10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 28, 2024
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 | |
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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) |
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(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 |
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 26, 2024, there were
SCORPIUS HOLDINGS, INC.
TABLE OF CONTENTS
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Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 |
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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 biodefense 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, 2023 filed with the SEC on April 26, 2024 (the “2023 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, “Scorpius”, “NightHawk,” “NightHawk Biosciences,” “the Company,” “we”, “us”, and “our” refer to Scorpius Holdings, Inc.
1
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCORPIUS HOLDINGS, INC.
Consolidated Balance Sheets
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March 31, |
December 31, |
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2024 |
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2023 |
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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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Contingent consideration receivable, related party |
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Prepaid expenses and other current assets |
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Inventory |
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Total Current Assets |
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Property and Equipment, net |
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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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Contingent earn-out receivable, related party |
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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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Convertible note payable, related party |
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— |
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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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Total Liabilities |
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Commitments and Contingencies (Note 11 and 15) |
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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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Accumulated other comprehensive income |
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Total Stockholders' Equity |
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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
SCORPIUS HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended |
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March 31, |
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2024 |
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2023 |
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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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Research and development |
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Selling, general and administrative |
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Change in fair value of contingent earn-out receivable, related party |
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( |
— |
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Total operating expenses |
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Operating loss |
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( |
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( |
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Interest income |
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Interest expense |
( |
( |
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Unrealized gain on short-term investments |
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Change in fair value of convertible promissory note, related party |
( |
— |
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Other income |
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— |
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Other expense |
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( |
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( |
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Total non-operating income |
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Net loss before income taxes from continuing operations |
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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 from continuing operations |
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( |
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( |
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Net loss from discontinued operations, net of tax benefit |
— |
( |
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Net loss |
( |
( |
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Net loss - non-controlling interest |
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( |
( |
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Net loss attributable to Scorpius Holdings, Inc. |
$ |
( |
$ |
( |
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Weighted-average common shares outstanding, basic and diluted |
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Net loss per share, basic and diluted - continuing operations |
$ |
( |
$ |
( |
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Net loss per share, basic and diluted - discontinued operations |
— |
( |
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Net loss per common share attributable to Scorpius Holdings, Inc., basic and diluted |
$ |
( |
$ |
( |
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Comprehensive loss |
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Net loss |
$ |
( |
$ |
( |
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Unrealized gain (loss) on foreign currency translation |
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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 - Scorpius Holdings, Inc. |
$ |
( |
$ |
( |
See Notes to Consolidated Financial Statements
3
SCORPIUS HOLDINGS, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended March 31, 2024 |
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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, 2023 |
$ |
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$ |
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$ |
( |
$ |
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$ |
( |
$ |
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Forfeiture from cancellation of restricted stock |
( |
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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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At-the-market sale |
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Issuance of common stock from public offering |
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Other comprehensive income |
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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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Balance at March 31, 2024 |
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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, 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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— |
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— |
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— |
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— |
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Issuance of common stock - ESPP |
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( |
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— |
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— |
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— |
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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 loss |
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— |
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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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( |
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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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See Notes to Consolidated Financial Statements
4
SCORPIUS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended |
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March 31, |
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2024 |
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2023 |
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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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Noncash lease expense |
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Stock-based compensation |
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Change in fair value of contingent earn-out receivable, related party |
( |
( |
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Change in fair value of convertible promissory note, related party |
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— |
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Unrealized gain on investments |
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( |
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( |
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Noncash interest expense |
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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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Other assets |
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— |
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( |
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Prepaid expenses and other current assets |
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( |
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Inventory |
( |
— |
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Right-of-use assets |
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— |
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Deposits |
( |
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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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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 intellectual property license |
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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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Proceeds from issuance of convertible promissory note, related party |
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— |
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Proceeds from sale of common stock |
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— |
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Proceeds from sale of common stock via S-3 offering |
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— |
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Proceeds from issuance of common stock under ESPP |
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— |
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Stock issuance costs |
( |
— |
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Repayments of principal under finance lease |
( |
( |
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Net Cash Provided by (Used In) Financing Activities |
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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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( |
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Net Increase (Decrease) 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 surrendered upon financing lease modifications |
$ |
— |
$ |
( |
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Right-of-use assets surrendered upon operating 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 February 6, 2024, NightHawk Biosciences, Inc. changed its name to Scorpius Holdings, Inc. (the “Company” or “Scorpius”) 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, 2024 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2024.
The consolidated financial statements as of and for the three months ended March 31, 2024 and 2023 are unaudited. The balance sheet as of December 31, 2023 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, 2023 filed with the SEC on April 26, 2024 (the “2023 Annual Report”).
The accompanying unaudited consolidated financial statements as of and for the three months ended March 31, 2024 and 2023 include the accounts of Scorpius Holdings, Inc. 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. (formerly known as Delphi Therapeutics, Inc.), Scorpius Biomanufacturing, Inc. (“Scorpius”) (formerly Scorpion Biological Services, Inc), Blackhawk Bio, Inc., and Abacus Biotech, Inc. 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 income in stockholders’ equity. All significant intercompany accounts and transactions have been eliminated in consolidation. At March 31, 2024 and December 31, 2023, the Company held an
Unless otherwise noted, amounts and disclosure throughout the Notes to the consolidated financial statements are related to the Company’s continuing operations.
Going Concern Uncertainty
The Company has an accumulated deficit of approximately $
6
to continue to consider multiple alternatives, including, but not limited to, additional equity financings such as sales of its common stock, debt financings, equipment sales leasebacks, partnerships, grants, funding collaborations and other funding transactions, if any are available. On May 16, 2024, the Company closed on a public offering and raised net proceeds of $
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, a small customer base with mostly short-term contracts, uncertainty of market acceptance of the Company’s service offerings, market competition from similar and larger sized CDMO companies, competitive pricing pressure, and dependence on key individuals and sole source suppliers.
The Company 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. If third-party suppliers do not supply raw materials on a timely basis, the Company’s manufacturing services may be delayed or canceled which would adversely impact our financial condition and results of operations. If our suppliers are non-compliant with the FDA’s quality system regulations or other applicable laws or regulations, the Company would be required to find alternative suppliers.
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.
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 earn-out receivable, related party, other intangible assets, income taxes, stock-based compensation, right-of-use assets and lease liabilities, estimates used in divestiture accounting, and useful lives of intangible assets. Actual results may differ from those estimates.
Property and Equipment
Property and equipment are stated at cost and are capitalized. Depreciation is calculated using the straight-line method and is based on estimated useful lives of
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
7
Contingent Earn-Out Receivable, Related Party
Contingent earn-out receivable, related party is recorded as an asset and represents the estimate of fair value of royalty earnout payments related to consideration from the divestiture of Elusys Therapeutics, Inc. Contingent earn-out receivable, related party is measured at fair value using a probability-weighted income approach utilizing significant unobservable inputs including the probability of achieving each of the potential milestone and royalty payments and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones. Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these milestones would result in a significantly higher or lower fair value of these milestones, respectively, and commensurate changes to the associated asset. The contingent earn-out receivable, related party is revalued at each reporting period and changes in fair value are recognized in the consolidated statements of operations and comprehensive loss.
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 expenses relate to the Company’s investments in additions and improvements to its manufacturing process, process development, and 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 Accounting Standards Codification (“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. Shipping and handling costs associated with inbound freight are capitalized to inventories and expensed through cost of sales as inventories are sold.
Shipping and handling costs associated with the delivery of products are included in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss.
Payment terms and conditions vary by contract type, although terms generally require payment within 30 to 60 days of the invoice date. In certain arrangements, the Company receives payment from a customer either before or after the performance obligation has been satisfied; however, our contracts do not contain a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of
8
purchasing the Company’s services, not to receive financing from the Company’s customers or to provide customers with financing. The Company has applied the practical expedient in ASC 606 and excludes information about a) remaining performance obligations that have an original expected duration of one year or less and b) the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.
Grant revenue
The Company recognized revenue from a grant related to the Cancer Prevention and Research Institute of Texas (“CPRIT”) contract, which was accounted for under Accounting Standards Update (“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 covered 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 the Company’s services and can make changes to its process or specifications upon request. Under these agreements, the Company is entitled to consideration for progress to date that includes an element of profit margin.
The transaction price for services provided under the Company’s contracts reflects its best estimate of the amount of consideration to which it is entitled in exchange for providing goods and services to the Company’s customers. For contracts with multiple performance obligations, the Company allocates 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, the Company estimates the applicable standalone selling price based on the pricing of other comparable services or on a price that the Company believes the market is willing to pay for the applicable service.
In determining the transaction price, the Company also considered the different sources of variable consideration including, but not limited to, discounts, credits, refunds, price concessions or other similar items. The Company has included in the transaction price some or all of an amount of variable consideration, utilizing the most likely method, only to the extent
9
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 the Company’s fulfillment of performance obligations.
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, 2024, there was $
Convertible Promissory Note, Related Party
The Company accounts for its convertible promissory note, related party under ASC 815, Derivatives and Hedging (“ASC 815”). Under 815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825. The Company has made such election for its convertible promissory note, related party. Using fair value option, the convertible promissory note, related party is required to be recorded at its initial fair value on the date of issuance, and remeasured at each balance sheet date thereafter. Changes in the estimated fair value of the convertible note, related party are recognized as a change in the fair value of the convertible promissory note, related in the statements of operations and comprehensive income.
Accounts Receivable
Accounts receivable are primarily comprised of amounts owed to the Company for services and sales provided under the Company’s customer contracts and are recorded at the invoiced amount net of an allowance for credit losses, if necessary. The Company applies judgment in assessing the ultimate realization of the Company’s receivables and we estimate an allowance for credit losses based on various factors, such as the aging of the Company’s receivables, historical experience, and the financial condition of its 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, contract assets and insurance. Contract assets consist of unbilled receivables.
Inventory
Inventory consists of raw materials inventory and is valued at the lower of cost, determined by the first-in, first-out method, or net realizable value. The Company periodically reviews raw materials inventory for potential impairment, and if deemed necessary, adjusts inventory to its net realizable value based on the estimate of future use and reduce the carrying value of inventory.
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
10
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
The balance consists of $
Other Income
On January 29, 2024, the Company the Company entered into a Patent Rights Sale and Assignment Agreement with Kopfkino IP, LLC (“Patent Agreement”). Pursuant to the Patent Agreement, in exchange for $
Discontinued Operations
In accordance with ASC Subtopic 205-20, Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity (“disposal group”) is required to be reported as discontinued operations if the disposal group represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the disposal group meets held for sale criteria. Assets and liabilities of disposal group meeting discontinued operations treatment is presented separately as held-for-sale. At the same time, the results of all discontinued operations, less applicable income taxes, are reported as components of net loss separate from the net loss of continuing operations.
Impact of Recently Adopted Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.
In November 2023, the FASB issued ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses, including for single reportable segment entities. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the disclosure requirements related to the new standard.
2. Discontinued Operations
On December 27, 2023, NightHawk Biosciences, Inc. completed the sale of all of its assets and equity interest in Elusys Therapeutics, Inc. (“Elusys”) to Elusys Holdings, a company controlled by the Company’s Chairman, Chief Executive Officer, and President, Jeffrey Wolf for approximately $
The Company has separately reported the financial results of Elusys as discontinued operations in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31,2023. Assets and
11
The Company determined that the disposal group represents a strategic shift that will have a major effect on the Company's operations and financial results, and has therefore reflected the Elusys Therapeutics business as a discontinued operation for all periods presented. Details of the loss from discontinued operations included in the Company’s consolidated statement of operations are as follows:
Three Months Ended |
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March 31, 2023 |
|||
Operating expenses: |
|
||
Research and development |
|
||
Selling, general and administrative |
|
|
|
Amortization of intangible assets |
|
|
|
Change in fair value of contingent consideration |
( |
||
Total operating expenses |
|
|
|
Loss from operations |
|
( |
|
Other income |
|
( |
|
Total non-operating gain |
|
( |
|
Net loss from discontinued operations before income taxes |
|
( |
|
Income tax expense |
|
— |
|
Net loss from discontinued operations |
$ |
( |
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. Total operating, investing and financing cash flows of discontinued operations for the quarter ended March 31, 2023 are comprised of the following:
Three Months Ended |
|||
March 31, 2023 |
|||
Total net cash provided by operating activities from discontinued operations |
$ |
|
|
Total net cash used in investing activities from discontinued operations |
$ |
( |
|
Total net cash used in financing activities from discontinued operations |
$ |
( |
3. 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 Therapeutics. The Company acquired Elusys to expand its role in the biodefense space, complementing its focus to target emerging biological threats.
12
The fair value of the purchase consideration was approximately $
The Company initially expected to leverage the capabilities of its planned Scorpius biomanufacturing facility in Manhattan, Kansas, to manufacture Elusys’s therapies internally and therefore benefit from significant operating synergies, cost savings, as well as enhanced oversight, quality control, and speed to market. However, the Company was unable to manufacture the Elusys’ therapies internally. In addition, the Company has been unable to generate sufficient revenue from its current manufacturing facility or raise sufficient capital to enable it to build the biomanufacturing facility in Manhattan, Kansas and instead had been required to place contract with third parties for the manufacture of the Elusys’ therapies.
On December 27, 2023, the Company completed the sale of all of its assets and equity interests in Elusys Therapeutics to Elusys Holdings, a company controlled by the Company’s Chairman, Chief Executive Officer, and President, Jeffrey Wolf for approximately $
4. Fair Value of Financial Instruments
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.
As of March 31, 2024 and December 31, 2023, the fair values of cash and cash equivalents, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. 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
13
The fair value of financial instruments measured on a recurring basis is as follows:
As of March 31, 2024 |
||||||||||||
Description |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
Assets: |
||||||||||||
Short-term investments |
$ |
|
$ |
|
|
$ |
— |
|
$ |
— |
||
Contingent earn-out receivable, related party |
$ |
|
$ |
— |
$ |
— |
$ |
|
||||
Liability: |
||||||||||||
Convertible promissory note, related party |
$ |
|
$ |
— |
$ |
— |
$ |
|
As of December 31, 2023 |
||||||||||||
Description |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
Assets: |
||||||||||||
Short-term investments |
$ |
|
$ |
|
|
$ |
— |
|
$ |
— |
||
Contingent consideration receivable, related party |
$ |
|
$ |
— |
|
$ |
— |
$ |
|
|||
Contingent earn-out receivable, related party |
$ |
|
$ |
— |
|
$ |
— |
$ |
|
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, 2024 and 2023:
Contingent |
Contingent Earn-out |
Convertible |
|||||||
Consideration |
Receivable, |
Promissory Note, |
|||||||
|
Receivable, Related Party |
|
Related Party |
|
Related Party |
||||
Balance at December 31, 2023 |
$ |
|
$ |
|
$ |
— |
|||
Issuance of convertible promissory note, related party |
( |
— |
|
||||||
Accrued interest |
— |
— |
|
||||||
Change in fair value |
— |
|
|
||||||
Balance at March 31, 2024 |
$ |
— |
$ |
|
$ |
|
Contingent |
|||
Consideration |
|||
Balance at December 31, 2022 |
$ |
|
|
Change in fair value |
( |
||
Balance at March 31, 2023 |
$ |
|
As of March 31, 2024, the change in the fair value of the contingent earn-out receivable, related party of $
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, 2024 and December 31, 2023:
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As of March 31, 2024 |
|||||||||
Valuation |
Significant |
Weighted Average |
|||||||
|
Methodology |
|
Unobservable Input |
|
(range, if applicable) |
||||
Contingent earn-out receivable, related party |
Discounted cash flow analysis |
Timing of expected payments |
2026-2029 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
||||||||
Minimum earn-out payment |
|||||||||
Earn-out through |
December 31, 2028 |
||||||||
Convertible promissory note, related party |
Discounted cash flow analysis |
Maturity term |
|||||||
Market interest rate |
|||||||||
Principal amount |
$ |
As of December 31, 2023 |
|||||||||
Valuation |
Significant |
Weighted Average |
|||||||
|
Methodology |
|
Unobservable Input |
|
(range, if applicable) |
||||
Contingent consideration receivable, related party |
Discounted cash flow analysis |
Maturity term |
|||||||
Market interest rate |
|||||||||
Principal amount |
$ |
||||||||
Contingent earn-out receivable, related party |
Discounted cash flow analysis |
Timing of expected payments |
2026-2029 |
||||||
Discount rate |
|||||||||
Future revenue projections |
$ |
||||||||
Minumum earn-out payment |
|||||||||
Earn-out term though |
December 31, 2028 |
5. Short-Term Investments
Short-term investments consist of equity securities. The Company holds its securities at fair value as of March 31, 2024 and December 31, 2023. 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, 2024 and December 31, 2023 consisted of mutual funds with fair values of $
15
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at:
March 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|||
Prepaid manufacturing expense |
$ |
|
$ |
|
||
Contract assets |
|
|
||||
Other prepaid expenses and current assets |
|
|
||||
Prepaid insurance |
|
|
||||
Prepaid preclinical and clinical expenses |
|
|
||||
$ |
|
$ |
|
7. Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the shorter of their estimated useful lives or remaining lease term, ranging generally from
Property and equipment consist of the following:
March 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|||
Lab equipment |
$ |
|
$ |
|
||
Leasehold improvements |
|
|
|
|
||
Computers |
|
|
|
|
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Furniture and fixtures |
|
|
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Construction-in-process |
|
|
|
|
||
Total |
|
|
|
|
||
Accumulated depreciation |
|
( |
|
( |
||
Property and equipment, net |
$ |
|
$ |
|
Depreciation expense was $
8. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
March 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|||
Accrued marketing expenses |
$ |
|
$ |
|
||
Other expenses |
|
|
|
|||
Accrued preclinical and clinical trial expenses |
|
|
||||
Compensation and related benefits |
|
|
||||
Accrued manufacturing expenses |
|
|
||||
Advance payments received from customers for manufacturing materials |
|
— |
||||
Accrued franchise tax |
|
— |
|
|||
$ |
|
$ |
|
16