SIGA » Topics » Significant Accounting Policies

These excerpts taken from the SIGA 10-K filed Mar 6, 2009.

Significant Accounting Policies

          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our consolidated financial statements. Note 2 of the Notes to the Consolidated Financial Statements includes a summary of all of the significant accounting policies.

Significant Accounting Policies



          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our consolidated financial statements. Note 2 of the Notes to the Consolidated Financial Statements includes a summary of all of the significant accounting policies.



This excerpt taken from the SIGA 10-Q filed Nov 6, 2008.

Significant Accounting Policies

          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our unaudited consolidated financial statements. Note 2 of the Notes to the Unaudited Consolidated Financial Statements includes a summary of all of the significant accounting policies.

This excerpt taken from the SIGA 10-Q filed Aug 8, 2008.

Significant Accounting Policies

          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our unaudited consolidated financial statements. Note 2 of the Notes to the Unaudited Consolidated Financial Statements includes a summary of all of the significant accounting policies.

          Share-based Compensation

          The Company accounts for its stock-based compensation programs under the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of share-based awards on the grant date using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recorded as expense over the requisite periods in the Company’s consolidated statement of operations.

          Fair value of financial instruments

          The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments. Common stock rights and warrants which are classified as assets or liabilities under the provisions of EITF 00-19 are recorded at their fair market value as of each reporting period. The Company applies the Black-Scholes pricing model to calculate the fair values of common stock rights and warrants using the contracted term of the instruments and expected volatility that is calculated as a combination of the Company’s historical volatility and the volatility of a group of comparable companies.

          Revenue Recognition

          The Company recognizes revenue from contract research and development and research progress payments in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, (“SAB 104”). In accordance with SAB 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, collectibility is reasonably assured, contractual obligations have been satisfied and title and risk of loss have been transferred to the customer. The Company recognizes revenue from non-refundable up-front payments, not tied to achieving a specific performance milestone, over the period during which the Company is obligated to perform services or based on the percentage of costs incurred to date, estimated costs to complete and total expected contract revenue. Payments for development activities are recognized as revenue is earned, over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, providing there is no future service obligation associated with that milestone. In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.

          Goodwill

          Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

          The Company evaluates goodwill for impairment annually, in the fourth quarter of each year. In addition, the Company would test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Examples of such events could include a significant adverse change in legal matters, liquidity or in the business climate, an adverse action or assessment by a regulator or government organization, loss of key personnel, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of a reporting unit. Goodwill impairment is determined using a two-step approach in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. In 2007, the Company operated as one business and one reporting unit. Therefore, the goodwill impairment analysis was performed on the basis of the Company as a whole using the market capitalization of the Company as an estimate of its fair value. In the past, our market capitalization has been significantly in excess of the Company’s carrying value. It is reasonably likely that the future market capitalization of SIGA may exceed or fall short of our current market capitalization. If future market capitalization falls short of the Company’s carrying value, a potential impairment might result. The use of the discounted expected future cash flows to

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evaluate the fair value of the Company as a whole is reasonably likely to produce different results than the Company’s market capitalization.

          Recent accounting pronouncements

          In April 2008, the FASB issued EITF 07-05, “Determining whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”, (“EITF 07-05”). EITF 07-05 provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted. Management is evaluating what effect EITF 07-05 will have on SIGA’s financial position and operating results.

          In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 will not affect our consolidated financial condition and results of operations, but may require additional disclosures if we enter into derivative and hedging activities.

          Effective January 1, 2008, the Company implemented Statement of Financial Accounting Standard No. 157, Fair Value Measurement, (FAS 157), for financial assets and liabilities that are required to be measured at fair value. The adoption of FAS 157 did not have an impact on our financial position or results of operations.

          In February 2008, the FASB issued FASB Staff Position 157-2 (FSP 175-2), which delayed the implementation of FAS 157 until January 1, 2009, for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. Pursuant to FSP 157-2, the Company did not adopt FAS 157 for non-financial assets and liabilities that include goodwill. We are currently assessing the impact of FAS 157 on our non-financial assets and liabilities.

          FAS 157 provides that 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.

          We use model-derived valuations where inputs are observable in active markets to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in Level 2. At June 30, 2008, the fair value of such warrants was $3,253,286.

This excerpt taken from the SIGA 10-Q filed May 9, 2008.

Significant Accounting Policies

          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our consolidated financial statements. Note 2 of the Notes to the Consolidated Financial Statements includes a summary of all of the significant accounting policies.

          Share-based Compensation

          The Company accounts for its stock-based compensation programs under the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of share-based awards on the grant date using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recorded as expense over the requisite periods in the Company’s consolidated statement of operations.

          Fair value of financial instruments

          The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments. Common stock rights and warrants which are classified as assets or liabilities under the provisions of EITF 00-19 are recorded at their fair market value as of each reporting period. The Company applies the Black-Scholes pricing model to calculate the fair values of common stock rights and warrants using the contracted term of the instruments and expected volatility that is calculated as a combination of the Company’s historical volatility and the volatility of a group of comparable companies.

          Revenue Recognition

          The Company recognizes revenue from contract research and development and research progress payments in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, (“SAB 104”). In accordance with SAB 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, collectibility is reasonably assured, contractual obligations have been satisfied and title and risk of loss have been transferred to the customer. The Company recognizes revenue from non-refundable up-front payments, not tied to achieving a specific performance milestone, over the period during which the Company is obligated to perform services or based on the percentage of costs incurred to date, estimated costs to complete and total expected contract revenue. Payments for development activities are recognized as revenue is earned, over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, providing there is no future service obligation associated with that milestone. In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.

          Goodwill

          Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

          The Company evaluates goodwill for impairment annually, in the fourth quarter of each year. In addition, the Company would test goodwill for recoverability between annual evaluations whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Examples of such events could include a significant adverse change in legal matters, liquidity or in the business climate, an adverse action or assessment by a regulator or government organization, loss of key personnel, or new circumstances that would cause an expectation that it is more likely than not that we would sell or otherwise dispose of a reporting unit. Goodwill impairment is determined using a two-step approach in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. In 2007, the Company operated as one business and one reporting unit. Therefore, the goodwill impairment analysis was performed on the basis of the Company as a whole using the market capitalization of the Company as an estimate of its fair value. In the past, our market capitalization has been significantly in excess of the Company’s carrying value. It is reasonably likely that the future market capitalization of SIGA may exceed or fall short of our current market capitalization. If future market capitalization falls short of the Company’s carrying value, a potential impairment might result. The use of the discounted expected future cash flows to

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evaluate the fair value of the Company as a whole is reasonably likely to produce different results than the Company’s market capitalization.

These excerpts taken from the SIGA 10-K filed Mar 13, 2008.

Significant Accounting Policies

          The following is a brief discussion of the more significant accounting policies and methods used by us in the preparation of our consolidated financial statements. Note 2 of the Notes to the Consolidated Financial Statements includes a summary of all of the significant accounting policies.

Significant
Accounting Policies




          The
following is a brief discussion of the more significant accounting policies and methods
used by us in the preparation of our consolidated financial statements. Note 2 of the
Notes to the Consolidated Financial Statements includes a summary of all of the
significant accounting policies.




          Share-based
Compensation




          The
Company accounts for its stock-based compensation programs under the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123(R)”), which requires the
measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors including employee stock options and employee stock
purchases related to the Employee Stock Purchase Plan (“employee stock
purchases”) based on estimated fair values. SFAS 123(R) requires companies to
estimate the fair value of share-based awards on the grant date using an option pricing
model. The value of the portion of the award that is ultimately expected to vest is
recorded as expense over the requisite periods in the Company’s consolidated
statement of operations.




          Fair
value of financial instruments




          The
carrying value of cash and cash equivalents, accounts payable and accrued expenses
approximates fair value due to the relatively short maturity of these instruments.
Common stock rights and warrants which are classified as assets or liabilities under
the provisions of EITF 00-19 are recorded at their fair market value as of each
reporting period. The Company applies the Black-Scholes pricing model to calculate the
fair values of common stock rights and warrants using the contracted term of the
instruments and expected volatility that is calculated as a combination of the
Company’s historical volatility and the volatility of a group of comparable
companies.




          
Revenue Recognition




          The
Company recognizes revenue from contract research and development and research progress
payments in accordance with SEC Staff Accounting Bulletin No. 104, Revenue
Recognition,
(“SAB 104”). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed and determinable, collectibility is reasonably assured, contractual
obligations have been satisfied and title and risk of loss have been transferred to the
customer. The Company recognizes revenue from non-refundable up-front payments, not
tied to achieving a specific performance milestone, over the period which the Company
is obligated to perform services or based on the percentage of costs incurred to date,
estimated costs to complete and total expected contract revenue. Payments for
development activities are recognized as revenue is earned, over the period of effort.
Substantive at-risk milestone payments, which are based on achieving a specific
performance milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation associated with
that milestone. In situations where the Company receives payment in advance of the
performance of services, such amounts are deferred and recognized as revenue as the
related services are performed.




          
Goodwill




          Goodwill
is recorded when the purchase price paid for an acquisition exceeds the estimated fair
value of the net identified tangible and intangible assets acquired.




          The
Company evaluates goodwill for impairment annually, in the fourth quarter of each year.
In addition, the Company would test goodwill for recoverability between annual
evaluations whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. Examples of such events could include a significant
adverse change in legal matters, liquidity or in the business climate, an adverse
action or assessment by a regulator or government organization, loss of key personnel,
or new circumstances that would cause an expectation that it is more likely than not
that we would sell or otherwise dispose of a reporting unit. Goodwill impairment
is



21









determined using
a two-step approach in accordance with Statement of Financial Accounting Standards No.
142 “Goodwill and Other Intangible Assets” (“SFAS 142”). The
impairment review process compares the fair value of the reporting unit in which
goodwill resides to its carrying value. In 2007, the Company operated as one business
and one reporting unit. Therefore, the goodwill impairment analysis was performed on
the basis of the Company as a whole using the market capitalization of the Company as
an estimate of its fair value. In the past, our market capitalization has been
significantly in excess of the Company’s carrying value. It is reasonably likely
that the future market capitalization of SIGA may exceed or fall short of our current
market capitalization, in which case a different amount for potential impairment would
result. The use of the discounted expected future cash flows to evaluate the fair value
of the Company as a whole is reasonably likely to produce different results than the
Company’s market capitalization.




          Intangible
Assets




          Acquisition-related
intangibles include acquired technology, customer contracts, grants and covenants not
to compete, and are amortized on a straight line basis over periods ranging from 2-4
years.




          In
accordance with Statement of Financial Accounting Standards No. 144 “Accounting
for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),
the Company performs a review of its identified intangible assets to determine if facts
and circumstances exist which indicate that the useful life is shorter than originally
estimated or that the carrying amount of assets may not be recoverable. If such facts
and circumstances do exist, the Company assesses the recoverability of identified
intangible assets by comparing the projected undiscounted net cash flows associated
with the related asset or group of assets over their remaining lives against their
respective carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets. Our estimates of projected cash flows are
dependent on many factors, including general economic trends, technological
developments and projected future contracts and government grants. It is reasonably
likely that future cash flows associated with our intangible assets may exceed or fall
short of our current projections, in which case a different amount for impairment would
result. If our actual cash flows exceed our estimates of future cash flows, any
impairment charge would be greater than needed. If our actual cash flows are less than
our estimated cash flows, we may need to recognize additional impairment charges in
future periods, which would be limited to the carrying amount of the intangible
assets.




          Recent
accounting pronouncements




          Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement 109

(“FIN 48”). FIN 48 prescribes a comprehensive model for the manner in which
a company should recognize, measure, present and disclose in its financial statements
all material uncertain tax positions that the Company has taken or expects to take on a
tax return.




          As
of the date of adoption, there were no tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly
increase or decrease within twelve months from the date of adoption of FIN 48 or from
December 31, 2007. As of December 31, 2007, the only tax jurisdiction to which the
Company is subject is the United States. Open tax years relate to years in which unused
net operating losses were generated. Thus, upon adoption of FIN 48, the Company’s
open tax years extend back to 1995. In the event that the Company concludes that it is
subject to interest and/or penalties arising from uncertain tax positions, the Company
will present interest and penalties as a component of income taxes. No amounts of
interest or penalties were recognized in the Company’s Consolidated Statements of
Operations or Consolidated Balance Sheets upon adoption of FIN 48 or as of and for the
year ended December 31, 2007.




          In
June 2007, the FASB issued EITF Issue 07-3 “Accounting for Advance Payments for
Goods or Services to Be Used in Future Research and Development Activities” (EITF
07-3). The scope of this Issue is limited to nonrefundable advance payments for goods
and services related to research and development activities. The Issue addresses
whether such advanced payments should be expensed as incurred or capitalized. SIGA is
required to adopt EITF 07-3 effective January 1, 2008. As of December 31, 2007, the
Company does not have any arrangements that would be subject to the scope of EITF
07-3.




          In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”.
SFAS 141R requires the acquiring entity in a business combination to record all
assets acquired and liabilities assumed at their respective



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acquisition-date
fair values, changes the recognition of assets acquired and liabilities assumed arising
from contingencies, changes the recognition and measurement of contingent
consideration, and requires the expensing of acquisition-related costs as incurred.
SFAS 141R also requires additional disclosure of information surrounding a
business combination, such that users of the entity’s financial statements can
fully understand the nature and financial impact of the business combination.
SFAS 141R applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The provisions of SFAS 141R will only impact us if we are
party to a business combination after the pronouncement has been adopted.




          In
December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51.
SFAS 160 requires an entity to classify noncontrolling interests in
subsidiaries as a separate component of equity. Additionally, transactions between an
entity and noncontrolling interests are required to be treated as equity transactions.
We are currently evaluating the impact of this statement on our financial statements.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. As of
December 31, 2007, we believe that SFAS 160 will not affect our consolidated financial
position, results of operations and cash flows.



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