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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Qs

(Mark One)

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

For the quarterly period ended March 31, 2022

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

NightHawk Biosciences, 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 400

Morrisville, NC

(Address of Principal Executive Offices)

27560

(Zip Code)

(919240-7133

(Registrant’s Telephone Number, including Area Code)

Heat Biologics, Inc.

(Former name, address, and fiscal year, if changed since the last report)

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

NHWK

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 May 13, 2022, there were 25,649,824 shares of Common Stock, $0.0002 par value per share, outstanding.

Table of Contents

NIGHTHAWK BIOSCIENCES, INC.

TABLE OF CONTENTS

Page No.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

2

Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

2

Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three months ended March 31, 2022 and March 31, 2021

3

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and March 31, 2021

4

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and March 31, 2021

6

Notes to the Consolidated Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

SIGNATURES

39

Table of Contents

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 clinical development program, our manufacturing operations and other operations, our ability to develop products of commercial value and to identify, discover and obtain rights to additional potential product candidates, our ability to protect and maintain our intellectual property and the ability of our licensors to obtain and maintain patent protection for the technology or products that we license from them, the outcome of research and development activities, our reliance on third-parties, 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, 2021 filed with the SEC on March 11, 2022 (the “2021 Annual Report”). Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “NightHawk Biosciences,” “the Company,” “we” and “our” refer to NightHawk Biosciences, Inc.

1

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

NIGHTHAWK BIOSCIENCES, INC.

Consolidated Balance Sheets

    

March 31, 

December 31, 

2022

    

2021

(unaudited)

Current Assets

Cash and cash equivalents

$

14,584,715

$

8,053,879

Short-term investments

 

69,528,419

 

88,324,922

Accounts receivable

 

99,705

 

66,049

Prepaid expenses and other current assets

 

2,364,918

 

2,886,520

Total Current Assets

 

86,577,757

 

99,331,370

Property and Equipment, net

 

3,098,665

 

2,158,479

Other Assets

 

  

 

  

In-process R&D

 

3,500,000

 

3,500,000

Grant receivable

 

1,524,522

 

1,318,359

Operating lease right-of-use asset

1,954,205

1,782,884

Finance lease right-of-use asset

407,839

470,700

Other assets

 

16,995,227

 

12,193,540

Deposits

 

208,307

 

205,901

Total Other Assets

 

24,590,100

 

19,471,384

Total Assets

$

114,266,522

$

120,961,233

Liabilities and Stockholders' Equity

 

  

 

  

Current Liabilities

 

  

 

  

Accounts payable

$

2,228,192

$

922,782

Operating lease liability, current portion

420,460

350,343

Finance lease liability, current portion

244,163

260,574

Accrued expenses and other liabilities

 

1,644,200

 

2,419,676

Contingent consideration, current portion

600,866

593,037

Contingent consideration, related party - current portion

176,634

174,333

Total Current Liabilities

 

5,314,515

 

4,720,745

Long Term Liabilities

 

  

 

  

Other long-term liabilities

 

55,080

 

53,530

Derivative warrant liability

3,241

11,020

Deferred tax liability

 

215,937

 

215,937

Deferred revenue, net of current portion

 

35,000

 

35,000

Operating lease liability, net of current portion

 

1,183,597

 

1,060,856

Financing lease liability, net of current portion

 

216,649

 

255,429

Contingent consideration

1,966,060

1,990,118

Contingent consideration, related party

577,955

585,027

Total Liabilities

 

9,568,034

 

8,927,662

Commitments and Contingencies

 

  

 

  

Stockholders' Equity

 

  

 

  

Common stock, $.0002 par value; 250,000,000 and 250,000,000 shares authorized, 25,649,824 and 25,649,824 shares issued and outstanding at March 31, 2022 and December 31, 2021

 

5,120

 

5,055

Additional paid-in capital

 

279,800,072

 

278,890,153

Accumulated deficit

 

(173,839,540)

 

(165,718,953)

Accumulated other comprehensive loss

 

(123,210)

 

(67,941)

Total Stockholders' Equity - NightHawk Biosciences, Inc.

 

105,842,442

 

113,108,314

Non-Controlling Interest

 

(1,143,954)

 

(1,074,743)

Total Stockholders' Equity

 

104,698,488

 

112,033,571

Total Liabilities and Stockholders' Equity

$

114,266,522

$

120,961,233

See Notes to Consolidated Financial Statements

2

Table of Contents

NIGHTHAWK BIOSCIENCES, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

Three Months Ended

March 31, 

    

2022

    

2021

    

Revenue:

Grant and contract revenue

$

212,418

$

538,645

Operating expenses:

 

  

 

  

Research and development

 

3,933,347

 

3,406,248

General and administrative

 

3,776,623

 

4,767,645

Change in fair value of contingent consideration

 

(21,000)

 

6,000

Total operating expenses

 

7,688,970

 

8,179,893

Loss from operations

 

(7,476,552)

 

(7,641,248)

Change in fair value of warrant liability

7,779

(8,702)

Interest income

 

120,702

 

195,165

Unrealized (loss) gain on available-for-sale securities

(836,593)

(164,513)

Other expense, net

 

(5,134)

 

(3,842)

Total non-operating (loss) income

 

(713,246)

 

18,108

Net loss before income taxes

 

(8,189,798)

 

(7,623,140)

Net loss

 

(8,189,798)

 

(7,623,140)

Net loss - non-controlling interest

 

(69,211)

 

(90,962)

Net loss attributable to Heat Biologics, Inc.

$

(8,120,587)

$

(7,532,178)

Net loss per share, basic and diluted

$

(0.32)

$

(0.31)

Weighted-average common shares outstanding, basic and diluted

 

25,593,948

 

24,199,916

Comprehensive loss:

 

  

 

  

Net loss

$

(8,189,798)

$

(7,623,140)

Unrealized (loss) gain on foreign currency translation

 

(55,269)

 

18,268

Total comprehensive loss

 

(8,245,067)

 

(7,604,872)

Comprehensive loss attributable to non-controlling interest

 

(69,211)

 

(90,962)

Comprehensive loss - Heat Biologics, Inc.

$

(8,175,856)

$

(7,513,910)

See Notes to Consolidated Financial Statements

3

Table of Contents

NIGHTHAWK BIOSCIENCES, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Three Months Ended March 31, 2022

Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'

    

Stock

    

APIC

    

Deficit

    

(Loss) Income

    

Interest

    

Equity

Balance at December 31, 2021

$

5,055

$

278,890,153

$

(165,718,953)

$

(67,941)

$

(1,074,743)

$

112,033,571

Issuance of common stock from vesting of restricted stock awards

65

(65)

Stock-based compensation

909,984

909,984

Other comprehensive income

 

 

 

(55,269)

 

 

(55,269)

Net loss

 

 

 

(8,120,587)

 

 

(69,211)

 

(8,189,798)

Balance at March 31, 2022

 

$

5,120

 

$

279,800,072

 

$

(173,839,540)

 

$

(123,210)

 

$

(1,143,954)

 

$

104,698,488

See Notes to Consolidated Financial Statements

HEAT BIOLOGICS INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Three Months Ended March 31, 2021

    

Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'

    

Stock

    

APIC

    

Deficit

    

Income (Loss)

    

Interest

    

Equity

4

Table of Contents

Balance at December 31, 2020

$

4,519

$

247,048,349

$

(130,647,485)

$

(166,056)

$

(745,404)

$

115,493,923

Issuance of common stock under ATM, net of issuance costs

 

420

 

26,303,862

 

 

 

 

26,304,282

Issuance of common stock from vesting of restricted stock awards

82

(82)

Stock issuance costs

 

 

(658,184)

 

 

 

 

(658,184)

Stock-based compensation

 

 

2,897,580

 

 

 

 

2,897,580

Issuance of restricted stock

3

(3)

Exercise of options

 

6

 

27,255

 

 

 

 

27,261

Cancellation and payout of fractional shares

(3)

3

Other Comprehensive loss

18,268

18,268

Net loss

 

 

 

(7,532,178)

 

 

(90,962)

 

(7,623,140)

Balance at March 31, 2021

 

$

5,027

 

$

275,618,780

 

$

(138,179,663)

 

$

(147,788)

 

$

(836,366)

 

$

136,459,990

See Notes to Consolidated Financial Statements

5

Table of Contents

NIGHTHAWK BIOSCIENCES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended

March 31, 

    

2022

    

2021

Cash Flows from Operating Activities

Net loss

$

(8,189,798)

$

(7,623,140)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

207,106

 

101,803

Noncash lease expense

21,536

21,863

Noncash interest expense

6,317

3,743

Stock-based compensation

 

909,983

 

2,897,580

Change in fair value of common stock warrants

(7,779)

8,702

Change in fair value of contingent consideration

 

(21,000)

 

6,000

Unrealized loss (gain) on investments

 

907,315

 

146,313

Increase (decrease) in cash arising from changes in assets and liabilities:

 

 

Accounts receivable

 

(33,047)

 

73,814

Prepaid expenses and other current assets

 

539,003

 

123,908

Grant receivable

 

(206,163)

 

Other assets

(4,801,687)

Accounts payable

 

1,303,871

 

(259,138)

Accrued expenses and other liabilities

 

(849,469)

 

169,665

Deferred revenue

 

 

(510,188)

Other long-term liabilities

 

1,550

 

7,511

Deposits

 

(2,406)

 

(18,422)

Net Cash Used In Operating Activities

 

(10,214,668)

 

(4,849,986)

Cash Flows from Investing Activities

 

  

 

  

Purchase of short-term investments

 

(109,806)

 

(38,202,476)

Sale of short-term investments

17,998,995

37,998,617

Purchase of property and equipment

(1,090,748)

(363,398)

Net Cash Provided By (Used in) Investing Activities

 

16,798,441

 

(567,257)

Cash Flows from Financing Activities

 

  

 

  

Proceeds from the issuance of common stock

 

 

26,304,282

Proceeds from exercise of stock options

27,261

Stock issuance costs

 

 

(658,184)

Repayments on principal of finance lease

(55,191)

(30,171)

Net Cash (Used In) Provided by Financing Activities

 

(55,191)

 

25,643,188

Effect of exchange rate changes on cash and cash equivalents

 

2,254

 

(1,088)

Net Increase in Cash and Cash Equivalents

 

6,530,836

 

20,224,857

Cash and Cash Equivalents – Beginning of Period

 

8,053,879

 

10,931,890

Cash and Cash Equivalents – End of Period

$

14,584,715

$

31,156,747

Supplemental Disclosure for Cash Flow Information:

 

  

 

  

Tax obligation for employee share-based transaction in accrued liabilities

$

$

90,030

Right-of-use assets obtained on operating lease commencements

$

293,172

$

Supplemental disclosure of non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable

$

768,776

$

See Notes to Consolidated Financial Statements

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1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Effective May 3, 2022, Heat Biologics, Inc. changed its name to NightHawk Biosciences, Inc. (the “Company”) by filing a Certificate of Amendment (the “Certificate of Amendment”) to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. Certain information or footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2022.

The consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 are unaudited. The balance sheet as of December 31, 2021 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, 2021 filed with the SEC on March 11, 2022 (the “2021 Annual Report”).

The accompanying unaudited consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 include the accounts of the Company, 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.), Scorpion Biological Services, Inc. (formerly Scorpion Biosciences, 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 loss in stockholders’ equity. All significant intercompany accounts and transactions have been eliminated in consolidation. At March 31, 2022 and December 31, 2021, Heat held 85% controlling interest in Pelican. Heat 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.

Liquidity and Capital Resources

The Company has an accumulated deficit of approximately $173.8 million as of March 31, 2022 and a net loss of approximately $8.2 million for the three months ended March 31, 2022 and has not generated significant revenue or positive cash flows from operations. The Company expects to incur significant expenses and continued losses from operations for the foreseeable future. The Company expects its expenses to increase in connection with its ongoing activities, particularly as the Company continues its research and development and advances its clinical trials of, and seeks marketing approval for, its product candidates, builds its in-house bioanalytic, process development and manufacturing facility and expands its infectious disease/biological threat program, including its support of the development of, and commencement of operations at, a new biodefense-focused large molecule and biologics biomanufacturing facility in Manhattan, Kansas. As of March 31, 2022, a lease has not been executed for this facility. In addition, if the Company obtains marketing approval for any of its product candidates, the Company expects to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, any new business ventures that the Company may engage in are likely to require commitments of capital. Accordingly, the Company will in the future need to obtain substantial additional funding in connection with its planned operations. Adequate additional financing may

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not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts. 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 under at-the-market offerings, if available, debt financings, partnerships, collaborations and other funding transactions. As of March 31, 2022, the Company had approximately $84.1 million in cash and cash equivalents and short-term investments, which it believes is sufficient to fund its operations for at least one year from the date these consolidated financial statements were issued. This is based on the Company’s current estimates, and the Company could use its available capital resources sooner than it currently expects. The Company will need to generate significant revenues to achieve profitability, and it may never do so.

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, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates or its manufacturing facility, uncertainty of market acceptance of the Company’s products or manufacturing capability or success of new business ventures, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.

The Company relies on third-party manufacturers to purchase from their third-party vendors the materials necessary to produce product candidates and manufacture product candidates for clinical studies. The Company also depends on third-party suppliers for key materials and services used in research and development, as well as manufacturing processes, and are subject to certain risks related to the loss of these third-party suppliers or their inability to supply adequate materials and services. The Company does not control the manufacturing processes of the contract development and manufacturing organizations, or CDMOs, with whom it contracts and is dependent on these third parties for the production of its therapeutic candidates in accordance with relevant regulations (such as current Good Manufacturing Practices, or cGMP), which includes, among other things, quality control, quality assurance and the maintenance of records and documentation.

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.

Derivative Financial Instruments

The Company has issued common stock warrants in connection with the execution of certain equity financings. The fair value of the warrants, which were deemed to be derivative instruments, was recorded as a derivative liability under the provisions of ASC Topic 815 Derivatives and Hedging (“ASC 815”) because they are not considered indexed to the Company’s own stock. Subsequently, the liability is adjusted to fair value as of the end of each reporting period and the changes in fair value of derivative liabilities are recorded in the consolidated statements of operations and comprehensive loss under the caption “Change in fair value of warrant liability.” See Note 3 for additional information.

The fair value of the warrants, including the warrants issued in connection with the January 2020 common stock offering and recorded as a liability, was determined using the Monte Carlo simulation model, which is deemed to be an appropriate model due to the terms of the warrants issued.

The fair value of warrants was affected by changes in inputs to the Monte Carlo simulation model including the Company’s stock price, expected stock price volatility, the remaining term, and the risk-free interest rate. This model uses Level 3 inputs, including stock price volatility, in the fair value hierarchy established by ASC 820 Fair Value Measurement. At March 31, 2022, the fair value of such warrants was $3,241, which is classified as a long-term derivative warrant liability on the Company’s consolidated balance sheets.

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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 consideration, in process research and development (“IPR&D”), income taxes, valuation of warrant liabilities, and stock-based compensation. Actual results may differ from those estimates.

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.

Business Combinations

The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

In-Process Research and Development

The Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company determines the useful lives of definite-lived intangible assets after considering specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, and other economic facts; including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their estimated useful lives. Intangible assets that are deemed to have indefinite lives, are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for indefinite-lived intangibles, consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. Indefinite-lived intangible assets are not amortized.

In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. IPR&D assets represent the fair value assigned to technologies that the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use. During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the Company may have a full or partial

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impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.

Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets.

Deferred Revenue

Deferred revenue is comprised of an exclusive license agreement with Shattuck Labs, Inc. (“Shattuck”) pursuant to which the Company licensed certain provisional patent applications and know-how related to fusion proteins to treat cancer and other diseases that were not being developed by us. Shattuck paid the Company an initial license fee of $50,000 in June 2016 and is obligated to pay the Company fees upon its receipt of sublicensing income, achievement of certain milestones, and royalties upon sales of commercial products. In as much of the technology that the Company out-licensed is in the early stages of development and there is a low likelihood of success for any technology at such stage, there can be no assurance that any products will be developed by Shattuck or that the Company will derive any revenue from Shattuck.

Research and Development

Research and development includes 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, and testing and enhancement of its product candidates.

Grants Receivable and Revenue Recognition

Effective January 1, 2019, the Company has adopted ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The Company’s primary source of revenue is grant revenue related to the CPRIT contract, which is being accounted for under ASC 958 as a conditional non-exchange contribution.

The CPRIT grant covers the periods from June 1, 2017 through May 31, 2023, for a total grant award of up to $15.2 million. CPRIT advances 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, and 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 will be paid, on a reimbursement basis, after the Company has fulfilled every objective of the final goals of the grant. Funds received are reflected in deferred revenue as a liability until revenue is earned. Grant revenue is recognized when qualifying costs are incurred. When grant funds are received after costs have been incurred, the Company records revenue and a corresponding grants receivable until grant funds are received. As of the March 31, 2022, all $15.2 million has been recognized to date.

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On January 7, 2020, the Company was awarded a grant of up to $224,713 from the National Institute of Allergy and Infectious Diseases (“NIH”). The NIH grant provides funding for continued development of the Company’s technologies for PTX-35. The grant funds will be made available by the NIH to the Company as allowable expenses are incurred. For the three months ended March 31, 2022 and 2021, the Company incurred no allowable expenses under the NIH grant and did not recognize any corresponding grant revenue for the three months ended March 31, 2022 and 2021.

Prepaid Expenses and Other Current Assets

The Company’s prepaid expenses and other current assets consist primarily of the amount paid in advance for manufacturing activities, clinical trial support, and insurance.

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.

Significant Accounting Policies

The significant accounting policies used in preparation of these interim financial statements are disclosed in the audited consolidated financial statements and related notes included in the Company’s 2021 Annual Report and have not changed significantly since such filing.

Other Assets

In conjunction with a lease agreement further discussed in Note 13, Scorpion has made reimbursement payments to the lessor for costs incurred in conjunction with the leased site.  These payments are included in other assets on the consolidated balance sheets and will be classified as a right-of-use asset upon commencement.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022 and the Company is currently evaluating the expected impact of this standard but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for convertible instruments. This ASU also requires entities to use the if-converted method for all convertible instruments in calculating diluted earnings-per-share. The ASU is effective for annual periods beginning after December 15, 2023 with early adoption permitted. We are currently evaluating the impact this standard will have on our consolidated financial statements.

2. Acquisition of Pelican Therapeutics

In 2017, the Company consummated the acquisition of 80% of the outstanding equity of Pelican, a related party, and Pelican became a majority owned subsidiary of the Company. In October 2018, the Company entered into an agreement with the University of Miami (“UM”) whereby UM exchanged its shares of stock in the Company’s subsidiaries, Heat I, Inc. and Pelican. The stock exchange resulted in the Company increasing its controlling ownership in Pelican from 80% to 85%.

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Under the Pelican stock acquisition agreement, the Company is also obligated to make future payments based on the achievement of certain clinical and commercialization milestones, as well as low single digit royalty payments and payments upon receipt of sublicensing income. The fair value of these future milestone payments is reflected in the contingent consideration account under current liabilities with the non-current portion under long term liabilities on the balance sheet. The estimated fair value of the contingent consideration was determined using a probability-weighted income approach. The Company estimates the fair value of the contingent consideration on a quarterly basis. At the time of the Pelican acquisition, the Company’s CEO and certain affiliated entities as well as two of the Company’s directors and certain affiliated entities directly or indirectly owned shares of Pelican common stock purchased by the Company. As a result, approximately 22.7% of any such milestone payments will be paid to certain directors of the Company which is presented separately on the balance sheet as contingent consideration, related party. On June 22, 2020, the Company achieved the first milestone when it dosed the first patient in the first Phase 1 clinical trial of PTX-35.

As discussed in Note 10, in May 2016, Pelican was awarded a $15.2 million CPRIT Grant from CPRIT for development of Pelican’s lead product candidate, PTX-35. The CPRIT Grant supports Pelican in developing PTX-35 through its current Phase 1 clinical trial designed to evaluate PTX-35 in combination with other immunotherapies.

3. Fair Value of Financial Instruments

The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued expenses and other payables approximate fair value due to their short maturities.

As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The Company’s cash equivalents are classified within Level I of the fair value hierarchy.

The Company’s short-term investments consist of Level I securities which are comprised of highly liquid money market funds. The estimated fair value of the short-term investments was based on quoted market prices. There were no transfers between fair value hierarchy levels during the quarters ended March 31, 2022 or 2021.

In January 2020, the Company issued warrants in connection with the public offering of common stock (the “January 2020 Warrants”). Pursuant to the terms of these warrants, the warrants were not considered indexed to the Company’s own stock and therefore are required to be measured at fair value and reported as a liability in the consolidated balance sheets. Additionally, upon the closing of the January 2020 offering, 479,595 outstanding warrants were evaluated for whether they were modified for accounting purposes and it was determined that they were required to be classified as a liability. The fair value of the warrant liability is based on the Monte Carlo methodology. The Company is required to revalue the warrants at each reporting date with any changes in fair value recorded on our consolidated statement of operations and comprehensive loss. The valuation of the warrants is classified under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. In order to calculate the fair value of the warrants, certain assumptions were made, including the selling price or fair market value of

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the underlying common stock, risk-free interest rate, volatility, and remaining life. Changes to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing its own data. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

The following table presents quantitative information about the inputs used in the valuation for the Company’s fair value measurement of the warrant liability classified as Level 3:

March 31, 2022

December 31, 2021

Current stock price

$

3.06

$

3.04

Estimated volatility of future stock price

85.81

%

133.13

%

Risk free interest rate

1.89

%

0.55

%

Contractual term

1.66

years

1.90

years

As of March 31, 2022, there were a total of 9,357 warrants outstanding that were reported as a liability on the consolidated balance sheet.

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

As of March 31, 2022

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Short-term investments

$

69,528,419

$

69,528,419

 

 

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

3,321,515

 

$

3,321,515

Warrant liability

$

3,241

 

 

$

3,241

As of December 31, 2021

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Short-term investments

$

88,324,922

$

88,324,922

 

 

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

3,342,515

 

$

3,342,515

Warrant liability

$

11,020

 

$

11,020

The following tables summarize the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the three months ended March 31, 2022 and 2021:

Contingent 

 

Warrant

    

Consideration

 

Liability

Balance at December 31, 2021

$

3,342,515

$

11,020

Change in fair value

 

(21,000)

(7,779)

Balance at March 31, 2022

$

3,321,515

$

3,241

Contingent 

 

Warrant

    

Consideration

 

Liability

Balance at December 31, 2020

$

2,912,515

$

33,779

Change in fair value

 

6,000

8,702

Balance at March 31, 2021

$

2,918,515

$

42,481

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The change in the fair value of the contingent consideration for the three months ended March 31, 2022 was primarily due to a change in discount rate and the passage of time on the fair value measurement. The change in fair value of the warrant liability for the three months ended March 31, 2022 was primarily due to a decrease in the fair value of the underlying stock. Adjustments associated with the change in fair value of contingent consideration and warrant liability are included in the Company’s consolidated statement of operations and comprehensive loss.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of contingent consideration classified as Level 3 as of March 31, 2022 and December 31, 2021:

As of March 31, 2022

Valuation 

Significant 

Weighted Average 

    

 Methodology

    

 Unobservable Input

    

 (range, if applicable)

Contingent Consideration

 

Probability weighted income approach

 

Milestone dates

 

2022-2032

 

 

Discount rate

 

8.23%

 

  

 

Probability of occurrence

 

4.9% to 75%

As of December 31, 2021

Valuation 

Significant 

Weighted Average 

    

 Methodology

    

 Unobservable Input

    

 (range, if applicable)

Contingent Consideration

 

Probability weighted income approach

 

Milestone dates

 

2022-2031

 

 

Discount rate

 

7.51%

 

  

 

Probability of occurrence

 

4.9% to 75%

The Company measures certain non-financial assets on a non-recurring basis, including goodwill and in-process R&D. This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.

4. Short-Term Investments

Short-term investments consist of equity securities. The Company holds its securities at fair value as of March 31, 2022 and December 31, 2021. Unrealized gains and losses on securities are reported in the other (expense) income line item on the statements of operations and comprehensive loss. Short-term investments at March 31, 2022 and December 31, 2021 consisted of mutual funds with fair values of $69.5 million and $88.3 million, respectively.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following at:

March 31, 

December 31, 

    

2022

    

2021

Prepaid manufacturing expense

$

580,930

$

563,280

Prepaid insurance

 

418,974

 

704,650

Prepaid preclinical and clinical expenses

 

887,121

 

1,158,560

Other prepaid expenses and current assets

 

477,893

 

460,030

$

2,364,918

$

2,886,520

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6. Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging generally from three to eight years. Expenditures for maintenance and repairs are charged to expense as incurred.

Property and equipment consist of the following at:

March 31, 

December 31, 

    

2022

    

2021

Lab equipment

$

3,483,311

$

3,178,855

Computers

 

85,070

 

85,071

Furniture and fixtures

 

66,106

 

66,106

Leasehold improvements

 

22,563

 

22,563

Construction-in-process

 

1,095,912

 

309,620

Total

 

4,752,962

 

3,662,215

Accumulated depreciation

 

(1,654,297)

 

(1,503,736)

Property and equipment, net

$

3,098,665

$

2,158,479

Depreciation expense was $150,562 and $72,078 for the three months ended March 31, 2022 and 2021, respectively.

7. In-Process R&D

In-process R&D of $5.9 million was recorded in connection with the acquisition of Pelican, as described in Note 2. During the fourth quarter of 2021, due to a sustained decline in the quoted market price of its common stock, the Company performed an interim impairment analysis using the income approach and in-process R&D with a total carrying value of $5.9 million was written down to its estimated fair value of $3.5 million and an impairment charge of $2.4 million during the fourth quarter of 2021 was recorded. The Company performs an annual impairment test at the reporting unit level as of April 1st of each fiscal year. No impairment was recorded during the quarters ended March 31, 2022 or 2021.

8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

March 31, 

December 31, 

    

2022

    

2021

Accrued preclinical and clinical trial expenses

$

794,010

$

955,013

Other expenses

 

286,190

 

631,312

Accrued franchise tax

 

229,363

 

195,000

Compensation and related benefits

205,148

459,178

Accrued manufacturing expenses

129,489

179,173

$

1,644,200

$

2,419,676

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9. Stockholders’ Equity

At-The-Market-Offering

From January 1, 2021 to March 31, 2021 the Company sold approximately 2,106,027 shares of common stock under the Amended and Restated At Market Issuance Sales Agreement, dated August 24, 2020 by and between the Company, B. Riley Securities, Inc. and Cantor Fitzgerald & Co., as amended (the “Common Stock Sales Agreement”), at an average price of approximately $12.18 per share, raising aggregate net proceeds of $25,646,099 after deducting a commission up to 3%. No shares of common stock were sold during the quarter ended March 31, 2022.

Common Stock Warrants

As of March 31, 2022 and 2021, the Company has outstanding warrants to purchase 747,383 shares of common stock issuable at a weighted-average exercise price of $11.06 per share.

The Company had no common stock warranty activity in the quarter ended March 31, 2022 .The following table summarizes the activity of the Company’s common stock warrants for the quarter ended March 31, 2021.

    

Common Stock 

Warrants

Outstanding, December 31, 2020

 

758,939

Issued

 

31,000

Expired

 

(42,556)

Outstanding, March 31, 2021

 

747,383

Equity Compensation Plans

The Company maintains various equity compensation plans (“Plans”) with substantially similar provisions under which it may award employees, directors and consultants incentive and non-qualified stock options, restricted stock, stock appreciation rights and other stock based awards with terms established by the Compensation Committee of the Board of Directors which has been appointed by the Board of Directors to administer the plans. In addition, at its 2021 Annual Meeting for Stockholders, the stockholders approved the Company’s  2021 Subsidiaries Stock Incentive Plan (the “SSIP”) which allows for the grant of equity interests in subsidiaries of the Company including Skunkworx Bio, Inc. (“SkunkWorx”), Scorpion Biological Services, Inc. (“Scorpion”), Abacus Biotech, Inc. (“Abacus”), Blackhawk Bio, Inc. (“Blackhawk”) and other newly formed subsidiaries of the Company that adopt the SSIP by resolution of their Board of Directors. On August 2, 2021 the Board of Directors, the Compensation Committee and the Board of Directors of Skunkworx, Scorpion, Abacus and Blackhawk granted to Jeff Wolf, Chief Executive Officer, an option under the SSIP to purchase 10,526, 10,638, 10,526 and 10,526 shares of common stock of Skunkworx, Scorpion, Abacus and Blackhawk, respectively, and to William Ostrander, Chief Financial Officer, an option under the SSIP to purchase 2,127 shares of common stock of Scorpion.

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Accounting for Stock-Based Compensation:

Stock Compensation Expense - For the three months ended March 31, 2022, the Company recorded $0.9 million of stock-based compensation expense. For the three months ended March 31, 2021, the Company recorded $2.9 million of stock-based compensation expense. No compensation expense for employees with stock awards was capitalized during the three months ended March 31, 2022 and 2021.

Stock Options - Under the Plans, the Company has issued stock options. A stock option grant gives the holder the right, but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time. The Company typically issues options that vest over four years in equal installments beginning on the first anniversary of the date of grant. Under the terms of the Plan, the contractual life of the option grants may not exceed ten years. During the three months ended March 31, 2022 and 2021, the Company issued options that expire ten years from the date of grant.

Fair Value Determination – The Company has used the Black-Scholes option pricing model to determine the fair value of our stock option awards on the date of grant. The Company will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.

The following weighted-average assumptions were used for option grants during the three months ended March 31, 2022 and 2021:

Volatility The Company used an average historical stock price volatility from its own data plus an analysis of reported data for a peer group of comparable companies that have issued stock options with substantially similar terms.

Expected life of optionsThe expected term represents the period that the Company’s stock option grants are expected to be outstanding. The Company elected to utilize the “simplified” method to estimate the expected term. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

Risk-free interest rateThe rate is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options.

Dividend yieldThe expected dividend yield was considered to be 0% since the Company has not paid any dividends and has no plan to do so in the future.

ForfeituresAs required by ASC 718, Compensation—Stock Compensation, the Company reviews recent forfeitures and stock compensation expense. The Company accounts for forfeitures as they occur.

The following table summarizes weighted-average assumptions used in our calculations of fair value for the three months ended March 31, 2022 and 2021:

    

2022

2021

Dividend yield

 

%  

%

Expected volatility

 

103.82

%  

101.43

%

Risk-free interest rate

 

1.95

%  

0.43

%

Expected lives (years)

 

6.1

years

5.5

years

Stock Option Activity - The weighted-average fair value of options granted during the three months ended March 31, 2022 and 2021, as determined under the Black-Scholes valuation model, was $2.32 and $4.36 per share, respectively.

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The following is a summary of the stock option activity for the three months ended March 31, 2022:

    

    

Weighted

 

 

Weighted

Average

 

Aggregate

 

Average

Exercise

 

Intrinsic

 

Remaining

Shares

Price

 

Value

 

Contractual Life

Stock options outstanding at December 31, 2021

2,954,315

$

7.62

$

101,306

Granted

 

78,250

$

2.86

 

Expired

 

(542)

$

60.90

 

Forfeited

 

(28,109)

$

4.91

 

Stock options outstanding at March 31, 2022

 

3,003,914

$

7.52

$

116,956

8.7

Years

Stock options exercisable at March 31, 2022

1,356,824

$

11.10

$

62,432

8.0

Years

Unrecognized compensation expense related to unvested stock options was $5.2 million as of March 31, 2022, which is expected to be recognized over a weighted-average period of 1.5 years and will be adjusted for forfeitures as they occur.

Restricted Stock - Under the Plan, the Company has issued restricted stock. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. The grant date fair value of the restricted stock is equal to the closing market price of our common stock on the date of grant.

The following is a summary of restricted stock award activity for the three months ended March 31, 2022:

Weighted

Average

Shares

Fair Value

Restricted stock at December 31, 2021

370,170

$

4.71

Granted

Vested

(323,311)

$

4.92

Cancelled

Restricted stock at March 31, 2022

46,859

$

3.28

Restricted Stock Units - Under the Plan, the Company previously issued time-based Restricted Stock Units (“RSUs”). RSUs are not actual shares, but rather a right to receive shares in the future. The shares are not issued and the employee cannot sell or transfer shares prior to vesting and has no voting rights until the RSUs vest. The employees' time-based RSUs vest 25% on the award date and 25% each anniversary thereafter. The grant date fair value of the RSUs is equal to the closing market price of our common stock on the grant date. The Company recognizes the grant date fair value of RSUs of shares the Company expects to issue as compensation expense ratably over the requisite service period. No RSUs are outstanding as of March 31, 2022 and December 31, 2021.

10. Grant Revenue

In June 2016, Pelican entered into a cancer research grant contract (or “Grant Contract”) with CPRIT, under which CPRIT awarded a grant not to exceed $15.2 million for use in developing cancer treatments by targeting a novel T-cell costimulatory receptor (namely, TNFRSF25). The Grant Contract covers a period from June 1, 2016 through November 30, 2020, as amended through May 31, 2022. 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 a third tranche of funding of $5.4 million was received in December 2019. The remaining $1.5 million will be awarded on a reimbursement basis after the Company has fulfilled every requirement of the grant and the grant has been approved to be finalized. As of March 31, 2022, all $15.2 million has been recognized to date.

The grant is subject to customary CPRIT funding conditions including a matching funds requirement where Pelican will match $0.50 for every $1.00 from CPRIT. Consequently, Pelican was required to provide $7.6 million in matching funds over the life of the project. Upon commercialization of the product, the terms of the grant require Pelican to pay tiered

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royalties in the low to mid-single digit percentages. Such royalties reduce to less than one percent after a mid-single-digit multiple of the grant funds have been paid to CPRIT in royalties.

On January 7, 2020, the Company was awarded a grant of up to $224,713 from the NIH. The NIH grant provides funding for continued development of the Company’s technologies for PTX-35. The grant funds will be made available by the NIH to the Company as allowable expenses are incurred.

Through March 31, 2022, $15.2 million of grant funding has been recognized as revenue. As of March 31, 2022 and December 31, 2021, we had a grant receivable balance of $1.5 million and $1.3 million, respectively, for CPRIT proceeds not yet received but for which the costs had been incurred or the conditions of the award has been met.  At the conclusion of the grant, the Company will be subject to an audit by CPRIT before the final grant payment can be approved and distributed.  The Company believes this will not be finalized until 2023.

11. Net Loss Per Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the periods. Fully diluted net loss per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options, warrants, and unvested restricted stock that are computed using the treasury stock method.

For the quarters ended March 31, 2022 and 2021, all of the Company’s common stock options, unvested restricted stock units and warrants are anti-dilutive and therefore have been excluded from the diluted calculation.

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The following table reconciles net loss to net loss attributable to NightHawk Biosciences, Inc.:

For the Three Months Ended

March 31, 

    

2022

    

2021

Net loss

$

(8,189,798)

$

(7,623,140)

Net loss - Non-controlling interest

 

(69,211)

 

(90,962)

Net loss attributable to Heat Biologics, Inc.

$

(8,120,587)

$

(7,532,178)

Weighted-average common shares outstanding, basic and diluted

 

25,593,948