SIGA TECHNOLOGIES INC 10-K

Item 8. Financial Statements and Supplementary Data   Index to the Consolidated Financial Statements   Report of Independent Registered Public Accounting Firm 42     Consolidated Balance Sheets 44     Consolidated Statements of Operations and Comprehensive Income (Loss) 45     Consolidated Statements of Changes in Stockholders’ Equity/(Deficiency) 46     Consolidated Statements of Cash Flows 47     Notes to Consolidated Financial Statements 48   41 Table of Contents   Report of Independent Registered Public Accounting Firm     To the Board of Directors and Stockholders of SIGA Technologies, Inc.   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of SIGA Technologies, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity/(deficiency) and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.    Changes in Accounting Principles   As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.   Basis for Opinion   These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.     42 Table of Contents   Revenue Recognition – Estimated Costs to Complete the Research and Development Services (“R&D”) Performance Obligations for the 19C BARDA and IV Formulation R&D Contracts   As discussed in Notes 2 and 3 to the consolidated financial statements, all of the Company’s revenue for the year ended December 31, 2020 was generated from long-term contracts. For these contracts, all revenue associated with R&D performance obligations for the 19C BARDA and IV Formulation R&D Contracts, which totaled approximately $7.5 million and $1.4 million respectively, is recognized over time, because the customer simultaneously receives and consumes the benefits provided by the services as the Company performs these services. Management recognizes revenue based on the progress toward complete satisfaction of the performance obligation and measures this progress under an input method, which is based on the Company’s costs incurred relative to total estimated costs. Under this method, progress is measured based on the cost of resources consumed compared to the total estimated costs to completely satisfy the performance obligation. As disclosed by management, due to the nature of the work required to be performed on many of the performance obligations, management’s estimation of total revenue and costs to satisfy the obligations is complex, subject to many variables, and requires significant judgment. The incurred and estimated costs used in the measure of progress include third-party services performed, direct labor hours, and material consumed.   The principal considerations for our determination that performing procedures relating to revenue recognition – estimated costs to complete the R&D performance obligations for the 19C BARDA and IV Formulation R&D Contracts is a critical audit matter are the significant judgment by management when determining the estimated costs to completely satisfy the performance obligations. This in turn led to significant auditor judgment, subjectivity and effort in performing procedures and in evaluating the estimates of the costs to complete related to management’s estimates of total forecasted costs.   Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, evaluating and testing management’s process for determining the estimated costs to completely satisfy each performance obligation for the 19C BARDA and IV Formulation R&D Contracts, which included evaluating the reasonableness of management’s estimates of total forecasted costs. Evaluating the reasonableness of management’s estimates of total forecasted costs involved assessing management’s ability to reasonably estimate costs to complete the performance obligation by (i) comparing, on a test basis, the underlying cost estimates to approved contracts or modifications; (ii) comparing, on a test basis, the underlying transaction price to original contracts or modifications; and (iii) testing actual costs incurred and their eligibility for billing under the research and development performance obligations.     /s/ PricewaterhouseCoopers LLP   Florham Park, New Jersey March 4, 2021   We have served as the Company’s auditor since 1997.   43 Table of Contents     SIGA TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS As of       December 31, 2020     December 31, 2019   ASSETS                 Current assets                 Cash and cash equivalents   $ 117,890,240     $ 65,249,072   Restricted cash and cash equivalents, short-term     —       95,737,862   Accounts receivable     3,340,263       4,167,996   Inventory     20,265,519       9,652,855   Prepaid expenses and other current assets     2,112,069       5,234,000   Total current assets     143,608,091       180,041,785                     Property, plant and equipment, net     2,103,990       2,618,303   Deferred tax asset, net     2,544,053       14,151,002   Goodwill     898,334       898,334   Other assets     676,923       856,766   Total assets   $ 149,831,391     $ 198,566,190   LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities                 Accounts payable   $ 1,278,217     $ 3,054,032   Accrued expenses and other current liabilities     9,205,293       8,636,911   Term debt, current     —       80,044,866   Total current liabilities     10,483,510       91,735,809   Warrant liability     6,639,211       6,116,882   Other liabilities     2,915,401       2,929,743   Total liabilities     20,038,122       100,782,434   Commitments and contingencies (Note 14)                     Stockholders' equity                 Common stock ($ .0001 par value, 600,000,000 shares authorized, 77,195,704 and 81,269,868 issued and outstanding at December 31, 2020 and December 31, 2019, respectively)     7,720       8,127   Additional paid-in capital     224,978,430       220,808,037   Accumulated deficit     ( 95,192,881 )     ( 123,032,408 ) Total stockholders' equity     129,793,269       97,783,756   Total liabilities and stockholders' equity   $ 149,831,391     $ 198,566,190     The accompanying notes are an integral part of these financial statements.   44 Table of Contents     SIGA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31       2020     2019     2018   Revenues                         Product sales and supportive services   $ 115,471,071     $ 11,190,064     $ 468,918,468   Research and development     9,488,233       15,552,021       8,135,314   Total revenues     124,959,304       26,742,085       477,053,782                             Operating expenses                         Cost of sales and supportive services     14,797,419       1,782,838       95,268,974   Selling, general and administrative     14,003,184       13,252,136       12,879,738   Research and development     10,938,930       13,303,149       13,016,183   Patent expenses     719,141       726,105       789,489   Total operating expenses     40,458,674       29,064,228       121,954,384   Operating income (loss)     84,500,630       ( 2,322,143 )     355,099,398   (Loss) gain from change in fair value of warrant liability     ( 3,525,846 )     5,091,256       ( 6,922,624 ) Loss on extinguishment of Term Loan     ( 4,981,461 )     —       —   Interest expense     ( 3,016,817 )     ( 15,769,768 )     ( 15,478,203 ) Other income, net     532,085       2,822,232       78,940,985   Income (loss) before income taxes     73,508,591       ( 10,178,423 )     411,639,556   (Provision) benefit for income taxes     ( 17,166,581 )     2,937,276       10,168,272   Net and comprehensive income (loss)   $ 56,342,010     $ ( 7,241,147 )   $ 421,807,828   Basic earnings (loss) per share   $ 0.71     $ ( 0.09 )   $ 5.28   Diluted earnings (loss) per share   $ 0.71     $ ( 0.15 )   $ 5.18   Weighted average shares outstanding: basic     79,259,000       81,031,254       79,923,295   Weighted average shares outstanding: diluted     79,437,306       82,175,023       82,708,472     The accompanying notes are an integral part of these financial statements.   45 Table of Contents     SIGA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIENCY) For the Years Ended December 31, 2020, 2019 and 2018                                       Accumulated                               Additional             Other     Total       Common Stock     Paid-In     Accumulated     Comprehensive     Stockholders’       Shares     Amount     Capital     Deficit     Income (Loss)     Equity/ (Deficiency)   Balances, December 31, 2017     79,039,000     $ 7,904     $ 214,229,581     $ ( 537,375,776 )   $ —     $ ( 323,138,291 ) Net income                         421,807,828             421,807,828   Issuance of common stock upon exercise of stock options     426,366       42       261,837                   261,879   Issuance of common stock upon vesting of RSUs and exercise of stock-settled appreciation rights     1,184,283       118       ( 118 )                 —   Issuance of common stock upon exercise of warrants     760,626       77       6,007,770                   6,007,847   Payment of common stock tendered for employee stock-based compensation tax obligations     ( 646,925 )     ( 65 )     ( 4,074,375 )                 ( 4,074,440 ) Cumulative effect of accounting change                         ( 223,313 )           ( 223,313 ) Stock-based compensation                   2,273,177                   2,273,177   Balances, December 31, 2018     80,763,350     $ 8,076     $ 218,697,872     $ ( 115,791,261 )   $ —     $ 102,914,687   Net loss                         ( 7,241,147 )           ( 7,241,147 ) Issuance of common stock upon exercise of stock options     9,769       1       ( 1 )                 —   Issuance of common stock upon vesting of RSUs and exercise of stock-settled appreciation rights     515,888       52       ( 52 )                 —   Issuance of common stock to employees     53,332       5       ( 5 )                 —   Issuance of common stock upon exercise of warrants     159,782       16       1,172,785                   1,172,801   Payment of common stock tendered for employee stock-based compensation tax obligations     ( 232,253 )     ( 23 )     ( 1,176,556 )                 ( 1,176,579 ) Stock-based compensation                   2,113,994                   2,113,994   Balances, December 31, 2019     81,269,868     $ 8,127     $ 220,808,037     $ ( 123,032,408 )   $ —     $ 97,783,756   Net income                         56,342,010             56,342,010   Repurchase of common stock     ( 4,628,473 )     ( 463 )           ( 28,502,483 )           ( 28,502,946 ) Issuance of common stock upon exercise of stock options     11,822       1       ( 1 )                 —   Issuance of common stock upon vesting of RSUs     177,876       18       ( 18 )                 —   Issuance of common stock upon exercise of warrants     393,646       40       3,003,477                   3,003,517   Payment of common stock tendered for employee stock-based compensation tax obligations     ( 29,035 )     ( 3 )     ( 184,013 )                 ( 184,016 ) Stock-based compensation                   1,350,948                   1,350,948   Balances, December 31, 2020     77,195,704     $ 7,720     $ 224,978,430     $ ( 95,192,881 )   $ —     $ 129,793,269     The accompanying notes are an integral part of these financial statements.   46 Table of Contents     SIGA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31       2020     2019     2018   Cash flows from operating activities:                         Net income (loss)   $ 56,342,010     $ ( 7,241,147 )   $ 421,807,828   Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                         Depreciation and other amortization     529,814       526,997       69,630   Loss (gain) on change in fair value of warrant liability     3,525,846       ( 5,091,256 )     6,922,624   Stock-based compensation     1,350,948       2,113,994       2,273,177   Net realization of deferred revenue and costs due to FDA approval     —       —       ( 281,950,853 ) Deferred income taxes provision (benefit)     11,606,949       ( 2,417,617 )     ( 9,301,422 ) Loss on extinguishment of Term Loan     4,981,461       —       —   Non-cash interest expense     887,132       4,497,271       4,497,273   Gain on sale of priority review voucher     —       —       ( 78,338,826 ) Changes in assets and liabilities:                         Accounts receivable     827,733       ( 2,208,863 )     ( 49,723 ) Inventory     ( 8,009,992 )     ( 6,744,644 )     39   Prepaid expenses and other assets     699,102       ( 714,272 )     ( 2,579,329 ) Accounts payable, accrued expenses and other liabilities     ( 2,204,381 )     936,839       2,045,191   Deferred revenue     982,606       ( 1,861,605 )     3,475,714   Net cash provided by (used in) operating activities     71,519,228       ( 18,204,303 )     68,871,323   Cash flows from investing activities:                         Capital expenditures     ( 15,501 )     ( 29,094 )     ( 102,264 ) Net proceeds from sale of priority review voucher     —       —       78,338,826   Net cash (used in) provided by investing activities     ( 15,501 )     ( 29,094 )     78,236,562   Cash flows from financing activities:                         Net proceeds from exercise of stock options     —       —       261,879   Payment of employee tax obligations for common stock tendered     ( 184,016 )     ( 1,176,579 )     ( 4,074,440 ) Repurchase of common stock     ( 28,502,946 )     —       —   Repayment of Term Loan     ( 85,913,459 )     —       —   Net cash used in financing activities     ( 114,600,421 )     ( 1,176,579 )     ( 3,812,561 ) Net (decrease) increase in cash and cash equivalents     ( 43,096,694 )     ( 19,409,976 )     143,295,324   Cash, cash equivalents and restricted cash at the beginning of period     160,986,934       180,396,910       37,101,586   Cash, cash equivalents and restricted cash at end of period   $ 117,890,240     $ 160,986,934     $ 180,396,910                             Supplemental disclosure of cash inflows information:                         Conversion of warrant to common stock   $ 3,003,517     $ 1,172,801     $ 6,007,847   Issuance of common stock upon cashless exercise   $ 97,250     $ 118,500     $ 1,681,426   Cash income taxes paid (refund), net   $ 3,718,581     $ ( 1,276,129 )   $ 251,961     The accompanying notes are an integral part of these financial statements   47 Table of Contents   SIGA TECHNOLOGIES, INC.   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     1. Organization and Basis of Presentation   Description of Business SIGA Technologies, Inc. (“SIGA” or the “Company”) is a commercial-stage pharmaceutical company. The Company's lead product, TPOXX® (“oral TPOXX®”) is a United States Food & Drug Administration-approved oral formulation antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the FDA approved oral TPOXX®.     2. Summary of Significant Accounting Policies   Use of Estimates Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. The most significant estimates include the variables used in the calculation of fair value of warrants granted or issued by the Company, reported amounts of revenue, and the valuation of deferred tax assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. Actual results could differ from these estimates.   Basis of Presentation The consolidated financial statements and related disclosures are presented in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and reflect the consolidated financial position, results of operations and cash flows for all periods presented.   Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.   Restricted Cash and Cash Equivalents Under the terms of the Loan Agreement (as defined below), net cash proceeds from the Company's Priority Review Voucher ("PRV") sale on October 31, 2018 ( see Note 4 ) were restricted and were held in a reserve account. Cash and cash equivalents held in the reserve account were available to pay interest, fees and principal related to the Term Loan (see Note 8 for additional information). Prior to the second quarter of 2020 , there was also a reserve account for certain proceeds of the Loan Agreement. This account was also restricted. Amounts in this reserve account were primarily used to pay interest on the Loan Agreement. This reserve account was closed in the second quarter of 2020 .   The following table reconciles cash, cash equivalents and restricted cash per the consolidated statements of cash flows to the consolidated balance sheet for each respective period:       As of December 31,       2020     2019     2018     2017   Cash and cash equivalents   $ 117,890,240     $ 65,249,072     $ 100,652,809     $ 19,857,833   Restricted cash - short-term     —       95,737,862       11,452,078       10,701,305   Restricted cash - long-term     —       —       68,292,023       6,542,448   Cash, cash equivalents and restricted cash   $ 117,890,240     $ 160,986,934     $ 180,396,910     $ 37,101,586     Concentration of Credit Risk The Company has cash in bank accounts that exceeds the Federal Deposit Insurance Corporation insured limits. The Company has not experienced any losses on its cash accounts and no allowance has been provided for potential credit losses because management believes the potential for losses is remote.   48 Table of Contents   Accounts Receivable Accounts receivable are recorded net of provisions for doubtful accounts. At December 31, 2020 and 2019 , 100 % of accounts receivable represented receivables from the U.S. Government. An allowance for doubtful accounts is based on specific analysis of the receivables. At December 31, 2020 and 2019 , the Company had no allowance for doubtful accounts.   Inventory Inventory is stated at the lower of cost or net realizable value. The Company capitalizes inventory costs associated with the Company’s products when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Inventory is evaluated for impairment periodically to identify inventory that may expire prior to expected sale or has a cost basis in excess of its net realizable value. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to write down such unmarketable inventory to its net realizable value.   Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-line method over the estimated useful lives of the various asset classes. The estimated useful lives are as follows: five years for laboratory equipment; three years for computer equipment; and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term. Maintenance, repairs and minor replacements are charged to expense as incurred.   Warrant Liability The Company accounts for warrants in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Fair value is estimated using model-derived valuations. 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.   Revenue Recognition All of the Company’s revenue is derived from long-term contracts that span multiple years. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606” ).   Adoption of ASC 606 . On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018.    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 to receivables of approximately $ 0.1 million and a net increase to opening accumulated deficit of $ 0.2 million, net of tax. For the year ended December 31, 2018, the impact to revenues as a result of applying ASC 606 was an increase of approximately $ 1.0 million.   Performance Obligations . A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. As of December 31, 2020 , the Company's active performance obligations, for the contracts outlined in Note 3 , consist of the following: six  performance obligations relate to research and development services; one relates to manufacture and delivery of product; and one is associated with storage of product.   Contract modifications may occur during the course of performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract.   The Company’s performance obligations are satisfied over time as work progresses or at a point in time. All of the Company’s revenue related to current research and development performance obligations is recognized over time, because the customer simultaneously receives and consumes the benefits provided by the services as the Company performs these services. The Company recognizes revenue related to these services based on the progress toward complete satisfaction of the performance obligation and measures this progress under an input method, which is based on the Company’s cost incurred relative to total estimated costs. Under this method, progress is measured based on the cost of resources consumed (i.e., cost of third -party services performed, cost of direct labor hours incurred, and cost of materials consumed) compared to the total estimated costs to completely satisfy the performance obligation. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. The incurred and estimated costs used in the measure of progress include third -party services performed, direct labor hours, and material consumed.   49 Table of Contents   Revenue connected with the performance obligations related to the delivery of oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile") ("Delivery Performance Obligation") is recognized at a point in time. The Delivery Performance Obligation under the 2011 BARDA Contract ( Note 3 ) has been completed. With respect to this performance obligation, revenue was recognized when the U.S. Biomedical Advanced Research and Development Authority ("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 due to FDA approval of oral TPOXX®. The consideration, which was variable consideration, was constrained until the FDA approved oral TPOXX® for the treatment of smallpox on July 13, 2018. Prior to FDA approval, consideration had been constrained because the FDA Approval Replacement Obligation (as defined in Note 3 ) had not been quantified or specified. Following FDA approval, the possibility of having to replace product pursuant to the FDA Approval Replacement Obligation was essentially eliminated and deemed to be remote since there was no difference between the approved product and the courses of oral TPOXX® that had been delivered to the Strategic Stockpile.   Contract Estimates . Accounting for long-term contracts and grants involves the use of various techniques to estimate total contract revenue and costs.   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 performed; 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 are complex, subject to many variables and require 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 reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimated revenues, research and development expenses and cost of sales and supportive services under the cumulative catch-up method. Under this method, the impact of the 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.   As discussed in Note 3, during the year ended December 31, 2019, the Company recognized a cumulative catch-up adjustment to revenue of approximately $ 3.3 million related to the negotiation with representatives of the U.S. Government for a change in the application of certain reimbursement rates under the IV Formulation R&D Contract (defined in Note 3 ).   Contract Balances . The timing of revenue recognition, billings and cash collections may result in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) in the consolidated balance sheets. Generally, amounts are billed as work progresses in accordance with agreed-upon contractual terms either at periodic intervals (monthly) or upon achievement of contractual milestones; as of December 31, 2020 , the accounts receivable balance in the balance sheet includes approximately $ 1.3  million of unbilled receivables. Under typical payment terms of fixed price arrangements, the customer pays the Company either performance-based payments or progress payments. For the Company’s cost-type arrangements, the customer generally pays the Company for its actual costs incurred, as well as its allocated overhead and G&A costs. Such payments occur within a short period of time from billing. When the Company receives consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. During the year ended December 31, 2020 , the Company recognized revenue of $ 0.1 million that was included in deferred revenue at the beginning of the period.   Remaining Performance Obligations . Remaining performance obligations represent the transaction price for which work has not been performed and excludes unexercised contract options. As of December 31, 2020 , the aggregate amount of transaction price allocated to remaining performance obligations was $ 63.5 million. The Company expects to recognize this amount as revenue within the next five years as the specific timing for satisfying the performance obligations is subjective and outside the Company’s control.   Leases The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842” )   50 Table of Contents   Adoption of ASC 842 . On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach as of the effective date of the standard without revising prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward its historical lease classification. In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The Company’s election of the hindsight practical expedient resulted in the extension of the Oregon lease term as it was determined that the first renewal option under this lease was expected to be exercised with a reasonable degree of certainty. In the second quarter of 2019, the Company exercised the first renewal option under the Oregon lease. The Company was required to record an operating lease right-of-use ("ROU") asset and a corresponding operating lease liability, equal to the present value of the lease payments at the adoption date. In the determination of future lease payments, the Company has elected to aggregate lease components such as payments for rent, taxes and insurance costs with non-lease components such as maintenance costs and account for these payments as a single lease component. The present value of the lease payments was determined using the Company's incremental borrowing rate. The impact of adopting ASC 842 as of January 1, 2019 was the recording of operating lease right-of-use assets of approximately $ 2.9 million; the recording of operating lease liabilities of approximately $ 3.3 million; and a decrease to deferred rent of approximately $ 0.4 million.   The Company determines if an arrangement is a lease at inception. Leases with an initial term less than one year are not recorded on the balance sheet and the lease costs are recorded as an expense on a straight-line basis over the lease term. Operating leases with terms greater than one year result in a lease liability recorded in other liabilities with a corresponding ROU asset recorded in property, plant and equipment.   Operating lease liabilities are recognized at the commencement date based on the present value of future minimum lease payments over the lease term. ROU assets are recognized based on the corresponding lease liabilities adjusted for qualifying initial direct costs, prepaid or accrued lease payments and unamortized lease incentives. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease. Lease terms may include options to extend or terminate the lease which are incorporated into the Company's measurement when it is reasonably certain that the Company will exercise the option.   Research and Development Research and development expenses include costs directly and indirectly attributable to the conduct of research and development programs, and performance pursuant to the BARDA contracts, including employee related costs, materials, supplies, depreciation on and maintenance of equipment, the cost of services provided by outside contractors, including services related to the Company’s clinical trials and facility costs, such as rent, utilities, and general support services. All costs associated with research and development are expensed as incurred. Costs related to the acquisition of technology rights, for which development work is still in process, and that have no alternative future uses, are expensed as incurred.   Goodwill The Company evaluates goodwill for impairment at least annually or as circumstances warrant. The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. The Company operates as one business and one reporting unit. Therefore, the goodwill impairment analysis is performed on the basis of the Company as a whole, using the market capitalization of the Company as an estimate of its fair value.   Share-based Compensation Stock-based compensation expense for all share-based payment awards made to employees and directors is determined on the grant date; for options awards, fair value was estimated using the Black-Scholes model. These compensation costs are recognized net of an estimated forfeiture rate over the requisite service periods of the awards. Forfeitures are estimated on the date of the respective grant and revised if actual or expected forfeiture activity differs from original estimates.   Income Taxes The Company recognizes income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities at enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established if it is more likely than not that some or the entire deferred tax asset will not be realized. The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which are inherently uncertain. The Company may recognize tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company re-evaluates uncertain tax positions and considers factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken on tax returns, and changes in circumstances related to a tax position. The Company recognizes interest and penalties related to income tax matters in income tax expense.   51 Table of Contents   Repurchase of shares When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. The excess of the purchase price above par value of repurchased shares that are retired is presented as an increase to accumulated deficit (or a reduction of retained earnings, if any).   (Loss) Earnings per Share Basic earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period, assuming potentially dilutive common shares from option exercises, SSARs, RSUs, warrants and other incentives had been issued and any proceeds received in respect thereof were used to repurchase common stock at the average market price during the period. The assumed proceeds used to repurchase common stock is the sum of the amount to be paid to the Company upon exercise of options and the amount of compensation cost attributed to future services not yet recognized.   Fair Value of Financial Instruments The carrying value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, 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 liabilities 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:     • Level 1 – Quoted prices for identical instruments in active markets.     • Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.     • Level 3 – Instruments where significant value drivers are unobservable to third parties.   The Company uses model-derived valuations where certain inputs are unobservable to third parties to determine the fair value of common stock warrants on a recurring basis and classifies the liability-classified warrant as Level 3.   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 Level 3 inputs.  The discount rate was determined using market participant assumptions.   There were no transfers between levels of the fair value hierarchy during 2020 or 2019 . As of December 31, 2020 , the Company had approximately $ 0.1 million of cash and cash equivalents classified as Level 1 financial instruments. There were no Level 2 financial instruments as of December 31, 2020 . As of December 31, 2019 , the Company had approximately $ 5.6 million and $ 90.0 million of restricted cash and cash equivalents classified as Level 1 and Level 2 financial instruments, respectively.   The following table presents changes in the liability-classified warrant measured at fair value using Level 3 inputs:       Fair Value Measurements of Level 3 liability-classified warrant   Warrant liability at December 31, 2019   $ 6,116,882   Increase in fair value of warrant liability     3,525,846   Exercise of warrants     ( 3,003,517 ) Warrant liability at December 31, 2020   $ 6,639,211     Loss Contingencies The Company is subject to certain contingencies arising in the ordinary course of business. The Company records accruals for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued. The Company expenses legal costs associated with loss contingencies as incurred. We record anticipated recoveries under existing insurance contracts when recovery is assured.   52 Table of Contents   Segment Information The Company is managed and operated as one business. The entire business is managed by a single management team that reports to the chief executive officer, who is the Chief Operating Decision Maker. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and has only one reportable segment.   Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016 - 13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016 - 13" ). ASU 2016 - 13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of this standard had no impact on the consolidated financial statements.   In December 2019, the FASB issued ASU No. 2019 - 12, Simplifying the Accounting for Income Taxes , as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.     3. Procurement Contract and Research Agreements   19C BARDA Contract   On September 10, 2018, the Company entered into a contract with BARDA pursuant to which SIGA agreed to deliver up to  1,488,000 courses of oral TPOXX® to the Strategic Stockpile, and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to  212,000 courses of the intravenous (IV) formulation of TPOXX® (“IV TPOXX®”). Additionally, the contract includes funding from BARDA for advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of December 31, 2020, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $ 602.5 million of payments, of which approximately $ 51.7 million of payments are included within the base period of performance of five years, approximately $ 127.1 million of payments are related to exercised options and up to approximately $ 423.7 million of payments are currently specified as unexercised options. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term, including during the base period of performance.    The base period of performance specifies potential payments of approximately $ 51.7 million for the following activities: payments of approximately $ 11.1 million for the delivery of approximately  35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $ 8.0 million for the manufacture of  20,000  courses of final drug product of IV TPOXX® ("IV FDP"), of which $ 3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $ 32.0 million to fund advanced development of IV TPOXX®; and payments of approximately $ 0.6 million for supportive procurement activities. As of December 31, 2020,  the Company had received or billed for $ 11.1 million for the successful delivery of approximately  35,700 courses of oral TPOXX® to the Strategic Stockpile, $ 3.2 million for the manufacture of IV BDS and $ 9.7 million for other base period activities. IV BDS is expected to be used for the manufacture of  20,000 courses of IV FDP. The $ 3.2 million received for the manufacture of IV BDS has been recorded as deferred revenue as of  December 31, 2020 and December 31, 2019; such amount is expected to be recognized as revenue when IV TPOXX® containing such IV BDS is delivered to the Strategic Stockpile or placed in vendor-managed inventory.   The options that have been exercised to date provide for payments up to approximately $ 127.1 million. There are exercised options for the following activities: payments up to $ 11.2 million for the procurement of raw materials to be used in the manufacture of at least  363,070 courses of oral TPOXX®, payments up to $ 101.3 million for the delivery of up to  363,070 courses of oral TPOXX®; and, payments of up to $ 14.6 million for funding of post-marketing activities for oral TPOXX®. As of December 31, 2020, the Company has received the following payments in connection with exercised options: $ 11.2 million was received for the procurement of raw materials and such amount was initially recorded as deferred revenue and was recognized as revenue during the year ended December 31, 2020, with deliveries of approximately  363,000 courses, in the aggregate, of oral TPOXX®; $ 101.3 million was received in connection with the June, September and October deliveries, in total, of approximately  363,000 courses of oral TPOXX®; and $ 5.4 million has been received or billed for in connection with post-marketing activities for oral TPOXX®.   Unexercised options specify potential payments up to approximately $ 423.7 million in total (if all such options are exercised). There are options for the following activities: payments of up to $ 337.7 million for the delivery of up to approximately  1,089,000 courses of oral TPOXX® to the Strategic Stockpile; payments of up to $ 76.8 million for the manufacture of up to  192,000 courses of IV FDP, of which up to $ 30.7 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $ 3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to approximately $ 5.6 million for supportive procurement activities.     53 Table of Contents   The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of  64,000 courses of IV TPOXX®; and three separate IV FDP Options, each providing for  64,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $ 30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $ 76.8 million. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 64,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP.   Revenues in connection with the 19C BARDA Contract are recognized either over time or at a point in time. Performance obligations related to product delivery generate revenue at a point in time. Revenue from other performance obligations under the 19C BARDA Contract are recognized over time using an input method using costs incurred to date relative to total estimated costs at completion. For the years ended December 31, 2020 and 2019 , the Company recognized revenues of $ 7.5  million and $ 7.4 million, respectively, on an over time basis. In contrast, revenue recognized for product delivery and therefore at a point in time for the years ended December 31, 2020 and 2019 , was $ 112.6 million and $ 11.1 million, respectively.    2011 BARDA Contract   On May 13, 2011, the Company signed a contract with BARDA pursuant to which BARDA agreed to buy from the Company 1.7 million courses of oral TPOXX®. Additionally, the Company agreed to contribute to BARDA 300,000 courses at no additional cost to BARDA.   The contract with BARDA (as amended, modified, or supplemented from time to time the "2011 BARDA Contract") includes a base contract, as modified, ( "2011 Base Contract") as well as options. The 2011 Base Contract specifies approximately $ 508.4 million of payments (including exercised options), of which, as of December 31, 2020 , $ 459.8 million has been received by the Company for the manufacture and delivery of 1.7 million courses of oral TPOXX® and $ 45.6 million has been received for certain reimbursements in connection with development and supportive activities. Approximately $ 3.0 million remains eligible to be received in the future for reimbursements of development and supportive activities.   For courses of oral TPOXX® that have been physically delivered to the Strategic Stockpile under the 2011 BARDA Contract, there are product replacement obligations, including: (i) a product replacement obligation in the event that the final version of oral TPOXX® approved by the FDA was different from any courses of oral TPOXX® that had been delivered to the Strategic Stockpile (the “FDA Approval Replacement Obligation”); (ii) a product replacement obligation, at no cost to BARDA, in the event that oral TPOXX® is recalled or deemed to be recalled for any reason; and (iii) a product replacement obligation in the event that oral TPOXX® does not meet any specified label claims. On July 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox and there is no difference between the approved product and courses in the Strategic Stockpile. As such, the possibility of the FDA Approval Replacement Obligation resulting in any future replacements of product within the Strategic Stockpile is remote.   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 the aforementioned 84 -month expiry for oral TPOXX® 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 of $ 72.7 million, including up to $ 58.3 million of funding for development and supportive activities such as work on a post-exposure prophylaxis ("PEP") indication for TPOXX® and/or $ 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 those exercises was immaterial.   The 2011 BARDA Contract expires in December 2024.   As described in Note 2, cash inflows related to delivery of courses under the 2011 BARDA Contract had been recorded as deferred revenue prior to FDA approval of oral TPOXX®, which occurred in the third quarter 2018. The deferral was due to the constraint on the consideration received related to the FDA Approval Replacement Obligation. During the third quarter 2018, the constraint was satisfied with FDA approval of oral TPOXX®. As such, $ 375.6 million associated with cash consideration received in prior periods under the 2011 BARDA Contract was recognized as revenue for the year ended December 31, 2018. Separately, as discussed above, $ 90.9 million of revenues were recognized in the third quarter of 2018  in connection with a $ 40.9 million holdback payment (under the 2011 BARDA Contract) and a $ 50.0 million payment for achieving 84 -month expiry for oral TPOXX® (under the 2011 BARDA Contract). Direct costs incurred by the Company to manufacture and fulfill the delivery of courses had also been deferred. As of December  31, 2017, deferred direct costs under the 2011 BARDA Contract were approximately $ 96.5 million. In connection with the FDA approval of oral TPOXX®, all related deferred costs were recognized in the consolidated statement of operations during the third quarter of 2018.   Revenues in connection with the 2011 BARDA Contract are recognized either over time or at a point in time. Performance obligations related to product delivery generate revenue at a point in time. Remaining performance obligations under the 2011 BARDA Contract generate revenue over time. For the years ended December 31, 2020 and 2019 , the Company recognized revenue of $ 0.2 million and $ 0.3 million, respectively, on an over time basis. In contrast, revenue recognized for product delivery and supportive services and therefore at a point in time for the years ended December 31, 2020 and 2019 , were $ 0.4  million and $ 0.1 million, respectively.   54 Table of Contents   International Procurement Contracts On January 13, 2021, the Public Health Agency of Canada ("PHAC") awarded a contract to Meridian Medical Technologies, Inc. (“Meridian,” a Pfizer Company) (the “Contract”) for the purchase of up to approximately $ 33 million of oral TPOXX® (tecovirimat) within five years. The Contract specifies firm commitments for the purchase of approximately $ 3.4 million of oral TPOXX® to occur by March 31, 2021 and a cumulative purchase of approximately $ 17 million of oral TPOXX® by March 31, 2023; the remaining courses under the Contract are targeted for delivery after March 31, 2023 and are subject to option exercise by PHAC. To date, SIGA has not finalized any deliveries yet in connection with this contract.   On April 3, 2020, the Company announced that the Canadian Department of National Defence (“CDND”) awarded a contract (the "Canadian Military Contract") to Meridian, pursuant to which the CDND will purchase up to approximately $ 14 million of oral TPOXX® over four years. In the second quarter 2020, CDND purchased $ 2.3 million of oral TPOXX®. The remaining purchases are at the option of the CDND, and are expected to occur after regulatory approval of oral TPOXX® in Canada. Meridian is the CDND's counterparty under the Canadian Military Contract, and SIGA is responsible for manufacture and delivery of any oral TPOXX® purchased thereunder.   The PHAC and CDND contract awards were both coordinated between SIGA and Meridian under the international promotion agreement, as amended (the "International Promotion Agreement") that was entered into by the parties on June 3, 2019.   Under the terms of the International Promotion Agreement, Meridian was granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian has agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. SIGA will retain ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, will also retain sales and marketing rights with respect to oral TPOXX®. SIGA’s consent shall be required for the entry into any sales arrangement pursuant to the International Promotion Agreement.   The fee Meridian retains pursuant to the International Promotion Agreement will be a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for years in which customer invoiced amounts net of such expenses are less than or equal to a specified threshold, and a higher specified percentage of such collected net proceeds for years in which such net invoiced amounts exceed the specified threshold.   Revenue in connection with international procurement contracts for the delivery of product are recognized at a point in time. During the year ended December 31, 2020 , the Company recognized $ 2.3 million of revenue for delivery to CDND.    Research Agreements and Grants The Company has an R&D program for IV TPOXX®. This program is funded by the 19C BARDA Contract and a separate development contract with BARDA ("IV Formulation R&D Contract"). The IV Formulation R&D Contract has a period of performance that terminates in February 2024. As of December 31, 2020 , the IV Formulation R&D Contract provides for future aggregate research and development funding of up to approximately $ 2.1 million.   Revenues in connection with the IV Formulation R&D Contract are recognized over time. For the years ended December 31, 2020 and 2019 , the Company recognized revenue of $ 1.4  million and $ 7.5 million, respectively, under this contract. During the year ended December 31, 2019, the Company completed its negotiation with representatives of the U.S. Government for a change in the application of certain reimbursement rates in the contract. The change in the application of those reimbursement rates increased the overall transaction price of the IV Formulation R&D Contract, but did not change the estimate of costs to complete under the input method calculation. As a result, the Company accounted for this as a change in the transaction price and recognized a cumulative catch-up adjustment to revenue of approximately $ 3.3 million representing the impact of the change in the application of those reimbursement rates from January 2016 through March 2019.   In July 2019, the Company was awarded a multi-year research contract valued at a total of $ 19.5 million, with an initial award of $ 12.4 million, from the Department of Defense ("DoD") to support work in pursuit of a potential label expansion for oral TPOXX® that would include post-exposure prophylaxis ("PEP") of smallpox (such work known as the "PEP Label Expansion Program" and the contract referred to as the "PEP Label Expansion R&D Contract"). In May 2020, the DoD increased the scope and the contract value to a total of $ 26 million with current available funding of $ 23 million. As of December 31, 2020 , the PEP Label Expansion R&D Contract provides for future aggregate research and development funding under the award, as modified, of up to approximately $ 22.4 million. The period of performance for this contract, as modified, terminates on July 31, 2025. For the years ended December 31, 2020 and 2019 , the Company, under the PEP Label Expansion R&D Contract, recognized revenue of $ 0.3 million and $ 0.3 million, respectively, on an over time basis.   Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’s discretion. Moreover, contracts and grants contain customary terms and conditions including the U.S. Government’s right to terminate or restructure a contract or grant for convenience at any time. As such, the Company may not be eligible to receive all available funds.   55 Table of Contents     4. Sale of Priority Review Voucher   Concurrent with the approval of oral TPOXX®, the FDA granted the Company's request for a Priority Review Voucher (“PRV”). A PRV is a voucher that may be used to obtain an accelerated FDA review of a product candidate. On October 31, 2018 the Company sold its PRV for cash consideration of $ 80 million which was recognized as other income.       5. Inventory   Inventory consisted of the following:       As of       December 31, 2020     December 31, 2019   Raw materials   $ 2,628,153     $ —   Work in-process     15,415,425       8,693,457   Finished goods     2,221,941       959,398   Inventory   $ 20,265,519     $ 9,652,855         6. Property, Plant and Equipment   Property, plant and equipment consisted of the following:       As of       December 31, 2020     December 31, 2019   Leasehold improvements   $ 2,420,028     $ 2,420,028   Computer equipment     532,125       601,797   Furniture and fixtures     377,859       377,859   Operating lease right-of-use asset     2,944,932       2,944,932         6,274,944       6,344,616   Less-accumulated depreciation     ( 4,170,954 )     ( 3,726,313 ) Property, plant and equipment, net   $ 2,103,990     $ 2,618,303     Depreciation and amortization expense on property, plant, and equipment was $ 529,814 , $ 526,997 , and $ 69,630  for the years ended December 31, 2020 , 2019 , and 2018 , respectively.        7. Accrued Expenses   Accrued expenses and other current liabilities consisted of the following:       As of       December 31, 2020     December 31, 2019   Deferred revenue   $ 3,280,947     $ 2,298,341   Compensation     2,933,738       2,966,139   Lease liability, current portion     449,940       419,709   Other     486,158       643,570   Vacation     405,176       256,402   Research and development vendor costs     327,606       707,685   Professional fees     251,824       288,707   Inventory     150,349       71,541   Interest payable     —       977,724   Income tax payable     919,555       7,093   Accrued expenses and other current liabilities   $ 9,205,293     $ 8,636,911     56 Table of Contents     8. Debt   On March 13, 2020, the Company voluntarily prepaid the Loan Agreement in an approximate aggregate amount of $ 87.2 million. The prepayment was made from restricted cash, including $ 80.0 million in respect of outstanding principal of the Term Loan, $ 4.0 million that was payable upon the repayment of the Loan Agreement, approximately $ 1.2 million of accrued interest, and a prepayment premium amount of approximately $ 1.9 million. The prepayment was made upon the Company and the Lender agreeing to and entering into customary mutual releases reflecting that, subject to such prepayment in accordance with the terms of the Loan Agreement, all of the obligations under the Loan Agreement were released, discharged and satisfied in full. Upon such prepayment and release, the Loan Agreement was terminated. For the year ended  December 31, 2020 , the Company recognized approximately $ 5.0 million of a loss on the extinguishment of the Term Loan related to the remaining unamortized discount and the prepayment premium.   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 (the "Term Loan") (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. Amounts were held in the escrow account until the satisfaction of certain conditions including the closing of the Rights Offering on November 16, 2016. As part of the satisfaction of a litigation claim, funds were released from the escrow account (the date on which such transfer occurred, the “Escrow Release Date”). Interest on the Term Loan was at a per annum rate equal to the Adjusted LIBOR rate plus 11.5 %, subject to adjustments as set forth in the Loan Agreement.   The Term Loan had a maturity date on the earliest to occur of (i) the four -year anniversary of the Escrow Release Date, and (ii) the acceleration of certain obligations pursuant to the Loan Agreement.   Through the three and one -half year anniversary ( May 17, 2020) of the Escrow Release Date, any prepayment of the Term Loan was subject to a makewhole provision in which interest payments related to the prepaid amount were due (subject to a discount of treasury rate plus 0.50 %). Upon repayment of the Term Loan, an additional $ 4.0 million payment was required. Such payment had been accreting to the Term Loan balance since the Escrow Release Date.   In connection with the issuance of the Loan Agreement, the Company incurred $ 8.2 million of costs (including interest on amounts held in the escrow account between September 30, 2016 and November 15, 2016). Furthermore, an additional $4.0 million was payable upon repayment of Term Loan principal. As part of the Company's entry into the Loan Agreement, the Company issued the Warrant (see Note 10 ) with a fair market value of $ 5.8 million. The fair value of the Warrant, as well as costs related to the Term Loan issuance, were recorded as deductions to the Term Loan balance on the Balance Sheet. These amounts were being amortized on a straight-line basis over the life of the related Term Loan. The Company compared the amortization under the effective interest method with the straight-line basis and determined the results were not materially different.     57 Table of Contents       9. Per Share Data   The Company computes, presents and discloses earnings per share in accordance with the authoritative guidance which specifies the computation, presentation and disclosure requirements for earnings per share of entities with publicly held common stock or potential common stock. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income (loss) by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, except that it also gives effect to all potentially dilutive common shares outstanding during the period.   The following is a reconciliation of the basic and diluted (loss) earnings per share computation:       Year Ended December 31,       2020     2019     2018   Net income (loss) for basic earnings per share   $ 56,342,010     $ ( 7,241,147 )   $ 421,807,828   Less: Change in fair value of warrants     —       5,091,256       ( 6,922,624 ) Net income (loss), adjusted for change in fair value of warrants for diluted earnings per share   $ 56,342,010     $ ( 12,332,403 )   $ 428,730,452   Weighted-average shares     79,259,000       81,031,254       79,923,295   Effect of potential common shares     178,306       1,143,769       2,785,177   Weighted-average shares: diluted     79,437,306       82,175,023       82,708,472   Earnings (loss) per share: basic   $ 0.71     $ ( 0.09 )   $ 5.28   Earnings (loss) per share: diluted   $ 0.71     $ ( 0.15 )   $ 5.18     For the year ended December 31, 2020 , diluted shares outstanding include the dilutive effect of in-the-money options, unvested restricted stock and unreleased restricted stock units. The dilutive effect of options is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the average amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible, are collectively assumed to be used to repurchase shares. Warrants were presumed to be cash-settled and therefore excluded from the diluted earnings per share calculations for the year ended  December 31, 2020 because the net effect of their inclusion, including the elimination of the impact in the operating results of the change in fair value of the warrants, would have been anti-dilutive. For the year ended December 31, 2020 , the weighted average number of shares under the warrant excluded from the calculation of diluted earnings per share was  1,124,585 .   58 Table of Contents   The Company incurred losses for the twelve months ended December 31, 2019  and as a result, for such year 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 consisted of:       Year Ended December 31,       2019   Stock Options     340,284   Stock-Settled Stock Appreciation Rights     1,666   Restricted Stock Units     525,741           10. Financial Instruments   2016 Warrant On September 2, 2016, in connection with the entry into the Loan Agreement (see Note 8 for additional information), the Company issued a warrant (the “Warrant”) to the Lender to purchase a number of shares of the Company’s common stock equal to $ 4.0 million divided by the lower of (i) $ 2.29 per share and (ii) the subscription price paid in connection with the Rights Offering (as defined in Note 11 ). The subscription price paid was $ 1.50 in connection with the Rights Offering; accordingly, the exercise price of the Warrant was set at $ 1.50 per share, and there were 2.7 million shares underlying the Warrant. During the year ended December 31, 2020 , 0.5  million shares on the warrant were exercised. Subsequent to partial exercises of the Warrant, there are approximately 1.0  million shares underlying the Warrant as of December 31, 2020 . The Warrant provides for weighted average anti-dilution protection and is exercisable in whole or in part for ten ( 10 ) years from the date of issuance.   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 reports its change in fair value in the consolidated statement of operations.   On September 2, 2016, the issuance date of the Warrant, the fair value of the liability-classified Warrant was $ 5.8 million. The Company applied a Monte Carlo Simulation-model to calculate the fair value of the Warrant and compared the Monte Carlo simulation model calculation to a Black-Scholes model calculation as of December 31, 2016. These models generated substantially equivalent fair values for the Warrant. As such, the Company utilized a Black-Scholes model at December 31, 2020 and 2019 to determine the fair value of the Warrant.   As of December 31, 2020 , the fair value of the Warrant was $ 6.6  million. A Black Scholes model was applied to calculate the fair value of the Warrant using the following assumptions: risk free interest rate of 0.46 %; no dividend yield; an expected life of 5.7  years; and a volatility factor of 80 %.   As of December 31, 2019 , the fair value of the Warrant was $ 6.1  million. A Black Scholes model was applied to calculate the fair value of the Warrant using the following assumptions: risk free interest rate of 1.81%; no dividend yield; an expected life of 6.7 years; and a volatility factor of 70 %.   At December 31, 2020 , pursuant to the Warrant agreement, there were no conditions under which current assets would have been required to satisfy the Warrant obligation.       11. Stockholders’ Equity   On December 31, 2020 , the Company’s authorized share capital consisted of 620,000,000 shares, of which 600,000,000 are designated common shares and 20,000,000 are designated preferred shares. The Company’s Board of Directors is authorized to issue preferred shares in series with rights, privileges and qualifications of each series determined by the Board. As of December 31, 2020 and 2019 , no preferred shares were outstanding or issued.   On March 5, 2020, the Company announced that the Board of Directors had authorized a share repurchase program under which the Company may repurchase, from time to time, up to an aggregate of $ 50 million of the Company's common stock through December 31, 2021. The timing and actual number of shares repurchased will depend on a variety of factors, including: exercise of procurement options under government contracts; alternative opportunities for strategic uses of cash; the stock price of the Company’s common stock; market conditions; and other corporate liquidity requirements and priorities. Repurchases under the program may be made from time to time at the Company’s discretion in open market transactions, through block trades, in privately negotiated transactions, and pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5 - 1 of the Securities Exchange Act of 1934, as amended, or otherwise. During the year ended December 31, 2020 , the Company repurchased 4.6  million shares of common stock, respectively, for approximately $ 28.5 million.   59 Table of Contents     12. Stock Compensation Plans   The Company’s 2010 Stock Incentive Plan (the “2010 Plan”) was initially adopted in May 2010. The 2010 Plan provided for the issuance of stock options, restricted stock and unrestricted stock with respect to an aggregate of 2,000,000 shares of the Company’s common stock to employees, consultants and outside directors of the Company. On May 17, 2011, the 2010 Plan was amended to provide for the issuance of restricted stock units (“RSUs”) and on February 2, 2012, the 2010 Plan was amended to provide for the issuance of stock-settled stock appreciation rights ("SSARs"). Effective April 25, 2012 and May 23, 2017, the 2010 Plan was amended to increase the maximum number of shares of common stock available for issuance to an aggregate of 4,500,000 shares and 8,500,000 shares, respectively. The vesting period for awards granted under the 2010 Plan is determined by the Compensation Committee of the Board of Directors. The Compensation Committee also determines the expiration date of each equity award; however, stock options  may not be exercisable more than ten years after the date of grant as the maximum term of equity awards issued under the 2010 Plan is ten years.   For the years ended December 31, 2020, 2019 and 2018 , the Company recorded stock-based compensation expense, including stock options and RSUs, of approximately $ 1.4 million, $ 2.1  million and $ 2.3 million, respectively.   Stock Options Stock option awards provide holders the right to purchase shares of Common Stock at prices determined by the Compensation Committee, at the time of grant, and must have an exercise price equal to or in excess of the fair market value of the Company’s common stock at the date of grant.   The fair value of options granted is estimated at the date of grant. Expected volatility has been estimated using a combination of the historical volatility of the Company's common stock and the historical volatility of a group of comparable companies’ common stock, both using historical periods equivalent to the options’ expected lives. The expected dividend yield assumption is based on the Company’s intent not to issue a dividend in the foreseeable future. The risk-free interest rate assumption is based upon observed interest rates for securities with maturities approximating the options’ expected lives. The expected life was estimated based on historical experience and expectation of employee exercise behavior in the future giving consideration to the contractual terms of the award.   A summary of the Company’s stock option activity is as follows:               Weighted     Weighted     Aggregate               Average     Average     Intrinsic       Number of     Exercise     Remaining Life     Value       Options     Price     (in years)     (in thousands)   Outstanding at January 1, 2020     281,000     $ 9.68                   Granted     75,000       6.47                   Exercised     ( 25,000 )     3.89                   Canceled/Expired     ( 78,000 )     8.13                   Outstanding at December 31, 2020     253,000     $ 9.78       3.47     $ 170,000   Vested at December 31, 2020     253,000     $ 9.78       3.47     $ 170,000   Exercisable at December 31, 2020     253,000     $ 9.78       3.47     $ 170,000     As of December 31, 2020 , there is no remaining unrecognized stock-based compensation cost related to stock options expected to be recognized. The total fair value of stock options which vested during the years ended December 31, 2020 and 2019 was approximately $ 383,000 and $ 120,000 , respectively. For the year ended December 31, 2019 there were no stock options that vested.   The total intrinsic value of stock options exercised was approximately $ 87,000 , $ 76,000 and $ 2,900,000 for the years ended December 31, 2020, 2019 and 2018 , respectively. The intrinsic value represents the amount by which the market price of the underlying stock exceeds the exercise price of an option.   60 Table of Contents   Restricted Stock Awards/Restricted Stock Units RSUs awarded to employees vest in equal annual installments over a two or three -year period and RSUs awarded to directors of the Company vest over a one -year period. A summary of the Company’s RSU activity is as follows:               Weighted               Average       Number of     Grant-Date       RSUs     Fair Value   Outstanding at January 1, 2020     240,292     $ 5.83   Granted     135,000       5.95   Vested and released     ( 177,876 )     5.84   Canceled/Expired     ( 30,000 )     6.20   Outstanding at December 31, 2020     167,416     $ 5.86     As of December 31, 2020 , $ 0.5  million of total remaining unrecognized stock-based compensation cost related to RSUs is expected to be recognized over the weighted-average remaining requisite service period of 0.5  years. The weighted average fair value at the date of grant for restricted stock awards granted during the years ended December 31, 2020 , 2019 and 2018 was $ 5.95 , $ 5.84 and $ 6.53 per share, respectively. Based on the grant date, the total fair value of restricted stock and restricted stock units vested and released during the years ended December 31, 2020, 2019 and 2018 was approximately $ 1.0  million, $ 1.6  million and $ 2.9  million, respectively.       13. Income Taxes   The Company's provision (benefit) for income taxes comprises the following:       For the year ended December 31,       2020     2019     2018   Current:                         Federal   $ 5,111,667     $ ( 663,114 )   $ ( 1,326,022 ) State and local     447,965       143,455       459,172   Total current provision (benefit)     5,559,632       ( 519,659 )     ( 866,850 ) Deferred:                         Federal     11,375,962       ( 2,092,585 )     ( 9,256,661 ) State and local     230,987       ( 325,032 )     ( 44,761 ) Total deferred provision (benefit)     11,606,949       ( 2,417,617 )     ( 9,301,422 ) Total provision (benefit)   $ 17,166,581     $ ( 2,937,276 )   $ ( 10,168,272 )   61 Table of Contents   The Company’s deferred tax assets and liabilities comprise the following:       As of December 31,       2020     2019   Deferred income tax assets:                 Net operating losses   $ 1,293,842     $ 9,353,603   Amortization of intangible assets     80,930       113,910   Share-based compensation     398,165       451,818   Deferred revenue     709,480       719,304   Interest expense carryforward     —       2,617,951   Lease liability     520,830       678,993   Alternative minimum tax credits     —       663,114   Other     1,141,705       1,338,046   Deferred income tax assets     4,144,952       15,936,739   Less: valuation allowance     ( 1,022,135 )     ( 1,047,008 ) Deferred income tax assets, net of valuation allowance   $ 3,122,817     $ 14,889,731   Deferred income tax liabilities:                 Amortization of goodwill     ( 199,172 )     ( 201,930 ) Property, plant and equipment     ( 81,065 )     ( 175,581 ) Other     ( 298,527 )     ( 361,218 ) Deferred income tax asset, net   $ 2,544,053     $ 14,151,002     The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which is inherently uncertain. The Company assesses all available positive and negative evidence to determine if its existing deferred tax assets are realizable on a more-likely-than- not basis. In making such assessment, the Company considered the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on the Company's generation of sufficient taxable income within the available net operating loss carryback and/or carryforward periods to utilize the deductible temporary differences. As of December 31, 2020 and 2019 , the Company has a valuation allowance on certain state and local net operating losses which the Company determined were not realizable on a more-likely-than- not basis. The Company’s valuation allowance decreased by $ 24,873 during the year ended December 31, 2020.   62 Table of Contents   The benefit for income taxes differs from the expected amount calculated by applying the Company's statutory rate to the income or loss before benefit for income taxes as follows:       As of December 31,       2020     2019     2018   Statutory federal income tax rate     21.0 %     21.0 %     21.0 % State and local taxes     0.7 %     1.3 %     0.8 % Change in fair value of common stock warrant     1.0 %     10.5 %     0.4 % Section 162(m) limitation     0.5 %     ( 6.0 )%     0.3 % Other     0.2 %     2.1 %     ( 0.3 )% Valuation allowance on deferred tax assets     —       —       ( 24.7 )% Effective tax rate     23.4 %     28.9 %     ( 2.5 )%   For the year ended December 31, 2020 , the Company’s effective tax rate differs from the statutory rate of 21 % primarily as a result of non-deductible executive compensation under IRC Section 162 (m), state and local taxes, and a non-taxable adjustment for the fair market value of the Warrant. For the year ended December 31, 2019 , the Company's effective tax rate differs from the statutory rate of 21 % primarily as a result of non-deductible executive compensation under IRC Section 162 (m) and a non-taxable adjustment for the fair market value of the Warrant.   A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:       For the year ended December 31,       2020     2019     2018   Balance at beginning of year   $ 5,649,188     $ 5,738,964     $ —   Tax positions related to the current and prior years:     —       —       —   Additions     —       —       5,738,964   Reductions     ( 57,601 )     ( 89,776 )     —   Settlements     —       —       —   Lapses in applicable statutes of limitation     —       —       —   Balance at the end of the year   $ 5,591,587     $ 5,649,188     $ 5,738,964     Included in the balance of unrecognized tax benefits as of December 31, 2020 , are potential benefits of $ 5.6 million that, if recognized, would affect the effective tax rate. For the years ended  December 31, 2020 and December 31, 2019 , interest and penalties on unrecognized tax benefits were $ 65,000 and $ 38,000 respectively. There are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized benefits will significantly increase or decrease within twelve months from December 31, 2020 .   The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions. The federal tax years open to examination are 2017  to 2020 . The Company's state and local tax years open to examination are 2016 - 2020 .       14. Commitments and Contingencies   Operating lease commitments The Company leases its Corvallis, Oregon, facilities and office space under an operating lease which was signed on November 3, 2017 and commenced on January 1, 2018. This lease expires December 31, 2021. The Company had a lease for the same location prior to this lease. On May 26, 2017 the Company and M&F Incorporated entered into a ten -year office lease agreement (the “New HQ Lease”), pursuant to which the Company agreed to lease 3,200 square feet at 31 East 62nd Street, New York, New York. The Company is utilizing premises leased under the New HQ Lease as its corporate headquarters. The Company has no leases that qualify as finance leases.   Operating lease costs totaled $ 0.7 million and $ 0.6 million for the years ended December 31, 2020 and 2019 , respectively. Cash paid for amounts included in the measurement of lease liabilities from operating cash flows was $ 0.6 million and $ 0.6 million for the years ended December 31, 2020 and 2019 , respectively. As of December 31, 2020 , the weighted-average remaining lease term of the Company’s operating leases was 5.7  years while the weighted-average discount rate was 4.53 %.   63 Table of Contents   The following is a maturity analysis of the Company's lease liabilities as of December 31, 2020 :   2021     550,904   2022     368,467   2023     402,078   2024     404,258   2025     406,994   Thereafter     575,887   Total undiscounted cash flows under operating leases     2,708,588   Less: Imputed interest     ( 359,467 ) Present value of lease liabilities   $ 2,349,121     As of December 31, 2020 , approximately $ 1.9 million of the lease liability is included in Other liabilities on the consolidated balance sheet with the current portion included in accrued expenses.   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, 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.   Purchase Commitments   In the course of our business, the Company regularly enters into agreements with third party organizations to provide contract manufacturing services and research and development services. Under these agreements, the Company issues purchase orders which obligate the Company to pay a specified price when agreed-upon services are performed. Commitments under the purchase orders do not exceed our planned commercial and research and development needs. As of December 31, 2020 , the Company has approximately $ 12.5  million of purchase commitments associated with manufacturing obligations.   64 Table of Contents     15. Related Party Transactions   Board of Directors and Outside Counsel A member of the Company’s Board of Directors is a member of the Company’s outside counsel. During the years ended December 31, 2020, 2019 and 2018 , the Company incurred expenses of approximately $ 478,000 , $ 468,000 and $ 450,000 , respectively, related to services provided by the outside counsel. On December 31, 2020 the Company’s outstanding payables and accrued expenses included a $ 78,000 liability to the outside counsel.   Board of Directors-Consulting Agreement On October 13, 2018, the Company, entered into a consulting agreement with Dr. Eric A. Rose, a member, and former Executive Chairman, of the Company’s Board of Directors. Under the agreement, the consulting services included assisting the Company on expanded indications for TPOXX® and other business development opportunities as requested by the Company. The term of the agreement expired on October 13, 2020 and the agreement has not been renewed. Compensation under the agreement was at an annual rate of $ 200,000 . During the year ended December 31, 2020 , the Company incurred $ 157,000  related to services under this agreement. As of December 31, 2020 , the Company’s outstanding payables and accrued expenses included a $ 7,000 liability associated with this agreement.   Real Estate Leases On May 26, 2017 the Company and M&F Incorporated entered into the New HQ Lease, pursuant to which the Company agreed to lease 3,200 square feet at 31 East 62nd Street, New York, New York. The Company is utilizing premises leased under the New HQ Lease as its corporate headquarters. The Company's rental obligations consist of a fixed rent of $ 25,333 , per month in the first sixty-three months of the term, subject to a rent abatement for the first six months of the term. From the first day of the sixty-fourth month of the term through the expiration or earlier termination of the lease, the Company's rental obligations consist of a fixed rent of $ 29,333 per month. In addition to the fixed rent, the Company will pay a facility fee in consideration of the landlord making available certain ancillary services, commencing on the first anniversary of entry into the lease. The facility fee will be $ 3,333 per month for the second year of the term and increase by five percent each year thereafter, to $ 4,925 per month in the final year of the term.   On July 31, 2017, the Company and M&F, entered into a Termination of Sublease Agreement (the “Old HQ Sublease Termination Agreement”), pursuant to which the Company and M&F agreed to terminate the sublease dated January 9, 2013 for 6,676 square feet of rental square footage located at 660 Madison Avenue, Suite 1700, New York, New York (such sublease being the “Old HQ Sublease” and the location being the “Old HQ”).   Effectiveness of the Old HQ Sublease Termination Agreement was conditioned upon the commencement of a sublease for the Old HQ between M&F and a new subtenant (the “Replacement M&F Sublease”), which occurred on August 2, 2017. The Old HQ Sublease Termination Agreement obligates the Company to pay, on a monthly basis, an amount equal to the discrepancy (the “Rent Discrepancy”) between the sum of fixed rent and Additional Rent (as defined below) under the Old HQ Overlease (as defined below) and the sum of fixed rent and Additional Rent under the Replacement M&F Sublease. Under the Old HQ Sublease Termination Agreement, the Company and M&F release each other from any liability under the Old HQ Sublease.   Under the Old HQ Sublease, the Company was obligated to pay fixed rent of approximately $ 60,000 per month until August 2018 and approximately $ 63,400 per month thereafter until the Old HQ Sublease expiration date in  September  2020. Additionally, the Company was obligated to pay certain operating expenses and taxes (“Additional Rent”), such Additional Rent being specified in the overlease between M&F and the landlord at 660 Madison Avenue (the “Old HQ Overlease”).   Under the Replacement M&F Sublease, the subtenant’s rental obligations were excused for the first two ( 2 ) months of the lease term (“Rent Concession Period”). Thereafter, the subtenant was obligated to pay fixed rent of $ 36,996 per month for the first twelve ( 12 ) months, and was obligated to pay $ 37,831 per month for the next 12 months, and $ 38,665 per month until the scheduled expiration of the Replacement M&F Sublease in September, 2020. In addition to fixed rent, the subtenant was also obligated to pay, pursuant to the Replacement M&F Sublease, a portion of the Additional Rent specified in the Old HQ Overlease.   65 Table of Contents     Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   None.