Discontinued Operations

12 Months Ended

Dec. 31, 2024

Discontinued Operations

Discontinued Operations

2.        Discontinued Operations

On December 27, 2023, the Company completed the sale of all of its assets and equity interest in Elusys Therapeutics, Inc. (“Elusys Therapeutics”) to Elusys Holdings, a company controlled by the Company’s Chairman, Chief Executive Officer, and President, Jeffrey Wolf for approximately $2.5 million before working capital, escrow adjustments and transaction expenses. Total consideration included $0.5 million of cash received at closing, $0.3 million related to consideration from a one-year convertible note, and fair value of $1.7 million in future payments from Elusys Holdings upon the achievement by Elusys Therapeutics of certain financial goals. The gain on the transaction was approximately $1.5 million.

The Company has separately reported the financial results of Elusys Therapeutics as discontinued operations in its consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

The results of operations from discontinued operations for the year ended December 31, 2023 have been reflected in the consolidated statement of operations and consist of the following:

	2023
Revenue	$	6,699,200
Operating expenses:
Cost of revenues		2,163,723
Research and development		2,549,959
Selling, general and administrative		1,346,565
Amortization of intangible assets		1,091,250
Change in fair value of contingent consideration
Goodwill impairment loss		3,873,079
Intangible asset impairment loss		2,277,921
Change in fair value of contingent consideration		(107,355)
Total operating expenses		13,195,142
Loss from operations		(6,495,942)
Gain on sale of discontinued operations		1,467,451
Interest income		55,991
Other expense, net		(33,018)
Total non-operating gain		1,490,424
Net loss from discontinued operations before income taxes		(5,005,518)
Income tax expense		(65,189)
Net loss from discontinued operations	$	(5,070,707)

The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. Total operating, investing and financing cash flows of discontinued operations for the year ended December 31, 2023 are comprised of the following:

	2023
Total net cash used in operating activities from discontinued operations	$	(5,032,271)
Total net cash provided by investing activities from discontinued operations	$	41,854

Derecognition and Gain from Disposal of Discontinued Operations

As a result of the Divestiture Agreement entered into with Elusys Holdings, the Company ceased to have a financial interest in Elusys Therapeutics as of December 27, 2023. Because the Company was selling all of its equity interest in Elusys Therapeutics, a wholly owned subsidiary that met the definition of a business, the Company applied the deconsolidation guidance under Accounting Standards Codification (“ASC”) Subtopic 810-10-40 Consolidation – Derecognition. The derecognition of Elusys Therapeutics required the recognition of a gain or loss measured as the difference of fair value of consideration received less the Company’s carrying value of Elusys Therapeutics.

Pursuant to the Divestiture Agreement, Elusys Holdings paid the Company $500,000 on December 11, 2023. Elusys Holdings was further obligated to remit on an annual basis a royalty fee equal to 3% of gross revenue received by Elusys Holdings or any of its affiliates or their respective successors or licensees from all sales of the anthrax antitoxin known as ANTHIM® during the period commencing on January 1, 2024 and ending on June 30, 2031; provided that, if as of December 31, 2028, the Company has not received an aggregate of $5,000,000 in such royalty fees, Elusys Holdings would have been obligated to pay to the Company  no later than March 1, 2029 a cash payment equal to the difference between the aggregate amount of such royalty fees received by the Company and $5,000,000. As further described in Note

3, recognized amounts related to these royalty fees were presented in the consolidated balance sheets as contingent earn-out receivable, related party at December 31, 2023, and were reclassified to related party receivable during 2024.

Pursuant to the Agreement, at the December 27, 2023 closing of the Divestiture Transaction (the “Divestiture Closing”), Elusys Holdings assumed certain specified liabilities and manufacturing commitments relating to Elusys Therapeutics’ business, which at the time of the Divestiture were estimated at $51.4 million. The assumed liabilities and manufacturing commitments include all amounts owed to the former owners of Elusys Therapeutics under that certain Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among us, Heat Acquisition Sub 1, Inc., Elusys Therapeutics and Fortis Advisors LLC, in its capacity as “Stockholders’ Representative,” which provides that the Company will remain liable if Elusys Holdings fails to satisfy its obligations to pay merger consideration under the Merger Agreement. As of December 31, 2024, all merger consideration payments have been made.

Also in connection with the transaction, the Company entered into a Shared Services Agreement with Elusys Holdings setting forth the terms that certain services or functions that the Company had historically provided to Elusys Therapeutics would continue to be provided on a transitional basis. Shared services will include various administrative, accounting, billing, cash management and banking and budgeting services and other support services. The fee for services performed by the Company’s employees is based upon an allocation of time spent providing such services applied to their base salary. Third party costs, if any, are passed through to Elusys Holdings without mark-up. Elusys Holdings is also responsible for general and administrative expenses incurred by the Company attributable to operations of both Elusys Holdings and the Company. Shared service fees were $191,586 and $-0- for the years ended December 31, 2024 and 2023, respectively, and have been reflected as reductions to the corresponding amounts in the consolidated statements of operations and comprehensive loss. As of December 31, 2024, all shared service fees have been received.

The fair value of consideration received is shown in the following table:

	2023
Upfront cash consideration	$	500,000
Estimated fair value of 3% ANTHIM earnout		1,720,000
Estimated fair value of contingent consideration receivable, related party		268,000
Total fair value of contingent consideration receivable, related party		1,988,000
Total fair value of consideration received	$	2,488,000

See Note 5 for additional information on fair value assumptions. The book value of the assets and liabilities derecognized on December 27, 2023 in connection with the sale were as follows:

	2023
Cash	$	252,423
Prepaid expenses and deposits		30,228
Intangibles and other long-term assets		6,728,109
Accounts payable		(197,082)
Accrued expenses and other liabilities		(1,183,129)
Contingent royalty earnout liability		(4,610,000)
Net book value of assets and liabilities sold	$	1,020,549

After recording the fair value of consideration and derecognition of assets and liabilities, the Company recorded a gain from disposal of discontinued operations in the amount of $1,467,451 as follows:

	2023
Total fair value of consideration received and receivable	$	2,488,000
Less: net book value of assets and liabilities sold		(1,020,549)
Gain from disposal of discontinued operations	$	1,467,451