Scorpius Holdings(SCPX) - 2023 Q3 - Quarterly Report

Front Matter This section contains preliminary information for the quarterly report, including filing details and forward-looking statements Form 10-Q Information This section provides the basic filing information for the Quarterly Report on Form 10-Q for NightHawk Biosciences, Inc. for the period ended September 30, 2023, including its status as a non-accelerated filer and smaller reporting company, and the number of common shares outstanding - NightHawk Biosciences, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2023[2] Filer Status | Filer Status | Value | | :------------- | :---- | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☐ | - As of November 20, 2023, there were 26,081,890 shares of Common Stock, $0.0002 par value per share, outstanding[4] Forward-Looking Statements This section outlines the nature of forward-looking statements within the report, emphasizing that actual results may differ materially due to various risks and uncertainties, including the ability to raise capital, develop products, reliance on third parties, and regulatory actions - The report contains forward-looking statements regarding strategy, future operations, financial position, revenues, costs, prospects, plans, and objectives[9] - Actual results could differ materially due to factors such as the ability to raise additional capital, develop commercial products, reliance on third parties, timing of manufacturing facility completion, competitive developments, and regulatory actions[10] - The Company undertakes no obligation to revise or update any forward-looking statements, except as required by law[11] PART I—FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements for NightHawk Biosciences, Inc., including the Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flows, providing a snapshot of the company's financial position and performance for the periods ended September 30, 2023, and December 31, 2022 Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Metric | September 30, 2023 (unaudited) | December 31, 2022 | | :-------------------------------- | :----------------------------- | :------------------ | | Total Current Assets | $24,180,163 | $50,054,260 | | Total Assets | $69,915,144 | $104,396,912 | | Total Current Liabilities | $24,487,847 | $18,037,323 | | Total Liabilities | $36,468,500 | $31,960,244 | | Total Stockholders' Equity | $33,446,644 | $72,436,668 | - Total Current Assets decreased by approximately $25.9 million from December 31, 2022, to September 30, 2023, primarily due to a significant reduction in short-term investments[17] - Total Liabilities increased by approximately $4.5 million, while Total Stockholders' Equity decreased by approximately $39 million during the nine-month period[17] Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss Highlights | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $723,126 | $58,861 | $2,146,804 | $290,259 | | Total operating expenses | $11,782,921 | $10,599,434 | $37,743,715 | $26,790,980 | | Operating loss | $(11,059,795) | $(10,540,573) | $(35,596,911) | $(26,500,721) | | Net Loss | $(14,312,029) | $(13,347,771) | $(41,168,866) | $(28,475,479) | | Net loss attributable to NightHawk Biosciences, Inc. | $(13,132,470) | $(13,258,350) | $(39,809,132) | $(28,210,223) | | Net loss per common share (basic and diluted) | $(0.50) | $(0.52) | $(1.53) | $(1.10) | - Revenue significantly increased for both the three and nine months ended September 30, 2023, compared to the prior year, primarily driven by process development revenue[18] - Net loss attributable to NightHawk Biosciences, Inc. increased by approximately $11.6 million for the nine months ended September 30, 2023, compared to the same period in 2022[18] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Highlights | Metric | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :------------------ | | Common Stock | $5,217 | $5,126 | | Additional Paid-In Capital (APIC) | $285,090,202 | $283,019,456 | | Accumulated Deficit | $(248,962,791) | $(209,153,659) | | Total Stockholders' Equity | $33,446,644 | $72,436,668 | - The accumulated deficit increased by approximately $39.8 million from December 31, 2022, to September 30, 2023, reflecting the net loss incurred during the period[21] - Total Stockholders' Equity decreased by approximately $39 million, primarily due to the net loss, partially offset by stock-based compensation and other comprehensive income[21] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30) | Cash Flow Activity | 2023 | 2022 | | :------------------------------------ | :------------- | :------------- | | Net Cash (Used In) Provided by Operating Activities | $(30,454,924) | $2,141,977 | | Net Cash Provided By Investing Activities | $30,137,129 | $3,622,252 | | Net Cash Used In Financing Activities | $(2,751,037) | $(145,672) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(3,072,020) | $5,604,363 | | Cash and Cash Equivalents – End of the Period | $5,362,534 | $13,658,242 | - Net cash used in operating activities significantly increased to $30.5 million in 2023 from cash provided of $2.1 million in 2022, primarily due to an increased net loss and changes in working capital[27] - Net cash provided by investing activities increased to $30.1 million in 2023, largely due to the sale of short-term investments[27] Notes to the Consolidated Financial Statements This section details the accounting policies, discontinued operations, acquisitions, fair value measurements, and other financial commitments impacting the consolidated financial statements 1. Basis of Presentation and Significant Accounting Policies - The consolidated financial statements are prepared in conformity with U.S. GAAP for interim financial reporting and include NightHawk Biosciences, Inc. and its subsidiaries, with significant intercompany accounts eliminated[29][31] - The Company has an accumulated deficit of approximately $249.0 million as of September 30, 2023, and expects continued losses, raising substantial doubt about its ability to continue as a going concern within one year[34][36] - Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses, which did not have a material impact on its consolidated financial statements[79][80] 2. Discontinued Operations - In September 2023, the Company commenced active marketing for the sale of Elusys Therapeutics, Inc., which has been classified as a discontinued operation for all periods presented[32][83] - As a result of the planned divestiture, goodwill was fully impaired by $3.9 million and intangible assets were partially impaired by $2.3 million[84] Net Loss from Discontinued Operations (Elusys Therapeutics) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $6,699,200 | $5,980,994 | $6,699,200 | $6,012,993 | | Total operating expenses | $9,751,830 | $8,437,364 | $12,566,023 | $9,698,848 | | Net loss from discontinued operations | $(3,105,766) | $(2,700,946) | $(5,913,409) | $(3,931,784) | 3. Acquisitions - The Company acquired Elusys Therapeutics in April 2022 to expand its role in biodefense, with an initial expectation to leverage its Scorpius biomanufacturing facility for internal manufacturing[89][93] - However, the Company has been unable to manufacture Elusys' therapies internally and has not generated sufficient revenue or capital to build the planned Kansas facility, leading to reliance on third-party manufacturers[93] Elusys Acquisition Purchase Consideration and Allocation | Metric | Amount | | :------------------------------------ | :------------- | | Total purchase consideration | $42,853,685 | | Net assets acquired and liabilities assumed | $38,980,605 | | Goodwill | $3,873,080 | 4. Fair Value of Financial Instruments - The Company uses a three-tier fair value hierarchy (Level I, II, III) for financial instruments, with cash equivalents and short-term investments classified as Level I[101][102][103][104] - Warrants issued in January 2020 are classified as Level 3 derivative liabilities, revalued quarterly using the Monte Carlo simulation model, with a fair value of $0 as of September 30, 2023[105][106] - The change in fair value of contingent consideration for Elusys was $(0.3) million for the three months and $(0.2) million for the nine months ended September 30, 2023, primarily due to changes in timing and amount of contract deferred consideration[108] 5. Short-Term Investments Short-Term Investments | Date | Fair Value | | :--------------- | :----------- | | September 30, 2023 | $4.2 million | | December 31, 2022 | $35.8 million | - Short-term investments, consisting of equity securities (mutual funds), decreased significantly from $35.8 million at December 31, 2022, to $4.2 million at September 30, 2023[110] 6. Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets | Category | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :------------------ | | Prepaid manufacturing expense | $475,536 | $91,477 | | Contract assets | $363,918 | — | | Other prepaid expenses and current assets | $280,787 | $1,132,502 | | Prepaid insurance | $104,126 | $201,252 | | Prepaid preclinical and clinical expenses | $36,861 | $65,892 | | Total | $1,261,228 | $1,491,123 | - Prepaid manufacturing expenses increased substantially from $91,477 to $475,536, while other prepaid expenses and current assets decreased[111] 7. Property and Equipment Property and Equipment, Net | Category | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :------------------ | | Lab equipment | $21,080,029 | $18,060,058 | | Leasehold improvements | $2,827,289 | $2,486,329 | | Construction-in-process | — | $2,053,335 | | Total, net | $18,683,898 | $20,438,521 | - Lab equipment increased by approximately $3 million, while construction-in-process was fully expensed or reclassified, leading to a net decrease in total property and equipment[113] - Depreciation expense for the nine months ended September 30, 2023, was $3.4 million, a significant increase from $0.7 million in the same period of 2022[113] 8. Goodwill and Other Intangible Assets - Goodwill and intangible assets related to Elusys were fully impaired by $3.9 million and $2.3 million, respectively, due to the planned divestiture[118] Change in Carrying Amount of Goodwill and Intangible Assets (Nine Months Ended September 30, 2023) | Metric | Goodwill | Intangible Assets | | :-------------------------------- | :------- | :---------------- | | Balance at December 31, 2022 | $3,301,959 | $8,669,375 | | Impairment | $(3,873,079) | $(2,277,921) | | Reclassified to discontinued operations | — | $(5,300,204) | | Balance at September 30, 2023 | $— | $— | - The Company finalized the purchase price allocation for the Elusys acquisition in April 2023, resulting in a measurement period adjustment that increased goodwill by approximately $0.6 million[119] 9. Accrued Expenses and Other Liabilities Accrued Expenses and Other Liabilities | Category | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :------------------ | | Accrued marketing expenses | $749,998 | — | | Accrued preclinical and clinical trial expenses | $252,618 | $953,252 | | Compensation and related benefits | $373,211 | $491,191 | | Accrued manufacturing expenses | $345,646 | $6,133 | | Total | $2,031,618 | $1,916,601 | - Accrued marketing expenses significantly increased from zero to $749,998, and accrued manufacturing expenses also saw a substantial rise[120] 10. Stockholders' Equity Common Stock Warrants Outstanding | Date | Warrants Outstanding | | :--------------- | :------------------- | | December 31, 2022 | 747,383 | | September 30, 2023 | 313,358 | - The number of outstanding common stock warrants decreased by 434,025 due to expirations during the nine months ended September 30, 2023[124] - Stock-based compensation expense for the nine months ended September 30, 2023, was $2.1 million, a decrease from $2.4 million in the same period of 2022[126] 11. Revenue - Elusys completed the manufacturing conversion of 23,732 vials of ANTHIM® for $6.7 million in September 2023, included in discontinued operations[137] - No grant revenue was recognized during the three and nine months ended September 30, 2023, as the CPRIT grant concluded with all $15.2 million recognized and received[138][140] - Process development revenue for the nine months ended September 30, 2023, was $2.0 million, primarily from two customers, recognized over time using an input method[143] 12. Net Loss Per Share Net Loss Per Share Attributable to NightHawk Biosciences, Inc. | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss per common share, basic and diluted (continuing operations) | $(0.38) | $(0.41) | $(1.30) | $(0.95) | | Net loss per common share, basic and diluted (discontinued operations) | $(0.12) | $(0.11) | $(0.23) | $(0.15) | | Total Net loss per common share, basic and diluted | $(0.50) | $(0.52) | $(1.53) | $(1.10) | - All common stock options, unvested restricted stock units, and warrants were anti-dilutive and excluded from diluted EPS calculations for both periods[148] 13. Income Tax - The Company estimates an annual effective tax rate of 0% for 2023 due to a history of losses and a full valuation allowance against net deferred tax assets in the U.S., Australia, and Germany[150][151] - Total tax expense for the three months ended September 30, 2023, was approximately $0.1 million, and a benefit of $(0.5) million for the nine months ended September 30, 2023[150] - The liability for unrecognized tax benefits was $1.5 million as of September 30, 2023, with $1.0 million affecting the effective tax rate and included in discontinued operations[154] 14. Leases - The Company accounts for its leases under ASC 842, classifying them as operating or finance leases for office, laboratory, and manufacturing spaces[156][157] - Total finance lease cost for the nine months ended September 30, 2023, was $1.8 million, comprising amortization of lease assets and interest on lease liabilities[163] Weighted Average Lease Terms and Borrowing Rates (September 30, 2023) | Metric | Operating Leases | Finance Leases | | :-------------------------------- | :--------------- | :--------------- | | Weighted average remaining lease term | 6.7 years | 11.3 years | | Weighted average incremental borrowing rate | 9.45 % | 10.12 % | 15. Commitments and Contingencies - Elusys has non-cancellable future commitments of approximately $53.0 million through 2025 with Lonza, a third-party manufacturer, for ANTHIM® bulk drug product[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting the shift in focus to its CDMO business, the divestiture of Elusys, and the associated financial impacts and future outlook Overview - The Company's current focus is on its Contract Development and Manufacturing Organization (CDMO) business, Scorpius Biomanufacturing, Inc., which provides services from process development to cGMP clinical and commercial manufacturing of biologics[167] - Priorities shifted away from clinical-stage oncology assets (HS-110 and PTX-35) towards biodefense and biomanufacturing capabilities[168] - The Company approved a refocus and restructuring plan in September 2023, including a workforce reduction of approximately 13 employees (14% of workforce) to save $1.8 million annually and direct resources to the CDMO business[172] Critical Accounting Policies and Estimates - Management's discussion is based on consolidated financial statements prepared in accordance with U.S. GAAP, requiring significant judgments and estimates for reported amounts[174] - Process development revenue is recognized over time using an input method, tracking progress by measuring inputs relative to total estimated inputs to satisfy performance obligations[175] - Transaction prices for services reflect best estimates of consideration, with variable consideration included only to the extent that a significant revenue reversal is improbable[176][178] Results of Operations Revenue Comparison (Three Months Ended September 30) | Revenue Type | 2023 | 2022 | | :-------------------- | :--------- | :------- | | Product sales (discontinued) | $6.7 million | $5.98 million | | Process development | $0.6 million | — | | Service revenue | $0.1 million | $0.06 million | Research and Development Expense Comparison (Nine Months Ended September 30) | Program | 2023 (millions) | 2022 (millions) | | :-------------------------------- | :-------------- | :-------------- | | HS-110 | $1.4 | $0.4 | | HS-130 | $0.0 | $0.7 | | PTX-35 | $1.3 | $1.8 | | Other programs | $1.1 | $0.5 | | Unallocated R&D expenses | $12.8 | $9.9 | | Total R&D expense | $16.6 | $13.3 | - Selling, general and administrative expenses increased to $19.6 million for the nine months ended September 30, 2023, from $13.3 million in 2022, driven by increases in personnel, marketing, professional, depreciation, amortization, and rent expenses[190] Liquidity and Capital Resources - As of September 30, 2023, the Company had approximately $9.5 million in cash and cash equivalents and short-term investments, expected to fund operations into Q1 2024[192] - Management has determined there is substantial doubt about the Company's ability to continue as a going concern due to significant losses and insufficient revenue, necessitating additional capital or strategic alternatives[192] - Net cash used in operating activities increased to $30.5 million for the nine months ended September 30, 2023, from $2.1 million provided in the same period of 2022, primarily due to increased net loss and changes in working capital[199] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, NightHawk Biosciences, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide information on quantitative and qualitative disclosures about market risk[205] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting, including ineffective IT general controls, errors in deferred tax asset valuation allowance, and inadequate management review controls - As of September 30, 2023, disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[207] - Identified material weaknesses include ineffective information technology general controls (user access, segregation of duties), errors in deferred tax asset valuation allowance related to the Elusys acquisition, and ineffective design of certain management review controls[209] - The Company is implementing a remediation plan, including enhanced process controls for user access, improved documentation, and new controls for income tax accounting[211] PART II—OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, and other disclosures pertinent to the company's operations and financial standing Item 1. Legal Proceedings The Company is not currently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows - The Company is not currently involved in any legal proceedings that would materially adversely affect its business, operating results, financial condition, or cash flows[215] Item 1A. Risk Factors Investing in NightHawk Biosciences, Inc. securities involves a high degree of risk, with significant concerns about the Company's ability to continue as a going concern due to accumulated deficits, ongoing losses, and limited cash runway - The Company's accumulated deficit of $249.0 million as of September 30, 2023, and ongoing net losses raise substantial doubt about its ability to continue as a going concern[217][218] - With approximately $9.5 million in cash and cash equivalents and short-term investments, the Company expects to fund operations only into Q1 2024, necessitating additional capital or strategic alternatives, including the divestiture of Elusys[220] - The business is now concentrated in the CDMO segment, which has not yet generated significant revenue, and dependence on a few customers poses concentration risks[227][229] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter ended September 30, 2023, that had not been previously disclosed - No unregistered sales of equity securities occurred during the quarter ended September 30, 2023, that were not previously disclosed[233] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable[234] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable[235] Item 5. Other Information There is no other information to report under this item - No other information to report[236] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including various Certificates of Amendment to the Certificate of Incorporation, Bylaws, and certifications from executive officers - The report includes various exhibits, such as Certificates of Amendment to the Certificate of Incorporation and certifications from the Principal Executive Officer and Principal Financial Officer[239][241] SIGNATURES The report is duly signed on behalf of NightHawk Biosciences, Inc. by Jeffrey A. Wolf, Chairman and Chief Executive Officer, and William Ostrander, Chief Financial Officer, on November 20, 2023 - The report was signed by Jeffrey A. Wolf, Chairman and Chief Executive Officer, and William Ostrander, Chief Financial Officer, on November 20, 2023[246]