Note 1 - Business and Liquidity

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

On January 18, 2017, PharmAthene, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant to which its wholly owned subsidiary, Mustang Merger Sub, Inc., will be merged with and into Altimmune, Inc., a Delaware corporation (“Altimmune”), with Altimmune as the surviving subsidiary (“Merger 1”), and immediately thereafter, Altimmune will be merged with and into Mustang Merger Sub LLC, with Mustang Merger Sub LLC as the surviving entity in such merger (“Merger 2”, and together with Merger 1, the “Mergers”). Following the consummation of the Mergers, PharmAthene will change its name to “Altimmune, Inc.”.

On May 4, 2017, in connection with the Merger Agreement, PharmAthene will be holding a special meeting of stockholders to consider and vote upon the following proposals: (i) to approve the issuance of shares of PharmAthene common stock in the Mergers; (ii) to approve and adopt the Merger Agreement; (iii) to approve an amendment of PharmAthene's Certificate of Incorporation, to effect a reverse stock split prior to the effective time of the Mergers at a ratio (the “Reverse Ratio”) of not less than 1-for-10 and not more than 1-for-75, with the exact Reverse Ratio to be finally determined and mutually agreed to by the PharmAthene and Altimmune Boards of Directors; (iv) to approve the 2017 Omnibus Incentive Plan; and (v) to adjourn the special meeting, if necessary or advisable, to solicit additional proxies if there are not sufficient votes in favor of any of the proposals. For additional details regarding the Mergers and Merger Agreement, please refer to PharmAthene's Registration Statement on Form S-4 (File No. 333-215891) and related proxy statement/prospectus/consent solicitation (the "Proxy/Prospectus") filed with the U.S. Securities and Exchange Commission (the "SEC"), which PharmAthene also mailed to its stockholders.

Pursuant to the terms and conditions of the Merger Agreement, at the effective time of Merger 1 (the “Effective Time”), each of Altimmune’s outstanding shares of common stock and preferred stock (excluding Altimmune treasury shares, shares of Altimmune owned by PharmAthene or its subsidiaries or dissenting shares) will be converted into the right to receive a number of shares of PharmAthene common stock such that the holders of outstanding equity of Altimmune immediately prior to the Effective Time will own 58.2% of the outstanding equity of PharmAthene immediately following the Effective Time and holders of outstanding equity of PharmAthene immediately prior to the Effective Time will own 41.8% of the outstanding equity of PharmAthene immediately following the Effective Time (the “Exchange Ratio”), in each case, on an as converted and fully diluted basis. No fractional shares of PharmAthene common stock will be issued in connection with the Mergers as a result of the conversion described above, and any fractional share of PharmAthene common stock that would thereby be issuable will be rounded up to the next whole share. In addition, all outstanding Altimmune options, as well as Altimmune’s 2001 Employee Stock Option Plan and its Non-Employee Stock Option Plan, each as amended from time to time, will be assumed by PharmAthene. Each option or warrant to purchase one share of Altimmune common stock will be converted into an option or warrant, as the case may be, to purchase a number of shares of PharmAthene common stock representing the number of Altimmune shares for which the exchanged option or warrant was exercisable multiplied by the Exchange Ratio. The exercise price will be proportionately adjusted.

The Merger Agreement provides that at, and immediately after, the Effective Time the size of PharmAthene’s Board of Directors will initially consist of seven directors. This board will be comprised of four directors designated by Altimmune and three directors designated by PharmAthene. Altimmune’s current Chief Executive Officer, Bill Enright, is expected to serve as the Chief Executive Officer of the combined company, and Altimmune’s current Chief Financial Officer, Elizabeth Czerepak, is expected to serve as its Chief Financial Officer.

On September 9, 2014, PharmAthene signed a contract with the National Institutes of Allergy and Infectious Diseases (“NIAID") for the development of a next generation lyophilized anthrax vaccine (“SparVax-L”) based on the Company's proprietary technology platform which contributes the recombinant protective antigen (“rPA”) bulk drug substance that is used in the liquid SparVax^® formulation. The contract is incrementally funded. Over the base period of the contract, PharmAthene was awarded initial funding of approximately $5.2 million, which includes a cost reimbursement component and a fixed fee component payable upon achievement of certain milestones. NIAID exercised four options under this agreement to provide additional funding of approximately $8.8 million and an extension of the period of performance through December 31, 2017. The contract could have had a total value of up to approximately $28.1 million, if all technical milestones were met and all eight contract options were exercised by NIAID. PharmAthene has been informed by NIAID that it will exercise only one of the additional remaining options under the contract to provide funding for a non-human primate challenge study which PharmAthene believes may be used to support an advanced development funding proposal to the Biomedical Advanced Research and Development Authority (“BARDA”). Work under all exercised options will continue bringing total committed and final funding under the NIAID contract to $15.1 million.

Between 2006 and 2016, we were engaged in legal proceedings with SIGA Technologies, Inc. (“SIGA”). On December 23, 2015, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s judgment against SIGA which provided an estimated total award of approximately $208.7 million plus additional interest. We received approximately $217.1 million from SIGA during the year ended December 31, 2016, comprised of principal payments of approximately $208.7 million as final satisfaction of the judgment and $8.4 million of payments calculated by SIGA as interest on the judgment.

On February 3, 2017, the Company paid a one-time special cash dividend of $2.91 per share. The special dividend, totaling an aggregate payment of approximately $200.3 million, represents approximately 98% of the after tax net cash proceeds, received from SIGA.

As of March 31, 2017, our cash and cash equivalents balance was $15.8 million, our accounts receivable (billed and unbilled) balance was $1.0 million and our current liabilities were $2.2 million. We believe, based on the operating cash requirements and capital expenditures expected for 2017, the Company’s cash on hand at March 31, 2017, is adequate to fund operations for at least the next twelve months from the date of this report.