10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 15, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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)
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 |
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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 May 15, 2023, there were
NIGHTHAWK BIOSCIENCES, INC.
TABLE OF CONTENTS
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Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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, 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, 2022 filed with the SEC on March 31, 2023 (the “2022 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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March 31, |
December 31, |
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2023 |
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2022 |
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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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Grant receivable |
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Income tax refund receivable |
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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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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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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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Deferred revenue, current portion |
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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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Total Current Liabilities |
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Long Term Liabilities |
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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, net of current portion |
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Total Liabilities |
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Commitments and Contingencies (Note 13 and Note 14) |
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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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Accumulated other comprehensive income (loss) |
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Total Stockholders' Equity - NightHawk Biosciences, Inc. |
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Non-Controlling Interest |
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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 |
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March 31, |
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2023 |
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2022 |
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Revenue |
$ |
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$ |
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Operating expenses: |
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Cost of revenues |
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— |
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Research and development |
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Selling, general and administrative |
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Amortization of intangible asset |
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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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Change in fair value of warrant liability |
— |
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Interest income |
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Unrealized gain (loss) on available-for-sale securities |
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( |
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Total non-operating income (loss) |
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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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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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Net loss - non-controlling interest |
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( |
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( |
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Net loss attributable to NightHawk Biosciences, Inc. |
$ |
( |
$ |
( |
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Net loss per share, basic and diluted |
$ |
( |
$ |
( |
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Weighted-average common shares outstanding, basic and diluted |
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Comprehensive income (loss): |
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Net loss |
$ |
( |
$ |
( |
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Unrealized gain (loss) on foreign currency translation |
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( |
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Total comprehensive loss |
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( |
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( |
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Comprehensive loss attributable to non-controlling interest |
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( |
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( |
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Comprehensive loss - NightHawk Biosciences, Inc. |
$ |
( |
$ |
( |
See Notes to Consolidated Financial Statements
3
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended March 31, 2023 |
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Accumulated |
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Other |
Total |
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Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
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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 |
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Balance at December 31, 2022 |
$ |
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$ |
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$ |
( |
$ |
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$ |
( |
$ |
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Issuance of common stock from vesting of restricted stock awards |
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( |
— |
— |
— |
— |
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Issuance of common stock - ESPP |
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( |
— |
— |
— |
— |
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Stock-based compensation |
— |
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— |
— |
— |
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Other comprehensive income |
— |
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— |
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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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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Three Months Ended March 31, 2022 |
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Accumulated |
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Other |
Total |
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Common |
Accumulated |
Comprehensive |
Non-Controlling |
Stockholders' |
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Stock |
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APIC |
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Deficit |
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(Loss) Income |
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Interest |
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Equity |
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Balance at December 31, 2021 |
$ |
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$ |
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$ |
( |
$ |
( |
$ |
( |
$ |
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Issuance of common stock from vesting of restricted stock awards |
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( |
— |
— |
— |
— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive income |
— |
— |
— |
( |
— |
( |
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Net loss |
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— |
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— |
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( |
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— |
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( |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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See Notes to Consolidated Financial Statements
4
NIGHTHAWK BIOSCIENCES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Cash Flows from Operating Activities |
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Net loss |
$ |
( |
$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of intangible asset |
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— |
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Noncash lease expense |
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Noncash interest expense |
— |
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Stock-based compensation |
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Change in fair value of common stock warrants |
— |
( |
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Change in fair value of contingent consideration |
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( |
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( |
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Unrealized (gain) loss on investments |
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( |
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Increase (decrease) in cash arising from changes in assets and liabilities, net of acquisitions: |
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Accounts receivable |
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( |
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( |
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Grant receivable |
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— |
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( |
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Prepaid expenses and other current assets |
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Right-of-use assets |
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— |
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Other assets |
( |
( |
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Deposits |
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( |
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Accounts payable |
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( |
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Deferred revenue |
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— |
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Accrued expenses and other liabilities |
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( |
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Other long-term liabilities |
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— |
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Net Cash Used In Operating Activities |
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( |
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( |
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Cash Flows from Investing Activities |
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Purchase of short-term investments |
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( |
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( |
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Sale of short-term investments |
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Purchases of property and equipment |
( |
( |
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Net Cash Provided By Investing Activities |
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Cash Flows from Financing Activities |
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Repayments of principal under finance lease |
( |
( |
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Net Cash Used in Financing Activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net (Decrease) Increase in Cash and Cash Equivalents |
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( |
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Cash and Cash Equivalents – Beginning of the Period |
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Cash and Cash Equivalents – End of the Period |
$ |
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$ |
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Supplemental Disclosure for Cash Flow Information: |
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Right-of-use assets obtained upon operating lease commencements |
$ |
— |
$ |
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Right-of-use assets surrendered upon financing lease modifications |
$ |
( |
$ |
— |
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Supplemental disclosure of non-cash investing and financing activities: |
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Purchases of property and equipment included in accounts payable |
$ |
— |
$ |
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See Notes to Consolidated Financial Statements
5
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 three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2023.
The consolidated financial statements as of and for the three months ended March 31, 2023 and 2022 are unaudited. The balance sheet as of December 31, 2022 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, 2022 filed with the SEC on March 31, 2023 (the “2022 Annual Report”).
The accompanying unaudited consolidated financial statements as of and for the three months ended March 31, 2023 and 2022 include the accounts of NightHawk Biosciences, Inc., and its subsidiaries (“the Company”), 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. (formerly known as Delphi Therapeutics, Inc.), Scorpius BioManufacturing, Inc. (“Scorpius”) (formerly Scorpion Biological Services, Inc), Blackhawk Bio, Inc., Abacus Biotech, Inc., and Elusys Therapeutics, Inc. (“Elusys”). 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 March 31, 2023 and December 31, 2022, NightHawk held an
Going Concern Uncertainty
The Company has an accumulated deficit of approximately $
6
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 March 31, 2023, 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 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 (“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 “ 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 Accounting Standards Codification (“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 March 31, 2023 the fair value of such warrants was $
7
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, 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 the Company’s 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. The Company has 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, the Company has used discounted cash flow analyses, which were based on its best estimate of future revenue, earnings and cash flows as well as its 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, including goodwill, 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, other than goodwill, 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, such as goodwill, are not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis or when events or changes in circumstances indicate a potential impairment exists, using a fair value-based test. The Company records a goodwill impairment charge if a reporting unit’s carrying value exceeds its fair value.
In-process research and development (“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
8
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 impairment charge related to the IPR&D assets, calculated as the excess of the carrying value of the IPR&D assets over fair value.
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 and comprehensive loss. 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 year ended December 31, 2022, $
Cost of revenues and selling, general and administrative expenses
Cost of revenues consists of production wages, material costs and overhead, and other costs related to the recognition of revenue. Selling, general and administrative expenses consist of salaries and related costs for administrators, public company costs, business development personnel as well as legal, patent-related expenses and consulting fees. Public company costs include compliance, auditing services, tax services, insurance and investor relations.
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.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. 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 the 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 in the transaction price using the most likely method based on historical experience as well as applicable information currently available.
9
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 a grant 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 $
License revenue
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 Labs, Inc. (“Shattuck”) paid the Company an initial license fee of $
Process development revenue
Process development revenue generally represents revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer’s product. Process development revenue is recognized over time utilizing an input method by tracking the progress toward completion by measuring inputs to date relative to total estimated inputs needed to satisfy the performance obligation. Under a process development contract, the customer owns the product details and process, which has no alternative use. These process development projects are customized to each customer to meet its specifications and typically include only one performance obligation. Each process represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by our services and can make changes to its process or specifications upon request. Under these agreements, we are entitled to consideration for progress to date that includes an element of profit margin.
The transaction price for services provided under our customer contracts reflects our best estimate of the amount of consideration to which we are entitled in exchange for providing goods and services to our customers. For contracts with
10
multiple performance obligations, we allocate transaction price to each performance obligation identified in a contract on a relative standalone selling price basis. If observable standalone selling prices are not available, we estimate the applicable standalone selling price based on the pricing of other comparable services or on a price that we believe the market is willing to pay for the applicable service.
In determining the transaction price, we also considered the different sources of variable consideration including, but not limited to, discounts, credits, refunds, price concessions or other similar items. We have included in the transaction price some or all of an amount of variable consideration, utilizing the most likely method, only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The actual amount of consideration ultimately received may differ.
Deferred Revenue
Deferred revenue is comprised of an exclusive license agreement with 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 $
Process Development
Process development deferred revenue generally represents customer payments 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. As of March 31, 2023, there was $
Accounts Receivable
Accounts receivable are 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
11
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 presently more likely than not.
Other Assets
In conjunction with a lease agreement further discussed in Note 13, Scorpius has made prepaid rent payments to the lessor for costs incurred in conjunction with the leased site. While the site is under construction, these payments are included in other assets on the consolidated balance sheets.
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 2022 Annual Report.
Impact of Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company adopted ASU 2016-13 as of January 1, 2023.
The cumulative effect of applying the new credit loss standard was not material and, therefore, did not result in an adjustment to retained earnings. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related financial statement disclosures.
2. Acquisitions
Pelican Therapeutics
In 2017, the Company consummated the acquisition of
Under the agreement, the Company was 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. However, due to the discontinuation of PTX-35
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 $
12
Per the merger agreement that was executed in connection with the acquisition of Elusys (the “Merger Agreement”), upon collection of the Elusys contract receivables of $
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 Scorpius 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 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 purchase price of $
Aggregate consideration: |
|
||
Cash consideration |
$ |
|
|
Deferred cash consideration |
|
||
Earn out |
|
||
Additional earn out |
|
||
Receivable consideration |
|
||
Contract deferred consideration |
|
||
Total purchase consideration |
$ |
|
13
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: |
|
||
Cash and cash equivalents |
$ |
|
|
Contract receivables |
|
||
Prepaid expenses and other current assets |
|
||
Inventory |
|
||
Intangible asset – definite-lived (Note 7) |
|
||
Property and equipment |
|
||
Operating lease right of use assets |
|
||
Other assets |
|
||
Total assets acquired |
|
||
Accounts payable |
( |
||
Accrued expenses and other current liabilities |
( |
||
Operating lease obligations |
( |
||
Deferred income tax liability |
( |
||
Total liabilities assumed |
( |
||
Net assets acquired and liabilities assumed |
|
||
Goodwill |
|
||
Total purchase consideration |
$ |
|
The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized. Any changes in the estimated fair values of the purchase consideration and of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction may change the amount and allocation of the purchase price. As such, the allocations for this transaction are preliminary estimates including deferred taxes, which may be subject to change within the measurement period.
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
14
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
In January 2020, the Company issued warrants in connection with the public offering of common stock (the “January 2020 Warrants”). Pursuant to the terms of these warrants, the warrants were not considered indexed to the Company’s own stock and therefore are required to be measured at fair value and reported as a liability in the consolidated balance sheets. Additionally, upon the closing of the January 2020 offering,
The following table presents quantitative information about the inputs used in the valuation for the Company’s fair value measurement of the warrant liability classified as Level 3:
March 31, 2023 |
December 31, 2022 |
||||||
Current stock price |
$ |
|
$ |
|
|||
Estimated volatility of future stock price |
|
% |
|
% |
|||
Risk free interest rate |
|
% |
|
% |
|||
Contractual term |
|
years |
|
years |
As of March 31, 2023, there were a total of
The fair value of financial instruments measured on a recurring basis is as follows:
As of March 31, 2023 |
|||||||||||
Description |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||
Assets: |
|||||||||||
Short-term investments |
$ |
|
$ |
|
|
— |
|
— |
|||
Liabilities: |
|
|
|
|
|
|
|
|
|||
Contingent consideration |
$ |
|
— |
|
— |
$ |
|
||||
Warrant liability |
— |
|
— |
|
— |
— |
As of December 31, 2022 |
|||||||||||
Description |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||
Assets: |
|||||||||||
Short-term investments |
$ |
|
$ |
|
|
— |
|
— |
|||
Liabilities: |
|
|
|
|
|
|
|
|
|||
Contingent consideration |
|
— |
|
— |
|
||||||
Warrant liability |
— |
— |
|
— |
— |
15
The following tables summarize the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the three months ended March 31, 2023 and 2022:
Elusys |
|||
Contingent |
|||
|
Consideration |
||
Balance at December 31, 2022 |
$ |
|
|
Change in fair value |
( |
||
Balance at March 31, 2023 |
$ |
|
Pelican |
|
|||||
Contingent |
Warrant |
|||||
Consideration |
|
Liability |
||||
Balance at December 31, 2021 |
$ |
|
$ |
|
||
Change in fair value |
( |
( |
||||
Balance at March 31, 2022 |
$ |
|
$ |
|
The change in the fair value of the contingent consideration of $
16
The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of contingent consideration classified as Level 3 as of March 31, 2023 and December 31, 2022:
As of March 31, 2023 |
|||||||||
Valuation |
Significant |
Weighted Average |
|||||||
|
Methodology |
|
Unobservable Input |
|
(range, if applicable) |
||||
Elusys revenue earn-out |
Discounted cash flow analysis |
Timing of expected payments |
2025-2036 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
||||||||
Elusys deferred contract consideration |
Discounted cash flow analysis |
Timing of expected payments |
2023 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
As of December 31, 2022 |
|||||||||
Valuation |
Significant |
Weighted Average |
|||||||
|
Methodology |
|
Unobservable Input |
|
(range, if applicable) |
||||
Elusys revenue earn-out |
Discounted cash flow analysis |
Timing of expected payments |
2025-2036 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
||||||||
Elusys deferred contract consideration |
Discounted cash flow analysis |
Timing of expected payments |
2023 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
The Company records certain non-financial assets on a non-recurring basis, including goodwill and in-process R&D. This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.
4. Short-Term Investments
Short-term investments consist of equity securities. The Company holds its securities at fair value as of March 31, 2023 and December 31, 2022. Unrealized gains and losses on securities are reported in the other expense line item in the statements of operations and comprehensive loss. Short-term investments at March 31, 2023 and December 31, 2022 consisted of mutual funds with fair values of $
17
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at:
March 31, |
December 31, |
|||||
|
2023 |
|
2022 |
|||
Prepaid manufacturing expense |
$ |
|
$ |
|
||
Other prepaid expenses and current assets |
|
|
||||
Prepaid insurance |
|
|
||||
Prepaid preclinical and clinical expenses |
|
|
||||
$ |
|
$ |
|
6. Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging generally from
Property and equipment consist of the following:
March 31, |
December 31, |
|||||
|
2023 |
|
2022 |
|||
Lab equipment |
$ |
|
$ |
|
||
Leasehold improvements |
|
|
|
|
||
Construction-in-process |
|
|
|
|
||
Computers |
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
||
Vehicles |
|
|
||||
Total |
|
|
|
|
||
Accumulated depreciation |
|
( |
|
( |
||
Property and equipment, net |
$ |
|
$ |
|
Depreciation expense was $
7. Goodwill and other intangible assets
The Company performs an annual impairment test at the reporting unit level as of April 1st of each fiscal year or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable.
Pelican Goodwill and In-Process R&D
Goodwill of $
18
Elusys Goodwill and Intangible Assets
Goodwill of $
The change in the carrying amount of goodwill and intangible assets during the three months ended March 31, 2023 is as follows:
|
Intangible |
|||||
|
Goodwill |
Assets |
||||
Balance at December 31, 2022 |
|
$ |
|
$ |
|
|
Amortization |
— |
( |
||||
Balance at March 31, 2023 |
$ |
|
$ |
|
8. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
March 31, |
December 31, |
|||||
|
2023 |
|
2022 |
|||
Accrued manufacturing expenses |
$ |
|
$ |
|
||
Compensation and related benefits |
|
|
||||
Income tax payable |
|
|
||||
Other expenses |
|
|
|
|||
Accrued preclinical and clinical trial expenses |
|
|
||||
Accrued franchise tax |
|
|
|
|||
$ |
|
$ |
|
9. Stockholders’ Equity
Common Stock Warrants
As of March 31, 2023, the Company had outstanding warrants to purchase
The following table summarizes the activity of the Company’s common stock warrants for the three months ended March 31, 2023. The Company had no common stock warrant activity during the three months ended March 31, 2022.
|
Common Stock |
|
Warrants |
||
Outstanding, December 31, 2022 |
|
|
Expired |
|
( |
Outstanding, March 31, 2023 |
|
|
19
Equity Compensation Plans
The Company maintains various equity compensation plans (“Plans”) with substantially similar provisions under which it may award employees, directors and consultants incentive and non-qualified stock options, restricted stock, stock appreciation rights and other stock-based awards with terms established by the Compensation Committee of the Board of Directors which has been appointed by the Board of Directors to administer the plans.
Accounting for Stock-Based Compensation:
Stock Compensation Expense - For the three months ended March 31, 2023 and 2022, the Company recorded $
Stock Options - Under the Plans, the Company has issued stock options. A stock option grant gives the holder the right, but not the obligation, to purchase a certain number of shares at a predetermined price for a specific period of time. The Company typically issues options that vest over
Fair Value Determination – The Company has used the Black-Scholes option pricing model to determine the fair value of our stock option awards on the date of grant. The Company will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.
The following weighted-average assumptions were used for option grants during the three months ended March 31, 2023 and 2022:
● | Volatility – The Company used an average historical stock price volatility from its own data. |
● | Expected life of options – The expected term represents the period that the Company’s stock option grants are expected to be outstanding. The Company elected to utilize the “simplified” method to estimate the expected term. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. |
● | Risk-free interest rate – The rate is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options. |
● |
Dividend yield – The expected dividend yield was considered to be |
● | Forfeitures – As required by ASC 718, Compensation—Stock Compensation, the Company reviews recent forfeitures and stock compensation expense. The Company accounts for forfeitures as they occur. |
The following table summarizes weighted-average assumptions used in our calculations of fair value for the three months ended March 31, 2023 and 2022:
|
2023 |
2022 |
||||
Dividend yield |
|
— |
% |
— |
% |
|
Expected volatility |
|
|
% |
|
% |
|
Risk-free interest rate |
|
|
% |
|
% |
|
Expected lives (years) |
|
years |
years |
20