August 19, 2024 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

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: 001-35994

Scorpius Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	26-2844103 (I.R.S. Employer Identification No.)

627 Davis Drive, Suite 300 Morrisville, NC (Address of principal executive offices)	27560 (Zip Code)

(919) 240-7133

(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	SCPX	NYSE American LLC
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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		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 ☐ No ☒

As of August 19, 2024, there were 3,116,268 shares of Common Stock, $0.0002 par value per share, outstanding.

Table of Contents

SCORPIUS HOLDINGS, INC.

TABLE OF CONTENTS


		Page No.

	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	2

	Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2024 and June 30, 2023	3

	Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2024 and June 30, 2023	4

	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2024 and June 30, 2023	6

	Notes to the Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

SIGNATURES		42

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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 manufacturing operations and other operations, our ability to develop products of commercial value and to identify 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. 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.

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCORPIUS HOLDINGS, INC.

Consolidated Balance Sheets


	June 30,		December 31,
	2024		2023
		(unaudited)
Current Assets
Cash and cash equivalents	$	1,472,112	$	184,925
Short-term investments		34,424		2,206,555
Accounts receivable		1,319,618		375,192
Contingent consideration receivable, related party		—		268,000
Prepaid expenses and other current assets		557,855		817,029
Inventory		70,827		909,158
Total Current Assets		3,454,836		4,760,859

Property and Equipment, net		15,239,066		17,587,337

Operating lease right-of-use asset		5,475,951		6,041,439
Finance lease right-of-use asset		19,317,122		20,473,742
Other assets		203,135		203,135
Deposits		277,737		251,115
Contingent earn-out receivable, related party		2,720,000		1,720,000
Total Assets	$	46,687,847	$	51,037,627

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable	$	3,796,793	$	4,109,947
Deferred revenue, current portion		2,197,239		2,359,441
Operating lease liability, current portion		451,513		524,208
Finance lease liability, current portion		900,321		904,681
Accrued expenses and other liabilities		2,735,403		2,201,861
Non-convertible promissory note payable, related party		740,000		—
Total Current Liabilities		10,821,269		10,100,138

Long Term Liabilities
Convertible promissory note payable, related party		1,940,000		—
Deferred revenue, net of current portion		226,500		30,000
Operating lease liability, net of current portion		3,288,323		3,597,014
Financing lease liability, net of current portion		8,551,199		9,016,140
Total Liabilities		24,827,291		22,743,292

Commitments and Contingencies (Note 14 and 15)

Stockholders' Equity
Common stock, $0.0002 par value; 250,000,000 shares authorized, 493,268 and 131,097 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		99		26
Additional paid-in capital		293,187,709		285,718,456
Accumulated deficit		(267,663,224)		(254,370,827)
Accumulated other comprehensive income		87,169		48,877
Total Stockholders' Equity		25,611,753		31,396,532
Non-Controlling Interest		(3,751,197)		(3,102,197)
Total Stockholders' Equity		21,860,556		28,294,335

Total Liabilities and Stockholders' Equity	$	46,687,847	$	51,037,627

All share numbers have been adjusted for the one to two-hundred reverse stock split effective July 17, 2024

See Notes to Consolidated Financial Statements

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SCORPIUS HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenue	$	759,944	$	657,778	$	4,273,892	$	1,423,678

Operating expenses:
Cost of revenues		837,937		383,692		1,776,149		995,432
Research and development		3,606,621		5,154,072		7,494,966		11,444,827
Selling, general and administrative		5,013,671		7,046,843		10,022,902		13,520,536
Change in fair value of contingent earn-out receivable, related party		—		—		(1,000,000)		—
Total operating expenses		9,458,229		12,584,607		18,294,017		25,960,795

Operating loss		(8,698,285)		(11,926,829)		(14,020,125)		(24,537,117)

Interest income		1,146		108,674		18,064		304,668
Interest expense		(240,207)		(155,782)		(489,926)		(290,225)
Unrealized gain (loss) on short-term investments		15		(26,001)		995		63,321
Change in fair value of non-convertible promissory note, related party		(10,000)		—		(10,000)		—
Change in fair value of convertible promissory note, related party		(8,250)		—		(104,250)		—
Gain on partial debt extinguishment		170,000		—		170,000		—
Other income		22,581		—		1,100,003		20,000
Other expense		(520,709)		(147,378)		(606,158)		(180,961)
Total non-operating (expense) income		(585,424)		(220,487)		78,728		(83,197)

Net loss before income taxes from continuing operations		(9,283,709)		(12,147,316)		(13,941,397)		(24,620,314)
Income tax benefit		—		571,120		—		571,120
Net loss from continuing operations		(9,283,709)		(11,576,196)		(13,941,397)		(24,049,194)
Net loss from discontinued operations, net of tax benefit		—		(2,385,506)		—		(2,807,643)
Net loss		(9,283,709)		(13,961,702)		(13,941,397)		(26,856,837)
Net loss - non-controlling interest		(408,861)		(69,686)		(649,000)		(180,175)
Net loss attributable to Scorpius Holdings, Inc.		(8,874,848)		(13,892,016)	$	(13,292,397)	$	(26,676,662)

Weighted-average common shares outstanding, basic and diluted		328,979		130,237		234,936		130,047

Net loss per share, basic and diluted - continuing operations	$	(26.98)	$	(88.35)	$	(56.58)	$	(183.54)
Net loss per share, basic and diluted - discontinued operations		—		(18.32)		—		(21.59)
Net loss per common share attributable to Scorpius Holdings, Inc., basic and diluted	$	(26.98)	$	(106.67)	$	(56.58)	$	(205.13)

Comprehensive loss
Net loss	$	(9,283,709)	$	(13,961,702)	$	(13,941,397)	$	(26,856,837)
Unrealized (loss) gain on foreign currency translation		(42,706)		21,075		38,292		53,038
Total comprehensive loss		(9,326,415)		(13,940,627)		(13,903,105)		(26,803,799)
Comprehensive loss attributable to non-controlling interest		(408,861)		(69,686)		(649,000)		(180,175)
Comprehensive loss - Scorpius Holdings, Inc.	$	(8,917,554)	$	(13,870,941)	$	(13,254,105)	$	(26,623,624)

All share numbers have been adjusted for the one to two-hundred reverse stock split effective July 17, 2024

See Notes to Consolidated Financial Statement

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SCORPIUS HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three Months Ended June 30, 2024
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Income		Interest		Equity
Balance at March 31, 2024	$	36	$	287,258,281	$	(258,788,376)	$	129,875	$	(3,342,336)	$	25,257,480
Stock-based compensation		—		249,209		—		—		—		249,209
Issuance of common stock from public offering		63		5,680,219		—		—		—		5,680,282
Other comprehensive income		—		—		—		(42,706)		—		(42,706)
Net loss		—		—		(8,874,848)		—		(408,861)		(9,283,709)
Balance at June 30, 2024	$	99	$	293,187,709	$	(267,663,224)	$	87,169	$	(3,751,197)	$	21,860,556

	Six Months Ended June 30, 2024
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Income		Interest		Equity
Balance at December 31, 2023	$	26	$	285,718,456	$	(254,370,827)	$	48,877	$	(3,102,197)	$	28,294,335
Issuance of common stock - ESPP		—		12,904		—		—		—		12,904
Stock-based compensation		—		533,087		—		—		—		533,087
At-the-market sale		—		8,052		—		—		—		8,052
Issuance of common stock from public offering		73		6,915,210		—		—		—		6,915,283
Other comprehensive income		—		—		—		38,292		—		38,292
Net loss		—		—		(13,292,397)		—		(649,000)		(13,941,397)
Balance at June 30, 2024	$	99	$	293,187,709	$	(267,663,224)	$	87,169	$	(3,751,197)	$	21,860,556

All share numbers have been adjusted for the one to two hundred reverse stock split effective July 17, 2024

See Notes to Consolidated Financial Statements

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SCORPIUS HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three Months Ended June 30, 2023
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		(Loss) Income		Interest		Equity
Balance at March 31, 2023	$	25	$	283,790,274	$	(221,938,306)	$	83,887	$	(1,596,668)	$	60,339,212
Stock-based compensation		—		668,810		—		—		—		668,810
Other comprehensive income		—		—		—		21,075		—		21,075
Net loss		—		—		(13,892,016)		—		(69,686)		(13,961,702)
Balance at June 30, 2023	$	25	$	284,459,084	$	(235,830,322)	$	104,962	$	(1,666,354)	$	47,067,395

	Six Months Ended June 30, 2023
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Income		Interest		Equity
Balance at December 31, 2022	$	25	$	283,024,557	$	($ 209,153,659)	$	51,924	$	(1,486,179)	$	72,436,668
Stock-based compensation		—		1,434,527		—		—		—		1,434,527
Other comprehensive loss		—		—		—		53,038		—		53,038
Net loss		—		—		(26,676,662)		—		(180,175)		(26,856,837)
Balance at June 30, 2023	$	25	$	284,459,084	$	(235,830,322)	$	104,962	$	(1,666,354)	$	47,067,395

All share numbers have been adjusted for the one to two-hundred reverse stock split effective July 17, 2024

See Notes to Consolidated Financial Statements

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SCORPIUS HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Six Months Ended
	June 30,
	2024		2023
Cash Flows from Operating Activities
Net loss	$	(13,941,397)	$	(26,856,837)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,635,897		2,935,067
Amortization of intangible asset		—		727,500
Noncash lease expense		184,101		218,551
Stock-based compensation		533,086		1,434,527
Change in fair value of contingent consideration		—		109,500
Change in fair value of contingent earn-out receivable, related party		(1,000,000)		—
Change in fair value of non-convertible promissory note, related party		10,000		—
Change in fair value of convertible promissory note, related party		104,250		—
Gain on partial extinguishment of debt		(170,000)		—
Unrealized loss on investments		(995)		(63,321)
Deferred tax liability		—		(571,120)
Increase (decrease) in cash arising from changes in assets and liabilities
Accounts receivable		(1,945,104)		(179,321)
Other assets		—		(193,124)
Prepaid expenses and other current assets		258,680		217,463
Inventory		838,331		—
Grant receivable		—		1,524,522
Right-of-use assets		—		386,336
Deposits		(26,622)		60,376
Accounts payable		(313,048)		(2,101,841)
Deferred revenue		34,298		1,116,216
Accrued expenses and other liabilities		575,902		(767,835)
Net Cash Used In Operating Activities		(11,222,621)		(22,003,341)

Cash Flows from Investing Activities
Purchase of short-term investments		(682,648)		(340,380)
Sale of intellectual property license		1,000,000		—
Sale of short-term investments		2,855,775		23,514,465
Purchases of property and equipment		(695,700)		(1,036,623)
Disposal of property and equipment		564,692		184,528
Net Cash Provided by Investing Activities		3,042,119		22,321,990

Cash Flows from Financing Activities
Proceeds from issuance of convertible promissory note, related party		2,253,750		—
Proceeds from issuance of non-convertible promissory note, related party		750,000		—
Proceeds from issuance of common stock		7,631,381		—
Proceeds from issuance of common stock through at-the-market		8,399		—
Proceeds from issuance of common stock upon exercise of warrants		178,424		—
Proceeds from issuance of common stock under ESPP		12,904		—
Stock issuance costs		(894,868)		—
Repayments of principal under finance lease		(469,299)		(2,915,654)
Net Cash Provided by (Used In) Financing Activities		9,470,691		(2,915,654)

Effect of exchange rate changes on cash and cash equivalents		(3,002)		(865)

Net Increase (Decrease) in Cash and Cash Equivalents		1,287,187		(2,597,870)

Cash and Cash Equivalents – Beginning of the Period		184,925		8,434,554

Cash and Cash Equivalents – End of the Period	$	1,472,112	$	5,836,684

Supplemental Disclosure for Cash Flow Information:
Right-of-use assets surrendered upon financing lease modifications	$	—	$	(3,092,408)
Right-of-use assets surrendered upon operating lease modifications	$	(85,226)	$	7,789,655
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable	$	—	$	373,127

All share numbers have been adjusted for the one to two-hundred reverse stock split effective July 17, 2024

See Notes to Consolidated Financial Statements

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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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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 June 30, 2024 and December 31, 2023, the Company held an 85% controlling interest in Pelican and a 94% controlling interest in Scorpius. The Company accounts for its less than 100% interest in accordance with U.S. GAAP. Accordingly, the Company presents non-controlling interest as a component of stockholders’ equity on its consolidated balance sheets and reports non-controlling interest net loss under the heading “net loss – non-controlling interest” on its consolidated statements of operations and comprehensive loss.

Unless otherwise noted, amounts and disclosure throughout the Notes to the consolidated financial statements are related to the Company’s continuing operations and have been adjusted to reflect the one for two-hundred reverse stock split that was effective July 17, 2024.

Going Concern Uncertainty

The Company has an accumulated deficit of approximately $267.7 million as of June 30, 2024 and a net loss before income taxes from continuing operations of approximately $13.9 million for the six months ended June 30, 2024 and has not generated significant revenue or positive cash flows from operations. The Company expects its expenses to increase in connection with its ongoing activities, particularly as the Company ramps up operations in its in-house bioanalytic, process development and manufacturing facility in San Antonio, TX, which is now its main focus. In addition, any new business ventures that the Company may engage in are likely to require commitments of capital. Accordingly, the Company will need to obtain substantial additional funding in connection with its planned operations. Adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to generate sufficient revenue from operations and raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its

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programs, any future commercialization efforts or the manufacturing services it plans to provide. To meet its capital needs, the Company intends to continue to consider multiple alternatives, including, but not limited to, additional equity financings such as sales of its common stock, debt financings, equipment sales leasebacks, partnerships, grants, funding collaborations and other funding transactions, if any are available. On May 16, 2024, the Company closed a public offering and raised net proceeds of $5.4 million in its public offering. As of June 30, 2024, the Company had approximately $1.5 million in cash and cash equivalents and short-term investments. The Company will need to generate significant revenues to achieve profitability, and it may never do so. As a result of these circumstances, management has determined that there is substantial doubt about the Company's ability to continue as a going concern within one year after the consolidated interim financial statements are issued.

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 the Company’s 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, income taxes, stock-based compensation, right-of-use assets and lease liabilities, and estimates used in divestiture accounting. 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 five years for lab equipment, three years for computer equipment, eight years for furniture and fixtures and vehicles, and the lesser of the useful life or life of the lease for leasehold improvements.

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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 one segment.

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.

Effective as of July 30, 2024, the Company entered into a Note Cancellation and Amendment to Asset and Equity Interests Purchase Agreement (the “Note Amendment”) of that certain 1% non-convertible promissory note, dated May 1, 2024, in the principal amount of $750,000 (the “$750K Note”), issued by the Company to Elusys Holdings Inc. (“Elusys Holdings”) and to the Asset and Equity Interests Purchase Agreement (the “Purchase Agreement”), dated as of December 11, 2023, by and between Elusys Holdings and the Company. Pursuant to the Note Amendment the $750K Note was cancelled in exchange for an amendment to the Asset and Equity Interests Purchase Agreement which eliminates the payment of any royalty fees by Elusys Holdings to the Company and instead provides a cash payment to the Company of $2.5 million on or prior to December 31, 2028.

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.

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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, the Company’s 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 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 was solely for specific cancer research and covered the period from June 1, 2017 through May 31, 2023, for a total grant award of up to $15.2 million. CPRIT advanced grant funds upon request by the Company consistent with the agreed upon amounts and schedules as provided in the contract. The first tranche of funding of $1.8 million was received in May 2017, a second tranche of funding of $6.5 million was received in October 2017, and the third tranche of funding of $5.4 million was received in December 2019. The remaining $1.5 million was received in April 2023. Funds received were reflected in deferred revenue as a liability until revenue was earned. Grant revenue was recognized when qualifying costs are incurred. When grant funds were received after costs had been incurred, the Company recorded revenue and a corresponding grants receivable until grant funds were received. As of December 31, 2023, all $15.2 million has been recognized and received.

License revenue

The Company had 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 $0.05 million in June 2016 and was obligated to pay the Company fees upon its receipt of sublicensing income, achievement of certain milestones, and royalties upon sales of commercial products. In March 2023, the Company received a milestone payment of $0.1 million from Shattuck due to completion of a Phase 1A monotherapy dose escalation clinical trial of SL-172154. On January 29, 2024, the Company entered into a Patent Rights Sale and Assignment Agreement with Kopfkino IP, LLC (“Patent Agrement”) pursuant to which, in exchange for $1.0 million, the Company assigned its right, title, and interest in and under the exclusive license agreement it entered into with Shattuck.

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

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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 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 contract development and manufacturing organization (“CDMO”) customer deposits received in advance of the Company’s fulfillment of performance obligations.

CDMO 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 June 30, 2024, there was $2.4 million of deferred revenue related to CDMO.

Convertible and Non-convertible Promissory Note, Related Party

The Company accounts for its convertible and non-convertible promissory notes, 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 and non-convertible promissory notes, related party. Using fair value option, these promissory notes are required to be recorded at their initial fair value on the date of issuance, and remeasured at each balance sheet date thereafter. Changes in their estimated fair value are recognized as a change in the fair value of the convertible and non-convertible promissory note, in the statements of operations and comprehensive income.

Modification of Debt Instruments

Modifications or exchanges of debt, which are not considered a troubled debt restructuring, are considered extinguishments if the terms of the new debt and the original instrument are substantially different. The instruments are considered substantially different when the present value of the cash flows under the terms of the new debt instrument are at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. If the original and new debt instruments are substantially different, the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss. During the three and six months ended June 30, 2024, the Company amended its convertible promissory note, related party and non-convertible note, related party (see Note 9).

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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 estimates 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. No impairment expense was recognized for the three and six months ended June 30, 2024, or 2023.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that utilization is not presently more likely than not.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own CommonStock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding. All warrants issued are indexed to the Company’s common stock as defined in ASC 815 and meet the equity classification criteria in accordance with ASC 815. Thus, they both achieve equity classification at inception and were recorded within additional paid-in-capital on their issuance date.

Other Assets

The balance consists of $0.2 million of land option agreements related to the location for a potential Kansas commercial CDMO facility.

Other Income

On January 29, 2024, 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 $1.0 million, the Company assigned its right, title and interest in and under the exclusive license agreement it entered into with Shattuck. The $1.0 million payment was received and recorded in other income in the first quarter of 2024.

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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, the Company completed the sale of all of its assets and equity interest in Elusys Therapeutics, Inc. (“Elusys”) to Elusys Holdings, Inc., a company controlled by the Company’s Chairman, Chief Executive Officer, and President, Jeffrey Wolf for approximately $2.5 million before working capital, escrow adjustments and transaction expenses. Total consideration included $0.5 million of cash received at closing, $0.3 million related to consideration from a one-year convertible promissory note, related party and fair value of $1.7 million in future payments from Elusys upon the achievement by Elusys of certain financial goals. The gain on the transaction was approximately $1.5 million.

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 liabilities of discontinued operations in the consolidated balance sheet have a carrying value of $0 as of December 31, 2023.

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:

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	Six Months Ended
	June 30, 2023
Operating expenses:
Research and development		1,283,982
Selling, general and administrative		693,211
Amortization of intangible assets		727,500
Change in fair value of contingent consideration		109,500
Total operating expenses		2,814,193

Loss from operations		(2,814,193)

Other income		(6,550)
Total non-operating gain		(6,550)

Net loss from discontinued operations before income taxes		(2,807,643)
Income tax expense		—
Net loss from discontinued operations	$	(2,807,643)

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 period ended June 30, 2023 are comprised of the following:


	Six Months Ended
	June 30, 2023
Total net cash provided by operating activities from discontinued operations	$	(917,492)
Total net cash used in investing activities from discontinued operations	$	5,581

3. Acquisitions

Pelican Therapeutics

In 2017, the Company consummated the acquisition of 80% of the outstanding equity of Pelican, a related party, and Pelican became a majority owned subsidiary of the Company. During the quarter ended March 31, 2018, cash consideration of approximately $300,000 was distributed to the participating Pelican stockholders and the remainder of approximately $200,000 for certain Pelican liabilities not satisfied was recognized as other income in the statements of operations and comprehensive loss for the period. In October 2018, the Company entered into an agreement with the University of Miami (“UM”) whereby UM exchanged its shares of stock in the Company’s subsidiaries, Heat I, Inc. and Pelican. The stock exchange resulted in the Company increasing its controlling ownership in Pelican from 80% to 85%.

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 no future milestone payments are expected to be made. The goodwill and in-process R&D resulting from the acquisition were fully impaired as of December 31, 2022.

Elusys Therapeutics

On April 18, 2022 (“Closing Date”), the Company closed on the acquisition of Elusys. The Company acquired Elusys to expand its role in the biodefense space, complementing its focus to target emerging biological threats. The fair value of the purchase consideration was approximately $42.9 million. The purchase price was allocated to the underlying assets and liabilities based on their fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recorded for this transaction was valued at $3.9 million and is deductible for tax purposes over 15 years.

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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 $2.5 million before working capital, escrow adjustments and transaction expenses. Net of contractual payments paid to the previous shareholders of Elusys subsequent to the Closing Date, the Company generated a gain of approximately $1.5 million on the sale. See Note 2-Discontinued Operations and Note 15-Commitments and Contingencies.

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 June 30, 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 no transfers between fair value hierarchy levels during the quarters ended June 30, 2024 or 2023.

The fair value of financial instruments measured on a recurring basis is as follows:

As of June 30, 2024

Description

Total

Level 1

Level 2

Level 3

Assets:

Form: 10-Q

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