OVERVIEW

Scorpius Holdings provides services to help other companies manufacture biological products like cell and gene therapies. It started operating a new manufacturing facility in San Antonio in September 2022 to offer these services. The company plans to finance the facility’s operations in several ways, including cash on hand, grants, selling more stock shares, partnerships, and revenue from manufacturing services.

Scorpius wants the facility to use American-made equipment and supplies as much as possible. It believes this will help it compete for U.S. government contracts related to biodefense. The company hopes the facility will help it expand in the contract manufacturing market.

Recent Developments

In May 2024, Scorpius raised around $6 million by selling stock and warrants to investors. It used part of the money to repay a $750,000 loan from its CEO.

The CEO loaned Scorpius the money in May 2024. In exchange, the terms of a previous $2.25 million loan he provided were updated.

In March 2024, Scorpius raised $1.235 million by selling 10 million shares of stock to investors.

In January 2024, Scorpius sold some unused patent rights related to cancer therapies for $1 million.

Also in January 2024, the CEO purchased a $2.25 million convertible note from Scorpius that allows him to convert the loan amount into shares of Scorpius stock.

Key Accounting Policies

Scorpius recognizes revenue over time as it completes contracted work for customers. It tracks progress by measuring costs incurred compared to total expected costs for each contract.

Prices for Scorpius’ services reflect management’s best estimate of the value provided to customers. For contracts with multiple parts, prices are allocated to each part based on estimated standalone selling prices.

Scorpius only includes amounts of variable revenue in recognized revenue if it’s unlikely there will be significant reversals when uncertainties are resolved.

No significant changes were made to other accounting policies.

Financial Results

Quarter Ended March 31, 2024 vs. March 31, 2023

Category	March 31, 2024	March 31, 2023	Change
Revenue	$3.5 million	$0.8 million	+$2.7 million
Cost of Revenue	$0.9 million	$0.6 million	+$0.3 million
R&D Expense	$3.9 million	$6.3 million	-$2.4 million
SG&A Expense	$5.0 million	$6.5 million	-$1.5 million
Change in Fair Value of Contingent Earn-Out Receivable	$1.0 million	$0	+$1.0 million
Total Non-Operating Income	$0.7 million	$0.1 million	+$0.6 million

• Revenue increased due to expanded manufacturing services and completed contract milestones.
  
• Higher revenue led to increased cost of revenue.
• R&D expense decreased primarily due to ending PTX-35 clinical trial and lower staff and facility costs.
• SG&A expense decreased mainly because of lower marketing, consulting, and stock compensation costs.
• Positive change in earn-out receivable reflects higher expected value of future Elusys payments.
• Non-operating income increased primarily due to one-time sale of intellectual property license.

Liquidity and Capital Resources

Scorpius has incurred significant losses and negative cash flow since it was founded. It has financed operations mostly by selling stock and warrants to investors.

The company will need substantial additional funding to support manufacturing facility operations and commercialization expenses. It only had around $1.7 million of cash and investments as of March 31, 2024, not including $5.3 million of net proceeds from the May 2024 stock offering.

Management has said there is doubt whether Scorpius can continue operating beyond December 2024 without raising more money or finding a strategic partner. It may be forced to delay, reduce, or terminate some or all operations if it does not obtain additional financing or engage a strategic partner in the next few months.

Scorpius’ future cash needs depend on many uncertain factors, including:

• Progress of R&D activities
• Attracting and retaining manufacturing customers
• Completing projects on time and on budget
• Number and scope of R&D programs
• Expansion plans and costs

If Scorpius raises more money by issuing stock, existing shareholder ownership will be diluted.

Cash Flows

• Cash used in operating activities decreased by $9.1 million compared to the first quarter of 2023, primarily due to lower net loss and changes in working capital accounts.
• Cash provided by investing activities decreased by $10.7 million compared to the first quarter of 2023, mainly because of lower proceeds from investment sales.
• Cash provided by financing activities increased by $3.6 million over the first quarter of 2023, largely due to proceeds from a stock offering and convertible debt issuance.

Outlook

Scorpius will need to obtain substantial additional funding to support its manufacturing facility operations and commercialization expenses. If it cannot raise new capital or find a strategic partner, the company may be forced to delay, reduce, or terminate some or all of its operations.

Management has said there is doubt about Scorpius’ ability to continue operating as a going concern within one year unless it can secure additional financing or engage a strategic partner.