November 14, 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 September 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 November 14, 2024, there were 4,331,268 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

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

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

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

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2024 and September 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	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

SIGNATURES		43

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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, our ability to construct 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”, “the Company,” “we”, “us”, and “our” refer to Scorpius Holdings, Inc.

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCORPIUS HOLDINGS, INC.

Consolidated Balance Sheets


	September 30,		December 31,
	2024		2023
		(unaudited)
Current Assets
Cash and cash equivalents	$	4,559,334	$	184,925
Short-term investments		250,391		2,206,555
Accounts receivable		203,077		375,192
Contingent consideration receivable, related party		—		268,000
Prepaid expenses and other current assets		1,196,127		817,029
Inventory		175,056		909,158
Total Current Assets		6,383,985		4,760,859

Property and Equipment, net		14,059,934		17,587,337

Operating lease right-of-use asset		5,278,899		6,041,439
Finance lease right-of-use asset		18,760,903		20,473,742
Other assets		203,135		203,135
Deposits		277,737		251,115
Contingent earn-out receivable, related party		—		1,720,000
Related party receivable		1,570,000		—
Total Assets	$	46,534,593	$	51,037,627

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable	$	2,414,936	$	4,109,947
Deferred revenue, current portion		2,114,364		2,359,441
Operating lease liability, current portion		461,898		524,208
Finance lease liability, current portion		945,492		904,681
Accrued expenses and other liabilities		2,338,856		2,201,861
Convertible promissory note payable, related party		2,060,000		—
Total Current Liabilities		10,335,546		10,100,138

Long Term Liabilities
Deferred revenue, net of current portion		226,500		30,000
Operating lease liability, net of current portion		3,167,562		3,597,014
Financing lease liability, net of current portion		8,260,659		9,016,140
Total Liabilities		21,990,267		22,743,292

Commitments and Contingencies (Note 14)

Stockholders' Equity
Common stock, $0.0002 par value; 250,000,000 shares authorized, 3,539,268 and 131,097 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively		2,974		26
Additional paid-in capital		306,485,190		285,718,456
Accumulated deficit		(277,777,368)		(254,370,827)
Accumulated other comprehensive income		16,335		48,877
Total Stockholders' Equity		28,727,131		31,396,532
Non-Controlling Interest		(4,182,805)		(3,102,197)
Total Stockholders' Equity		24,544,326		28,294,335

Total Liabilities and Stockholders' Equity	$	46,534,593	$	51,037,627

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

See Notes to Consolidated Financial Statements

Table of Contents

SCORPIUS HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Revenue	$	922,365	$	723,126	$	5,196,257	$	2,146,804

Operating expenses:
Cost of revenues		852,016		545,023		2,628,165		1,540,454
Research and development		4,297,015		5,155,359		11,791,981		16,600,186
Selling, general and administrative		5,628,158		6,082,539		15,651,060		19,603,075
Change in fair value of contingent earn-out receivable, related party		(190,000)		—		(1,190,000)		—
Total operating expenses		10,587,189		11,782,921		28,881,206		37,743,715

Operating loss		(9,664,824)		(11,059,795)		(23,684,949)		(35,596,911)

Interest income		1,713		106,087		19,777		410,754
Interest expense		(233,656)		(235,566)		(723,582)		(525,791)
Unrealized gain (loss) on short-term investments		4		(36,116)		999		99,437
Change in fair value of related party receivable		140,000		—		140,000		—
Change in fair value of non-convertible promissory note, related party		(10,000)		—		(20,000)		—
Change in fair value of convertible promissory note, related party		(120,000)		—		(224,250)		—
Loss on partial debt extinguishment		(730,000)		—		(560,000)		—
Other income		71,011		20,640		1,107,503		20,000
Other expense		—		(1,513)		(542,647)		(234,066)
Total non-operating (expense) income		(880,928)		(146,468)		(802,200)		(229,666)

Net loss from continuing operations before income taxes		(10,545,752)		(11,206,263)		(24,487,149)		(35,826,577)
Income tax benefit from continuing operations		—		—		—		571,120
Net loss from continuing operations		(10,545,752)		(11,206,263)		(24,487,149)		(35,255,457)
Net loss from discontinued operations before income taxes		—		(3,040,577)		—		(5,848,220)
Income tax expense from discontinued operations		—		(65,189)		—		(65,189)
Net loss from discontinued operations		—		(3,105,766)		—		(5,913,409)
Net loss		(10,545,752)		(14,312,029)		(24,487,149)		(41,168,866)
Net loss - non-controlling interest		(431,608)		(1,179,559)		(1,080,608)		(1,359,734)
Net loss attributable to Scorpius Holdings, Inc.	$	(10,114,144)	$	(13,132,470)	$	(23,406,541)	$	(39,809,132)

Weighted-average common shares outstanding, basic and diluted (Note 12)		7,055,768		130,253		2,525,432		130,111

Net loss per share, basic and diluted - continuing operations	$	(1.43)	$	(76.98)	$	(9.27)	$	(260.51)
Net loss per share, basic and diluted - discontinued operations		—		(23.84)		—		(45.45)
Net loss per common share attributable to Scorpius Holdings, Inc., basic and diluted	$	(1.43)	$	(100.82)	$	(9.27)	$	(305.96)

Comprehensive loss
Net loss	$	(10,545,752)	$	(14,312,029)	$	(24,487,149)	$	(41,168,866)
Unrealized (loss) gain on foreign currency translation		(70,834)		54,967		(32,542)		108,005
Total comprehensive loss		(10,616,586)		(14,257,062)		(24,519,691)		(41,060,861)
Comprehensive loss attributable to non-controlling interest		(431,608)		(1,179,559)		(1,080,608)		(1,359,734)
Comprehensive loss - Scorpius Holdings, Inc.	$	(10,184,978)	$	(13,077,503)	$	(23,439,083)	$	(39,701,127)

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

See Notes to Consolidated Financial Statements

Table of Contents

SCORPIUS HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three Months Ended September 30, 2024
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Income		Interest		Equity
Balance at June 30, 2024	$	99	$	293,187,709	$	(267,663,224)	$	87,169	$	(3,751,197)	$	21,860,556
Stock-based compensation		—		254,939		—		—		—		254,939
Cash-in-lieu of fractional shares from reverse split		—		(4,582)		—		—		—		(4,582)
Issuance of common stock from public offering		2,875		13,047,124		—		—		—		13,049,999
Other comprehensive income		—		—		—		(70,834)		—		(70,834)
Net loss		—		—		(10,114,144)		—		(431,608)		(10,545,752)
Balance at September 30, 2024	$	2,974	$	306,485,190	$	(277,777,368)	$	16,335	$	(4,182,805)	$	24,544,326

	Nine Months Ended September 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		—		788,025		—		—		—		788,025
Cash-in-lieu of fractional shares from reverse split		—		(4,582)		—		—		—		(4,582)
Issuance of common stock from public offering		2,948		19,962,334		—		—		—		19,965,282
At-the-market sale				8,053		—		—		—		8,053
Other comprehensive income		—		—		—		(32,542)		—		(32,542)
Net loss		—		—		(23,406,541)		—		(1,080,608)		(24,487,149)
Balance at September 30, 2024	$	2,974	$	306,485,190	$	(277,777,368)	$	16,335	$	(4,182,805)	$	24,544,326

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

See Notes to Consolidated Financial Statements

Table of Contents

SCORPIUS HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three Months Ended September 30, 2023
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		(Loss) Income		Interest		Equity
Balance at June 30, 2023	$	25	$	284,459,084	$	(235,830,321)	$	104,962	$	(1,666,354)	$	47,067,396
Issuance of common stock - ESPP		—		—		—		—		—		—
Stock-based compensation		—		636,310		—		—		—		636,310
Other comprehensive income		—		—		—		54,967		—		54,967
Net loss		—		—		(13,132,470)		—		(1,179,559)		(14,312,029)
Balance at September 30, 2023	$	25	$	285,095,394	$	(248,962,791)	$	159,929	$	(2,845,913)	$	33,446,644

	Nine Months Ended September 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
Issuance of common stock from vesting of restricted stock awards		—		—		—		—		—		—
Issuance of common stock - ESPP		—		—		—		—		—		—
Stock-based compensation		—		2,070,837		—		—		—		2,070,837
Other comprehensive loss		—		—		—		108,005		—		108,005
Net loss		—		—		(39,809,132)		—		(1,359,734)		(41,168,866)
Balance at September 30, 2023	$	25	$	285,095,394	$	(248,962,791)	$	159,929	$	(2,845,913)	$	33,446,644

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

See Notes to Consolidated Financial Statements

Table of Contents

SCORPIUS HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended
	September 30,
	2024		2023
Cash Flows from Operating Activities
Net loss	$	(24,487,149)	$	(41,168,866)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill impairment loss		—		3,873,079
Intangible asset impairment loss		—		2,277,921
Depreciation and amortization		5,371,248		4,668,589
Amortization of intangible asset		—		1,091,250
Noncash lease expense		270,778		318,073
Stock-based compensation		788,025		2,070,837
Change in fair value of contingent consideration		—		(177,354)
Change in fair value of contingent earn-out receivable, related party		(1,190,000)		—
Change in fair value of related party receivable		(140,000)
Change in fair value of non-convertible promissory note, related party		20,000		—
Change in fair value of convertible promissory note, related party		224,250		—
Payment of contingent consideration		—		(100,344)
Unrealized loss on investments		(999)		(99,437)
Loss on debt extinguishment		560,000		—
Deferred tax liability		—		(571,120)
Increase (decrease) in cash arising from changes in assets and liabilities
Accounts receivable		(828,588)		(7,022,657)
Other assets		—		(193,124)
Prepaid expenses and other current assets		(379,592)		2,330,808
Inventory		734,102		—
Grant receivable		—		1,524,522
Income tax receivable		—		600,877
Right-of-use assets		—		57,103
Deposits		(26,622)		25,596
Accounts payable		(1,695,391)		(749,600)
Deferred revenue		(48,577)		2,470,838
Accrued expenses and other liabilities		110,767		(1,681,915)
Net Cash Used In Operating Activities		(20,717,748)		(30,454,924)

Cash Flows from Investing Activities
Purchase of short-term investments		(933,193)		(439,779)
Sale of intellectual property license		1,000,000		—
Sale of short-term investments		2,890,355		32,208,771
Purchases of property and equipment		(695,700)		(1,852,665)
Disposal of property and equipment		564,692		220,802
Net Cash Provided by Investing Activities		2,826,154		30,137,129

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		22,001,799		—
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		(2,219,868)		—
Repayments of principal under finance lease		(714,669)		(2,751,037)
Net Cash Provided by (Used In) Financing Activities		22,270,739		(2,751,037)

Effect of exchange rate changes on cash and cash equivalents		(4,736)		(3,188)

Net Increase (Decrease) in Cash and Cash Equivalents		4,374,409		(3,072,020)

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

Cash and Cash Equivalents – End of the Period	$	4,559,334	$	5,362,534

Supplemental Disclosure for Cash Flow Information:
Right-of-use assets obtained upon financing lease commencements	$	—	$	9,983,504
Right-of-use assets surrendered upon financing lease modifications	$	—	$	(3,092,408)
Right-of-use assets surrendered upon operating lease modifications	$	(85,226)	$	—
Right-of-use assets obtained upon operating lease modifications	$	—	$	87,839
Supplemental disclosure of non-cash investing and financing activities:
Reclassification of contingent earn-out receivable, related party to related party receivable	$	1,430,000	$	—
Reconciliation of cash and cash equivalents at September 30, 2024 and 2023
Cash and cash equivalents included in current assets of discontinued operations	$	—	$	3,319,793

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

See Notes to Consolidated Financial Statements

Table of Contents

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 nine months ended September 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 nine months ended September 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 nine months ended September 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 Biomanufacturing”) (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 September 30, 2024 and December 31, 2023, the Company held an 85% controlling interest in Pelican and a 94% controlling interest in Scorpius Biomanufacturing. 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 $277.8 million as of September 30, 2024 and a net loss before income taxes from continuing operations of approximately $24.5 million for the nine months ended September 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

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generate sufficient revenue from operations and/or raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its programs, any future commercialization efforts or the manufacturing services it plans to provide and maybe forced to cease operation or liquidate assets. 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 August 19, 2024, the Company closed a public offering and raised net proceeds of $13.1 million. As of September 30, 2024, the Company had approximately $4.8 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 contract development and manufacturing organization (“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 its financial condition and results of operations. If the Company’s suppliers are non-compliant with the U.S. Food and Drug Administration’s (the “FDA”) 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, related party receivable, 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 and Related Party Receivable

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. The Company accounted for the Note Amendment as a debt extinguishment in accordance with Accounting Standards Codification (“ASC”) 470, Debt, resulting in a loss on extinguishment of debt of $730,000 recognized in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024. Due to the Note Amendment changes to the payment provisions of the contingent earn-out receivable, related party, the contingent earn-out receivable, related party has been reclassified as related party receivable in the consolidated balance sheets at September 30, 2024. The related party receivable is measured at fair value using a discounted cash flow analysis utilizing significant unobservable inputs including the timing and amount of the expected payment and a market interest rate. Significant increases or decreases in either the expected payment amount or market interest rate or changes in the timing of expected payment would result in a significantly higher or lower fair value of the asset. The related party receivable 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.

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Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the most likely method based on historical experience as well as applicable information currently available. 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.

CDMO revenue

The Company is a contract development and manufacturing organization (“CDMO”), providing a comprehensive range of biologics manufacturing services from process development to Current Good Manufacturing Practices (“CGMP”) clinical and commercial manufacturing of biologics for the biotechnology and biopharmaceutical industries. For the three and nine months ended September 30, 2024, process development and CGMP manufacturing comprise the majority of the Company’s CDMO 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. CGMP manufacturing revenue generally represents custom development of customer's drug product originating from microbial fermentation or mammalian cell culture manufacturing batch processing.

CDMO customer contracts often, but not always, contain multiple services from the comprehensive range of services available. Each identified promise is evaluated to determine whether it meets the criteria to be distinct. A promise that is determined to be distinct is considered a performance obligation. Any promises not determined to be distinct are combined with one or more other promises and reevaluated until a combined group of promises meets the criteria to be distinct.

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. In determining the transaction price, the Company also considers 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.

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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.

Under a CDMO contract, the customer owns the product details and process, which has no alternative use. CDMO projects are customized to each customer to meet its specifications, and once material enters the production process, this is considered the point where the product is considered customized under ASC 606. Further, the customer 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 CDMO contracts, the Company is entitled to consideration for progress to date that includes an element of profit margin. The Company recognizes CDMO revenue 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.

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 were 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.

Deferred Revenue

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 September 30, 2024, there was $2.3 million of deferred revenue related to CDMO contracts.

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

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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, related party, 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. The Company amended its convertible promissory note, related party on May 1, 2024 (see Note 9).

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 nine months ended September 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

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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.

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 discontinued operations criteria. Assets and liabilities of disposal group meeting discontinued operations treatment is presented separately as discontinued operations. 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 has determined the disclosure requirements related to the new standard will not have an impact on its financial statements.

In November 2024, the FASB issued ASU 2024-03 - Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the face of our consolidated statements of operations and comprehensive loss. This new standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the consolidated financial statements. We are currently assessing the impact ASU 2024-03 will have on our consolidated financial statements, including our footnote disclosures.

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Form: 10-Q

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