1. Condensed Consolidated Financial Statements

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2016,2017, included in the 20162017 Annual Report on Form 10-K. All terms used but not defined elsewhere herein have the meaning ascribed to them in the Company’s 20162017 Annual Report on Form 10-K filed on March 7, 2017.6, 2018. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement of the results of the interim periods presented have been included. The 20162017 year-end condensed consolidated balance sheet data waswere derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 20172018 are not necessarily indicative of the results expected for the full year.

The cumulative impact of adopting ASC 606 as of January 1, 2018 was a decrease to deferred revenue of approximately $1.8 million; a decrease to deferred costs of approximately $2.1 million; an increase cash liquidity by: raising proceeds throughto receivables of approximately $0.1 million and a financing, entering intonet increase to opening accumulated deficit of $0.2 million, net of tax. For the three and nine months ended September 30, 2018, the impact to revenues as a newresult of applying ASC 606 was an increase of approximately $1.0 million and $1.3 million, respectively. 

Contract modifications may occur during the course of performance of our contracts. Contracts are often modified to account for changes in contract specifications or any other product, a sale of assets, or the modificationrequirements. In most instances, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing BARDA Contract; significantly reducing its operating expenses;contract.

The Company’s performance obligations are satisfied over time as work progresses or modifying the termsat a point in time. Substantially all of the Loan Agreement. There can be no assuranceCompany’s revenue related to research and development performance obligations is recognized over time, because control transfers continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead, and third-party services.

Revenue connected with courses of oral TPOXX® delivered to the Strategic Stockpile and related services, milestones and advance payments (activities in combination that constitute one performance obligation) under the 2011 BARDA Contract has been recognized at a point in time. Revenue associated with this performance obligation was recognized when BARDA obtained control of the asset, which was upon delivery to and acceptance by the customer and at the point in time when the constraint on the consideration was resolved. The consideration, which is variable consideration, was constrained until the FDA approved oral TPOXX® will receivefor the treatment of smallpox on July 13, 2018. Prior to FDA approval, on a timely basis, if at all,consideration had been constrained because the Replacement Obligation (as defined in Note 3) had not been quantified or thatspecified. Following FDA approval, the Replacement Obligation was quantified and deemed to be immaterial since there will bewas no difference between the approved product and the courses of oral TPOXX® which havethat had already been delivered to the Strategic Stockpile. Furthermore, there can

Contract estimates are based on various assumptions to project the outcome of future events that often span multiple years. These assumptions include labor productivity; the complexity of the work to be no assuranceperformed; external factors such as customer behavior and potential regulatory outcomes; and the performance of subcontractors, among other variables.

The nature of the work required to be performed on many of the Company’s performance obligations and the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. The consideration associated with research and development services is variable as the total amount of services to be performed has not been finalized. The Company estimates variable consideration as the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.

A significant change in one or more of these estimates could affect the profitability of the Company’s contracts. As such, the Company would be able to increase cash liquidity, if needed, through a financing, a new contract for TPOXX® or any other product, a salereviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimated revenues, research and development expenses and cost of assets,sales and supportive services under the modificationcumulative catch-up method. Under this method, the impact of the existing BARDA adjustment on revenues, research and development expenses and cost of sales and supportive services recorded to date on a contract is recognized in the period the adjustment is identified. 

Historically, the Company deferred revenue in connection with the manufacture and delivery of oral TPOXX® under the 2011 BARDA Contract. Revenue recognition as of June 30, 2018 was constrained by the possibility of product replacement pursuant to the Replacement Obligation. On July 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox. As a result of FDA approval, the replacement obligation was quantified and deemed to be immaterial since there was no difference between the approved product and the courses of oral TPOXX® that had already been delivered to the Strategic Stockpile. As such, deferred revenue as of June 30, 2018 associated with the 2011 BARDA Contract was recorded as product sales and supportive services during the three months ended September 30, 2018.

As of December 31, 2017, approximately $1.3 million of deferred revenue was included in Accrued expenses and other current liabilities on the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)condensed consolidated balance sheet.

The following table reconciles cash, cash equivalents and restricted cash per the condensed consolidated statements of Modification Accounting.The guidance clarifies when to account for a changecash flows to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effectivecondensed consolidated balance sheet for financial statements issued for fiscal years beginning after December 13, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company believes the adoption of ASU 2017-09 will not have a significant impact on its consolidated financial statements.each respective period:

On May 13, 2011, the Company signed a contract with the U.S. Biomedical Advanced Research and Development Authority (“BARDA”)BARDA pursuant to which SIGA agreed to deliver two million courses of oral TPOXX® to the Strategic Stockpile. The contract with BARDA (as amended, modified, or supplemented from time to time, the “BARDA“2011 BARDA Contract”) is worthincludes a base contract, as modified, (“2011 Base Contract”) as well as options (described below). The 2011 Base Contract specifies approximately $472.3$508.7 million including $409.8of payments, of which $459.8 million related tohas been received by the Company for the manufacture and delivery of 1.7 million courses of oral TPOXX® and $62.5up to $48.9 million of potential reimbursements connected toin total is available for certain development and supportive activities, (the “Base Contract”).of which $43.8 million has been received as of September 30, 2018.

Under the Base Contract, BARDA has agreedPrior to buy fromFDA approval of oral TPOXX®, the Company 1.7 million courses of TPOXX®. Additionally, the Company is required to contribute to BARDA 300,000 courses at no additional cost to BARDA. A total of 2.0 million courses of TPOXX® is required to be delivered to the Strategic Stockpile in order for the Company to be eligible to receive the $40.9 million hold back payment (see description of hold back payment below).

As of September 30, 2017,2018, the Company hashad cumulatively delivered 2.0 million courses of oral TPOXX® to the Strategic Stockpile and received $368.9$459.8 million under the 2011 Base Contract related toin connection with the manufacture and physical delivery of courses of oral TPOXX®. IncludedSuch receipts were received in this amount arethe following manner; a $41.0 million advance payment in 2011 for the completion of certain planning and preparatory activities related to the 2011 Base Contract,Contract; a $12.3 million milestone payment in 2012 for the completion of the product labeling strategy for oral TPOXX®,; an $8.2 million milestone payment in 2013 for the completion of the commercial validation campaign for oral TPOXX®, the; a $20.5 million milestone payment in 2016 for submission of documentation to BARDA indicating that data covering the first 100 subjects enrolled in the phase III pivotal safety study had been submitted to and reviewed by a Data Safety and Safety Monitoring Board (“DSMB”) and that such DSMB had recommended continuation of the safety study, as well as submission of the final pivotal rabbit efficacy study report to the FDA, andFDA; $286.9 million of payments

The 2011 BARDA Contract includes options. On July 30, 2018, the 2011 BARDA Contract was modified and BARDA exercised its option relating to FDA approval of aforementioned 84-month expiry for oral TOPXX® for which the Company was paid $50.0 million in August 2018. With the option exercise, the 2011 BARDA Contract was modified so that the 2011 Base Contract increased by $50.0 million. Remaining options, if all were exercised by BARDA, would result in aggregate payments to the Company in the event of FDA approval for extension to 84-month expiry for TPOXX® (from 38-month expiry as required in the Base Contract); would fund$72.7 million, including up to $58.3 million of funding for development and supportive activities such as work on a smallpox prophylaxis indication for TPOXX®; and/or would fund $14.4 million of funding for production-related activities related to warm-base manufacturing. BARDA may choose, in its sole discretion not to exercise any or all of the unexercised options. In 2015, BARDA exercised two options related to extending the indication of the drug to the geriatric and pediatric populations. The stated value of thesethose exercises was minimal. BARDA may choose not to exercise additional options in the future. Options are exercisable by BARDA at its sole discretion. BARDA has indicated that it will evaluate, after the FDA’s review and evaluation of stability data, the Company's request that BARDA exercise the option for the $50.0 million payment to the Company in the event of FDA approval of 84-month expiry for TPOXX®.immaterial.

The 2011 BARDA Contract expires in September 2020.

The Company obtains funding from the contracts and grants it obtains from various agencies of the U.S. Government to support its research andhas an R&D program for IV TPOXX®. This program is funded by a development activities. Currently, the Company has one contract with an expiration date of December 30, 2020 and one grant with an expiration date of April 30, 2018, which in combination provide for potential future aggregate research and development funding for specific projects of approximately $15.4 million. During the three months ended March 31, 2017, theBARDA (“IV Formulation R&D Contract”). This contract was amended to increase the available funding for the R&D program related to the IV formulation of TPOXX® by approximately $10.1 million and to extend the end date of thehas a period of performance from June 30, 2020 tothat terminates on December 30, 2020.

The funded amount includes,Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’sBARDA’s discretion. Moreover, the contractcontracts and grantgrants contain customary terms and conditions including the U.S. Government’sBARDA’s right to terminate or restructure a contract or grant for convenience at any time. As such, we may not be able to utilize all available funds under the contract and/or grant.funds.

4. Inventory

Inventory consisted of the following:

5. Property, Plant and Equipment

Property, plant and equipment consisted of the following: 

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

7. Financial Instruments

The Company accounted for the Warrant in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain anti-dilution and cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Any changes in the fair value of the derivative instruments are reported in earnings or loss as long as the derivative contracts are classified as assets or liabilities. Accordingly, the Company classified the Warrant as a liability and reportedreports the change in fair value in the statement of operations.

On September 2, 2016, the issuance date of the Warrant, the fair value of the liability classifiedliability-classified Warrant was $5.8 million. The Company applied a Monte Carlo Simulation-model to calculate the fair value of the liability classifiedliability-classified Warrant using the following assumptions: risk free interest rate of 1.60%; no dividend yield; an expected life of 10 years; and a volatility factor of 80%. The Company compared the Monte Carlo simulation model calculation to a Black-Scholes model calculation.calculation as of December 31, 2016. These models generated substantially equal fair values for the Warrant. As such, the Company utilizedcontinued to utilize a Black-Scholes model for September 30, 20172018 to determine the fair value of the Warrant.

For the three and nine months ended September 30, 2018 and 2017, the Company recorded a loss of $295,771$2.3 million, and $627,624,$0.3 million, respectively, as a result of the change in fair value of the liability classifiedliability-classified Warrant.

On September 2, 2016, the Company entered into a loan and security agreement (as amended from time to time, the “Loan Agreement”) with OCM Strategic Credit SIGTEC Holdings, LLC (“Lender”), pursuant to which the Company received $80.0 million (less fees and other items) on November 16, 2016 having satisfied certain pre-conditions. Such $80.0 million had been placed in an escrow account on September 30, 2016 (the “Escrow Funding Date”). Prior to the Escrow Release Date (November 16, 2016), the Company did not have access to, or any ownership interest in, the escrow account. Until the Escrow Release Date occurred, the Company did not have an obligation to make any payments under the Loan Agreement, no security was granted under the Loan Agreement and no affirmative or negative covenants or events of default were effective under the Loan Agreement.

The Loan Agreement provides for a first-priority senior secured term loan facility in the aggregate principal amount of $80.0 million (the “Term Loan”), of which (i) $25.0 million was placed in a reserve account (the “Reserve Account”) only to be utilized to pay interest on the Term Loan as it becomes due; (ii) an additional $5.0 million was also placed in the Reserve Account and up to the full amount of such $5.0 million maywas eligible to be withdrawn after June 30, 2018 upon the satisfaction of certain conditions, provided that any of such amount is required to fund any interest to the extent any interest in excess of the aforementioned $25.0 million is due and owing and any of such $5.0 million remains in the Reserve Account; and (iii) $50.0 million (net of fees and expenses then due and owing to the Lender) was paid to PharmAthene as part of the final payment to satisfy the PharmAthenea litigation claim. Interest on the Term Loan is at a per annum rate equal to the Adjusted LIBOR rate plus 11.5%, subject to adjustments as set forth in the Loan Agreement. At September 30, 2017,2018, the effective interest rate on the Term Loan, which includes interest payments and accretion of unamortized costs and fees, was 18.6%19.21%. The Company incurred approximately $3.7$3.9 million of interest expense during the three months ended September 30, 2017,2018, of which $2.6$2.8 million was paid from restricted cash and the remaining $1.1 million accreted to the Term Loan balance. For the nine months ended September 30, 2017,2018, the Company incurred approximately $11.0

The Term Loan shall mature on the earliest to occur of (i) the four yearfour-year anniversary of the Escrow Release Date, and (ii) the acceleration of certain obligations pursuant to the Loan Agreement. At maturity, $80.0 million of principal will be repaid, and an additional $4.0 million will be paid (see below). Prior to maturity, there are no scheduled principal payments.

Through the three and one-half year anniversary of the Escrow Release Date, any prepayment of the Term Loan is subject to a make-whole provision in which interest payments related to the prepaid amount are due (subject to a discount of treasury rate plus 0.50%).

In connection with the Term Loan, the Company has granted the Lender a lien on and security interest in all of the Company’s right, title and interest in substantially all of the Company’s tangible and intangible assets, including all intellectual property.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants. These covenants, among other things, require a minimum cash balance throughout the term of the Term Loan and the achievement of regulatory milestones by certain dates, and contain certain limitations on the ability of the Company to incur unreimbursed research and development expenditures over a certain threshold, make capital expenditures over a certain threshold, incur indebtedness, dispose of assets outside of the ordinary course of business, make cash distributions and enter into certain merger or consolidation transactions. The aforementioned minimum cash requirement is $10.0 million for the remainder of 2017 and will reduce towas $5.0 million foruntil August 27, 2018 until the earlier of (i) December 31, 2018 and (ii) 45(45 days after FDA approval of oral TPOXX®; thereafter,), at which point the minimum cash requirement will bebecame $20.0 million.

The Loan Agreement includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) the material inaccuracy of representations or warranties made thereunder, (iii) non-compliance with covenants thereunder, (iv) non-payment of amounts due under, or the acceleration of, other material indebtedness of the Company and (v) bankruptcy or insolvency events. Upon the occurrence and during the continuance of an event of default under the Loan Agreement, the interest rate may increase by 2.00% per annum above the rate of interest otherwise in effect, and the Lenders would be entitled to accelerate the maturity of the Company’s outstanding obligations thereunder.

As of September 30, 2017,2018, the Company is in compliance with the Loan Agreement covenants.

when principal is repaid is being accreted to the Term Loan balance each quarter on a per diem basis. As of September 30, 2017,2018, the Term Loan balance is $69.9$74.4 million.

9. Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, restricted cash, and cash equivalents, accounts payable and accrued expenses and other current liabilities approximates fair value due to the relatively short maturity of these instruments. Common stock warrants which are classified as liabilitiesa liability are recorded at their fair market value as of each reporting period.

The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

At September 30, 2017,2018, the fair value of the debt was $73.2$88.6 million and the carrying value of the debt was $69.9$74.4 million. The Company used a discounted cash flow model to estimate the fair value of the debt by applying a discount rate to future payments expected to be made as set forth in the Loan Agreement.  The fair value of the loan was measured using levelLevel 3 inputs.  The discount rate was determined using market participant assumptions.  This valuation required significant judgment. 

10. Per Share Data

The Company incurred losses for the three and nine months ended September 30, 2017 and 2016 and as a result, the equity instruments listed below are excluded from the calculation of diluted earnings (loss) per share as the effect of the exercise, conversion or vesting of such instruments would be anti-dilutive. The weighted average number of equity instruments excluded consists of:

The appreciation of each stock-settled stock appreciation right was capped at a determined maximum value. As a result, the weighted average number shown in the table above for stock-settled stock appreciation rights reflects the weighted average maximum number of shares that could be issued.

From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although such claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of such current pending matters, if any, will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.

12. Related Party Transactions

A member of the Company’s Board of Directors is a member of the Company’s outside counsel. During the three months ended September 30, 20172018 and 2016,2017, the Company incurred expenses of $82,000$115,600 and $528,000,$82,000, respectively, related to services provided

by the outside counsel. During the nine months ended September 30, 20172018 and 2016,2017, the Company incurred expenses of $298,000$335,349 and $1,066,000,$298,000, respectively, related to services provided by the outside counsel. On September 30, 20172018 the Company’s outstanding payables and accrued expenses included a $76,000an approximate $77,800 liability to the outside counsel.

Real Estate Leases

The following table summarizes activity relating to the liability that was recorded as a result of the lease termination:

As of September 30, 2017,2018, approximately $0.6$0.3 million of the lease termination liability is included in otherOther liabilities on the Condensed Consolidated Balance sheet.sheet with the remainder included in Accrued expenses and other current liabilities.

13. Income Taxes

For the three and nine months ended September 30, 2017, the Company recorded an2018, we incurred pre-tax income tax provision of $134,668 and $342,563, respectively, on a pre-tax loss of $9.7$362.6 million and $25.6$344.0 million respectively. The effective tax rate differs from the statutory rate as noand a corresponding income tax benefit was recordedof $25.4 million and $25.4 million, respectively, which includes a discrete benefit of $25.8 million for current year operating losses dueboth periods. For the three and nine month period, the $25.8 million benefit primarily relates to the Company’s assessment regarding tax realizability ofthat its deferred tax asset.assets are realizable on a more-likely-than-not basis as a result of the award of the 2018 BARDA Contract and current forecasts of future pre-tax earnings.

Reorganization items represent expensesOn October 31, 2018, the Company sold its PRV for cash consideration of $80 million. In connection with the PRV sale, the Loan Agreement was amended to expand the definition of permitted dispositions to include a sale of the PRV. Proceeds from the sale of the PRV ($80 million) were placed in a restricted cash account. The restricted account is to be used only for interest and principal payments (other than those in connection with an event of default) on the chapter 11 case. ForTerm Loan, and the nine months ended September, 30 2016, reorganization items consistedpayment of the following:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

we incurred pre-tax lossesreceived FDA approval and recorded revenue related to the delivery of $9.2our TPOXX® product. We also recorded revenue related to the FDA holdback payment and the payment for 84-month expiry. In addition, we entered into a new contract with BARDA for the purchase of up to 1.7 million and $29.2courses of TPOXX®. Based on these factors, we determined during the quarter ended September 30, 2018 that sufficient positive evidence exists to conclude that substantially all of our deferred tax assets are realizable on a more-likely-than-not basis. With regard to the deferred asset of $28.0 million and correspondingas of September 30, 2018, it is anticipated that a substantial portion of the asset will be realized in connection with income tax benefit/(expense) of approximately $4,000 and $(8,700), respectively.generated from the October 31, 2018 PRV sale.

cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical trials, (ii)(vi) the risk that SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products (iii) the risk that SIGA may not be able to obtain anticipated funding for its development projects or other needed funding, including from anticipated governmental contracts and grants (iv) the risk that SIGA may not complete performance under the BARDA Contract on schedule or in accordance with contractual terms, (v)uses, (vii) the risk that SIGA may not be able to secure or enforce sufficient legal rights in its products, including intellectual property protection, (vi)(viii) the risk that any challenge to SIGA’s patent and other property rights, if adversely determined, could affect SIGA’s business and, even if determined favorably, could be costly, (vii)(ix) the risk that regulatory requirements applicable to SIGA’s products may result in the need for further or additional testing or documentation that will delay or prevent seeking or obtaining needed approvals to market these products, (viii)(x) the risk that one or more protests could be filed and upheld in whole or in part or other governmental action taken, in either case leading to a delay of performance under the 2018 BARDA Contract or other governmental contracts, (ix) the risk that the BARDA Contract is modified or canceled at the request or requirement of the U.S. government, (x)(xi) the risk that the volatile and competitive nature of the biotechnology industry may hamper SIGA’s efforts to develop or market its products, (xi)(xii) the risk that changes in domestic and foreign economic and market conditions may affect SIGA��sSIGA’s ability to advance its research or may affect its products adversely, (xii)(xiii) the effect of federal, state, and foreign regulation, including drug regulation and international trade regulation, on SIGA’s businesses, (xiii)(xiv) the risk that the U.S. Government'sgovernment’s responses (including inaction) to the national and global economic situation may affect SIGA'sSIGA’s business adversely and (xiv)(xv) the risk that some amounts received and recorded as deferred revenue ultimately manySIGA’s internal controls will not be recognized as revenue.effective in detecting or preventing a misstatement in SIGA’s financial statements. All such forward-looking statements are current only as of the date on which such statements were made. SIGA does not undertake any obligation to update publicly any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

 

 

 

 

Item 1. Legal Proceedings

 

From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although such claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of such current pending matters, if any, will not have a material adverse effect on our business, condensed consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.

 

Item 6. Exhibits