Scorpius Holdings(SCPX) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for Scorpius Holdings, Inc Item 1. Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes for Scorpius Holdings, Inc. for the three months ended March 31, 2024 and 2023 Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $1,554,844 | $184,925 | | Short-term investments | $129,238 | $2,206,555 | | Total Current Assets | $4,832,700 | $4,760,859 | | Total Assets | $50,502,108 | $51,037,627 | | Total Current Liabilities | $12,824,599 | $10,100,138 | | Total Liabilities | $25,244,629 | $22,743,292 | | Total Stockholders' Equity | $25,257,479 | $28,294,335 | Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance, including revenue, expenses, and net loss over a period Consolidated Statements of Operations and Comprehensive Loss (Three Months Ended March 31) | Metric | 2024 | 2023 | Change (YoY) | | :---------------------------------------------- | :------------- | :--------------- | :----------- | | Revenue | $3,513,948 | $765,900 | +358.8% | | Cost of revenues | $938,212 | $611,740 | +53.4% | | Research and development | $3,888,345 | $6,290,755 | -38.2% | | Selling, general and administrative | $5,009,231 | $6,473,694 | -22.6% | | Operating loss | $(5,321,840) | $(12,610,289) | +57.8% | | Net loss attributable to Scorpius Holdings, Inc.| $(4,417,549) | $(12,784,647) | +65.4% | | Net loss per share, basic and diluted | $(0.16) | $(0.49) | +67.3% | Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity from various transactions and net income or loss - Total Stockholders' Equity decreased from $28.3 million at December 31, 2023, to $25.3 million at March 31, 2024, primarily due to a net loss of $4.4 million, partially offset by proceeds from a public offering and stock-based compensation[20] Key Changes in Stockholders' Equity (Three Months Ended March 31, 2024) | Item | Amount | | :------------------------------------ | :----------- | | Balance at December 31, 2023 | $28,294,335 | | Issuance of common stock from public offering | $1,235,000 | | Stock-based compensation | $283,877 | | Net loss | $(4,417,549) | | Balance at March 31, 2024 | $25,257,479 | Consolidated Statements of Cash Flows This section reports the cash generated and used by the company across operating, investing, and financing activities Consolidated Statements of Cash Flows (Three Months Ended March 31) | Activity | 2024 | 2023 | Change (YoY) | | :------------------------------------- | :------------- | :--------------- | :----------- | | Net Cash Used In Operating Activities | $(4,683,878) | $(13,794,831) | +66.0% | | Net Cash Provided by Investing Activities | $2,780,995 | $13,486,295 | -79.4% | | Net Cash Provided by (Used In) Financing Activities | $3,274,831 | $(298,523) | +1197.7% | | Net Increase (Decrease) in Cash and Cash Equivalents | $1,369,919 | $(607,765) | +325.4% | | Cash and Cash Equivalents – End of the Period | $1,554,844 | $7,826,789 | -80.2% | Notes to the Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements 1. Basis of Presentation and Significant Accounting Policies This note outlines the foundational principles and key accounting methods used in preparing the financial statements - NightHawk Biosciences, Inc. changed its name to Scorpius Holdings, Inc. effective February 6, 2024[25] - The Company has an accumulated deficit of approximately $258.8 million as of March 31, 2024, and a net loss of $4.7 million for the three months ended March 31, 2024, leading management to conclude there is substantial doubt about its ability to continue as a going concern within one year[30] - The Company's main focus is ramping up operations in its in-house bioanalytic, process development, and manufacturing facility in San Antonio, TX[30] - Revenue recognition follows ASC 606, recognizing revenue when a customer obtains control of promised goods or services, with process development revenue recognized over time using an input method[44][45][53] 2. Discontinued Operations This note details the financial impact and strategic rationale behind the divestiture of Elusys Therapeutics - On December 27, 2023, the Company completed the sale of Elusys Therapeutics, Inc. to Elusys Holdings for approximately $2.5 million, resulting in a gain of approximately $1.5 million[72][82] - The Elusys Therapeutics business is reported as a discontinued operation for all periods presented, reflecting a strategic shift[75] Net Loss from Discontinued Operations (Three Months Ended March 31, 2023) | Metric | 2023 | | :-------------------------------------- | :----------- | | Research and development | $705,093 | | Selling, general and administrative | $346,857 | | Amortization of intangible assets | $363,750 | | Change in fair value of contingent consideration | $(990,500) | | Net loss from discontinued operations | $(422,136) | 3. Acquisitions This note provides information on the company's past acquisition activities and their subsequent strategic adjustments - The Company increased its controlling ownership in Pelican Therapeutics from 80% to 85% in October 2018[76] - The acquisition of Elusys Therapeutics in April 2022 aimed to expand the biodefense space, but the Company was unable to manufacture Elusys's therapies internally, leading to its divestiture in December 2023[78][81][82] 4. Fair Value of Financial Instruments This note describes the valuation methods and classifications for the company's financial assets and liabilities - 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, and contingent earn-out receivable and convertible promissory note as Level 3[83][84][85][87] Fair Value of Level 3 Financial Instruments (March 31, 2024) | Description | Total | | :-------------------------------------- | :----------- | | Contingent earn-out receivable, related party | $2,720,000 | | Convertible promissory note, related party | $2,081,750 | - The change in fair value of the contingent earn-out receivable increased by $1.0 million due to a new contract received by Elusys Therapeutics, while the convertible promissory note's fair value increased by $0.1 million due to market interest rate changes[88] 5. Short-Term Investments This note details the composition and valuation of the company's short-term investment portfolio Short-Term Investments (Fair Value) | Date | Fair Value | | :------------- | :----------- | | March 31, 2024 | $0.1 million | | Dec 31, 2023 | $2.2 million | - Short-term investments consist of equity securities (mutual funds) held at fair value, with unrealized gains and losses reported in other expense[91] 6. Prepaid Expenses and Other Current Assets This note itemizes the various prepaid expenses and other current assets held by the company Prepaid Expenses and Other Current Assets | Item | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Prepaid manufacturing expense | $111,205 | $102,761 | | Contract assets | $100,497 | $120,184 | | Other prepaid expenses and current assets | $790,263 | $476,233 | | Prepaid insurance | $147,145 | $96,588 | | Prepaid preclinical and clinical expenses | $18,461 | $21,263 | | Total | $1,167,571 | $817,029 | 7. Property and Equipment This note provides details on the company's tangible assets, including lab equipment and construction-in-process Property and Equipment, Net | Item | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Lab equipment | $21,276,431 | $21,203,534 | | Construction-in-process | $429,418 | $9,414 | | Total | $25,661,231 | $25,168,330 | | Accumulated depreciation | $(8,809,059) | $(7,580,993) | | Property and equipment, net | $16,852,172| $17,587,337 | - Depreciation expense was $1.2 million for the three months ended March 31, 2024, up from $1.1 million in the prior year period[94] 8. Accrued Expenses and Other Liabilities This note outlines the company's various accrued expenses and other short-term financial obligations Accrued Expenses and Other Liabilities | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------------------- | :------------- | :---------------- | | Accrued marketing expenses | $999,997 | $1,013,497 | | Compensation and related benefits | $492,297 | $332,641 | | Advance payments received from customers for manufacturing materials | $1,839,149 | — | | Total | $3,999,372 | $2,201,861 | 9. Convertible Promissory Note, Related Party This note details the terms and fair value of a convertible promissory note issued to a related party - On January 26, 2024, Elusys Holdings purchased a convertible promissory note from the Company for $2,250,000; the note bears 1% interest and is convertible into common stock at $0.39109 per share, subject to stockholder approval[96] - The fair value of the convertible promissory note, related party, was $2,081,750 as of March 31, 2024[87] 10. Stockholders' Equity This note provides a comprehensive overview of changes in the company's equity, including stock offerings and compensation - On March 9, 2024, the Company completed a public offering, issuing 10,000,000 shares of Common Stock at $0.15 per share, generating net proceeds of $1,235,000[97] Stock-Based Compensation Expense (Three Months Ended March 31) | Year | Amount | | :--- | :----------- | | 2024 | $0.3 million | | 2023 | $0.8 million | - As of March 31, 2024, 6,210,617 stock options were outstanding and expected to vest, with unrecognized compensation expense of $1.7 million[104][105] - All Restricted Stock Units (RSUs) at December 31, 2023 (250,000 shares) were either vested or cancelled by March 31, 2024[109] 11. Revenue This note details the sources and recognition methods for the company's revenue streams Revenue Recognition (Three Months Ended March 31) | Revenue Type | 2024 | 2023 | | :----------------------- | :------------- | :----------- | | Grant revenue | $8,000 | $0 | | Process development revenue | $3.5 million | $0.7 million | - The increase in process development revenue is attributed to expanded biomanufacturing operations and service offerings of the CDMO[111] Contract Liabilities (Deferred Revenue) | Date | Balance | | :------------- | :----------- | | Dec 31, 2023 | $(2,389,441) | | March 31, 2024 | $(591,259) | 12. Net Loss Per Share This note explains the calculation of basic and diluted net loss per share for the reporting periods Net Loss Per Share Attributable to Scorpius Holdings, Inc. (Three Months Ended March 31) | Metric | 2024 | 2023 | | :---------------------------------------------- | :------ | :------ | | Net loss attributable to Scorpius Holdings, Inc. | $(4,417,549) | $(12,784,647) | | Weighted-average common shares outstanding | 28,180,887 | 25,971,143 | | Net loss per common share, basic and diluted | $(0.16) | $(0.49) | - All common stock options, unvested restricted stock units, and warrants were anti-dilutive and excluded from diluted EPS calculation for both periods[116] 13. Income Tax This note discusses the company's income tax position, including effective tax rates and valuation allowances - The Company's effective tax rate for the three months ended March 31, 2024, and 2023 was 0%[118] - A full valuation allowance has been recorded against net deferred tax assets in the U.S., Australian, and German operations due to a history of losses and insufficient evidence of future utilization[121] 14. Leases This note provides details on the company's operating and finance lease arrangements and associated costs - The Company operates from leased facilities in Morrisville, NC (expiring 2030), San Antonio, TX (expiring 2038), and North Brunswick, NJ (expiring July 2024)[123] - The San Antonio facility lease (commenced Sept 2022) is a finance lease, with $10.2 million capitalized as a finance lease right-of-use asset from reimbursements to Merchants Ice II, LLC[125] Lease Costs (Three Months Ended March 31) | Lease Cost Type | 2024 | 2023 | | :---------------------- | :--------- | :--------- | | Operating lease cost | $332,675 | $334,541 | | Finance lease cost | $824,280 | $484,514 | | Total lease cost | $1,156,955 | $819,055 | Weighted Average Lease Terms and Borrowing Rates (March 31, 2024) | Lease Type | Remaining Lease Term | Incremental Borrowing Rate | | :-------------- | :------------------- | :------------------------- | | Operating leases| 6.2 years | 9.67% | | Finance leases | 11.2 years | 10.11% | 15. Commitments and Contingencies This note outlines the company's contractual obligations, potential liabilities, and related party agreements - The Company is subject to earn-out payments related to the Elusys Therapeutics acquisition, equal to 10% of gross payments from ANTHIM® sales for 12 years[133] - Elusys has non-cancellable future commitments of approximately $51.4 million through 2025 with Lonza for ANTHIM® bulk drug product, which were transferred to Elusys Holdings[133] - A convertible promissory note of $2,250,000 issued to Elusys Holdings in January 2024 was amended in May 2024, extending maturity to September 1, 2025, and potentially adjusting the conversion price to $0.11 per share based on a recent public offering, subject to approvals[133] 16. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On May 16, 2024, the Company completed a public offering, raising approximately $6.0 million in gross proceeds from the sale of units and pre-funded units, each including common stock and warrants[134] - Net proceeds from the offering will be used for working capital, general corporate purposes, and repayment of a $0.75 million non-convertible promissory note issued to Elusys Holdings Inc. on May 1, 2024[134][135] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and future outlook, emphasizing its CDMO transition and liquidity challenges OVERVIEW This section introduces the company's business model, strategic focus, and operational highlights - Scorpius Holdings, Inc. operates as a Contract Development and Manufacturing Organization (CDMO), providing process development and biomanufacturing services through its subsidiary, Scorpius Biomanufacturing, Inc[138] - The Company's strategy focuses on using American-made equipment and domestic sourcing to be competitive for U.S. government contracts and expand within the CDMO market[138] - Operations at the San Antonio facility commenced in September 2022, with an emphasis on enhancing in-house bioanalytic, process development, and manufacturing capabilities[139] Recent Developments This section highlights key corporate events and financial transactions occurring recently - On May 16, 2024, the Company completed a public offering, raising approximately $6.0 million in gross proceeds, intended for working capital, general corporate purposes, and repayment of a $0.75 million promissory note[141][142] - On May 1, 2024, the Company issued a $0.75 million non-convertible promissory note and amended a prior $2.25 million convertible promissory note with Elusys Holdings, extending its maturity to September 1, 2025, and potentially adjusting the conversion price[144] - On March 9, 2024, the Company closed a public offering of 10,000,000 common shares at $0.15 per share, yielding net proceeds of $1,235,000[145] - On January 29, 2024, the Company assigned its exclusive license agreement with Shattuck Labs, Inc. for $1.0 million, related to fusion proteins for cancer treatment[146] CRITICAL ACCOUNTING ESTIMATES This section discusses the significant judgments and assumptions used in preparing the financial statements - Critical accounting policies involve judgments and estimates, particularly for revenue and deferred revenue recognition under ASC 606, where process development revenue is recognized over time using an input method[148][149][150] - Estimates for transaction price and variable consideration are based on the most likely method, ensuring a significant reversal of cumulative revenue is improbable[152][153] RESULTS OF OPERATIONS This section analyzes the company's financial performance, comparing key metrics for the current and prior periods Comparison of Key Financials (Three Months Ended March 31) | Metric | 2024 | 2023 | Change (YoY) | | :---------------------------------------------- | :------------- | :--------------- | :----------- | | Revenue | $3.5 million | $0.7 million | +358.8% | | Cost of revenues | $0.9 million | $0.6 million | +50.0% | | Research and development expense | $3.9 million | $6.3 million | -38.1% | | Selling, general and administrative expense | $5.0 million | $6.5 million | -23.1% | | Change in fair value of contingent earn-out receivable, related party | $1.0 million | $0 | N/A | | Total non-operating income | $0.7 million | $0.1 million | +600.0% | - The increase in revenue is due to expanded biomanufacturing operations and service offerings of the CDMO[155] - R&D expense decreased primarily due to the elimination of PTX-35 clinical trials and reduced unallocated research expenses (personnel, depreciation, software)[158] - SG&A expense decreased by $1.5 million, mainly from reductions in marketing, consultant labor, and stock-based compensation[159] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to meet its short-term obligations and fund future operations - As of March 31, 2024, the Company had $1.7 million in cash and short-term investments, which increased to approximately $5.6 million by May 17, 2024, after a public offering[162][167] - Management has determined there is substantial doubt about the Company's ability to continue as a going concern within one year, as it does not anticipate generating sufficient revenue to sustain operations beyond December 2024[162][167] - The Company has an accumulated deficit of $258.8 million as of March 31, 2024, and incurred net losses of $4.7 million and $12.9 million for the three months ended March 31, 2024 and 2023, respectively[163] Cash Flows This section analyzes the company's cash movements from operating, investing, and financing activities Cash Flow Summary (Three Months Ended March 31) | Activity | 2024 | 2023 | Change (YoY) | | :------------------------------------- | :------------- | :--------------- | :----------- | | Net Cash Used In Operating Activities | $(4.7) million | $(13.8) million | +$9.1 million| | Net Cash Provided by Investing Activities | $2.8 million | $13.5 million | -$10.7 million| | Net Cash Provided by (Used In) Financing Activities | $3.3 million | $(0.3) million | +$3.6 million| - The decrease in cash used in operating activities was primarily due to a decrease in net loss and changes in working capital components[168] - The decrease in cash provided by investing activities was mainly due to decreased sales of short-term investments, partially offset by reduced property and equipment purchases and the sale of an intellectual property license[169] - The increase in cash provided by financing activities resulted from proceeds from a public offering and the issuance of a convertible promissory note[170][171] Current and Future Financing Needs This section discusses the company's anticipated funding requirements and potential capital-raising strategies - The Company expects to incur significant commercialization expenses for its CDMO business and will require substantial additional funding for manufacturing facility operations[172] - Potential financing sources include strategic partners, equity or debt financings, mergers, asset sales, or other strategic transactions[166] - The Company's ability to raise capital through Form S-3 is limited until June 2025 due to late filings, and failure to secure additional funds could lead to delays, reductions, or termination of operations, or even liquidation[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Scorpius Holdings, 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 disclosures about market risk[173] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, with remediation efforts underway Evaluation of Disclosure Controls and Procedures This section presents management's assessment of the effectiveness of the company's disclosure controls and procedures - As of March 31, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[175] Material Weaknesses in Internal Control Over Financial Reporting This section identifies specific deficiencies in the company's internal controls that could impact financial reporting accuracy - 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 Therapeutics acquisition, and ineffective design of management review controls across financial statement areas, especially for process development revenue recognition[177][178] Remediation of Material Weaknesses This section outlines the actions being taken by the company to address and correct identified control deficiencies - Remediation efforts include enhancing process controls for user access and segregation of duties, expanding documentation for system controls, improving the design of controls for income tax and revenue accounting, and utilizing external subject matter experts for complex transactions[179] Changes in Internal Control over Financial Reporting This section reports any significant changes in the company's internal control system during the reporting period - During the quarter ended March 31, 2024, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting, other than the planned remediation activities[182] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures 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 individually or collectively have a material adverse effect on its business[184] Item 1A. Risk Factors Investing in the company's securities involves significant risks, including going concern issues, capital needs, and control weaknesses - The Company has not generated significant revenue and does not anticipate doing so in the near future, having incurred a net loss of approximately $4.7 million for the three months ended March 31, 2024[186] - Current cash is projected to fund operations only through late December 2024, necessitating additional capital raises, which may be limited by the inability to use Form S-3 until June 2025 due to late filings[190] - Substantial doubt exists about the Company's ability to continue as a going concern due to accumulated deficits and expected future losses, with auditors including an explanatory paragraph in their report[191][193] - Material weaknesses in internal control over financial reporting and ineffective disclosure controls and procedures persist as of March 31, 2024, which previously led to restatements of financial results[194][196] - The Company received a notice of noncompliance from NYSE Regulation for failing to timely file its Quarterly Report on Form 10-Q, posing a risk of de-listing if continued listing standards are not met[200][201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter ended March 31, 2024, that had not been previously disclosed - No unregistered sales of equity securities occurred during the quarter ended March 31, 2024, that were not previously disclosed[202] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable[203] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable[204] Item 5. Other Information No director or officer of the Company adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[206] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, detailing corporate and financial documents - The Exhibit Index details various corporate documents, including amendments to the Certificate of Incorporation, Bylaws, Convertible Promissory Notes, and certifications[208][209][211] SIGNATURES This section contains the official attestations by the company's principal executive and financial officers - The report is signed by Jeffrey A. Wolf, Chairman and Chief Executive Officer, and William Ostrander, Chief Financial Officer, on May 28, 2024[215][216]