10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 14, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) |
(Zip Code) |
(
(Registrant’s Telephone Number, including Area Code)
Heat Biologics, Inc.
(Former name, address, and fiscal year, if changed since the last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock Purchase Rights |
NYSE American LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
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☒ |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2022, there were
NIGHTHAWK BIOSCIENCES, INC.
TABLE OF CONTENTS
Page No. |
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2 |
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Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 |
2 |
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3 |
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4 |
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6 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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38 |
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46 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, our ability to raise additional capital to support our clinical development program, our manufacturing operations and other operations, our ability to develop products of commercial value and to identify, discover and obtain rights to additional potential product candidates, our ability to protect and maintain our intellectual property and the ability of our licensors to obtain and maintain patent protection for the technology or products that we license from them, the outcome of research and development activities, our reliance on third-parties, the timing of completion of construction of the planned manufacturing facility in Kansas, our ability to successfully operate a manufacturing facility, competitive developments, the effect of current and future legislation and regulation and regulatory actions, as well as other risks described more fully in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere herein and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 11, 2022 (the “2021 Annual Report”). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “NightHawk,” “NightHawk Biosciences,” “the Company,” “we” and “our” refer to NightHawk Biosciences, Inc.
1
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Balance Sheets
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September 30, |
December 31, |
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2022 |
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2021 |
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(unaudited) |
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Current Assets |
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Cash and cash equivalents |
$ |
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$ |
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Short-term investments |
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Accounts receivable |
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Income tax refund receivable |
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— |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property and Equipment, net |
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Intangible assets, net |
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Goodwill |
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— |
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Grant receivable |
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Operating lease right-of-use asset |
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Finance lease right-of-use asset |
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Other assets |
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— |
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Deposits |
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Total Assets |
$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable |
$ |
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$ |
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Operating lease liability, current portion |
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Finance lease liability, current portion |
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Accrued expenses and other liabilities |
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Contingent consideration, current portion |
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Contingent consideration, related party - current portion |
— |
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Total Current Liabilities |
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Long Term Liabilities |
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Other long-term liabilities |
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— |
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Derivative warrant liability |
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Deferred tax liability |
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Deferred revenue, net of current portion |
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Operating lease liability, net of current portion |
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Financing lease liability, net of current portion |
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Contingent consideration |
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Contingent consideration, related party |
— |
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Total Liabilities |
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Stockholders' Equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Total Stockholders' Equity - NightHawk Biosciences, Inc. |
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Non-Controlling Interest |
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( |
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( |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
$ |
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$ |
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See Notes to Consolidated Financial Statements
2
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended |
Nine Months Ended |
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September 30, |
September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue: |
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Product sales |
$ |
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$ |
— |
$ |
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$ |
— |
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Grant and contract revenue |
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Total revenue |
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Operating expenses: |
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Product cost of sales |
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— |
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— |
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Research and development |
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General and administrative |
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Amortization of intangible asset |
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— |
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— |
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In-process research and development impairment |
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— |
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— |
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Change in fair value of contingent consideration |
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( |
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( |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Change in fair value of warrant liability |
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Interest income |
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Unrealized loss on available-for-sale securities |
( |
— |
( |
— |
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Other expense, net |
|
( |
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( |
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( |
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( |
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Total non-operating (loss) income |
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( |
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( |
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Net loss before income taxes |
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( |
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( |
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( |
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( |
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Income tax benefit |
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— |
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— |
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Net loss |
|
( |
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( |
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( |
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( |
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Net loss - non-controlling interest |
|
( |
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( |
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( |
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( |
||||
Net loss attributable to NightHawk Biosciences, Inc. |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||
Net loss per share, basic and diluted |
( |
( |
( |
( |
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Weighted-average common shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||
Unrealized gain on foreign currency translation |
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Total comprehensive loss |
|
( |
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( |
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( |
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( |
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Comprehensive loss attributable to non-controlling interest |
|
( |
|
( |
|
( |
|
( |
||||
Comprehensive loss - NightHawk Biosciences, Inc. |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
See Notes to Consolidated Financial Statements
3
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended September 30, 2022 |
||||||||||||||||||
Accumulated |
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Other |
Total |
|||||||||||||||||
Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
||||||||||||||
|
Stock |
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APIC |
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Deficit |
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Income |
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Interest |
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Equity |
|||||||
Balance at June 30, 2022 |
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
( |
$ |
|
||||||
Issuance of common stock - ESPP |
|
( |
— |
— |
— |
— |
||||||||||||
Stock-based compensation |
— |
|
— |
— |
— |
|
||||||||||||
Other comprehensive income |
— |
|
— |
|
— |
|
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— |
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|||||||
Net loss |
|
— |
|
— |
|
( |
|
— |
|
( |
|
( |
||||||
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
|
$ |
|
|
$ |
( |
|
$ |
|
Nine Months Ended September 30, 2022 |
||||||||||||||||||
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Accumulated |
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Other |
Total |
|||||||||||||||||
Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
||||||||||||||
|
Stock |
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APIC |
|
Deficit |
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(Loss) Income |
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Interest |
|
Equity |
|||||||
Balance at December 31, 2021 |
$ |
|
$ |
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||
Issuance of common stock from vesting of restricted stock awards |
|
( |
— |
— |
— |
— |
||||||||||||
Issuance of common stock - ESPP |
|
( |
— |
— |
— |
— |
||||||||||||
Stock-based compensation |
— |
|
— |
— |
— |
|
||||||||||||
Other comprehensive income |
|
— |
|
— |
|
— |
|
|
|
— |
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|
||||||
Net loss |
|
— |
|
— |
|
( |
|
— |
|
( |
|
( |
||||||
Balance at September 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
|
$ |
|
|
$ |
( |
|
$ |
|
See Notes to Consolidated Financial Statements
4
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended September 30, 2021 |
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|
Accumulated |
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Other |
Total |
|||||||||||||||||
Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
||||||||||||||
|
Stock |
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APIC |
|
Deficit |
|
(Loss) Income |
|
Interest |
|
Equity |
|||||||
Balance at June 30, 2021 |
$ |
|
$ |
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||
Issuance of common stok from vesting of restricted stock awards |
|
( |
— |
— |
— |
— |
||||||||||||
Stock-based compensation |
|
— |
|
|
|
— |
|
— |
|
— |
|
|
||||||
Other comprehensive income |
— |
— |
— |
|
— |
|
||||||||||||
Net loss |
|
— |
|
— |
|
( |
|
— |
|
( |
|
( |
||||||
Balance at September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
|
Nine Months Ended September 30, 2021 |
||||||||||||||||||
|
Accumulated |
|||||||||||||||||
Other |
Total |
|||||||||||||||||
Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
||||||||||||||
|
Stock |
|
APIC |
|
Deficit |
|
(Loss) Income |
|
Interest |
|
Equity |
|||||||
Balance at December 31, 2020 |
$ |
|
$ |
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||
Issuance of common stock under ATM, net of issuance costs |
|
|
|
|
|
— |
|
— |
|
— |
|
|
||||||
Issuance of common stock from vesting of restricted stock awards |
|
|
|
( |
|
— |
|
— |
|
— |
|
— |
||||||
Stock issuance costs |
|
— |
|
( |
|
— |
|
— |
|
— |
|
( |
||||||
Stock-based compensation |
|
— |
|
|
|
— |
|
— |
|
— |
|
|
||||||
Issuance of restricted stock |
|
( |
— |
— |
— |
— |
||||||||||||
Exercise of options |
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|
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|
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— |
|
— |
|
— |
|
|
||||||
Cancellation and payout of fractional shares |
|
( |
|
|
|
— |
|
— |
|
— |
|
— |
||||||
Other comprehensive income |
|
— |
|
— |
|
— |
|
|
|
— |
|
|
||||||
Net loss |
|
— |
|
— |
|
( |
|
— |
|
( |
|
( |
||||||
Balance at September 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
|
See Notes to Consolidated Financial Statements
5
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended |
||||||
September 30, |
||||||
|
2022 |
|
2021 |
|||
Cash Flows from Operating Activities |
||||||
Net loss |
$ |
( |
$ |
( |
||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
||
In-process R&D impairment loss |
|
— |
||||
Depreciation and amortization |
|
|
|
|
||
Amortization of intangible asset |
|
— |
||||
Noncash lease expense |
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|
||||
Stock-based compensation |
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|
||
Change in fair value of common stock warrants |
( |
( |
||||
Change in fair value of contingent consideration |
|
( |
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|
||
Unrealized loss on investments |
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Increase (decrease) in cash arising from changes in assets and liabilities: |
|
|
||||
Accounts receivable |
|
( |
|
|
||
Prepaid expenses and other current assets |
|
|
|
( |
||
Contract receivables |
|
— |
||||
Income tax receivable |
|
— |
||||
Grant receivable |
|
( |
|
( |
||
Inventory |
|
— |
||||
Other assets |
|
( |
||||
Right-of-use assets |
|
( |
|
— |
||
Accounts payable |
|
|
|
|
||
Accrued expenses and other liabilities |
|
( |
|
|
||
Other long-term liabilities |
|
( |
|
|
||
Deferred tax liability |
( |
— |
||||
Deferred revenue |
|
|
|
( |
||
Deposits |
( |
( |
||||
Net Cash Provided by (Used In) Operating Activities |
|
|
|
( |
||
Cash Flows from Investing Activities |
|
|
|
|
||
Purchase of short-term investments |
|
( |
|
( |
||
Sale of short-term investments |
|
|
||||
Purchase of property and equipment |
( |
( |
||||
Acquisition of Elusys Therapeutics, net of cash paid |
|
— |
||||
Payment of contingent consideration |
( |
— |
||||
Net Cash Provided By (Used In) Investing Activities |
|
|
|
( |
||
Cash Flows from Financing Activities |
|
|
|
|
||
Proceeds from the issuance of common stock |
|
— |
|
|
||
Proceeds from the exercise of stock options |
— |
|
||||
Stock issuance costs |
|
— |
|
( |
||
Repayments on principal of finance lease |
( |
( |
||||
Net Cash (Used In) Provided by Financing Activities |
|
( |
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
( |
|
( |
||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
|
( |
||
Cash and Cash Equivalents – Beginning of Period |
|
|
|
|
||
Cash and Cash Equivalents – End of Period |
$ |
|
$ |
|
||
Supplemental Disclosure for Cash Flow Information: |
|
|
|
|
||
Right-of-use assets obtained on operating lease commencements |
$ |
|
$ |
|
||
Right-of-use assets obtained on operating lease modifications |
$ |
— |
$ |
|
||
Right-of-use assets obtained on financing lease commencements |
$ |
|
$ |
|
||
Supplemental disclosure of non-cash investing and financing activities: |
||||||
Purchases of property and equipment included in accounts payable |
$ |
|
$ |
— |
||
Contingent and deferred cash consideration related to Elusys acquisition |
$ |
|
$ |
— |
See Notes to Consolidated Financial Statements
6
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Effective May 3, 2022, Heat Biologics, Inc. changed its name to NightHawk Biosciences, Inc. (the “Company”) by filing a Certificate of Amendment (the “Certificate of Amendment”) to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. Certain information or footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2022.
The consolidated financial statements as of and for the three and nine months ended September 30, 2022 and 2021 are unaudited. The balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements as of that date. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 11, 2022 (the “2021 Annual Report”).
The accompanying unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2022 and 2021 include the accounts of the Company, and its subsidiaries, Pelican Therapeutics, Inc. (“Pelican”), Heat Biologics I, Inc. (“Heat I”), Heat Biologics III, Inc. (“Heat III”), Heat Biologics IV, Inc. (“Heat IV”), Heat Biologics GmbH, Heat Biologics Australia Pty Ltd., Zolovax, Inc., Skunkworx Bio, Inc. (“Skunkworx”, formerly known as Delphi Therapeutics, Inc.), Scorpion Biological Services, Inc. (“Scorpion”) (formerly Scorpion Biosciences, Inc), Elusys Therapeutics, Inc. (“Elusys”), Blackhawk Bio, Inc. (“Blackhawk”), and Abacus Biotech, Inc. (“Abacus”). The functional currency of the entities located outside the United States of America (the foreign entities) is the applicable local currency of the foreign entities. Assets and liabilities of the foreign entities are translated at period-end exchange rates. Statement of operations accounts are translated at the average exchange rate during the period. The effects of foreign currency translation adjustments are included in other comprehensive loss, which is a component of accumulated other comprehensive loss in stockholders’ equity. All significant intercompany accounts and transactions have been eliminated in consolidation. At September 30, 2022 and December 31, 2021, NightHawk held an
Liquidity and Capital Resources
The Company has an accumulated deficit of approximately $
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reduce or eliminate its research and development programs, any future commercialization efforts or the manufacturing services it plans to provide. To meet its capital needs, the Company intends to continue to consider multiple alternatives, including, but not limited to, additional equity financings such as sales of its common stock under at-the-market offerings, debt financings, partnerships, grants, funding collaborations and other funding transactions, if any are available. As of September 30, 2022, the Company had approximately $
Risk and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates or its manufacturing facility, the timing of completion of construction of the planned manufacturing facility in Kansas, uncertainty of market acceptance of the Company’s products or manufacturing capability or success of new business ventures, competition from substitute products and larger companies, government budget and spending on biological threat programs, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.
The Company relies on third-party manufacturers to purchase from their third-party vendors the materials necessary to produce product candidates and manufacture product candidates for clinical studies. The Company also depends on third-party suppliers for key materials and services used in research and development, as well as manufacturing processes, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply adequate materials and services. The Company does not control the manufacturing processes of the contract development and manufacturing organizations, or CDMOs, with whom it contracts and is dependent on these third parties for the production of its therapeutic candidates in accordance with relevant regulations (such as current Good Manufacturing Practices, or cGMP), which include, among other things, quality control, quality assurance and the maintenance of records and documentation.
Cash and Cash Equivalents
The Company considers all cash and other highly liquid investments with initial maturities from the date of purchase of three months or less to be cash and cash equivalents.
Derivative Financial Instruments
The Company has issued common stock warrants in connection with the execution of certain equity financings. The fair value of the warrants, which were deemed to be derivative instruments, was recorded as a derivative liability under the provisions of ASC Topic 815, Derivatives and Hedging (“ASC 815”), because they are not considered indexed to the Company’s own stock. Subsequently, the liability is adjusted to fair value as of the end of each reporting period and the changes in fair value of derivative liabilities are recorded in the consolidated statements of operations and comprehensive loss under the caption “Change in fair value of warrant liability.” See Note 3 for additional information.
The fair value of the warrants, including the warrants issued in connection with the January 2020 common stock offering and recorded as a liability, was determined using the Monte Carlo simulation model, which is deemed to be an appropriate model due to the terms of the warrants issued.
The fair value of warrants was affected by changes in inputs to the Monte Carlo simulation model including the Company’s stock price, expected stock price volatility, the remaining term, and the risk-free interest rate. This model uses Level 3 inputs, including stock price volatility, in the fair value hierarchy established by ASC 820 Fair Value Measurement. At September 30, 2022, the fair value of such warrants was $
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Short-term Investments
The Company’s short-term investments are equity securities and are carried at their fair value based on quoted market prices. Realized and unrealized gains and losses on equity securities are included in net earnings in the period earned or incurred.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, useful lives of fixed assets, contingent consideration, in process research and development (“IPR&D”), income taxes, valuation of warrant liabilities, and stock-based compensation. Actual results may differ from those estimates.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed the operations and managed the business as
Business Combinations
The accounting for our business combinations consists of allocating the purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. We have up to one year from the acquisition date to use information as of each acquisition date to adjust the fair value of the acquired assets and liabilities, which may result in material changes to their recorded values with an offsetting adjustment to goodwill. Determining the fair value of assets acquired and liabilities assumed requires significant judgment, which includes, among other factors, analysis of historical performance and estimates of future performance. In some cases, we have used discounted cash flow analyses, which were based on our best estimate of future revenue, earnings and cash flows as well as our discount rate, adjusted for risk, and estimated attrition rates.
Goodwill and Intangible Assets
The Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company determines the useful lives of definite-lived intangible assets after considering specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, and other economic facts; including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their estimated useful lives. Intangible assets that are deemed to have indefinite lives are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for indefinite-lived intangibles consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. Indefinite-lived intangible assets are not amortized.
In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. IPR&D assets represent the fair value assigned to technologies that the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use. During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the Company may have a full or partial
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impairment charge related to the IPR&D assets, calculated as the excess of the carrying value of the IPR&D assets over their fair value. As of September 30, 2022, the Company decided to terminate any further development of PTX-35, Pelican's lead product candidate. The abandonment of this product triggered full impairment of the IPR&D asset.
Contingent Consideration
Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets. During the quarter ended September 30, 2022, $
Research and Development
Research and development includes costs associated with developmental products not yet approved by the FDA as well as costs associated with bringing developmental products into advanced phase clinical trials as incurred. These costs consist primarily of pre-manufacturing and manufacturing drug costs, clinical trial execution, investigator payments, license fees, salaries, stock-based compensation and related personnel costs. Other costs include fees paid to consultants and outside service providers related to the development of the Company’s product candidates and other expenses relating to the design, development, testing and enhancement of its product candidates.
Inventory
The Company maintains inventory consisting of bulk drug substance (“BDS”) used in the manufacturing process. The Company values inventory at net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated costs to sell.
The Company performs an analysis and records a provision for potentially obsolete inventory. The reserve for obsolescence is generally an estimate of the amount of inventory held at period end that is expected to expire in the future based on projected sales volume and expected product expiration or sell-by dates. These assumptions require the Company to analyze the aging of and forecasted demand for its inventory and make estimates regarding future product sales.
Revenue Recognition
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, effective January 1, 2019. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included
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in the transaction price using the most likely method based on historical experience as well as applicable information currently available.
Product Sales
The Company recognizes revenue from product sales when its performance obligation with its customers has been satisfied. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of the product, which is typically upon acceptance of the product at the delivery site. The Company invoices its customers after acceptance of the product and invoice payments are generally due within 30 days of the invoice date. The Company records product sales net of any variable consideration, including refund rights. The Company uses the most likely amount method when estimating its variable consideration, unless terms are specified within contracts. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates to reflect known changes.
Grant Revenue
The Company recognizes revenue from is grant revenue related to the Cancer Prevention and Research Institute of Texas (“CPRIT”) contract, which is being accounted for under ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, as a conditional non-exchange contribution.
The CPRIT grant covers the period from June 1, 2017 through May 31, 2023, for a total grant award of up to $
On January 7, 2020, the Company was awarded a grant of up to $
Deferred Revenue
Deferred revenue is comprised of an exclusive license agreement with Shattuck Labs, Inc. (“Shattuck”) and process development customer deposits received in advance of our fulfillment of performance obligations.
License Agreements
The Company has licensed certain provisional patent applications and know-how related to fusion proteins to treat cancer and other diseases that were not being developed by the Company. Shattuck paid the Company an initial license fee of $
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Process Development
Process development deferred revenue generally represents customer deposits received in advance of the Company’s fulfillment of performance obligations associated with the custom development of a manufacturing process and analytical methods for a customer’s product.
Accounts Receivable
Accounts receivable is primarily comprised of amounts owed to us for services and sales provided under our customer contracts and are recorded at the invoiced amount net of an allowance for doubtful accounts, if necessary. We apply judgment in assessing the ultimate realization of our receivables and we estimate an allowance for doubtful accounts based on various factors, such as the aging of our receivables, historical experience, and the financial condition of our customers.
Prepaid Expenses and Other Current Assets
The Company’s prepaid expenses and other current assets consist primarily of amounts paid in advance for manufacturing activities, clinical trial support, and insurance.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that utilization is not likely.
Other Assets
In conjunction with a lease agreement further discussed in Note 13, Scorpion has made reimbursement payments to the lessor for costs incurred in conjunction with the leased site. During the construction of the site, these payments were included in other assets on the consolidated balance sheets. On September 15, 2022, the lease commenced, and in accordance with ASC 842 guidance, the Company capitalized $
Significant Accounting Policies
The significant accounting policies used in preparation of these interim financial statements are disclosed in the audited consolidated financial statements and related notes included in the Company’s 2021 Annual Report. Due to the acquisition of Elusys, there have been changes in the significant accounting policies and estimates during the first nine months of fiscal year 2022 which are reflected in the business combinations, inventory, revenue recognition and deferred revenue policies listed above.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022 and the Company is currently evaluating the expected impact of this standard but does not expect it to have a material impact on its consolidated financial statements upon adoption.
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2. Acquisitions
Pelican Therapeutics
In 2017, the Company consummated the acquisition of
Under the Pelican stock acquisition agreement, the Company is also obligated to make future payments based on the achievement of certain clinical and commercialization milestones, as well as low single digit royalty payments and payments upon receipt of sublicensing income. The fair value of these future milestone payments is reflected in the contingent consideration account under current liabilities with the non-current portion under long term liabilities on the balance sheet. The estimated fair value of the contingent consideration was determined using a probability-weighted income approach. The Company estimates the fair value of the contingent consideration on a quarterly basis. At the time of the Pelican acquisition, the Company’s CEO and certain affiliated entities as well as two of the Company’s other directors and certain affiliated entities directly or indirectly owned shares of Pelican common stock purchased by the Company. As a result, approximately
As discussed in Note 10, in May 2016, Pelican was awarded a $
Elusys Therapeutics
On April 18, 2022 (“Closing Date”), the Company closed on the acquisition of Elusys. NightHawk paid at the closing a cash upfront payment of $
Per the Merger Agreement, upon collection of the Elusys contract receivables of $
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The Company acquired Elusys to expand its role in the biodefense space, complementing NightHawk’s focus to target emerging biological threats. NightHawk plans to leverage Elusys’ existing relationships and distribution channels. In addition, NightHawk expects to leverage the capabilities of its planned Scorpion biomanufacturing facility in Manhattan, Kansas, which will enable the Company to manufacture these therapies internally and therefore benefit from significant operating synergies, as well as enhanced oversight, quality control, and speed to market. The Company is also exploring opportunities to expand ANTHIM® distribution abroad. The acquisition is aligned with NightHawk’s vision to establish a fully-integrated ecosystem to deliver medical innovations faster, better, and more efficiently.
The fair value of the purchase consideration was approximately $
The acquisition of Elusys was accounted for as a business combination and reflects the application of acquisition accounting in accordance with ASC 805, Business Combinations. The acquired Elusys’ assets, including identifiable intangible assets and liabilities assumed, have been recorded at their preliminary estimated fair values with the excess purchase price assigned to goodwill. The recognition of goodwill is largely attributed to the value paid for Elusys’ capabilities, which will broaden NightHawk’s role in the biodefense space. The goodwill recorded for this transaction is valued at $
The preliminary fair value of the purchase consideration, or the purchase price, is estimated to be $
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Earn out |
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Contract deferred consideration |
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Total estimated purchase consideration |
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The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed as of the closing date based on their respective preliminary fair values summarized below:
Purchase price allocation: |
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Cash and cash equivalents |
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Contract receivables |
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Inventory |
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Intangible asset – definite-lived (Note 7) |
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Other assets |
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Total assets acquired |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Operating lease obligations |
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Deferred income tax liability |
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Total liabilities assumed |
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Net assets acquired and liabilities assumed |
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Goodwill |
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Total estimated purchase consideration |
$ |
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In connection with the acquisition, the Company incurred one-time expenses consisting primarily of legal fees, accounting fees and consultant fees. For the three and nine months ended September 30, 2022, the Company incurred approximately $
From the Elusys’ acquisition date through September 30, 2022, $
The following unaudited pro forma financial information assumes the companies were combined as of January 1, 2021. The unaudited pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021, nor is it necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma financial information presented below.
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Revenue |
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$ |
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Net loss |
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Net loss per share, basic and diluted |
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3. Fair Value of Financial Instruments
The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued expenses and other payables approximate fair value due to their short maturities.
As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The Company’s cash equivalents are classified within Level I of the fair value hierarchy.
The Company’s short-term investments consist of Level I securities which are comprised of highly liquid money market funds. The estimated fair value of the short-term investments was based on quoted market prices. There were