 million and
$3.7 million during the three months ended June 30, 2015 and 2014, respectively. We recognized revenue of $8.2 million and $7.4
million during the six months ended June 30, 2015 and 2014, respectively.
| |
Three months ended June 30, | |
Revenue ($ in millions) | |
2015 | | |
2014 | | |
% Change | |
SparVax®and next generation anthrax vaccine | |
$ | 1.1 | | |
$ | 3.4 | | |
| (67.6 | )% |
rBChE bioscavenger | |
| - | | |
| 0.3 | | |
| (100.0 | )% |
Total revenue | |
$ | 1.1 | | |
$ | 3.7 | | |
| (70.3 | )% |
| |
Six Months ended June 30, | |
Revenue ($ in millions) | |
2015 | | |
2014 | | |
% Change | |
SparVax®and next generation anthrax vaccine | |
$ | 8.2 | | |
$ | 6.9 | | |
| 18.8 | % |
rBChE bioscavenger | |
| - | | |
| 0.5 | | |
| (100.0 | )% |
Total revenue | |
$ | 8.2 | | |
$ | 7.4 | | |
| 10.8 | % |
During the three and six months ended June 30, 2015, our revenue
was derived primarily from contracts with the U.S. Government for the development of anthrax vaccine programs. During the three
and six months ended June 30, 2014, our revenue was derived primarily from contracts with the U.S. Government for the development
of anthrax vaccine programs and our rBChE bioscavenger. Our revenue in the three and six months ended June 30, 2015 changed
from the comparable period of 2014 primarily due to the following:
| · | Under our contract for the development of SparVax® (the liquid second generation
rPA) with BARDA, we recorded revenue of approximately $0.01 million and $3.4 million for the three months ended June
30, 2015 and 2014, respectively, and approximately $6.1 million and $6.9 million for the six months ended June 30, 2015
and 2014, respectively. During the three months ended June 30, 2015, revenue was primarily attributable to contract wind-up activity.
During the six months ended June 30, 2015, revenue was primarily attributable to the receipt of a one-time payment as a result
of an audit completed by BARDA. On April 4, 2014, we received notification from BARDA, advising us of its decision to de-scope
the SparVax® anthrax vaccine contract through a partial termination for convenience. The contract formally expired
on February 28, 2015. We do not expect that we will receive additional funding from BARDA for the further development of SparVax®
as a liquid product. Therefore, we anticipate that revenues for this program in 2015 may be significantly less than in 2014. |
In 2014, BARDA audited indirect
costs or rates charged by us on the SparVax® contract for the years 2008 through 2013. We billed and recognized
revenue using the provisional rates as defined in the contract. As a result of the audit, we recognized revenue of $5.8 million
in the first quarter of 2015, representing the difference between actual rates (i.e., actual cost to us) and the provisional rates
used to calculate previously billed and recognized revenue. We received payment of this amount in the second quarter of 2015.
BARDA has notified us that we
can anticipate, in 2015, an audit of our 2014 costs related to the partial termination for convenience of the SparVax®
contract. While we do not currently believe the results of this audit will have an adverse effect on the Company, we cannot provide
assurances that it will not have such an effect. The Company has billed and recognized revenue using the provisional rates as defined
in the contract. While the actual rates for 2014 which reflect the actual costs incurred by us, have been higher than the provisional
rates, we have no assurance on either the amount of additional funds we may receive as a result of these higher rates or the amount
of time it may take to recover these funds. The amount of any such funds is determined as a result of future audits by BARDA.
On September 9, 2014,
we entered into a contract with NIAID for the development of a next generation lyophilized anthrax vaccine based on
the Company’s proprietary technology platform which contributes the rPA bulk drug substance that is used in the
liquid SparVax® formulation. Under this agreement, we recognized approximately $1.1 million and $2.1 million
in revenue for the three and six months ended June 30, 2015, respectively. This revenue was recognized in relation to the successful
completion of two lyophilized anthrax vaccine candidates which utilize the same rPA bulk drug substance that is used in the
liquid SparVax® product.
| · | Our contract with Chemical Biological Medical Systems (“CBMS’), for our second
generation rBChE bioscavenger ended on September 8, 2014. We do not foresee any additional funding for this program and
expect that revenues from this program in the future will be minimal. Revenue in support of contract activities was $0.3
million and $0.5 million for the three and six months ended June 30, 2014, respectively. |
Research and Development Expenses
Our research and development expenses were
$1.2 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively. In 2015, these expenses
related to the lyophilized anthrax vaccine candidates as well as the stability program for the liquid product. In 2014, these expenses
resulted from research and development activities in all periods relating primarily to our SparVax® and rBChE bioscavenger
programs.
Research and development expenses for the
three and six months ended June 30, 2015 and 2014 were attributable to research programs as follows:
| |
Three months ended June 30, | |
Expenses ($ in millions) | |
2015 | | |
2014 | | |
% Change | |
SparVax®and next generation anthrax vaccine | |
$ | 1.2 | | |
$ | 2.2 | | |
| (45.5 | )% |
rBChE bioscavenger | |
| - | | |
| 0.2 | | |
| (100.0 | )% |
Total research and development expenses | |
$ | 1.2 | | |
$ | 2.4 | | |
| (50.0 | )% |
| |
Six months ended June 30, | |
Expenses ($ in millions) | |
2015 | | |
2014 | | |
% Change | |
SparVax®and next generation anthrax vaccine | |
$ | 2.8 | | |
$ | 5.4 | | |
| (48.1 | )% |
rBChE bioscavenger | |
| - | | |
| 0.4 | | |
| (100.0 | )% |
Total research and development expenses | |
$ | 2.8 | | |
$ | 5.8 | | |
| (51.7 | )% |
For the three and six months ended
June 30, 2015, research and development expenses decreased $1.2 million and $3.0 million, respectively, from the same period
in the prior year, primarily due to decreased costs relating to our BARDA sponsored SparVax® program, as a
result of BARDA’s de-scoping of the contract, and the expiration of the period of performance under our rBChE
bioscavenger contract on September 8, 2014. Costs were incurred in 2015 to further the NIAID (lyophilized) program and
internal research and development funds were expensed for release and stability testing for the liquid product.
General and Administrative Expenses
General and administrative functions include
executive management, finance and administration, government affairs and regulations, corporate development, human resources, legal,
and compliance.
Expenses associated with general and
administrative functions were $1.8 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively.
Expenses associated with general and administrative functions were $4.0 million and $5.1 million for the six months ended
June 30, 2015 and 2014, respectively. The $0.6 million decrease when comparing the three months ended June 30, 2015 to the three months
ended June 30, 2014, and the $1.1 million decrease when comparing the six months ending June 30, 2015 to the six months
ending June 30, 2014 were primarily due to a reduction in employee costs resulting from our implementation of the Realignment
Plan, which eliminated approximately two-thirds of our workforce. We expect general and administrative expenses for the next two quarters of 2015 to be consistent with the second quarter of
2015.
Restructuring Expense
Restructuring expense was $0.04
million and $2.1 million for the three and six months ended June 30, 2015, respectively. Pursuant to the Realignment Plan, we
recorded severance expense of $2.0 million, of which $1.1 million and $1.3 million were cash outlays during the three and six
months ended June 30, 2015, respectively, and $0.1 million of legal and other employee related expenses. Twenty-four
employees were terminated with some payments extending into 2016, although the majority of the payments are expected to be
made during 2015.
Other Income (Expense)
Other income (expense) primarily consists of the realization
of cumulative translation adjustment on substantially completing the liquidation of our wholly-owned United Kingdom subsidiary,
PharmAthene UK Limited, changes in the fair value of our derivative financial instruments and interest expense on our debt and
other financial obligations. For the three months ended June 30, 2015, other expense was $0.4 million compared to other income
of $0.7 million for the three months ended June 30, 2014. For the six months ended June 30, 2015, other expense was $0.04 million
compared to other income of $0.8 million for the same period ended June 30, 2014.
In June 2015, we substantially completed the liquidation of
our United Kingdom subsidiary, PharmAthene UK Limited, which we had acquired in 2008. Prior to substantially liquidating the UK subsidiary, currency fluctuations were recorded as foreign currency translation adjustments, a component of other comprehensive
income. As a result of the substantially completed liquidation, we realized an approximate loss of $0.2 million in our condensed
consolidated statement of operations, which represents the amount of previously recorded foreign currency translation adjustments
related to our UK subsidiary.
Other expense related to the change in the fair value of our
derivative instruments was $0.1 million for the three months ended June 30, 2015, compared to other income of $0.8 million for
the three months ended June 30, 2014. For the six months ended June 30, 2015 and 2014, other income related to the change in the
fair value of our derivative instruments was $0.2 million and $1.0 million, respectively. The fair value of our derivative instruments
is estimated using the Black-Scholes option pricing model.
Income Taxes
The provision for income taxes (income
tax benefit) was $0.01 million and $(0.01) million for the three months ended June 30, 2015 and 2014, respectively. The provision
for income taxes was $0.03 million and $0.02 million during the six months ended June 30, 2015 and 2014, respectively. Our provision
for income taxes results from the difference between the treatment of goodwill for income tax purposes and for U.S. GAAP.
Liquidity and Capital Resources
Overview
Our primary sources of cash during the
three and six months ended June 30, 2015 were the receipt of a $5.8 million one-time payment as the result of an audit completed
by BARDA, and proceeds paid under our contract with NIAID. Our primary sources of cash during the three and six months ended June
30, 2014 were amounts paid under our development contract for SparVax® and proceeds from sales of shares of our
common stock under the controlled equity offering arrangement. Our cash and cash equivalents were $18.4 million and $18.6 million
at June 30, 2015 and December 31, 2014, respectively. We believe, based on the operating cash requirements and capital expenditures
expected for 2015, the Company’s cash on hand at June 30, 2015 is adequate to fund operations through at least the end of
2016.
In 2014, BARDA audited indirect costs or
rates charged by us on the SparVax® contract for the years 2008 through 2013. We had billed and recognized revenue
using the provisional rates as defined in the contract. As a result of that audit, we were able to record revenue of $5.8 million
in the first quarter of 2015, representing the difference between actual rates (i.e., actual cost to us) and the provisional rates
used to calculate previously billed and recognized revenue. BARDA has notified us that we can anticipate, in 2015, an audit of
our 2014 costs related to the partial termination for convenience of the SparVax® contract. While we do not currently
believe the results of this audit will have an adverse effect on the Company, we cannot provide assurances that it will not have
such an effect; furthermore, in 2014, our actual rates exceeded our provisional rates. We also do not control the timing of the
audit.
Our sole sources of revenue consist of
(1) revenues related to the audit of the BARDA contract and (2) revenues under our September 2014 agreement with NIAID for the
development of a next generation lyophilized anthrax vaccine based on the Company’s proprietary technology platform which
contributes the rPA bulk drug substance that is used in the liquid SparVax® formulation.
The NIAID agreement is incrementally funded.
Over the base period of the agreement, 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. 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. NIAID may exercise the
options in its sole discretion. If NIAID exercises all options, the contract would continue approximately five years. If NIAID
does not exercise any of the options, the contract would expire by its terms on January 5, 2016. Due to the current economic environment,
the U.S. Government may be forced or choose to reduce or delay spending in the biodefense field, which would decrease the likelihood
that the government will exercise its right to extend its existing contract with us, the likelihood of future government contract
awards, and/or the likelihood that the government would procure products from us.
We have incurred significant losses since
we commenced operations. As of June 30, 2015, we had accumulated losses of $221.1 million since our inception. While we have undertaken
efforts to reduce expenses, and expect that our operating expenses will continue to decrease as a result of our Realignment Plan,
we expect continuing losses in the future. 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.
Historically, we have not generated
positive cash flows from operations. To bridge the gap between payments made to us under our U.S. Government contracts and
grants and our operating and capital needs, we have had to rely on a variety of financing sources, including the issuance of
equity and equity-linked securities and proceeds from loans and other borrowings. On March 25, 2013, we entered into a
controlled equity offering arrangement pursuant to which we could offer and sell, from time to time, through a sales agent,
shares of our common stock having an aggregate offering price of up to $15.0 million, which we later amended on May 23, 2014
to increase the offering amount by $15.0 million. During the three and six months ended June 30, 2014, we generated net
proceeds of approximately $2.5 million and $5.1 million, respectively, under the controlled equity offering sales agreement,
as amended. During the three and six months ended June 30, 2015, we did not sell any shares of our common stock under this
arrangement. Aggregate gross proceeds of up to $3.0 million remain available under this arrangement. We have no current plans
to sell any shares under the controlled equity agreement.
We currently owe GE Capital an aggregate
of approximately $0.3 million under our Loan Agreement with them. This amount is payable at maturity in September 2015. As a result
of the notification from BARDA on April 4, 2014 advising us of its decision to de-scope the SparVax® anthrax vaccine
contract through a partial termination for convenience, GE Capital could assert that there has occurred an event of default under
the Loan Agreement, which would allow GE Capital to terminate the commitment and the loans under the Loan Agreement and declare
any or all of the obligations thereunder to be immediately due and payable. We have not received notice from GE Capital that an
event of default has occurred.
On March 9, 2015, our Board of Directors
approved our Realignment Plan with the goal of preserving and maximizing, for the benefit of our stockholders, the value of any
proceeds from the SIGA litigation 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 expected
to extend beyond the adjudication of SIGA’s appeal. 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. The Company estimates total severance payments to executives and non-executives in connection with the Realignment Plan
to amount to approximately $2.0 million, with substantially all such severance expenses expected to be paid in 2015.
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, 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 SIGA’s appeal has been adjudicated and we have received SIGA’s payment, if we
prevail on appeal. 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 prevail in
SIGA’s appeal, or enforce payment of or collect the damages award from SIGA, if we do prevail, then our business, results of operations,
financial condition and cash flows will be materially and adversely affected.
In addition, we may voluntarily elect to
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.
Cash Flows
The following table provides information
regarding our cash flows for the six months ended June 30, 2015 and 2014:
| |
Six months ended June 30, | |
| |
2015 | | |
2014 | |
Net cash provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (60,055 | ) | |
$ | (2,827,400 | ) |
Investing activities | |
| (48,677 | ) | |
| (71,227 | ) |
Financing activities | |
| (123,453 | ) | |
| 3,683,846 | |
Effects of exchange rates on cash | |
| 673 | | |
| (1,116 | ) |
Total increase (decrease) in cash and cash equivalents | |
$ | (231,512 | ) | |
$ | 784,103 | |
Operating Activities
Net cash used by operating activities was
$0.06 million and $2.8 million for the six months ended June 30, 2015 and 2014, respectively.
Net cash used by operating activities
during the six months ended June 30, 2015 reflects our net loss of $0.9 million, adjusted for the realization of a cumulative
translation adjustment of $0.2 million, non-cash share-based compensation expense of $0.3 million, the decrease in the fair
value of our derivative instruments of $0.2 million, and other non-cash expenses of 0.1 million. Receivables (billed
and unbilled) and prepaid expenses increased by $0.9 million. Accounts payable and accrued expenses and other liabilities
decreased by $0.5 million and accrued restructuring expenses were $0.8 million.
Net cash used in operating activities during
the six months ended June 30, 2014 reflects our net loss of $2.7 million, adjusted for non-cash share-based compensation expense
of $0.9 million, the decrease in the fair value of our derivative instruments of $1.0 million, and other non-cash expenses of $0.1
million. A decrease in receivables (billed and unbilled) of approximately $3.0 million was offset by a decrease in liabilities
of $2.9 million and an increase in prepaid expenses of $0.3 million.
Investing Activities
There were no significant investing activities
during the six months ended June 30, 2015 and June 30, 2014.
Financing Activities
Net cash used by financing activities was
$0.1 million for the six months ended June 30, 2015, as compared to $3.7 million provided by financing activities for the six months
ended June 30, 2014.
Net cash used by financing activities during
the six months ended June 30, 2015 was primarily due to a $0.5 million repayment of the term loan, partially offset by $0.4 million
in proceeds received from the issuance of common stock due to stock options exercised. Net cash provided by financing activities
during the six months ended June 30, 2014 was primarily due to net proceeds received of $5.1 million from the sale of our common
stock under the controlled equity offering arrangement. This was partially offset by a $1.1 million repayment of the revolving
credit agreement and $0.5 million repayment of the term loan.
On March 25, 2013, we entered into
a controlled equity offering sales agreement with a sales agent, and filed with the SEC a prospectus supplement, dated
March 25, 2013, to our prospectus, dated July 27, 2011, or the 2011 Prospectus, pursuant to which we could offer and sell,
from time to time, through the agent, shares of our common stock having an aggregate offering price of up to $15.0 million.
On May 23, 2014, we entered into an amendment, or the 2014 Amendment, to the controlled equity offering sales agreement with
the sales agent, pursuant to which we may offer and sell, from time to time, through the agent, shares of our common stock
having an aggregate offering price of up to an additional $15.0 million. On that day, we filed a prospectus supplement to the
2011 Prospectus for use in any sales of these additional shares of common stock through July 26, 2014, the date the
underlying registration statement (File No. 333-175394) expired. As a result of this expiration, the 2011 Prospectus, as
supplemented on March 25, 2013 and May 23, 2014, may no longer be used for the sale of shares of common stock under the
controlled equity offering sales agreement, as amended.
On May 23, 2014, we also filed a new universal
shelf registration statement (File No. 333-196265) containing, among other things, a prospectus, or the 2014 Prospectus, for use
in sales of the common stock under the 2014 Amendment. This registration statement was declared effective on May 30, 2014. Since
the expiration of the 2011 Prospectus, all sales under the controlled equity offering sales agreement, as amended, have been effected
under the 2014 Prospectus.
Under the controlled equity offering sales
agreement, as amended, the agent may sell shares by any method permitted by law and deemed to be an “at-the-market”
offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on NYSE
MKT, or any other existing trading market for our common stock or to or through a market maker. Subject to the terms and conditions
of that agreement, the agent will use commercially reasonable efforts, consistent with its normal trading and sales practices and
applicable state and federal law, rules and regulations and the rules of NYSE MKT, to sell shares from time to time based upon
our instructions. We are not obligated to sell any shares under the arrangement. We are obligated to pay the agent a commission
of 3.0% of the aggregate gross proceeds from each sale of shares under the arrangement.
During the first and second quarter
2015, we did not generate any net proceeds under the controlled equity offering sales agreement, as amended. Aggregate
gross proceeds of up to $3.0 million remain available under this arrangement. We have no current plans to sell any shares
under the controlled equity agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
The following are contractual
obligations at June 30, 2014:
Contractual Obligations(1) | |
Total | | |
Less than 1 Year | | |
1-3 Years | | |
3-5 Years | | |
More than 5 Years | |
Operating facility leases | |
$ | 1,621,006 | | |
$ | 835,801 | | |
$ | 785,205 | | |
$ | - | | |
$ | - | |
Research and development agreements | |
| 1,283,064 | | |
| 1,283,064 | | |
| - | | |
| - | | |
| - | |
Term loan, principal and interest payments | |
| 254,962 | | |
| 254,962 | | |
| - | | |
| - | | |
| - | |
Total contractual obligations | |
$ | 3,159,032 | | |
$ | 2,373,827 | | |
$ | 785,205 | | |
$ | - | | |
$ | - | |
(1) This table does not include
any royalty payments relating to future sales of products subject to license agreements the Company has entered into in relation
to its in-licensed technology, as the timing and likelihood of such payments are not known. The table also excludes any obligations
related to registration rights agreements, as a result of a maintenance failure (as defined in such agreements), as the likelihood
of any such payment is not probable. In addition, the table does not include the final payment fee on the term loan, which is being
accrued and expensed over the term of the agreement, using the effective interest method, or the debt discount, which is being
amortized over the term of the agreement.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
The Company’s current operations
in foreign countries are minimal. We had maintained only nominal operations in the United Kingdom, but those operations were substantially liquidated in the
second quarter of 2015. A 10% change in exchange rates (against
the U.S. dollar) would not have a material impact on earnings, fair values or cash flow.
Because of the short-term maturities of
our cash and cash equivalents, we do not believe that an increase in market interest rates would have a significant impact on their
realized value. Our term loan with GE Capital is at a fixed 10.14% rate. Because of the fixed rate, a change in market interest
rates would not have an impact on interest expense associated with the loan. The interest rate on the revolving line of credit
is variable; therefore, a 1% increase in market interest rates above the interest rate floor of 1.5%, would increase interest expense
associated with the line by $50,000 if the maximum amount of the line ($5.0 million) was drawn for a full year.
The change in fair value of our derivative
instruments is calculated utilizing the Black-Scholes option pricing model; therefore, a 10% increase/decrease in the closing price
of the Company’s common stock at June 30, 2015, would result in a change in fair value of derivative instruments and our
earnings of approximately $0.2 million.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, including our principal
executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of June
30, 2015. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to
be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive and principal financial officers,
to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial
officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
Our management, including our principal
executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred
during the quarterly period ended June 30, 2015, and has concluded that there was no change that occurred during the quarterly
period ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II — OTHER
INFORMATION
Item 1. Legal Proceedings
Except as noted below, we are not a party
to any material legal proceedings.
In December 2006, we filed a complaint
against SIGA in the Delaware Court of Chancery. The complaint alleged, among other things, that we have the right to license exclusively
the development and marketing rights for SIGA’s drug candidate, Tecovirimat, pursuant to a merger agreement between the parties
that was terminated in 2006. The complaint also alleged that SIGA failed to negotiate in good faith the terms of such a license
pursuant to the terminated merger agreement with us.
In September 2011, the Delaware Court of
Chancery issued an opinion in the case finding that SIGA had breached certain contractual obligations to us, upholding our claims
of promissory estoppel, and awarding us damages. SIGA appealed aspects of the decision to the Delaware Supreme Court. In response,
we cross-appealed other aspects of the decision. In May 2013, the Delaware Supreme Court issued its ruling on the appeal, affirming
the Delaware Court of Chancery’s finding that SIGA had breached certain contractual obligations to us, reversed its finding
of promissory estoppel, and remanded the case back to the Delaware Court of Chancery to reconsider the remedy and award in light
of the Delaware Supreme Court’s opinion.
In August 8, 2014, the Delaware Court of
Chancery issued a Memorandum Opinion and Order, or August 2014 Order, finding that we are entitled to receive lump sum expectation
damages for the value of the Company’s lost profits for Tecovirimat. In addition, the Delaware Court of Chancery found that
the Company is entitled to receive pre-judgment interest and varying percentages of the Company’s reasonable attorneys’
and expert witness fees. On October 17, 2014, the Company and SIGA each filed opinions of our respective financial experts and
Draft Orders and Judgments in accordance with the instructions of the August 2014 Order.
On September 16, 2014, SIGA announced that
it filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York. In connection therewith, SIGA filed with the Bankruptcy Court an affidavit indicating, among
other things, that it expects to continue to perform under its contract with BARDA. SIGA’s petition for bankruptcy initiated
a process whereby its assets are protected from creditors, including us.
On January 7, 2015, the Delaware Court
of Chancery issued a letter Opinion and Order, directing the Company to submit a Revised Proposed Judgment that reflects a lump
sum award of approximately $113 million in contract expectation damages, plus pre-judgment interest on that amount from 2006 through
the date of such order. In accordance with the instructions of the court, the Company submitted a draft Revised Proposed Judgment
under seal on January 9, 2015.
On January 15, 2015, the Delaware
Court of Chancery issued a Final Order and Judgment, finding that we are entitled to receive a lump sum award of $194.6
million, or the Total Judgment, comprised of (1) expectation damages of $113.1 million, for the value of the Company’s
lost profits for Tecovirimat, also known as ST-246® (formerly referred to as “Arestvyr™” and
referred to by SIGA in its recent SEC filings as “Tecovirimat”), plus (2) pre-judgment interest on that amount
from 2006 and varying percentages of the Company’s reasonable attorneys’ and expert witness fees, totaling $81.5
million. Under the Final Order and Judgment, PharmAthene is also entitled to post-judgment simple interest.
PharmAthene’s entitlement to interest from and after SIGA’s bankruptcy filing may be negatively impacted by the
Bankruptcy Code. SIGA filed a notice of appeal with the Delaware Supreme Court in which it challenges various findings of
the Court of Chancery and seeks to set aside the Final Order and Judgment, and we filed a notice of cross-appeal.
Subsequently, both SIGA and PharmAthene have filed appeals and reply briefs. As a result, the decision could be reversed,
remanded or otherwise changed.
There can be no assurances if or
when the Company will receive any payments from SIGA as a result of the Judgment. SIGA has stated publicly that it does not
currently have cash sufficient to satisfy the award. It is also uncertain whether SIGA will have such cash in the future.
PharmAthene’s ability to collect the Judgment depends upon a number of factors, including SIGA’s financial and
operational success, which is subject to a number of significant risks and uncertainties (certain of which are outlined in
SIGA’s filings with the SEC), as to which we have limited knowledge and which we have no ability to control, mitigate
or fully evaluate. SIGA disclosed in its Current Report on Form 8-K filed April 29, 2015 that it entered into a modification
to its contract with BARDA on April 29, 2015 to increase the provisional dosage of Tecovirimat and extend the delivery
schedule. Furthermore, because SIGA has filed for protection under the federal bankruptcy laws, the Company is automatically
stayed from taking any enforcement action in the Delaware Court of Chancery. By agreement of the parties, and with the
approval of the Bankruptcy Court, the automatic stay has been lifted for the sole purpose of allowing the Delaware Court of
Chancery to enter a money judgment and to allow the parties to exercise their appellate rights. The Company’s ability
to collect a money judgment from SIGA, if any, remains subject to further proceedings in the Bankruptcy Court.
Item 1A. Risk Factors
Investing in our securities involves risks. In addition
to the other information in this quarterly report on Form 10-Q, stockholders and potential investors should carefully consider
the risks and uncertainties discussed in the section titled “Item 1A. Risk Factors” in our annual report on Form 10-K
for the year ended December 31, 2014. There have been no material changes to the risk factors included in the section titled “Item
1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
No. |
|
Description |
|
|
|
31.1 |
|
Certification of Principal Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
31.2 |
|
Certification of Principal Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
32.1 |
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 |
|
|
|
32.2 |
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|
|
|
(101) |
|
The following condensed consolidated financial statements from the PharmAthene, Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, formatted in Extensive Business Reporting Language (“XBRL”): (i) Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2015 and 2014, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended June 30, 2015 and 2014, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2015 and 2014, and (v) Notes to consolidated financial statements. |
|
|
|
101.INS |
|
Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
PHARMATHENE, INC. |
|
|
|
Dated: August 5, 2015 |
By: |
/s/ John M. Gill |
|
Name: John M. Gill |
|
Title: President and Chief Executive Officer |
|
|
|
Dated: August 5, 2015 |
By: |
/s/ Philip MacNeill |
|
Name: Philip MacNeill |
|
Title: Vice President, Chief Financial Officer, Treasurer and Secretary |
Exhibit 31.1
Certification of Principal Executive
Officer
Pursuant to SEC Rule 13a-14(a)/15d-14(a)
I, John M. Gill, certify that:
| 1. | I have reviewed this Form 10-Q of PharmAthene, Inc.
for the period ended June 30, 2015; |
| 2. | Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 5, 2015 |
/s/ John M. Gill |
|
Name: John M. Gill |
|
Title: President and Chief Executive Officer |
Exhibit 31.2
Certification of Principal Financial
Officer
Pursuant to SEC Rule 13a-14(a)/15d-14(a)
I, Philip MacNeill, certify that:
| 1. | I have reviewed this Form 10-Q of PharmAthene, Inc.
for the period ended June 30, 2015; |
| 2. | Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 5, 2015 |
/s/ Philip MacNeill |
|
Name: Philip MacNeill |
|
Title: Vice President, Chief Financial Officer, Treasurer and Secretary |
Exhibit 32.1
Certification Pursuant to Section 1350
of Chapter 63
of Title 18 of the United States
Code
In connection with the Quarterly Report
on Form 10-Q of PharmAthene, Inc. (the “Company”) for the period ended June 30, 2015, as filed with the Securities
and Exchange Commission (the “Report”), I, John M. Gill, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my knowledge:
1. |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. |
|
|
|
2. |
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ John M. Gill |
|
Name: John M. Gill |
Title: President and Chief Executive Officer |
August 5, 2015 |
A signed original of this written statement
required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
This certification is being furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification will not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Exhibit 32.2
Certification Pursuant to Section 1350
of Chapter 63
of Title 18 of the United States
Code
In connection with the Quarterly Report
on Form 10-Q of PharmAthene, Inc. (the “Company”) for the period ended June 30, 2015, as filed with the Securities
and Exchange Commission (the “Report”), I, Philip MacNeill, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my knowledge:
1. |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. |
|
|
|
|
2. |
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Philip MacNeill |
|
Name: Philip MacNeill |
|
Title: Vice President, Chief Financial Officer, Treasurer and Secretary |
|
August 5, 2015 |
|
A signed original of this written statement
required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
This certification is being furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification will not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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