Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2022, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles (“GAAP”), and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making the assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013) .
Based on our assessment, our management has concluded that, as of December 31, 2022, our internal controls over financial reporting were effective based upon those criteria.
76
Table of Contents
Changes in Internal Controls over Financial Reporting.
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevents Inspections.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statements.
The following financial statements are filed as part of this Form 10-K:
Report of Independent Registered Public Accounting Firm ( KPMG LLP , New York, NY ; PCAOB ID: 185 )
F-2
Financial Statements:
Balance Sheets as of December 31, 2022 and 2021
F-4
Statements of Operations for the Years Ended December 31, 2022 and 2021
F-5
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
F-6
Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
F-7
Notes to Financial Statements
F-8 - F-28
77
Table of Contents
(b) Exhibits.
Exhibit No.
Description
3.1
Amended and Restated Certificate of Incorporation of Mustang Bio, Inc. (formerly Mustang Therapeutics, Inc.), dated July 26, 2016 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
3.2
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated June 14, 2018 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-38191) filed with the SEC on June 14, 2018).
3.3
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated September 30, 2019 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on September 30, 2019).
3.4
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated December 4, 2020 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on December 4, 2020).
3.5
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated June 17,
2021 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on June 22, 2021).
3.6
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated July 5, 2022 (incorporated by reference to the Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on July 5, 2022).
3.7
Bylaws of Mustang Bio, Inc. (incorporated by reference to the Exhibit 3.2 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
4.1
Specimen certificates evidencing shares of common stock, Class A common stock and Class A preferred stock (incorporated by reference to the Exhibit 4.1 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
4.2
Form of warrant agreement (incorporated by reference to the Exhibit 4.2 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
4.3
Description of Securities of Mustang Bio, Inc. **
10.1
Second Amended and Restated Founders Agreement between Fortress Biotech, Inc. and Mustang Bio, Inc., dated July 26, 2016 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.2
Management Services Agreement between Fortress Biotech, Inc. and Mustang Bio, Inc., dated March 13, 2015 (incorporated by reference to the Exhibit 10.2 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.3
Future Advance Promissory Note to Fortress Biotech, Inc., dated May 5, 2016 (incorporated by reference to the Exhibit 10.3 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.4
Promissory Note to NSC Biotech Venture Fund I, LLC, dated July 5, 2016 (incorporated by reference to the Exhibit 10.4 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
78
Table of Contents
Exhibit No.
Description
10.5
Common Stock Warrant issued by Mustang Bio, Inc. to NSC Biotech Venture Fund I, LLC, dated July 5, 2016 (incorporated by reference to the Exhibit 10.5 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.6
License Agreement by and between Mustang Bio, Inc. and City of Hope, dated March 17, 2015 (incorporated by reference to the Exhibit 10.6 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016). #
10.7
Sponsored Research Agreement by and between Mustang Bio, Inc. and City of Hope, dated March 17, 2015 (incorporated by reference to the Exhibit 10.7 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.8
Mustang Bio, Inc. 2016 Incentive Plan (incorporated by reference to the Exhibit 10.8 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016). †
10.9
Mustang Bio, Inc. Non-Employee Directors Compensation Plan (incorporated by reference to the Exhibit 10.9 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016). †
10.10
Agreement by and between Mustang Bio, Inc. and Chord Advisors, LLC, dated April 8, 2016 (incorporated by reference to the Exhibit 10.10 of the Registrant’s Form 10-12G (file No. 000-55668) filed with the SEC on July 28, 2016).
10.11
Board Advisory Services Agreement by and between Mustang Bio, Inc. and Caribe BioAdvisors, LLC, dated January 1, 2017 (incorporated by reference to the Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K (file No. 000-55668) filed with the SEC on March 31, 2017).
10.12
Exclusive License Agreement by and between Mustang Bio, Inc. and The Regents of the University of California, dated March 17, 2017 (incorporated by reference to the Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q (file No. 000-55668) filed with the SEC on August 14, 2017). #
10.13
Exclusive License Agreement (IV/ICV) by and between Mustang Bio, Inc. and City of Hope, dated February 17, 2017.
Filed as Exhibit 10.5 on the Company’s Form 10-Q filed on August 14, 2017 (incorporated by reference to the Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q (file No. 000-55668) filed with the SEC on August 14, 2017). #
10.14
Amended and Restated Exclusive License Agreement (CD123) by and between Mustang Bio, Inc. and City of Hope, dated February 17, 2017 (incorporated by reference to the Exhibit 10.14 of the Registrant’s Annual Report on Form 10-K (file No. 000-55668) filed with the SEC on March 31, 2017). #
10.15
Amended and Restated Exclusive License Agreement ( IL13R a 2 ) by and between Mustang Bio, Inc. and City of Hope, dated February 17, 2017 (incorporated by reference to the Exhibit 10.15 of the Registrant’s Annual Report on Form 10-K (file No. 000-55668) filed with the SEC on March 31, 2017). #
10.16
Amended and Restated Exclusive License Agreement (Spacer) by and between Mustang Bio, Inc. and City of Hope, dated February 17, 2017 (incorporated by reference to the Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K (file No. 000-55668) filed with the SEC on March 31, 2017). #
10.17
Employment Agreement between Manuel Litchman and Mustang Bio, Inc., effective as of April 24, 2017 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 000-55668) filed with the SEC on April 24, 2017). †
10.18
License Agreement (CSI) by and between Mustang Bio, Inc. and City of Hope, dated May 31, 2017 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q/A (file No. 001-38191) filed with the SEC on November 14, 2017). #
10.19
License Agreement (PSCA)by and between Mustang Bio, Inc. and City of Hope, dated May 31, 2017 (incorporated by reference to the Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q/A (file No. 001-38191) filed with the SEC on November 14, 2017). #
79
Table of Contents
Exhibit No.
Description
10.20
License Agreement (HER2) by and between Mustang Bio, Inc. and City of Hope, dated May 31, 2017 (incorporated by reference to the Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q/A (file No. 001-38191) filed with the SEC on November 14, 2017). #
10.21
Lease Agreement by and between Mustang Bio, Inc. and WCS - 377 Plantation Street, Inc., dated October 27, 2017 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-38191) filed with the SEC on November 14, 2017).
10.22
Sublease Agreement by and between Mustang Bio, Inc., and The Paul Reverse Life Insurance Company, dated June 14, 2022. **
10.23
First Amendment to Sublease Agreement by and between Mustang Bio, Inc. and The Paul Revere Life Insurance Company, dated October 25, 2022. **
10.24
Mustang Bio, Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to the Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-38191) filed with the SEC on August 9, 2019).†
10.25
Second Amendment to the Mustang Bio, Inc. 2016 Equity Incentive Plan, dated June 17, 2021 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on June 22, 2021). †
10.26
Third Amendment to Mustang Bio, Inc. 2016 Equity Incentive Plan, dated June 21,2022 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on June 24, 2022). †
10.27
Amendment to the Mustang Bio, Inc. 2019 Employee Stock Purchase Plan, dated June 17, 2021 (incorporated by reference to the Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on June 22, 2021). †
10.28
Warrant to Purchase Common Stock issued to Runway Growth Finance Corp., dated March 4, 2022 (incorporated by reference to the Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on March 8, 2022).
10.29
Loan and Security Agreement by and between Mustang Bio, Inc., the Borrower, the Lenders, and Runway Growth Finance Corp. (as agent), dated March 4, 2022 (incorporated by reference to the Exhibit 99.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on March 8, 2022).
10.30
First Amendment to Loan and Security Agreement by and between Mustang Bio, Inc., the Borrower, the Lenders and Runway Growth Finance Corp. (as agent), dated December 7, 2022 (incorporated by reference to the Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-38191) filed with the SEC on December 13, 2022).
16.1
Letter from BDO USA, LLP to the Securities and Exchange Commission dated September 22, 2021, incorporated by
reference to the Form 8-K filed on September 24, 2021. *
23.1
Consent of Independent Registered Public Accounting Firm, KPMG, LLP, Hartford, Connecticut.
24.1
Power of Attorney (included on signature page).
31.1
Certification of President and Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
80
Table of Contents
Exhibit No.
Description
32.1
Certification of President and Chief Executive Officer, pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Financial Officer, pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from Mustang Bio, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statement of Stockholders’ Equity, (iv) the Statements of Cash Flows, and (v) Notes to the Financial Statements (filed herewith).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)
# Confidential treatment has been granted with respect to omitted portions of this exhibit.
† Indicates management contract or compensatory plan or arrangement.
** Filed herewith.
Item 16. Form 10-K Summary.
None.
81
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (KPMG LLP, New York, NY; PCAOB ID: 185)
F-2
Balance Sheets as of December 31, 2022 and 2021
F-4
Statements of Operations for the Years Ended December 31, 2022 and 2021
F-5
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
F-6
Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
F-7
Notes to Financial Statements
F-8 – F-28
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Mustang Bio, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Mustang Bio, Inc. (the Company) as of December 31, 2022 and 2021, the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s expectation to generate operating losses and negative operating cash flows in the future, projections of future inability to meet certain financial debt covenants, and the need for additional funding to support its planned operations raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements and supplemental information do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2021.
Hartford, Connecticut
March 29, 2023
F-2
Table of Contents
MUSTANG BIO, INC.
BALANCE SHEETS
(in thousands, except for share and per share amounts)
December 31,
December 31,
2022
2021
ASSETS
Current Assets:
Cash and cash equivalents
$
75,656
$
109,618
Other receivables - related party
36
50
Prepaid expenses and other current assets
3,160
2,038
Total current assets
78,852
111,706
Property, plant and equipment, net
8,440
9,025
Fixed assets - construction in process
951
2,027
Restricted cash
1,000
1,000
Other assets
261
362
Operating lease right-of-use asset, net
2,918
1,050
Total Assets
$
92,422
$
125,170
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses
$
13,731
$
9,744
Payables and accrued expenses - related party
766
723
Operating lease liabilities - short-term
612
348
Total current liabilities
15,109
10,815
Deferred income
270
270
Note payable, long-term, net
27,436
—
Operating lease liabilities - long-term
3,334
1,685
Total Liabilities
46,149
12,770
Commitments and Contingencies (Note 7)
Stockholders’ Equity
Preferred stock ($ 0.0001 par value), 2,000,000 shares authorized, 250,000 shares of Class A preferred stock issued and outstanding as of December 31, 2022 and 2021, respectively
—
—
Common stock ($ 0.0001 par value), 200,000,000 and 150,000,000 shares authorized as of December 31, 2022 and 2021, respectively
Class A common shares, 845,385 shares issued and outstanding as of December 31, 2022 and 2021, respectively
—
—
Common shares, 106,501,663 and 93,582,991 shares issued and outstanding as of December 31, 2022 and 2021, respectively
11
9
Common stock issuable, 2,807,008 and 2,536,607 shares as of December 31, 2022 and 2021, respectively
1,109
4,329
Additional paid-in capital
374,522
359,906
Accumulated deficit
( 329,369 )
( 251,844 )
Total Stockholders’ Equity
46,273
112,400
Total Liabilities and Stockholders’ Equity
$
92,422
$
125,170
See accompanying notes to financial statements.
F-4
Table of Contents
MUSTANG BIO, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for share and per share amounts)
For the year ended December 31,
2022
2021
Operating expenses:
Research and development
$
62,475
$
49,864
Research and development – licenses acquired
1,474
5,842
General and administrative
12,210
11,017
Total operating expenses
76,159
66,723
Loss from operations
( 76,159 )
( 66,723 )
Other income (expense)
Grant income
1,304
—
Interest income
689
368
Interest expense
( 3,359 )
( 15 )
Total other income (expense)
( 1,366 )
353
Net Loss
$
( 77,525 )
$
( 66,370 )
Net loss per common share outstanding, basic and diluted
$
( 0.75 )
$
( 0.76 )
Weighted average number of common shares outstanding, basic and diluted
103,432,603
87,885,235
See accompanying notes to financial statements.
F-5
Table of Contents
MUSTANG BIO, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Common
Additional
Total
Class A Preferred Stock
Class A Common Shares
Common Shares
Stock
Paid-in
Accumulated
Stockholders’
Shares
Amount
Shares
Amount
Shares
Amount
Issuable
Capital
Deficit
Equity
Balances at December 31, 2020
250,000
$
—
845,385
$
—
70,920,693
$
7
$
7,939
$
275,963
$
( 185,474 )
$
98,435
Common stock issuable - Founders Agreement
—
—
—
—
—
—
4,212
—
—
4,212
Issuance of common shares - Founders Agreement
—
—
—
—
2,001,490
—
( 7,577 )
7,577
—
—
Issuance of common shares, net of offering costs - At-the-Market Offering
—
—
—
—
19,419,944
2
—
70,620
—
70,622
Issuance of common shares - Equity fee on At-the-Market Offering
—
—
—
—
576,157
—
( 245 )
2,129
—
1,884
Issuance of common shares under ESPP
—
—
—
—
114,321
—
—
309
—
309
Correction to previously issued shares
—
—
—
—
60,999
—
—
—
—
—
Stock-based compensation expenses
—
—
—
—
489,249
—
—
3,308
—
3,308
Exercise of warrants
—
—
—
—
138
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
—
( 66,370 )
( 66,370 )
Balances at December 31, 2021
250,000
$
—
845,385
$
—
93,582,991
$
9
$
4,329
$
359,906
$
( 251,844 )
$
112,400
Common stock issuable - Founders Agreement
—
—
—
—
—
—
1,109
—
—
1,109
Issuance of common shares - Founders Agreement
—
—
—
—
2,536,607
—
( 4,212 )
4,212
—
—
Issuance of common shares, net of offering costs - At-the-Market Offering
—
—
—
—
7,878,095
2
—
6,498
—
6,500
Issuance of common shares - Equity fee on At-the-Market Offering
—
—
—
—
248,247
—
( 117 )
283
—
166
Issuance of common shares under ESPP
—
—
—
—
330,833
—
—
206
—
206
Issuance of common shares - Equity fee on RWG Debt
—
—
—
—
954,927
—
—
750
—
750
Issuance of warrants for RWG Debt
—
—
—
—
—
—
—
384
—
384
Stock-based compensation expenses
—
—
—
—
969,963
—
—
2,283
—
2,283
Net loss
—
—
—
—
—
—
—
—
( 77,525 )
( 77,525 )
Balances at December 31, 2022
250,000
$
—
845,385
$
—
106,501,663
$
11
$
1,109
$
374,522
$
( 329,369 )
$
46,273
See accompanying notes to financial statements.
F-6
Table of Contents
MUSTANG BIO, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended December 31,
2022
2021
Cash Flows from Operating Activities:
Net loss
$
( 77,525 )
$
( 66,370 )
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common shares - Equity fee on At-the-Market Offering to Fortress
166
1,884
Common shares issuable for Founders Agreement
1,109
4,212
Research and development - licenses acquired
365
1,630
Issuance of common shares - Equity fee to Fortress on note payable
750
—
Stock-based compensation expenses
2,283
3,308
Depreciation expense
2,723
2,167
Amortization of debt discount
470
—
Amortization of operating lease right-of-use assets
308
139
Loss on disposal of property and equipment
255
—
Changes in operating assets and liabilities:
Prepaid expenses and other assets
( 1,021 )
( 401 )
Other receivables - related party
14
( 35 )
Accounts payable and accrued expenses
5,257
( 408 )
Payable and accrued expenses - related party
43
233
Deferred income
—
270
Lease liabilities
( 263 )
( 296 )
Net cash used in operating activities
( 65,066 )
( 53,667 )
Cash Flows from Investing Activities:
Purchase of research and development licenses
( 365 )
( 1,380 )
Proceeds from the sale of fixed assets
127
—
Purchase of fixed assets
( 2,714 )
( 3,986 )
Net cash used in investing activities
( 2,952 )
( 5,366 )
Cash Flows from Financing Activities:
Proceeds from issuance of common shares - At-the-Market Offering
6,623
71,919
Offering costs for the issuance of common shares - At-the-Market Offering
( 123 )
( 1,381 )
Proceeds from debt issuance
30,000
—
Fees paid on the issuance of debt
( 2,650 )
—
Proceeds from issuance of common shares under ESPP
206
309
Net cash provided by financing activities
34,056
70,847
Net change in cash, cash equivalents and restricted cash
( 33,962 )
11,814
Cash, cash equivalents and restricted cash, beginning of the period
110,618
98,804
Cash, cash equivalents and restricted cash, end of the period
$
76,656
$
110,618
Supplemental disclosure of cash flow information:
Cash paid for interest
$
2,710
$
—
Supplemental disclosure of noncash activities:
Fixed assets (acquired but not paid)
$
—
$
1,270
Issuance of common shares - Founders Agreement
$
4,212
$
7,577
Research and development licenses included in accounts payable and accrued expenses
$
—
$
250
Note payable final payment fee (incurred but not paid)
$
1,050
$
—
Issuance of warrants - note payable
$
384
$
—
Lease liabilities arising from obtaining right-of-use assets
$
2,176
$
101
See accompanying notes to financial statements.
F-7
Table of Contents
Notes to Financial Statements
Note 1 - Organization and Description of Business
Mustang Bio, Inc. (the “Company” or “Mustang”) was incorporated in Delaware on March 13, 2015. Mustang is as a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapy into potential cures for hematologic cancers, solid tumors and rare genetic diseases. The Company may acquire rights to these technologies by licensing the rights or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.
The Company is a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).
Liquidity and Capital Resources
The Company has incurred substantial operating losses and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2022, the Company had an accumulated deficit of $ 329.4 million.
The Company has funded its operations to date primarily through the sale of equity and via debt raises, including its loan and financing agreement with Runaway Growth Finance Corporation (the "Lender"), herein referred to as the "Term Loan." The Company expects to continue to use the proceeds from previous financing transactions primarily for general corporate purposes, including financing the Company’s growth, developing new or existing product candidates, and funding capital expenditures, acquisitions and investments.
The Company will be required to expend significant funds in order to advance the development of its product candidates. The Company will require additional financings through equity and debt offerings, collaborations and licensing arrangements or other sources to fully develop, prepare regulatory filings, obtain regulatory approvals and commercialize its existing and any new product candidates. The continuation of our business as a going concern is dependent upon raising additional capital and eventually attaining and maintaining profitable operations.
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. In performing its evaluation, management excluded certain elements of its operating plan that cannot be considered probable. Under ASC 205-40, the future receipt of potential funding from future equity or debt issuances, and the potential sale of priority review vouchers cannot be considered probable at this time because these plans are not entirely within the Company’s control nor have been approved by the Board of Directors as of the date of these financial statements.
The Company's expectation to generate operating losses and negative operating cash flows in the future, as well as projections of future inability to meet certain financial debt covenants, and the need for additional funding to support its planned operations raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date that these consolidated financial statements are issued. The Company continues to monitor its spending by reducing 2023 expenses, which may include projected savings through delaying the development timelines of certain programs, or termination of such programs and the pursuit of additional cash resources through public or private equity or debt financings. The Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.
F-8
Table of Contents
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.
Note 2 - Significant Accounting Policies
Basis of Presentation
The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company has no subsidiaries.
All inter-company transactions between Fortress and Mustang are classified as due from or due to related party in the financial statements. The Company believes that the assumptions underlying the financial statements are reasonable.
Segments
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at December 31, 2022 and 2021, consisted of cash and certificates of deposit in institutions in the United States. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are currently adequately protected against credit risk. At times, portions of the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation (FDIC) limits, though the Company customarily invests a significant portion of its cash in CDARS accounts to maximize FDIC insurance coverage across its holdings. As of December 31, 2022, the Company had not experienced losses on these accounts, and management believes the Company is not exposed to significant risk on such accounts.
Other Receivables – Related Party
Other receivables include amounts due to the Company from Fortress and Journey Medical Corporation, both related parties, and is recorded at the invoiced amount.
Restricted Cash
The Company records cash held in an escrow account as a security deposit for the manufacturing facility in Worcester, Massachusetts, as restricted cash. The Company had $ 1.0 million in restricted cash as of December 31, 2022 and 2021, respectively. The Facility initiated cell processing operations for personalized CAR T and gene therapies in 2018.
F-9
Table of Contents
Property, plant and equipment, net
Property and equipment, net, which consists mainly of laboratory equipment, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally five years , using the straight-line method.
Property and equipment - Construction in Process
In connection with the Company’s cell processing facility, the Company incurred costs for the design and construction of the facility and the purchase of equipment; $ 1.0 million and $ 2.0 million are recorded in fixed assets - construction in process on the balance sheet at December 31, 2022 and 2021, respectively. Upon completion of the facility’s construction, all costs associated with the buildout will be recorded as leasehold improvements and amortized over the shorter of the estimated useful lives or the term of the respective leases, upon the improvement being placed in service.
Research and Development Costs
Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved.
Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings, laboratory costs and other supplies.
In accordance with Accounting Standards Codification (“ASC”) 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price for the licenses acquired is reflected as research and development - licenses acquired in the Company’s Statements of Operations.
Annual Stock Dividend
In July 2016, in connection with the Amended and Restated Articles of Incorporation, the Company issued 250,000 Class A preferred shares to Fortress. The Class A preferred shares entitle the holder to a stock dividend equal to 2.5 % of the fully diluted outstanding equity of the Company (the “Annual Stock Dividend”). The Annual Stock Dividend was part of the consideration payable for formation of the Company and the identification of certain assets, including the license contributed to Mustang by Fortress (see Note 4).
In June 2018, in connection with the Amended and Restated Articles of Incorporation, the Company amended the Annual Stock Dividend due date from March 13th to January 1st.
Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 2,807,008 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5 % of the fully-diluted outstanding equity of Mustang on January 1, 2023. This was shown in the Statement of Stockholders’ Equity at December 31, 2022, as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $ 1.1 million in research and development - licenses acquired related to these issuable shares during the year ended December 31, 2022.
Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 2,536,607 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5 % of the fully-diluted outstanding equity of Mustang on January 1, 2022. This was shown in the Statement of Stockholders’ Equity at December 31, 2021, as Common stock issuable –
F-10
Table of Contents
Founders Agreement. The Company recorded an expense of approximately $ 4.2 million in research and development - licenses acquired related to these issuable shares during the year ended December 31, 2021.
Fair Value Measurement
The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring 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 fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Leases
Arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company's incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Stock-Based Compensation
The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates.
The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model or 409a valuations, as applicable. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if management believes it is more likely than not that the deferred tax assets
F-11
Table of Contents
will not be recovered based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.
Net Loss per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period less unvested restricted stock. Since dividends are declared, paid and set aside among the holders of shares of common stock and Class A common shares pro-rata on an as-if-converted basis, the two-class method of computing net loss per share is not required. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of warrants or outstanding Class A preferred shares, as their inclusion would be anti-dilutive.
The table below summarizes potentially dilutive securities that were not considered in the computation of diluted net loss per share because they would be anti-dilutive.
For the year ended December 31,
2022
2021
Warrants
1,052,920
3,308,654
Options
1,141,675
1,141,675
Class A Preferred Shares
250,000
250,000
Unvested restricted stock awards
510,245
280,983
Unvested restricted stock units
2,488,687
2,335,557
Total
5,443,527
7,316,869
Comprehensive Loss
The Company has no components of other comprehensive loss, and therefore, comprehensive loss equals net loss.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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,” which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption will be permitted. The Company is currently evaluating the impact of this standard on its financial statements.
In June 2016, FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” . ASU 2016-13 requires that expected credit losses relating to financial assets are measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements .
F-12
Table of Contents
Note 3 - License, Clinical Trial and Sponsored Research Agreements
Research and Development Expenses – All Licenses
For the years ended December 31, 2022 and 2021, the Company recorded the following expense in research and development for licenses acquired:
For the year ended December 31,
($ in thousands)
2022
2021
City of Hope National Medical Center
CD123
$
—
$
250
IV/ICV
125
—
PSCA
—
250
HER2
200
—
CSL Behring (Calimmune)
40
30
Leiden University Medical Centre
—
350
Mayo Clinic
—
750
Fortress PIK Dividend
1,109
4,212
Total
$
1,474
$
5,842
License Agreements
City of Hope
CD123 License (MB-102)
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with the City of Hope National Medical Center (“COH”) to acquire intellectual property rights pertaining to CD123 specific CAR T technology. Pursuant to this agreement, the Company and COH acknowledged that an upfront fee was previously paid. In addition, COH is eligible to receive an annual maintenance fee of $ 25,000 and milestone payments totaling $ 14.5 million upon the achievement of certain milestones. Royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2021, the Company recorded a non-refundable milestone payment of $ 0.3 million for the 24 th patient treated in connection with the CD123 study. There were no such expenses for the year ended December 31, 2022.
IV/ICV
In February 2017, the Company entered into an exclusive license agreement (the “IV/ICV License”) with COH to acquire intellectual property rights in patent applications related to the intraventricular and intracerebroventricular methods of delivering T cells that express CARs. Pursuant to the IV/ICV License, in March 2017, the Company paid COH an upfront fee of $ 0.1 million. COH is eligible to receive a milestone payment totaling approximately $ 0.1 million, upon and subject to the achievement of a milestone, and an annual maintenance fee of $ 25,000 . Royalty payments in the low single digits are due on net sales of licensed products. The Company is obligated to pay COH a percentage of certain revenues received in connection with a sublicense in the mid-thirties, but no such payments are due in connection with sublicenses that are granted in conjunction with the sublicense of other CAR T programs that are licensed from COH to the Company.
For the year ended December 31, 2022, the Company expensed a non-refundable milestone payment of $ 0.1 million in connection with the first patent within the Patent Rights issued. There were no such expenses for the year ended December 31, 2021.
F-13
Table of Contents
PSCA License (MB-105)
In May 2017, the Company entered into an exclusive license agreement with COH for the use of prostate stem cell antigen (“PSCA”) CAR T technology to be used in the treatment of prostate cancer, pancreatic cancer and other solid tumors. Pursuant to this agreement, the Company paid an upfront fee of $ 0.3 million and pays an annual maintenance fee of $ 50,000 . Additional payments are due for the achievement of ten development milestones totaling $ 14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2021, the Company expensed a non-refundable milestone payment of $ 0.3 million for the twelfth patient treated in the Phase 1 clinical study of MB-105 at COH. There were no such expenses for the year ended December 31, 2022.
HER2 License (MB-103)
On May 31, 2017, the Company entered into an exclusive license agreement with the COH for the use of human epidermal growth factor receptor 2 (“HER2”) CAR T technology, which will initially be applied in the treatment of glioblastoma multiforme. Pursuant to this agreement, the Company paid an upfront fee of $ 0.6 million and pays an annual maintenance fee of $ 50,000 (which began in 2019). Additional payments are due for the achievement of ten development milestones totaling $ 14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended, December 31, 2022, the Company expensed a non-refundable milestone payment of $ 0.2 million in connection with the first patent within the Patent Rights issued. There were no such expenses for the year ended December 31, 2021.
CSL Behring (Calimmune) License
On August 23, 2019, the Company entered into a non-exclusive license agreement with CSL Behring (Calimmune, Inc.) (“Calimmune License”) for the rights to the Cytegrity TM stable producer cell line for the production of viral vector for our lentiviral gene therapy program for the treatment of XSCID (MB-107 and MB-207). We previously licensed the XSCID gene therapy program from St. Jude Children’s Research Hospital, Inc. (“St. Jude”) in August 2018. Pursuant to the terms of the Calimmune License, the Company paid an upfront fee of $ 0.2 million. CSL Behring is eligible to receive additional payments totaling $ 1.2 million upon the achievement of three development and commercialization milestones. Royalty payments in the low-single digits are due on net sales of licensed products.
For the year ended December 31, 2022 and 2021, the Company expensed a non-refundable milestone payments of $ 40,000 and $ 30,000 , respectively, in connection with the Calimmune license.
LUMC License (MB-110)
On September 8, 2021, the Company entered into an exclusive, worldwide licensing agreement with LUMC for the use of a gene therapy under development for the treatment of severe immunodeficiency caused by RAG1 deficiency (the “LUMC License”). Pursuant to the LUMC License, the Company expensed an upfront fee of $ 0.4 million. Additional payments are due for the achievement of certain development milestones totaling up to $ 31 million and royalty payments in the low to mid-single digits as a percentage of revenue are due on net sales of licensed products.
For the year ended December 31, 2021, the Company expensed an upfront payment of $ 0.4 million in connection with the LUMC License. There were no such expenses for the year ended December 31, 2022.
Mayo Clinic - CAR T Technology License
On April 1, 2021, the Company entered into an exclusive license agreement with Mayo Clinic for a novel technology that may be able to transform the administration of CAR T therapies and has the potential to be used as an off-the shelf therapy. Pursuant to this agreement, the Company paid an upfront fee of $ 0.8 million and will pay an annual maintenance fee of $ 25,000 . Additional payments are due for each of two licensed products for the achievement of eleven development and
F-14
Table of Contents
commercial milestones totaling up to $ 92.6 million per product, and royalty payments in the mid-single digits as a percentage of revenue are due on net sales of licensed products.
For the year ended December 31, 2021, the Company expensed an upfront payment of $ 0.8 million pursuant to the terms of the license agreement. There were no such expenses for the year ended December 31, 2022.
Research and Development Expenses - Sponsored Research and Clinical Trial Agreements
For the year ended December 31, 2022 and 2021, the Company recorded the following expense in research and development for sponsored research and clinical trial agreements:
For the year ended December 31,
($ in thousands)
2022
2021
City of Hope National Medical Center
$
—
$
—
CD123
166
301
IL13Rα2
1,486
1,169
CS1
482
608
HER2
784
697
PSCA
103
107
Fred Hutchinson Cancer Center - CD20
1,987
1,979
St. Jude Children's Research Hospital - XSCID
508
865
LUMC - RAG1 SCID
505
170
Mayo Clinic
968
695
Total
$
6,989
$
6,591
City of Hope
CD123 (MB-102) Clinical Research Support Agreement
In February 2017, the Company entered into a Clinical Research Support Agreement for CD123 (the “CD123 CRA”). Pursuant to the terms of the CD123 CRA the Company made an upfront payment of $ 19,450 and will contribute an additional $ 0.1 million per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $ 0.2 million over three years pertaining to the clinical development of CD123. For the years ended December 31, 2022 and 2021, the Company recorded $ 0.2 million and $ 0.3 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
IL13Rα2 (MB-101) Clinical Research Support Agreements
In February 2017, the Company entered into a Clinical Research Support Agreement for IL13Rα2 (the “IL13Rα2 CRA”). Pursuant to the terms of the IL13Rα2 CRA the Company made an upfront payment of approximately $ 9,300 and will contribute an additional $ 0.1 million related to patient costs in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $ 0.2 million over three years pertaining to the clinical development of IL13Rα2. For the years ended December 31, 2022 and 2021, the Company recorded $ 1.5 million and $ 1.2 million, respectively, in research and development expenses under the IL13Rα2 CRA in the Statements of Operations pursuant to the terms of this agreement.
In October 2020, the Company entered into a Clinical Research Support Agreement for the IL13Rα2-directed CAR T program for adult patients with leptomeningeal glioblastoma, ependymoma or medulloblastoma (the “IL13Rα2 Leptomeningeal CRA”). Pursuant to the terms of the IL13Rα2 Leptomeningeal CRA, the Company made an upfront payment of approximately $ 29,000 and will contribute an additional $ 0.1 million per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $ 0.2 million annually pertaining to the clinical development of the IL13Rα2-directed CAR T therapy.
F-15
Table of Contents
In October 2020, the Company entered into a Sponsored Research Agreement (“SRA”) with COH to conduct combination studies of a potential IL13Rα2 CAR and C134 oncolytic virus therapy. Pursuant to the SRA, the Company funded research in the amount of $ 0.3 million for the program. In November 2022, the SRA was amended to include additional funding of $ 0.6 million.
In March 2021, the Company entered into a clinical research support agreement for an Institutional Review Board-approved, investigator-initiated protocol entitled: “Single Patient Treatment with Intraventricular Infusions of IL13Rα2-targeting and HER2-targeting CAR T cells for a Single Patient (UPN 181) with Recurrent Multifocal Malignant Glioma.” Pursuant to the terms of this agreement, the Company will contribute up to $ 0.2 million in connection with the ongoing investigator-initiated study.
CS1 (MB-104) Clinical Research Support Agreement
In June 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study to Evaluate Cellular Immunotherapy Using Memory-Enriched T Cells Lentivirally Transduced to Express a CS1-Targeting, Hinge-Optimized, 41BB-Costimulatory Chimeric Antigen Receptor and a Truncated EGFR Following Lymphodepleting Chemotherapy in Adult Patients with CS1+ Multiple Myeloma.” The CAR T being studied under this protocol has been designated as MB-104. Under the terms of the agreement the Company will reimburse COH for costs associated with this trial not to exceed $ 2.4 million. The agreement will expire upon the delivery of a final study report or earlier. For the years ended December 31, 2022 and 2021, the Company recorded $ 0.5 million and $ 0.6 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement. Since inception, the Company has reimbursed COH $ 1.8 million.
HER2 (MB-103) Clinical Research Support Agreement
In September 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study of Cellular Immunotherapy using Memory-Enriched T Cells Lentivirally Transduced to Express a HER2-Specific, Hinge-Optimized, 41BB-Costimulatory Chimeric Receptor and a Truncated CD19 for Patients with Recurrent/Refractory Malignant Glioma.” The CAR T being studied under this protocol has been designated as MB-103. Under the terms of the agreement the Company will pay COH $ 29,375 upon execution and will reimburse COH for costs associated with this trial not to exceed $ 3.0 million. The agreement will expire upon the delivery of a final study report or earlier. For the year ended December 31, 2022 and 2021, the Company recorded $ 0.8 million and $ 0.7 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement. Since inception, the Company has reimbursed $ 3.0 million.
PSCA (MB-105) Clinical Research Support Agreement
In October 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “A Phase 1b study to evaluate PSCA-specific chimeric antigen receptor (CAR)-T cells for patients with metastatic castration resistant prostate cancer.” The CAR T being studied under this protocol has been designated as MB-105. Under the terms of the agreement the Company will pay COH $ 33,000 upon execution and will reimburse COH for costs associated with this trial not to exceed $ 2.3 million. The agreement will expire upon the delivery of a final study report or earlier. For the years ended December 31, 2022 and 2021, the Company recorded $ 0.1 million and $ 0.1 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement. Since inception, the Company has reimbursed $ 0.4 million.
Fred Hutch
CD20 Clinical Trial Agreement
On July 3, 2017, in conjunction with the CD20 Technology License from Fred Hutch, we entered into an investigator-initiated clinical trial agreement (“CD20 CTA”) to provide partial funding for a Phase 1/2 clinical trial at Fred Hutch
F-16
Table of Contents
evaluating the safety and efficacy of the CD20 Technology in patients with relapsed or refractory B-cell non-Hodgkin lymphomas. In connection with the CD20 CTA, the Company agreed to fund up to $ 5.3 million of costs associated with the clinical trial, which commenced during the fourth quarter of 2017. In November 2020, the CD20 CTA was amended to include additional funding of approximately $ 1.8 million for the treatment of five patients with chronic lymphocytic leukemia and other research costs. In January 2022, the CD20 CTA was amended to include additional funding of $ 2.2 million increasing the total payment obligation of the Company in connection with the CD20 CTA not to exceed $ 9.3 million.
For the years ended December 31, 2022 and 2021, the Company recorded $ 2.0 million and $ 2.0 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement. Since inception, the Company has reimbursed Fred Hutch $ 7.2 million.
XSCID (MB-107) Data Transfer Agreement with St. Jude
In June 2020, the Company entered into a Data Transfer Agreement with St. Jude under which we will reimburse St. Jude for costs associated with St. Jude’s clinical trial for the treatment of infants with XSCID. Pursuant to the terms of this agreement the Company paid an upfront fee of $ 1.1 million in July 2020, and will continue to reimburse St. Jude for costs incurred in connection with this clinical trial. For the years ended December 31, 2022 and 2021, the Company recorded $ 0.5 million and $ 0.9 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement. Since inception, the Company has reimbursed St. Jude $ 3.0 million.
RAG1-SCID (MB-110) Sponsored Research Support Agreement with LUMC
On September 8, 2021, in connection with the LUMC License, the Company entered into an SRA with LUMC under which the Company will fund research in the amount of approximately $ 0.5 million annually over a period of 5 years . The research performed pursuant to this agreement will support technology the Company has licensed from LUMC for the use of a gene therapy under development for the treatment of severe immunodeficiency caused by RAG1. For the year ended December 31, 2022 and 2021, the Company recorded $ 0.5 million and $ 0.2 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
Sponsored Research Support Agreement with Mayo Clinic
In June 2021, the Company entered into an SRA with Mayo Clinic under which the Company will fund research in the amount of $ 2.1 million over a period of two years . The research performed pursuant to this agreement will support technology the Company has licensed from Mayo Clinic for a novel technology that may be able to transform the administration of CAR T therapies and has the potential to be used as an off-the-shelf therapy. In October 2022, the SRA was amended to include additional funding of approximately $ 0.1 million. For the year ended December 31, 2022 and 2021, the Company recorded $ 1.0 million and $ 0.7 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
Note 4 - Related Party Agreements
Founders Agreement and Management Services Agreement with Fortress
Effective March 13, 2015, the Company entered a Founders Agreement with Fortress, which was amended and restated on May 17, 2016, and again on July 26, 2016 (the “Mustang Founders Agreement”). The Mustang Founders Agreement provides that, in exchange for the time and capital expended in the formation of Mustang and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, Fortress loaned $ 2.0 million, representing the up-front fee required to acquire the Company’s license agreement with COH. The Mustang Founders Agreement has a term of 15 years , which upon expiration automatically renews for successive one-year periods unless terminated by Fortress and the Company or a Change in Control (as defined in the Mustang Founders Agreement) occurs. Concurrently with the second amendment on July 26, 2016, to the Mustang Founders Agreement, Fortress entered into an Exchange Agreement whereby Fortress exchanged its 7.25 million Class B Common shares for 7.0 million common shares and 250,000 Class A Preferred shares. Class A Preferred Stock is identical to common stock other than as to voting
F-17
Table of Contents
rights, conversion rights and the PIK Dividend right (as described below). Each share of Class A Preferred Stock is entitled to vote the number of votes that is equal to one and one-tenth ( 1.1 ) times a fraction, the numerator of which is the sum of (A) the shares of outstanding Mustang common stock and (B) the whole shares of Mustang common stock into which the shares of outstanding Class A Common Stock and Class A Preferred Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times constitute a voting majority. Each share of Class A Preferred Stock is convertible, at Fortress’ option, into one fully paid and nonassessable share of Mustang common stock, subject to certain adjustments. As holders of Class A Preferred Stock, Fortress will receive on each January 1 (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock is converted into common stock, pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent ( 2.5 %) of Mustang’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date.
As additional consideration under the Mustang Founders Agreement, Mustang will also: (i) pay an equity fee in shares of common stock, payable within five (5) business days of the closing of any equity or debt financing for Mustang that occurs after the effective date of the Mustang Founders Agreement and ending on the date when Fortress no longer has majority voting control in the Company’s voting equity, equal to two and one-half ( 2.5 %) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal to four and one-half percent ( 4.5 %) of the Company’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a Change in Control, the Company will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately preceding the change in control and (B) four and one-half percent ( 4.5 %) (see Note 9).
Effective as of March 13, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Fortress, pursuant to which Fortress renders advisory and consulting services to the Company. The MSA has an initial term of five years and is automatically renewed for successive five-year terms unless terminated in accordance with its provisions. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of the Company’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of the Company with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). The Company is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, the Company is not obligated to take or act upon any advice rendered from Fortress and Fortress shall not be liable for any of its actions or inactions based upon their advice. Pursuant to the MSA and the Company’s Certificate of Incorporation, Fortress and its affiliates, including all members of the Company’s Board of Directors, will have no fiduciary or other duty to communicate or present any corporate opportunities to the Company or to refrain from engaging in business that is similar to that of the Company. In consideration for the Services, the Company will pay Fortress an annual consulting fee of $ 0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $ 1.0 million for each calendar year in which the Company has net assets in excess of $ 100 million at the beginning of the calendar year. The Company records fifty percent of the Annual Consulting Fee in research and development expense and fifty percent in general and administrative expense in the Statement of Operations. For the years ended December 31, 2022 and 2021, the Company recorded expense of $ 1.0 million and $ 0.5 million, respectively, related to this agreement.
For the year ended December 31, 2022, the Company issued 196,952 shares of common stock and recorded zero shares issuable to Fortress, which equaled 2.5 % of the gross proceeds of $ 6.6 million from the sale of shares of common stock under Mustang’s At-the-Market Offering. The Company recorded an expense of approximately $ 0.2 million in general and administrative expenses related to these shares for the year ended December 31, 2022.
For the year ended December 31, 2021, the Company issued 576,157 shares of common stock and recorded 51,295 shares issuable to Fortress, which equaled 2.5 % of the gross proceeds of $ 71.9 million from the sale of shares of common stock under Mustang’s At-the-Market Offering. The Company recorded an expense of approximately $ 1.9 million in general and administrative expenses related to these shares for the year ended December 31, 2021.
F-18
Table of Contents
Payables and Accrued Expenses Related Party
In the normal course of business Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as Payables and accrued expenses - related party and are reimbursed to Fortress in the normal course of business.
Director Compensation
Dr. Rosenwald
Pursuant to the terms of the Director Compensation Plan, Dr. Rosenwald will receive a cash fee of $ 50,000 per year paid quarterly and an annual stock award of the greater of (i) a number of shares of common stock having a fair market value on the grant date of $ 50,000 or (ii) 10,000 shares of common stock, which shares shall vest and become non-forfeitable on the third anniversary of the grant date, subject to continued service on the Board on such date.
For the year ended December 31, 2022, the Company recognized $ 100,000 in expense in its Statements of Operations related to the director compensation, including approximately $ 50,000 in expense related to equity incentive grants. For the year ended December 31, 2021, the Company recognized $ 106,000 in expense in its Statements of Operations related to the director compensation, including approximately $ 56,000 in expense related to equity incentive grants. The Company issued Dr. Rosenwald 71,664 and 13,774 restricted stock awards for the years ended December 31, 2022 and 2021, respectively.
Mr. Weiss - Advisory Agreement with Caribe BioAdvisors, LLC
The Board of the Company by unanimous written consent approved and authorized the execution of an advisory agreement dated January 1, 2017 (the “Advisory Agreement”), with Caribe BioAdvisors, LLC (the “Advisor”), owned by Michael S. Weiss, the Chairman of the Board, to provide the board advisory services of Mr. Weiss as Chairman of the Board. Pursuant to the Advisory Agreement, the Advisor will be paid an annual cash fee of $ 60,000 , paid quarterly and an annual stock award of the greater of (i) a number of shares of common stock having a fair market value on the grant date of $ 50,000 or (ii) 10,000 shares of common stock, which shares shall vest and become non-forfeitable on the third anniversary of the grant date, subject to continued service on the Board on such date.
For the year ended December 31, 2022, the Company recognized $ 110,000 in expense in its Statements of Operations related to the advisory agreement, including approximately $ 50,000 in expense related to equity incentive grants. For the year ended December 31, 2021, the Company recognized $ 116,000 in expense in its Statements of Operations related to the advisory agreement, including approximately $ 56,000 in expense related to equity incentive grants. The Company issued Mr. Weiss 71,664 and 13,774 restricted stock awards for the years ended December 31, 2022 and 2021, respectively.
Note 5 - Property and Equipment
Mustang’s property and equipment consisted of the following:
Estimated Useful
December 31,
December 31,
($ in thousands)
Life (in years)
2022
2021
Computer equipment
3
$
145
$
145
Furniture and fixtures
5
370
370
Machinery and equipment
5
8,632
6,550
Leasehold improvements
9
7,694
7,694
Construction in process
N/A
951
2,027
Total property, plant and equipment
17,792
16,786
Less: accumulated depreciation
( 8,401 )
( 5,734 )
Property, plant and equipment, net
$
9,391
$
11,052
Mustang’s depreciation expense for the years ended December 2022 and 2021 was approximately $ 2.7 million and $ 2.2 million, respectively, and was recorded in research and development expense in the Statements of Operations.
F-19
Table of Contents
Note 6 - Accounts Payable and Accrued Expenses
At December 31, 2022 and 2021, accounts payable and accrued expenses consisted of the following:
December 31,
December 31,
($ in thousands)
2022
2021
Accounts payable
$
6,833
$
3,512
Research and development
2,782
3,083
Accrued compensation
3,468
2,595
Other
648
554
Total accounts payable and accrued expenses
$
13,731
$
9,744
Note 7 - Commitments and Contingencies
Leases
On June 14, 2022, the Company entered into a sublease agreement with The Paul Revere Life Insurance Company. Pursuant to the terms of the sublease lease agreement, the Company agreed to lease 26,503 square feet, located at 1 Mercantile Street, Worcester, MA (the “Mercantile Street Facility”), through January 2030. The Company recorded a right of use asset and related operating lease liability of $ 2.2 million on the Balance Sheet at the lease inception.
On October 27, 2017, the Company entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation. Pursuant to the terms of the lease agreement, the Company agreed to lease 27,043 square feet from the landlord, located at 377 Plantation Street in Worcester, MA (the “Plantation Street Facility”), through November 2026, subject to additional extensions at the Company’s option. Base rent, net of abatements of $ 0.6 million over the lease term, totals approximately $ 3.6 million, on a triple-net basis.
The terms of the lease also require that the Company post an initial security deposit of $ 0.8 million, in the form of $ 0.5 million letter of credit and $ 0.3 million in cash, which increased to $ 1.3 million ($ 1.0 million letter of credit, $ 0.3 million in cash) on November 1, 2019. After the fifth lease year, the letter of credit obligation is subject to reduction.
The Plantation Street Facility began operations for the production of personalized CAR T and gene therapies in 2018.
The Company leases office space and copiers under agreements classified as operating leases that expire on various dates through 2030. The Company’s lease liabilities result from the lease of its facilities in Massachusetts, which expire in 2030 and 2026, for the Mercantile Street Facility and Plantation Street Facility, respectively, and its copiers, which expire in 2024. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. The Company does not act as a lessor or have any leases classified as financing leases. At December 31, 2022, the Company had operating lease liabilities of $ 3.9 million and right of use assets of $ 2.9 million, which were included in the Balance Sheet. At December 31, 2021, the Company had operating lease liabilities of $ 2.0 million and right of use assets of $ 1.1 million, which were included in the Balance Sheet.
F-20
Table of Contents
The following summarizes quantitative information about the Company’s operating leases:
For the Year Ended
December 31,
December 31,
($ in thousands)
2022
2021
Lease cost
Operating lease cost
$
565
$
315
Variable lease cost
488
599
Total
$
1,053
$
914
For the Year Ended
December 31,
December 31,
($ in thousands)
2022
2021
Operating cash flows from operating leases
$
485
$
484
Weighted-average remaining lease term – operating leases
5.9
4.8
Weighted-average discount rate – operating leases
9.1
%
9.0
%
Maturities of our operating leases, excluding short-term leases, are as follows:
($ in thousands)
Year ended December 31, 2023
$
529
Year ended December 31, 2024
614
Year ended December 31, 2025
1,139
Year ended December 31, 2026
1,076
Year ended December 31, 2027
650
Thereafter
1,381
Total
5,389
Less present value discount
( 1,443 )
Operating lease liabilities
$
3,946
Note 8 – Notes Payable
On March 4, 2022 (the “Closing Date”), the Company entered into a $ 75.0 million long-term debt facility with Runway Growth Finance Corp. (the “Term Loan”). Under the Term Loan, $ 30.0 million of the $ 75.0 million loan was funded on the Closing Date, with the remaining $ 45.0 million fundable if the Company achieves certain predetermined milestones.
The Term Loan matures on April 15, 2027 (the “Maturity Date”). As of March 15, 2022, the Company began making monthly payments of interest only until April 1, 2024 (the “Amortization Date”). The Amortization Date may be extended to April 1, 2025, if the Company achieves certain predetermined milestones based on equity raises and the initiation of certain clinical trials. After that, the Company will make monthly payments of interest and principal. If the Amortization Date is extended to April 1, 2025, the monthly payments will be recalculated in equal amounts according to the remaining number of payment dates through the Maturity Date. All unpaid outstanding principal and accrued and unpaid interest will be due and payable in full on the Maturity Date.
The Term Loan accrues interest at a variable annual rate equal to 8.75 % plus the greater of (i) 0.50 % and (ii) the three month LIBOR Rate for U.S. dollar deposits or the rate otherwise reasonably determined by the Lender to be the rate at which U.S. dollar deposits with a term of three months would be offered by banks in London, England to major banks in the London or other offshore interbank market (the “Applicable Rate”); provided that the Applicable Rate will not be less than 9.25 %. The Applicable Rate at December 31, 2022 was 13.40 %. On December 7, 2022, the Company entered into the First Amendment (the “First Amendment”) to the Loan Agreement by and between the Company and Runway. The First Amendment amended certain definitions and other provisions of the Loan Agreement to replace LIBOR-based benchmark rates applicable to loans outstanding under the Loan Agreement with SOFR-based rates, subject to adjustments as specified in the First Amendment. For the year ended December 31, 2022, the Company made interest payments of
F-21
Table of Contents
$ 2.7 million, recorded in interest expense in the Statements of Operations. The Company had no interest expense related to debt in 2021.
Pursuant to the terms of the Term Loan on the Closing Date the Company paid the Lender upfront fees out of proceeds of $ 0.4 million consisting of a 1 % commitment fee and a deposit of $ 75,000 . In addition, the Company paid other cash fees directly to third parties comprising of an advisory fee and legal fees totaling $ 2.3 million.
Also, in connection with the Term Loan, on March 4, 2022, the Company issued a warrant to the Lender to purchase 748,036 shares of the Company’s common stock with an exercise price of $ 0.8021 (the “Warrant”) via a warrant agreement (the “Warrant Agreement”). The Warrant is exercisable for ten years from the date of issuance. The Lender may exercise the Warrant with cash or through a net issuance conversion. The shares of the Company’s common stock will be registered at the Company’s first opportunity after the date of the exercise of the Warrant. In addition, the provisions of the Warrant Agreement provide for additional warrants to be issued upon funding of the term loan tranches. The fair value of the warrant at the grant date was determined utilizing a Black Scholes Model with the following assumptions: risk free rate of return 1.74 %, volatility of 57.3 %, 10-year life yielding a value of approximately $ 0.4 million as of March 4, 2022. The fair value of the warrant was also recorded in debt discount and will be amortized over the life of the Term Loan.
December 31,
December 31,
($ in thousands)
2022
2021
Applicable Rate
Maturity
Note payable
$
31,050
$
—
13.40
%
April - 2027
Discount on note payable
( 3,614 )
—
Long-term note payable
$
27,436
$
—
Amortization of the debt discount associated with the Term Loan was approximately $ 0.5 million for the year ended December 31, 2022, respectively, and was recorded in interest expense in the Statements of Operations. The Company had no expense related to debt discount amortization in 2021.
The Company has the option to prepay all of the outstanding Term Loan but not less. Prepayment would include outstanding principal, accrued interest, prepayment fee and final payment which is equal to the original principal amount of the Term Loan times 3.5 % or $ 1.1 million and is accreted over the life of the Term Loan.
In addition, the Term Loan is secured by a lien on substantially all of our assets other than certain intellectual property assets and certain other excluded collateral, and it contains a minimum liquidity covenant and other covenants that include among other items: (i) limits on indebtedness, repurchase of stock from employees, officers and directors. The Company was in compliance with all applicable covenants as of December 31, 2022.
The Term Loan contains customary events of default, in certain circumstances subject to customary cure periods. Following an event of default and any cure period, if applicable, Runway will have the right upon notice to accelerate all amounts outstanding under the Term Loan, in addition to other remedies available to the lenders as secured creditors of the Company.
F-22
Table of Contents
Note 9 - Stockholders’ Equity
Common Stock
The Company, in accordance with its certificate of incorporation, as amended in November 2020 and June 2021, which was retroactively applied, and July 2022, is authorized to issue (i) 200,000,000 common shares with a par value of $ 0.0001 per share, of which 1,000,000 shares are designated as Class A Common Stock and the remainder are undesignated Common Stock, and (ii) 2,000,000 shares of Preferred Stock, 250,000 of which are designated as Class A Preferred Stock and the remainder are undesignated Preferred Stock (see below Stock Issuances to Fortress and Note 4).
In connection with the Company’s formation, Fortress subscribed for 7,000,000 shares of the Class B Common Stock and 2,000,000 shares of the Company’s Common Stock, pursuant to the Founders Agreement. Fortress paid the par value of $ 900 in 2016. The fair value of the Company’s common shares approximated par value as no licenses had been transferred at that time. Dividends, if and when declared, are to be distributed pro-rata to the Class A, B and Common Stockholders.
The holders of Common Stock are entitled to one vote per share of Common Stock held. The holders of Class A Common Stock are entitled to the number of votes equal to the number of whole shares of Common Stock into which the shares of Class A Common Stock held by such holder are convertible and for a period of ten years from its issuance, the holders of the Class A Common Stock have the right to appoint one member of the board of directors of Mustang; to date, the holders of Class A Common Stock have not yet appointed such director.
The Class B Common Stockholders are entitled, for each share of Class B Common Stock held, to a number of votes equal to 1.1 times a fraction, the numerator of which is the sum of (A) the shares of outstanding Common Stock and (B) the whole shares of Common Stock into which the shares of outstanding Class A Common Stock and the Class B Common Stock are convertible and the denominator of which is the number of shares of outstanding Class B common shares. There was no Class B Common Stock outstanding as of December 31, 2022.
On November 11, 2020, the Company’s Board adopted resolutions of the Board to ratify, approve and recommend stockholder approval of an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to revise Article IV, Section A thereof in order to effect an increase in the authorized number of shares of the Company’s common stock, par value $ 0.0001 , from 85,000,000 to 125,000,000 (the “Amendment”). On November 11, 2020, the Company received approval of the Amendment by written consent in lieu of a meeting from the holders of a majority of issued and outstanding shares of the Company’s common and preferred stock. The increase in authorized shares to 125,000,000 became effective on December 4, 2020.
On June 17, 2021, the stockholders of the Company voted at the 2021 Annual Meeting to approve an amendment to Mustang’s Amended and Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance by 25,000,000 shares, bringing the total number of authorized shares of common stock to 150,000,000 shares. The increase in authorized shares to 150,000,000 became effective on June 17, 2021.
On June 21, 2022, the stockholders of the Company voted at the 2022 Annual Meeting to approve an amendment to Mustang’s Amended and Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance by 50,000,000 shares, bringing the total number of authorized shares of common stock to 200,000,000 shares.
F-23
Table of Contents
At-the-Market Offering of Common Stock
In July 2018, the Company entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.), Cantor Fitzgerald & Co., National Securities Corporation, (now B. Riley FBR, Inc.), and Oppenheimer & Co. Inc. (each an “Agent” and collectively, the “Agents”), relating to the sale of shares of common stock pursuant to the 2020 S-3. Under the Mustang ATM, the Company pays the Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock. On December 31, 2020, the Mustang ATM was amended to add H.C. Wainwright & Co., LLC as an Agent.
During the year ended December 31, 2022, the Company issued approximately 7.9 million shares of common stock at an average price of $ 0.84 per share for gross proceeds of $ 6.6 million under the ATM Agreement. In connection with these sales, the Company paid aggregate fees of approximately $ 0.1 million for net proceeds of approximately $ 6.5 million.
During the year ended December 31, 2021, the Company issued approximately 19.4 million shares of common stock at an average price of $ 3.70 per share for gross proceeds of $ 71.9 million under the ATM Agreement. In connection with these sales, the Company paid aggregate fees of approximately $ 1.3 million for net proceeds of approximately $ 70.6 million.
Pursuant to the Founders Agreement, the Company issued 196,952 shares of common stock to Fortress at a weighted average price of $0.84 per share for the year ended December 31, 2022, and recorded zero shares issuable to Fortress in connection with the shares issued under the Mustang ATM. Pursuant to the Founders Agreement, Mustang issued 576,157 shares of common stock to Fortress at a weighted average price of $ 3.70 per share for the year ended December 31, 2021, in connection with the shares issued under the Mustang ATM.
Registration Statements
On October 23, 2020, the Company filed a shelf registration statement No. 333-249657 on Form S-3 (the “2020 S-3”), which was declared effective on December 4, 2020. Under the 2020 S-3, the Company may sell up to a total of $ 100.0 million of its securities. As of December 31, 2022, approximately $ 8.0 million of the 2020 S-3 remains available for sales of securities.
On April 23, 2021, the Company filed a shelf registration statement No. 333-255476 on Form S-3 (the “2021 S-3”), which was declared effective on May 24, 2021. Under the 2021 S-3, the Company may sell up to a total of $ 200.0 million of its securities. As of December 31, 2022, there have been no sales of securities under the 2021 S-3.
Stock Issuances to Fortress
Under the terms of the Second Amended and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock equal to two and one-half percent ( 2.5 %) of the gross amount of any equity or debt financing.
For the year ended December 31, 2022, the Company issued 196,952 shares of common stock, which equaled 2.5 % of the gross proceeds of $ 6.6 million from the sale of shares of common stock under Mustang’s At-the-Market Offering.
For the year ended December 31, 2021, the Company issued 576,157 shares of common stock and recorded 51,295 shares issuable to Fortress, which equaled 2.5 % of the gross proceeds of $ 71.9 million from the sale of shares of common stock under Mustang’s At-the-Market Offering.
Equity Incentive Plan
The Company has in effect the 2016 Incentive Plan (the “Incentive Plan”). The Incentive Plan was adopted in 2016 by our stockholders and the compensation committee of the Company’s board of directors and is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan initially authorized grants to issue up to 2,000,000 shares of authorized but unissued common stock and expires 10 years from adoption and limits the term of each option to no more than 10 years from the date of grant.
F-24
Table of Contents
In June 2018, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 5,000,000 shares. In June 2021, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 8,000,000 shares. In June 2022, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 11,000,000 shares As of December 31, 2022, 4,462,870 shares are available for issuance of stock-based awards under the Incentive Plan.
Stock Options
The following table summarizes stock option activities for the year ended December 31, 2022 and 2021:
Weighted Average
Remaining
Weighted Average
Contractual Life (in
Stock Options
Exercise Price
years)
Outstanding at December 31, 2020
1,141,675
$
5.73
6.31
Outstanding at December 31, 2021
1,141,675
$
5.73
5.31
Outstanding at December 31, 2022
1,141,675
5.73
4.31
Options vested and exercisable at December 31, 2022
713,547
$
5.73
4.31
As of December 31, 2022, the Company had no unrecognized stock-based compensation expense related to options. The Company accounts for forfeited awards as they occur as permitted.
Restricted Stock Awards
Certain employees and directors have been awarded restricted stock. The restricted stock vesting consists of milestone and time-based vesting. The following table summarizes restricted stock award activities for the year ended December 31, 2022 and 2021:
Weighted Average
Grant Date Fair
Number of Shares
Value
Nonvested at December 31, 2020
302,114
$
4.93
Granted
68,870
3.63
Vested
( 90,001 )
6.69
Nonvested at December 31, 2021
280,983
$
4.05
Granted
358,320
0.70
Vested
( 129,058 )
4.89
Nonvested at December 31, 2022
510,245
$
1.48
As of December 31, 2022, the Company had unrecognized stock-based compensation expense related to restricted stock of $ 0.4 million, which is expected to be recognized over a weighted average period of approximately 2.3 years.
F-25
Table of Contents
Restricted Stock Units
The following table summarizes restricted stock units’ activities for the year ended December 31, 2022 and 2020:
Weighted Average
Grant Date Fair
Number of Units
Value
Nonvested at December 31, 2020
1,468,559
$
3.87
Granted
1,660,250
3.07
Forfeited
( 372,873 )
3.60
Vested
( 420,379 )
4.27
Nonvested at December 31, 2021
2,335,557
$
3.27
Granted
1,484,647
0.76
Forfeited
( 514,999 )
2.53
Vested
( 816,518 )
2.98
Nonvested at December 31, 2022
2,488,687
$
1.84
As of December 31, 2022, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $ 2.0 million, which is expected to be recognized over a weighted average period of approximately 2.7 years.
The following table summarizes stock-based compensation expense for the years ended December 31, 2022 and 2021 (in thousands).
For the year ended December 31,
2022
2021
General and administrative
$
700
$
1,030
Research and development
1,583
2,278
Total stock-based compensation expense
$
2,283
$
3,308
Stock Warrants
In connection with the Company’s offering of shares of common stock in a private placement, each investor received a warrant equal to 25 % of the common shares purchased in connection with the offering. Further, National Securities Corporation received Placement Agent Warrants. In connection with the Term Loan on March 4, 2022, the Company issued a warrant to the Lender to purchase 748,036 shares of the Company's common stock with an exercise price of $ 0.8021 , see Note 8.
A summary of warrant activities for years ended December 31, 2022 and 2021, is presented below:
Weighted Average
Remaining
Weighted Average
Contractual Life (in
Warrants
Exercise Price
years)
Outstanding as of December 31, 2020
5,402,670
$
8.21
1.39
Expired
( 2,093,878 )
8.50
—
Cashless exercised
( 138 )
—
—
Outstanding as of December 31, 2021
3,308,654
$
8.02
0.73
Expired
( 3,003,770 )
8.50
—
Granted
748,036
0.80
9.18
Outstanding as of December 31, 2022
1,052,920
$
1.52
8.29
Upon the exercise of warrants, the Company will issue new shares of Common Stock.
F-26
Table of Contents
Employee Stock Purchase Plan
In connection with our Employee Stock Purchase Plan (“ESPP”), eligible employees of Mustang and Fortress can purchase the Company’s Common Stock at the end of a predetermined offering period at 85 % of the lower of the fair market value at the beginning or end of the offering period.
As of December 31, 2022, 586,010 shares have been purchased and 413,990 shares are available for future sale under the Company’s ESPP.
Note 10 - Income Taxes
The Company has accumulated net losses since inception and has not recorded an income tax provision or benefit during the years ended December 31, 2022 and 2021.
A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:
For the year ended December 31,
2022
2021
Statutory federal income tax rate
21
%
21
%
State taxes, net of federal tax benefit
16
%
16
%
Non-deductible items
( 1 )
%
( 1 )
%
Credits
5
%
5
%
Federal tax rate change
—
%
—
%
State tax rate change
—
%
—
%
Other
1
%
—
%
Change in valuation allowance
( 42 )
%
( 41 )
%
Income taxes provision (benefit)
—
—
The components of the net deferred tax asset as of December 31, 2022 and 2021 are the following ($ in thousands):
For the year ended December 31,
2022
2021
Deferred tax assets:
Net operating loss carryovers
$
75,011
$
66,879
Stock compensation and other
2,399
2,702
Change in fair value of warrant liabilities
59
59
Amortization of license
13,375
13,977
Lease liability
1,466
755
Accruals and reserves
1,434
1,035
Startup costs
6
6
Tax credits
15,649
9,728
174 Capitalization
19,787
—
Total deferred tax assets
129,186
95,141
Less: valuation allowance
( 128,101 )
( 94,751 )
Net deferred tax assets
$
1,085
$
390
Deferred tax liabilities:
Right of use asset
( 1,085 )
( 390 )
Total deferred tax assets, net
$
—
$
—
The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has provided a full valuation allowance against its net deferred tax assets as of December 31, 2022 and 2021. A valuation allowance of approximately $ 128.1 million and $ 94.8 million, respectively, was recorded for the years ended December 31, 2022 and 2021.
F-27
Table of Contents
As of December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $ 214.0 million and $ 463.1 million, respectively. Approximately $ 190.4 million and $ 0.2 million of the federal and state net operating loss carryforwards, respectively, can be carried forward indefinitely. As of December 31, 2022, the Company had federal and state income tax credits of approximately $ 12.5 million and $ 4.0 million, respectively, which will begin to expire in 2033 . Under the provisions of Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change”, as defined therein, is subject to limitations on its use of pre-change NOLs and income tax credits carryforwards to offset future tax liabilities. Certain tax attributes may be subject to an annual limitation as a result of the Company’s January 2017 capital raise, as it appears to constitute an ownership change under Section 382. Additionally, under Section 382, annual use of the Company’s net operating loss carryforwards to offset taxable income may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of December 31, 2022. The Company has no income tax effect due to the recognition of a full valuation allowance on all of its deferred tax assets as it believes that it is more likely than not that the deferred tax assets will not be realized regardless of whether an “ownership change” has occurred.
There are no significant items determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s financial statements for the periods ended December 31, 2022 and 2021. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.
Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the periods ended December 31, 2022 and 2021.
The Company is subject to U.S. federal and various state taxes. As of December 31, 2022, the earliest federal tax year open for the assessment of income taxes under the applicable statutes of limitations is its 2019 tax year.
Beginning with the 2022 tax year, the Company is required to capitalize research and development expenses for tax purposes as defined under Internal Revenue Code Section 174. For expenses that are incurred for research and development in the U.S., the amounts will be amortized over 5 years, and for expenses that are incurred for research and development outside the U.S., the amounts will be amortized over 15 years. As a result of Section 174 capitalization, the Company recognized a deferred tax asset of $19.8 million.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer's social security payments, net operating loss utilization and carryback periods and modifications to the net interest deduction limitations. The CARES Act did not have a material impact on the Company’s income tax provision for 2022 and 2021. The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.
On December 27, 2020, the President of the United States signed the Consolidated Appropriations Act, 2021 (“Consolidated Appropriations Act”) into law. The Consolidated Appropriations Act is intended to enhance and expand certain provisions of the CARES Act, allows for the deductions of expenses related to the Payroll Protection Program funds received by companies, and provides an update to meals and entertainment expensing for 2021. The Consolidated Appropriations Act did not have a material impact to the Company’s income tax provision for 2022 and 2021.
Note 11 – Subsequent Events
Our Board of Directors approved, and our stockholders subsequently approved, a reverse stock split of our Common Stock. On March 15, 2023, the Board of Directors set the reverse stock split ratio at 15-for-1. We have filed a Definitive Information Statement on Schedule 14C in connection with the reverse stock split, and once the applicable waiting periods under SEC and Nasdaq rules have expired we plan to file a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, as amended, in order to give effect to the reverse stock split. The ex-dividend date is expected to be determined in April 2023.
F-28
Table of Contents
F-29
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Mustang Bio, Inc.
By:
/s/ Manuel Litchman
Name: Manuel Litchman
Title: President and Chief Executive Officer
(Duly Authorized Signatory and Principal Executive Officer)
March 29, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael S. Weiss
Michael S. Weiss
Executive Chairman of the Board
March 29, 2023
/s/ Manuel Litchman
Manuel Litchman, M.D.
President and Chief Executive Officer
March 29, 2023
/s/ Lindsay A. Rosenwald
Lindsay A. Rosenwald, M.D.
Director
March 29, 2023
/s/ Neil Herskowitz
Neil Herskowitz
Director
March 29, 2023
/s/ Adam Chill
Adam Chill
Director
March 29, 2023
/s/ Michael Zelefsky
Michael Zelefsky, M.D.
Director
March 29, 2023
/s/ Eliot Lurier
Eliot Lurier
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
March 29, 2023
82