Alaunos Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer and our principal accounting officer, we have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, as of December 31, 2022. Based on that evaluation, our principal executive officer and principal financial officer has concluded that as of December 31, 2022, our disclosure controls and procedures were effective as described below under “ Management’s Report on 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. Internal control over financial reporting is defined in Rules 13(a)-15(f) and 15(d)-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and our principal accounting 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: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of management, including our principal executive officer and principal financial officer and our principal accounting officer, we assessed our internal control over financial reporting as of December 31, 2022, based on criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management’s assessment of the effectiveness of our internal control over financial reporting included testing and evaluating the design and operating effectiveness of our internal controls. In management’s opinion, we have maintained effective internal control over financial reporting as of December 31, 2022, based on the criteria discussed above. Inherent Limitations on Internal Controls Our management, including our principal executive officer and principal financial officer, and our principal accounting officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Changes in Internal Controls over Financial Reporting 64 Table of Contents There were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) that occurred during the fiscal year ended December 31, 2022 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 Jurisdictions that Prevent Inspections None. 65 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item 10 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 11. Executive Compensation The information required by this Item 11 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item 14 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. 66 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (1) Financial Statements: The Financial Statements required to be filed by Item 8 of this Annual Report, and filed in this Item 15, are as follows: Page Report of Independent Registered Public Accounting Firm F- 1 Balance Sheets as of December 31, 2022 and 2021 F- 3 Statements of Operations for the Years Ended December 31, 2022 and 2021 F- 4 Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 F- 5 Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F- 6 Notes to Financial Statements F- 7 (2) Financial Statement Schedules: Schedules are omitted because they are not applicable, or are not required, or because the information is included in the financial statements and notes thereto. (3) Exhibits: Exhibit No. Description of Document 2.1 Agreement and Plan of Merger among the Registrant (formerly “EasyWeb, Inc.”), ZIO Acquisition Corp. and ZIOPHARM, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, SEC File No. 000-32353, filed August 9, 2005). 3.1 Amended and Restated Certificate of Incorporation, and all amendments thereto (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 3.2 Certificate of Merger dated September 13, 2005, relating to the merger of ZIO Acquisition Corp. with and into ZIOPHARM, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K, SEC File No. 000-32353, filed September 19, 2005). 3.3 Certificate of Ownership of the Registrant (formerly “EasyWeb, Inc.”) dated as of September 14, 2005, relating the merger of ZIOPHARM, Inc. with and into the Registrant, and changing the Registrant’s corporate name from EasyWeb, Inc. to ZIOPHARM Oncology, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K, SEC File No. 000-32353, filed September 19, 2005). 3.4 Amended and Restated Certificate of Designation, Preferences and Rights of Series 1 Preferred Stock, as filed with the Delaware Secretary of State on July 1, 2016 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K/A, SEC File No. 001-33038, filed July 1, 2016). 3.5 Amended and Restated Bylaws of the Registrant, dated as of September 21, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed September 22, 2020). 4.1 Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form SB-2, SEC File No. 333-129020, filed October 14, 2005). 4.2 Form of Option for the Purchase of Shares of common stock dated August 30, 2004 and issued to The University of Texas M. D. Anderson Cancer Center (incorporated by reference to Exhibit 4.6 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006). 4.3 Schedule identifying Material Terms of Options for the Purchase of Shares of Common Stock (incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006). 4.4 Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed November 13, 2018). 4.5# Warrant to Purchase Common Stock issued to The University of Texas M. D. Anderson Cancer Center (incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 2, 2020). 4.6 Form of Warrant to Purchase Shares of Common Stock issued to SVB and certain of its Affiliates, dated December 28, 2021 (incorporated by reference to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 4.7 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.3+ ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed September 24, 2018). 67 Table of Contents 10.4+ Form of Restricted Stock Agreement Granted Under the ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed June 26, 2012). 10.5+ Form of Option Agreement Granted Under the ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed June 26, 2012). 10.7+ Form of Inducement Award Grant Notice and Inducement Award Grant Agreement (incorporated by reference to Exhibit 99.3 to the Registrant’s Registration Statement on Form S-8, SEC File No. 333-238090, filed May 8, 2020). 10.8+ ZIOPHARM Oncology, Inc. 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed July 1, 2020). 10.9+ Form of Restricted Stock Agreement Granted Under the ZIOPHARM Oncology, Inc. 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021 ). 10.10+ Form of Stock Option Agreement Granted Under the ZIOPHARM Oncology, Inc. 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021 ). 10.11+ Form of Indemnity Agreement for directors and executive officers (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 31, 2013). 10.16+ Employment Agreement, dated August 24, 2021, by and between the Registrant and Kevin S. Boyle Sr. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed August 30, 2021). 10.23# Form of Retention Bonus Agreement (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.24# License Agreement by and among the Registrant, Intrexon Corporation and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center dated as of January 13, 2015 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 28, 2015). 10.25† Exclusive License Agreement by and between the Registrant, Precigen, Inc. and Intrexon Corporation, dated October 5, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed November 9, 2018). 10.26# Amendment No. 1 to the Exclusive License Agreement by and between the Registrant and PGEN Therapeutics, Inc. (formerly known as Precigen, Inc.), dated October 15, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q SEC File No. 001-33038, filed November 5, 2020). 10.27† License and Collaboration Agreement by and among the Registrant, Intrexon Corporation and Ares Trading S.A. dated as of March 27, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed April 2, 2015). 10.28# Research and Development Agreement by and among the Registrant, Intrexon Corporation and The University of Texas M.D. Anderson Cancer Center dated as of August 17, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed August 21, 2015). 10.29 First Amendment to the Research and Development Agreement by and among the Registrant, Intrexon Corporation and The University of Texas M.D. Anderson Cancer Center dated as of August 30, 2016 (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 5, 2019). 10.30 Second Amendment to the Research and Development Agreement by and among the Registrant, Intrexon Corporation and The University of Texas M.D. Anderson Cancer Center dated as of January 17, 2017 (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 5, 2019). 10.31 Third Amendment to the Research and Development Agreement by and among the Registrant, Intrexon Corporation and The University of Texas M.D. Anderson Cancer Center dated as of November 14, 2017 (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 5, 2019). 10.32 Fourth Amendment to Research and Development Agreement, dated September 19, 2019 by and among the Registrant, The University of Texas MD Anderson Cancer Center and Precigen, Inc. (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed November 7, 2019). 10.33# Fifth Amendment to Research and Development Agreement, dated October 22, 2019 by and among the Registrant and The University of Texas MD Anderson Cancer Center (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 2, 2020). 10.34# 2019 Research and Development Agreement, dated October 22, 2019, by and between the Registrant and The University of Texas MD Anderson Cancer Center (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 2, 2020). 10.35# Patent License Agreement, dated as of May 28, 2019, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed August 8, 2019). 10.36# First Amendment to Patent License Agreement, dated as of January 8, 2020, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 2, 2020). 68 Table of Contents 10.37# Second Amendment to Patent License Agreement, dated as of September 28, 2020, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 000-33038, filed November 5, 2020). 10.38# Third Amendment to Patent License Agreement, dated as of April 16, 2021, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.39# Fourth Amendment to Patent License Agreement, dated as of May 4, 2021, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.40# Fifth Amendment to Patent License Agreement, dated as of August 13, 2021, by and between the Registrant and the National Cancer Institute (incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.41# Cooperative Research and Development Agreement, dated January 9, 2017, by and among the Registrant, the National Cancer Institute, and Intrexon Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038, filed September 26, 2019). 10.42 First Amendment to the Cooperative Research and Development Agreement, dated March 23, 2018, by and among the Registrant, National Cancer Institute, Intrexon Corporation and Precigen, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038, filed September 26, 2019). 10.43# Second Amendment to the Cooperative Research and Development Agreement, dated February 1, 2019, by and among the National Cancer Institute, the Registrant and Precigen, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038, filed September 26, 2019). 10.44 Third Amendment to the Cooperative Research and Development Agreement, dated March 15, 2022, by and among the National Cancer Institute and the Registrant (incorporated by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.45 Fourth Amendment to the Cooperative Research and Development Agreement, dated June 24, 2022, by and between the National Cancer Institute and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed August 15, 2022). 10.46 Lease Agreement, dated as of October 15, 2019, by and between the Registrant and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.47 First Amendment, dated as of April 7, 2020, to the Lease Agreement, dated as of October 15, 2019, by and between the Registrant and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center (incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.48 Second Amendment, dated as of April 7, 2020, to the Lease Agreement, dated as of October 15, 2019, by and between the Registrant and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center (incorporated by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.49 Third Amendment, dated as of December 15, 2020, to the Lease Agreement, dated as of October 15, 2019, by and between the Registrant and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.50 Lease Agreement dated as of December 15, 2020, by and between the Registrant and The University of Texas System Board of Regents on behalf of The University of Texas M.D. Anderson Cancer Center (incorporated by reference to Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2021). 10.51 Agreement dated February 4, 2021, by and among the Registrant, WaterMill Asset Management Corp. and Robert W. Postma (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed February 5, 2021). 10.52 Loan and Security Agreement by and among the Registrant, the lenders party thereto and Silicon Valley Bank, as administrative agent and collateral agent, dated August 6, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed November 8, 2021). 10.53 First Amendment to the Loan and Security Agreement by and among the Registrant, the lenders party thereto and Silicon Valley Bank, as administrative agent and collateral agent, dated December 28, 2021 (incorporated by reference to Exhibit 10.52 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 30, 2022). 10.54 Equity Distribution Agreement, dated August 12, 2022, by and between Piper Sandler & Co. and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038, filed August 15, 2022). 69 Table of Contents 10.55 Underwriting Agreement, dated as of November 29, 2022, by and between Cantor Fitzgerald & Co. and the Registrant (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed November 30, 2022). 23.1* Consent of Independent Registered Public Accounting Firm . 24.1* Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K). 31.1* Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File-the cover page interactive data is embedded within the Inline XBRL document or included within the Exhibit 101 attachments * Filed herewith. ** Furnished herewith. + Indicates management contract or compensatory plan. † Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions of this document. # Portions of this document (indicated by “[***]”) have been omitted because such information is not material and is the type of information that the Registrant treats as private or confidential. Item 16. Form 10-K Summary None. 70 Table of Contents SIGN ATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALAUNOS THERAPEUTICS, INC. Date: March 7, 2023 By: /s/ Kevin S. Boyle, Sr. Kevin S. Boyle, Sr. Chief Executive Officer and Director (Principal Executive Officer and Principal Financial Officer) Date: March 7, 2023 By: /s/ Michael Wong Michael Wong Vice President, Finance (Principal Accounting Officer) KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin S. Boyle, Sr. and Michael Wong, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report 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/ Kevin S. Boyle, Sr. Kevin S. Boyle, Sr. Chief Executive Officer and Director (Principal Executive Officer and Principal Financial Officer) March 7, 2023 /s/ Michael Wong Michael Wong Vice President, Finance (Principal Accounting Officer) March 7, 2023 /s/ Christopher Bowden Christopher Bowden Director March 7, 2023 /s/ James Huang James Huang Director March 7, 2023 /s/ Robert W. Postma Robert W. Postma Director March 7, 2023 /s/ Mary Thistle Mary Thistle Director March 7, 2023 /s/ Jaime Vieser Jaime Vieser Director March 7, 2023 /s/ Holger Weis Holger Weis Director March 7, 2023 71 Table of Contents Alaunos Therapeutics, Inc. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ( RSM US LLP ; Boston, MA ; PCAOB ID: 49 ) F- 1 Balance Sheets as of December 31, 2022 and 2021 F- 3 Statements of Operations for the Years Ended December 31, 2022 and 2021 F- 4 Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 F- 5 Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F- 6 Notes to Financial Statements F- 7 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Alaunos Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Alaunos Therapeutics, Inc. and its subsidiaries (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 to the financial statements (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 the years then ended, in conformity with accounting principles generally accepted in the United States of America. The Company’s Ability to Continue as a 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 has incurred recurring operating losses since its inception and will be required to raise additional capital to fund operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements 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 the Company’s 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 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. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Accruals for Clinical Trials and Other Research and Development Expenses As discussed in Note 3 to the financial statements, the Company accrues costs for clinical trials and other research and development expenses based on estimates of costs incurred through the balance sheet date that have not been invoiced by the clinical research organizations, clinical study sites, consultants, or other vendors. This process involves reviewing open contracts and purchase orders, communicating with vendors and internal personnel to identify services that have been performed, and estimating the level of service performed and the associated costs incurred for the services when the Company has not yet been invoiced or otherwise notified of the actual costs. The Company's accrual for clinical trial and preclinical study expenses totaled $2.4 million at December 31, 2022 as disclosed in Note 6. We identified the accruals for clinical trials and other research and development expenses to be a critical audit matter because auditing the Company’s accruals is complex as the information necessary to make an estimate is accumulated from multiple sources and there may be delays in invoicing from clinical study sites and other vendors, or payments may depend on factors such as the completion of clinical trial milestones. Additionally, in certain circumstances, it requires judgment, as the timing and pattern of vendor invoicing may not correspond to the level of services provided. How We Addressed the Matter in our Audit Our audit procedures to test the accruals for clinical trial and preclinical studies expenses included, among others: • We tested the accuracy and completeness of the underlying data used in the estimates and evaluated the reasonableness of assumptions used by management. • We inspected certain contracts with third parties and related information received by the Company to test proper recording of costs incurred to date. F- 1 Table of Contents • We corroborated the progress of research and development activities through discussion with the Company’s research and development personnel, specifically those who oversee the projects, and confirmations with the third parties. • We performed analytical procedures over fluctuations in accruals on a department level throughout the year. • We tested subsequent invoices received from third parties and cash disbursements to assess completeness of recorded accruals. /s/ RSM US LLP We have served as the Company's auditor since 2010. Boston, Massachusetts March 7, 2023 F- 2 Table of Contents A launos Therapeutics, Inc. BALANCE SHEETS (in thousands, except share and per share data) December 31, December 31, 2022 2021 ASSETS: Current assets: Cash and cash equivalents $ 39,058 $ 76,054 Restricted cash 13,938 — Receivables 4 1,111 Prepaid expenses and other current assets 799 1,666 Total current assets 53,799 78,831 Property and equipment, net 8,460 10,941 Right-of-use asset 2,136 4,420 Deposits 42 42 Other non-current assets 500 631 Total assets $ 64,937 $ 94,865 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,389 $ 1,368 Long-term debt, current 16,765 7,868 Accrued expenses 5,454 6,076 Lease liability, current 558 729 Total current liabilities 24,166 16,041 Long-term debt — 16,250 Lease liability, non-current 2,188 4,518 Other non-current liabilities 28 — Total liabilities $ 26,382 $ 36,809 Commitments and contingencies (Note 9) Stockholders' equity Common stock $ 0.001 par value; 420,000,000 shares authorized, 240,410,761 shares issued and outstanding at December 31, 2022 and 350,000,000 shares authorized, 216,127,443 shares issued and outstanding at December 31, 2021 240 216 Additional paid-in capital 918,942 900,693 Accumulated deficit ( 880,627 ) ( 842,852 ) Total stockholders' equity 38,555 58,057 Total liabilities and stockholders' equity $ 64,937 $ 94,865 The accompanying notes are an integral part of these financial statements. F- 3 Table of Contents A launos Therapeutics, Inc. STATEMENTS OF OPERATIONS (in thousands, except share and per share data) For the Year Ended December 31, 2022 2021 Collaboration revenue $ 2,922 $ 398 Operating expenses: Research and development 25,018 49,643 General and administrative 13,142 27,564 Gain on lease modification ( 133 ) — Property and equipment and right-of-use assets impairment — 740 Total operating expenses 38,027 77,947 Loss from operations ( 35,105 ) ( 77,549 ) Other income (expense): Interest expense ( 3,154 ) ( 1,189 ) Other income (expense), net 529 ( 13 ) Other income (expense), net ( 2,625 ) ( 1,202 ) Net loss $ ( 37,730 ) $ ( 78,751 ) Basic and diluted net loss per share $ ( 0.17 ) $ ( 0.37 ) Weighted average common shares outstanding, basic and diluted 217,130,311 214,399,074 The accompanying notes are an integral part of these financial statements. F- 4 Table of Contents A launos Therapeutics, Inc. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) Common Stock Additional Paid in Capital Accumulated Deficit Total Stockholders' Equity Shares Amount Balance at December 31, 2020 214,591,906 $ 215 $ 887,868 $ ( 764,101 ) $ 123,982 Stock-based compensation — — 10,774 — 10,774 Exercise of employee stock options 363,109 — 1,036 — 1,036 Common stock issuance 5,991 — — — — Restricted stock awards 1,601,224 1 ( 1 ) — — Cancelled restricted common stock ( 434,787 ) — — — — Issuance of warrants — — 1,016 — 1,016 Net loss — — — ( 78,751 ) ( 78,751 ) Balance at December 31, 2021 216,127,443 $ 216 $ 900,693 $ ( 842,852 ) $ 58,057 Stock-based compensation — — 3,528 — 3,528 Restricted stock awards 280,000 — — — — Cancelled restricted common stock ( 232,901 ) — — — — Exercise of employee stock options 26,250 — 21 — 21 Repurchase of common stock ( 18,750 ) — — ( 45 ) ( 45 ) Issuance of common stock, net of expenses 24,228,719 24 14,700 — 14,724 Net loss — — — ( 37,730 ) ( 37,730 ) Balance at December 31, 2022 240,410,761 $ 240 $ 918,942 $ ( 880,627 ) $ 38,555 The accompanying notes are an integral part of these financial statements. F- 5 Table of Contents A launos Therapeutics, Inc. STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 37,730 ) $ ( 78,751 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,759 2,597 Property and equipment and right-of-use asset impairment — 740 Amortization of financing costs 981 383 Stock-based compensation 3,528 10,774 Decrease (increase) in the carrying amount of right-of-use assets 2,417 ( 352 ) Gain on lease modification ( 133 ) — Loss on sale of equipment 7 — (Increase) decrease in: Receivables 1,107 3,555 Prepaid expenses and other current assets 867 9,189 Other non-current assets 131 201 Increase (decrease) in: Accounts payable ( 25 ) 274 Accrued expenses ( 668 ) ( 10,512 ) Lease liabilities ( 2,501 ) 434 Other non-current liabilities 28 — Net cash used in operating activities ( 29,232 ) ( 61,468 ) Cash flows from investing activities: Purchases of property and equipment ( 216 ) ( 3,323 ) Proceeds from the sale of property and equipment 23 — Net cash used in investing activities ( 193 ) ( 3,323 ) Cash flows from financing activities: Proceeds from long-term debt borrowing — 25,000 Debt issuance costs — ( 260 ) Proceeds from the exercise of stock options 21 1,036 Proceeds from the issuance of common stock 14,724 — Repurchase of common stock ( 45 ) — Repayment of long-term debt ( 8,333 ) — Net cash provided by financing activities 6,367 25,776 Net decrease in cash, cash equivalents and restricted cash ( 23,058 ) ( 39,015 ) Cash, cash equivalents and restricted cash, beginning of period 76,054 115,069 Cash, cash equivalents and restricted cash, end of period $ 52,996 $ 76,054 Supplementary disclosure of cash flow information: Cash paid for interest $ 2,171 $ 630 Amounts included in accrued expenses and accounts payable related to property and equipment $ 91 $ 134 The accompanying notes are an integral part of these financial statements. F- 6 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS 1. Organization Alaunos Therapeutics, Inc., which is referred to herein as “Alaunos,” or the “Company,” is a clinical-stage oncology-focused cell therapy company developing adoptive TCR therapies, designed to treat multiple solid tumor types in large cancer patient populations with unmet clinical needs. On January 25, 2022, the Company changed its corporate name from ZIOPHARM Oncology, Inc. to Alaunos Therapeutics, Inc. The Company is leveraging its proprietary, non-viral Sleeping Beauty gene transfer platform and its novel cancer mutation hotspot TCR library to design and manufacture personalized cell therapies that target neoantigens arising from common tumor-related mutations in key oncogenic genes, including KRAS, TP53 and EGFR. The Company’s operations to date have consisted primarily of conducting research and development and raising capital to fund those efforts. In May 2021, the Company announced that it will be winding down its existing Controlled IL-12 clinical program for the treatment of recurrent glioblastoma multiforme. The Company continues to seek a partner for this program. The Company’s amended and restated certificate of incorporation authorizes it to issue 420,000,000 shares of common stock. As of December 31, 2022, there were 240,410,761 shares of common stock outstanding and an additional 33,330,964 shares of common stock reserved for issuance pursuant to outstanding stock options and warrants. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company follows the guidance of Accounting Standards Codification, or ASC, Topic 205-40, Presentation of Financial Statements - Going Concern , in order to determine whether there is substantial doubt about its ability to continue as a going concern for one year after the date its 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, management evaluates whether the mitigating effect of its plans sufficiently alleviates the 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 (i) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (ii) 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 the financial statements are issued. The Company has operated at a loss since its inception in 2003 and has no recurring revenue from operations. The Company anticipates that losses will continue for the foreseeable future. As of December 31, 2022, the Company had approximately $ 53.0  million of cash, cash equivalents and restricted cash. The restricted cash of $ 13.9 million at December 31, 2022 is related to the Company's debt agreement (refer to Note 4, Debt ). The Company’s accumulated deficit at December 31, 2022 was approximately $ 880.6  million. Given its current development plans and cash management efforts, the Company anticipates cash resources will be sufficient to fund operations into the fourth quarter of 2023. The Company’s ability to continue operations after its current cash resources are exhausted depends on future events, including its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given, nor are within the Company's control. If adequate additional funds are not available when required, or if the Company is unsuccessful in entering into partnership agreements for further development of its product candidates, management may need to curtail its development efforts and planned operations to conserve cash until sufficient additional capital is raised. There can be no assurances that such a plan would be successful. Based on the current cash forecast and the Company's dependence on its ability to obtain additional financing to fund its operations after the current resources are exhausted, about which there can be no certainty, management has determined that the Company's present capital resources will not be sufficient to fund its planned operations for at least one year from the issuance date of the financial statements, and substantial doubt as to the Company's ability to continue as a going concern exists. This forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of expenses could vary materially and adversely as a result of a number of factors. F- 7 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS 2. Financings 2021 Loan and Security Agreement On August 6, 2021, the Company entered into a Loan and Security Agreement, or the Loan and Security Agreement, with Silicon Valley Bank and affiliates of Silicon Valley Bank, or collectively, SVB. The Loan and Security Agreement provided for an initial term loan of $ 25.0 million funded at the closing, or the Term A Tranche, with an additional tranche of $ 25.0 million available if certain funding and clinical milestones were met by August 31, 2022, or the Term B Tranche. Effective December 28, 2021, the Company, entered into a First Amendment to the Loan and Security Agreement. We refer to the Loan and Security Agreement, as so amended, as the Amended Loan and Security Agreement. The Amended Loan and Security Agreement extended the interest-only period through August 31, 2022. Certain milestones specified in the Amended Loan and Security Agreement were not met by the Company on or prior to August 31, 2022, and therefore, the interest-only period was not extended beyond August 31, 2022. The Amended Loan and Security Agreement also eliminated the Term B Tranche, which remained unfunded, leaving only the Term A Tranche, or the SVB Facility. Under the Amended Loan and Security Agreement, the SVB Facility will mature on August 1, 2023. Refer to Note 4, Debt, for further discussion of the Loan and Security Agreement and the Amended Loan and Security Agreement. 2022 Equity Distribution Agreement On August 12, 2022, the Company entered into an Equity Distribution Agreement, or the Equity Distribution Agreement, with Piper Sandler & Co., or Piper Sandler, pursuant to which the Company can offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $ 50.0 million through Piper Sandler as its sales agent in an "at the market offering." Piper Sandler will receive a commission of 3.0 % of the gross proceeds of any common stock sold under the Equity Distribution Agreement. During the year ended December 31, 2022, there have been no sales of the Company's common stock under the Equity Distribution Agreement. 2022 Public Offering On November 29, 2022, the Company entered into an underwriting agreement, or the Underwriting Agreement, with Cantor Fitzgerald & Co., or the Underwriter, as the sole underwriter, relating to the issuance and sale in an underwritten offering, or the Offering, of 24,228,719 shares, or the Firm Shares, of the Company’s common stock to the Underwriter at a price of $ 0.6191 per share. The net proceeds to the Company from the Offering were $ 14.7 million (before accounting for the partial exercise of the Underwriter's option as described below) after deducting underwriting discounts and commissions and offering expenses payable by the Company. Under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 30 days , to purchase up to an additional 3,634,307 shares of common stock, which we refer to, together with the Firm Shares, as the Shares, at the same price per share as the Firm Shares. On January 5, 2023, the Underwriter partially exercised its option to purchase 216,294 shares of common stock. All of the Shares sold in the Offering were sold by the Company. 3. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. F- 8 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS The Company’s most significant estimates and judgments used in the preparation of the financial statements are: • Clinical trial expenses and other research and development expenses; • Collaboration agreements; • Fair value measurements of stock-based compensation; and • Income taxes. Subsequent Events The Company evaluated all events and transactions that occurred after the balance sheet date through the date of this Annual Report on Form 10-K. The Company did not have any material subsequent events that impacted its financial statements or disclosures. Cash and Cash Equivalents Cash equivalents consist primarily of demand deposit accounts, certificates of deposit and deposits in short-term U.S. treasury money market mutual funds. Cash equivalents are stated at cost, which approximates fair market value. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash accounts in commercial banks, which may, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation and amortization is calculated on a straight-line basis using the following periods, which represent the estimated useful lives of the assets: ●  Office and computer equipment  3 years ●  Software  3 years ●  Laboratory equipment  5 years ●  Leasehold improvements  Life of the lease Costs, including certain design, construction and installation costs related to assets that are under construction and are in the process of being readied for their intended use, are recorded as construction in progress and are not depreciated until such time as the subject asset is placed in service. Repairs and maintenance that do not extend the useful life of the asset are expensed as incurred. Upon sale, retirement or other disposition of these assets, the costs and related accumulated depreciation are removed from the respective accounts and any gain or loss on the disposition is included in the Statements of Operations. Long-Lived Assets Assessments of long-lived assets and the remaining useful lives of such long-lived assets are reviewed for impairment whenever a triggering event occurs or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset, or group of assets, is considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset, or group of assets, are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets, based on the present value of the expected future cash flows associated with the use of the asset. Operating Segments Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the Company’s chief operating decision maker, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment. Warrants F- 9 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS The Company assesses whether warrants issued require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Financial Accounting Standards Board, or FASB, ASC Topic 815, Derivatives and Hedging . As such, the Company has concluded the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity. Fair Value Measurements The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements. • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2022 and 2021 are as follows: ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as of December 31, 2022 Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents $ 38,058 $ 38,058 $ — $ — ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as of December 31, 2021 Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents $ 75,222 $ 75,222 $ — $ — The cash equivalents represent demand deposit accounts and deposits in a short-term United States treasury money market mutual fund quoted in an active market and classified as a Level 1 asset. There have been no changes to the valuation methods during the years ended December 31, 2022 and 2021. The Company had no financial assets or liabilities that were classified as Level 2 or Level 3 during the years ended December 31, 2022 and 2021. Fair value of non-financial instruments The Company evaluates its assets for impairment whenever events or changes in circumstances indicate that indicators of impairment exist. In those evaluations, the Company compares estimated future undiscounted cash flows generated by each asset (or asset group) to the carrying value of the asset (or asset group) to determine if an impairment charge is required. If the undiscounted cash flows test fails, the Company estimates the fair value of the asset (or asset group) to determine the impairment. During 2021, following the Company's strategic restructuring and further cost reduction initiatives, the Company determined that changes in the intended use of its Boston office represented an indicator of impairment, resulting in an impairment charge of $ 0.6 million to the right-of-use asset. In addition, the Company impaired approximately $ 0.1 million of leasehold improvements and various other assets associated with its decision to close the Company's Boston office. Refer to Note 8, Leases, for further details. Revenue Recognition from Collaboration Agreements Revenue for the year ended December 31, 2022 consisted of $ 2.9 million and for the year ended December 31, 2021 consisted of $ 0.4 million. For the years ended December 31, 2022 and 2021, the Company recognized revenue through its Collaboration Agreement with Solasia Pharma K.K. primarily due to the achievement of milestones, as further described in Note 9, Commitments and Contingencies. F- 10 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS The Company primarily generates revenue through collaboration arrangements with strategic partners for the development and commercialization of product candidates. The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, or ASC 606. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied. The Company recognizes collaboration revenue under certain of the Company’s license or collaboration agreements that are within the scope of ASC 606. The Company’s contracts with customers typically include promises related to licenses to intellectual property, research and development services and options to purchase additional goods and/or services. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Contracts that include an option to acquire additional goods and/or services are evaluated to determine if such option provides a material right to the customer that it would not have received without entering into the contract. If so, the option is accounted for as a separate performance obligation. If not, the option is considered a marketing offer which would be accounted for as a separate contract upon the customer’s election. The terms of the Company’s arrangements with customers typically include the payment of one or more of the following:(i) non-refundable, up-front payment, (ii) development, regulatory and commercial milestone payments, (iii) future options and (iv) royalties on net sales of licensed products. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the most likely amount method to estimate the amount of variable consideration, to predict the amount of consideration to which it will be entitled. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered probable of achievement and estimates the amount to be included in the transaction price using the most likely amount method. Milestone payments that are not within the control of the Company or the licensee, such as those dependent upon receipt of regulatory approval, are not considered to be probable of achievement until the triggering event occurs. At the end of each reporting period, the Company reevaluates the probability of achievement of each milestone and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment. For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, the Company recognizes revenue upon the later of: (i) when the related sales occur or (ii) when the performance obligation to which some or all of the payment has been allocated has been satisfied (or partially satisfied). Consideration that would be received for optional goods and/or services is excluded from the transaction price at contract inception. The Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis. However, certain components of variable consideration are allocated specifically to one or more particular performance obligations in a contract to the extent both of the following criteria are met: (i) the terms of the payment relate specifically to the efforts to satisfy the performance obligation or transfer the distinct good or service and (ii) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective of the standard whereby the amount allocated depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services. The Company develops assumptions that require the use of judgment to determine the standalone selling price for each performance obligation identified in each contract. The key assumptions utilized in determining the standalone selling price for each performance obligation may include forecasted revenue, development timelines, estimated research and development costs, discount rates, likelihood of exercise and probabilities of technical and regulatory success. Revenue is recognized based on the amount of the transaction price that is allocated to each respective performance obligation when or as the performance obligation is satisfied by transferring a promised good and/or service to the customer. For performance obligations that are satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of the performance obligation F- 11 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS using a single method of measuring progress which depicts the performance in transferring control of the associated goods and/or services to the customer. The Company uses input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment. Research and Development Costs As part of the process of preparing the Company's financial statements, the Company is required to estimate its accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with its personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated costs incurred for the services when the Company has not yet been invoiced or otherwise notified of the actual costs. The majority of the Company's service providers invoice the Company in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, a few require advanced payments. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known to it at that time. Examples of estimated accrued research and development expenses include fees paid to: • clinical research organizations, or CROs, in connection with performing research services on its behalf and clinical trials; • investigative sites or other providers in connection with clinical trials; • vendors in connection with preclinical and clinical development activities; and • vendors related to product manufacturing, development, and distribution of preclinical and clinical supplies. The Company bases its expenses related to preclinical studies and clinical trials on its estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage clinical trials on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to the Company's vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from its estimate, the Company adjusts the accrual or amount of prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low in any particular period. To date, the Company has not made any material adjustments to its prior estimates of accrued research and development expenses. Income Taxes Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates this tax position on an annual basis. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense (Refer to Note 12, Income Taxes ). Accounting for Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period. Stock-based compensation expense is based on the number of awards ultimately expected to vest and is reduced for forfeitures as they occur. Consistent with prior years, the Company uses the Black-Scholes option pricing model, which requires estimates of the expected term option holders will retain their options before exercising them and the estimated volatility of the Company’s common stock price over the expected term. F- 12 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS The Company recognized the full impact of its share-based employee payment plans in the Statements of Operations for each of the years ended December 31, 2022 and 2021 and did not capitalize any such costs on the Balance Sheets. The Company recognized $ 3.0 million of compensation expense related to stock options for the year ended December 31, 2022 and $ 7.4 million of compensation expense related to stock options for the year ended December 31, 2021. The Company recognized $ 0.5 million of compensation expense, related to restricted stock for the year ended December 31, 2022 and $ 3.4 million for the year ended December 31, 2021 (refer to Note 13, Stock Option Plan ). The total compensation expense relating to vesting of stock options and restricted stock awards for the year ended December 31, 2022 was $ 3.5 million and $ 10.8 million for the year ended December 31, 2021. The following table presents share-based compensation expense included in the Company’s Statements of Operations: Year Ended December 31, (in thousands) 2022 2021 Research and development 868 2,598 General and administrative 2,660 8,176 Stock-based compensation expense $ 3,528 $ 10,774 The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. The estimated weighted-average fair value of stock options granted to employees in the year ended December 31, 2022 was approximately $ 0.77 per share and was approximately $ 2.62 per share for the year ended December 31, 2021. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatility assumption is based on the Company’s historical experience. The risk-free interest rate is based on a U.S. treasury note with a maturity similar to the option award’s expected life. The expected life represents the average period of time that options granted are expected to be outstanding. The Company calculated expected term using the simplified method described in SEC Staff Accounting Bulletin, or SAB, No. 107 and No. 110 as it continues to meet the requirements promulgated in SAB No. 110. The assumptions for volatility, expected life, dividend yield and risk-free interest rate are presented in the table below: Year Ended December 31, 2022 2021 Risk-free interest rate 1.63 – 4.21 % 0.50 – 1.36 % Expected life in years 5.27 – 6.25 5.50 – 6.25 Expected volatility 74.49 – 88.75 % 72.53 – 74.80 % Expected dividend yield —% —% Net Loss per Share Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effect of outstanding options and warrants, using the treasury stock method and the average market price of the Company’s common stock during the applicable period, unless their effect on net loss per share is antidilutive. The effect of computing diluted net loss per common share was antidilutive for any potentially issuable shares of common stock from the conversion of stock options, unvested restricted stock and warrants and, as such, have been excluded from the calculation. The computation of basic and diluted net loss per share consists of the following: Year Ended December 31, 2022 2021 Net loss $ ( 37,730 ) $ ( 78,751 ) Weighted-average common shares outstanding, basic and diluted 217,130,311 214,399,074 Net loss per share, basic and diluted $ ( 0.17 ) $ ( 0.37 ) Certain shares related to some of the Company’s outstanding common stock options, unvested restricted stock and warrants have not been included in the computation of diluted net loss per share for the years ended December 31, 2022 and 2021 as the result would be antidilutive. Such potential common shares on December 31, 2022 and 2021 consist of the following: F- 13 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS December 31, 2022 2021 Common stock options 10,408,622 10,665,869 Inducement stock options - 32,500 Unvested restricted stock 939,062 1,198,580 Warrants 22,922,342 22,922,342 34,270,026 34,819,291 New Accounting Pronouncements In November 2021, the FASB issued Accounting Standards Update, or ASU, 2021-10, Government Assistance (Topic 832): Disclosures by Business entities about Government Assistance, which requires business entities to disclose information about certain government assistance that they receive. Entities must comply with the new disclosure requirements if they account for transactions with government entities under the (1) contribution model or (2) grant model by analogy. The Company adopted this standard effective January 1, 2022, with no material impact upon adoption. In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, which requires lessors to classify as operating leases those leases with variable lease payments that do not depend on an index or rate if another classification (i.e. sales-type or direct financing) would result in a commencement date (‘day 1’) selling loss. The Company adopted this standard effective January 1, 2022, with no material impact upon adoption. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815- 40): Warrant modifications, which clarifies an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options (e.g. warrants) that remain equity-classified after modification or exchange. The Company adopted this standard effective January 1, 2022, with no material impact upon adoption. 4. Debt The carrying values of the Company's debt obligation were as follows: December 31, ($ in thousands) 2022 2021 Loan and Security Agreement $ 17,395 $ 25,209 Unamortized discount on Loan and Security Agreement ( 630 ) ( 1,091 ) Total debt 16,765 24,118 Less: long-term debt, current ( 16,765 ) ( 7,868 ) Long-term debt $ — $ 16,250 On August 6, 2021, the Company entered into the Loan and Security Agreement. The Loan and Security Agreement provided for an initial term loan of $ 25.0 million funded at the closing, with an additional tranche of $ 25.0 million available if certain funding and clinical milestones were met by August 31, 2022. On December 28, 2021, the Company entered into the Amended Loan and Security Agreement. Under the terms of the Amended Loan and Security Agreement, the SVB Facility was modified to eliminate the additional $25.0 million tranche, which remained unfunded, leaving only the initial $25.0 million as the full amount available under the SVB Facility. The SVB Facility bears interest at a floating rate per annum on outstanding loans, payable monthly, at the greater of (a) 7.75 % and (b) the current published U.S. prime rate, plus a margin of 4.5 % . As of December 31, 2022, interest on the outstanding loans was 12.00 %. The Amended Loan and Security Agreement provided for an interest-only period through August 31, 2022. Commencing on September 1, 2022, aggregate outstanding borrowings became repayable in twelve consecutive, equal monthly installments of principal plus accrued interest. All outstanding obligations under the Amended Loan and Security Agreement are due and payable on August 1, 2023 . The Company will also owe SVB 5.75 % of the original principal amounts borrowed as a final payment. The Company is permitted to make up to two prepayments, subject to a prepayment premium of the amount being prepaid, ranging from 1.00 % to 2.00 %, of the SVB Facility, each such prepayment to be at least $ 5.0 million plus all accrued and unpaid interest on the portion being prepaid. F- 14 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS As a result of not achieving certain milestones specified in the Amended Loan and Security Agreement on or prior to August 31, 2022, the Company was required to cash collateralize half of the sum of the then-outstanding principal amount of the SVB Facility, plus an amount equal to 5.75 % of the original principal amount of the SVB Facility. As of December 31, 2022, the Company has collateralized $ 13.9 million, which is classified as restricted cash on the Balance Sheet. So long as no event of default has occurred and subject to certain other terms related to the remaining outstanding balance under the SVB Facility being satisfied, $ 2.5 million will be released from the collateral account following the eighth scheduled payment of principal and interest, and a further $ 4.0 million will be released following the tenth scheduled payment of principal and interest. The SVB Facility and related obligations under the Amended Loan and Security Agreement are secured by substantially all of the Company’s properties, rights and assets, except for its intellectual property (which is subject to a negative pledge under the Amended Loan and Security Agreement). In addition, the Amended Loan and Security Agreement contains customary representations, warranties, events of default and covenants. In connection with its entry into the Loan and Security Agreement, the Company issued to SVB warrants to purchase (i) up to 432,844 shares of the Company’s common stock, in the aggregate, and (ii) up to an additional 432,842 shares of common stock, in the aggregate, in the event the Company achieved certain clinical milestones, in each case at an exercise price per share of $ 2.22 . In connection with its entry into the Amended Loan and Security Agreement, the Company amended and restated the warrants issued to SVB. As amended and restated, the warrants are for up to 649,615 shares of the Company's common stock, in the aggregate, at an exercise price per share of $ 1.16 , or the SVB Warrants. The SVB Warrants expire on August 6, 2031 . The issuance costs for the Loan and Security Agreement, including the Amended Loan and Security Agreement, were approximately $ 1.2 million and primarily related to the warrants issued to SVB, which will be amortized into interest expense over the period to August 1, 2023 . Interest expense, including the amortization of issuance costs, was $ 3.2 million for the year ended December 31, 2022 and $ 1.2 million for the year ended December 31, 2021. The fair value of the Amended Loan and Security Agreement as of December 31, 2022 approximates its face value. 5. Property and Equipment, net Property and equipment, net, consists of the following: December 31, ($ in thousands) 2022 2021 Office and computer equipment $ 2,183 $ 2,534 Software 1,291 1,236 Leasehold improvements 9,561 9,474 Laboratory equipment 5,232 5,110 18,267 18,354 Less: accumulated depreciation ( 9,807 ) ( 7,413 ) Property and equipment, net $ 8,460 $ 10,941 Depreciation expense for the year ended December 31, 2022 was $ 2.8 million and was $ 2.6 million for the year ended December 31, 2021. During the year ended December 31, 2021, the Company impaired property and equipment by $ 0.1 million. Refer to Note 3, Summary of Significant Accounting Policies , for further details. 6. Accrued Expenses Accrued expenses consist of the following: ($ in thousands) 2022 2021 Clinical $ 2,200 $ 1,677 Employee compensation 1,160 1,922 Professional services 534 825 Preclinical services 198 363 Manufacturing services 1,177 1,056 Other consulting services 16 66 Other 169 167 $ 5,454 $ 6,076 F- 15 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS 7. Related Party Transactions Collaboration with Vineti Inc. On July 9, 2020, the Company entered into a master service agreement and statement of work with Vineti, Inc., or Vineti. Pursuant to the agreements, Vineti is developing a software platform to coordinate and orchestrate the order, cell collection and manufacturing process for the Company’s T-cell therapy, or TCR-T, clinical programs. Heidi Hagen, who became a director of the Company in June 2019 and resigned November 2, 2021 and was appointed the Company's interim Chief Executive Officer on February 25, 2021 and resigned on August 30, 2021, is a co-founder and former officer, of Vineti. During the year ended December 31, 2022, the Company did no t incur expenses for services performed by Vineti, compared to $ 0.4 million during the year ended December 31, 2021. WaterMill Settlement Agreement On February 4, 2021, the Company entered into an agreement, or the Settlement Agreement, with WaterMill Asset Management Corp. and Robert W. Postma, or collectively, the WaterMill Parties. Pursuant to the Settlement Agreement, the Company increased the size of its board of directors from eight to nine directors and appointed Mr. Postma to fill the newly created directorship. In accordance with the Settlement Agreement, the Company agreed to reimburse the WaterMill Parties for up to $ 0.4 million of their reasonable out-of-pocket expenses in connection with (i) the WaterMill Parties' solicitation of written consents from our stockholders to vote in favor of certain proposals, as set forth in the definitive consent statement filed by the WaterMill Parties on October 30, 2020, and (ii) the negotiation, execution, and effectuation of the Settlement Agreement. As of February 19, 2021, the Company has fully reimbursed the WaterMill Parties an aggregate amount of $ 0.4 million. Joint Venture with TriArm Therapeutics/Eden BioCell On December 18, 2018, the Company and TriArm Therapeutics, Ltd., or TriArm, launched Eden BioCell, Ltd., or Eden BioCell, as a joint venture to lead commercialization of the Company’s Sleeping Beauty -generated CAR-T therapies in the People’s Republic of China (including Macau and Hong Kong), Taiwan and Korea. The Company licensed to Eden BioCell the rights in Greater China for its third-generation Sleeping Beauty -generated CAR-T therapies targeting the CD19 antigen. Eden BioCell is owned equally by the Company and TriArm and the parties share decision-making authority. TriArm has contributed $ 10.0 million to Eden BioCell and has committed up to an additional $ 25.0 million to this joint venture. TriArm also manages all clinical development in the territory pursuant to a master services agreement between TriArm and Eden BioCell. James Huang was the founder and serves as managing partner of Panacea Venture, which is an investor in TriArm. Mr. Huang is the Chair of the Company's board of directors and has been a director since July 2020. He also serves as a member of Eden BioCell’s board of directors. For the years ended December 31, 2022 and 2021, Eden BioCell incurred a net loss and the Company continues to have no commitment to fund its operations. In September 2021, TriArm and Alaunos mutually agreed to dissolve the Eden BioCell joint venture. The joint venture agreement has been terminated and the Eden BioCell entity is in the process of being dissolved. Refer to Note 15, Joint Venture , for further details. 8. Leases Operating Leases In June 2012, the Company entered into a master lease for the Company’s office in Boston, Massachusetts, which was originally set to expire in August 2016 , but was renewed through August 31, 2021. On April 22, 2021, the Company extended its lease for a portion of office space in Boston. The renewal of the portion of the Company's office space was originally set to expire on August 31, 2021, but was extended through August 31, 2026 . As of December 31, 2022, and December 31, 2021, a total security deposit of $ 0.1 million is included in deposits on the Company’s balance sheet. In December 2021, the Company made the decision to move its operations away from its former corporate office in Boston. As described in Note 3, Summary of Significant Accounting Policies, the Company's change in the intended use of the Boston office represented an indicator of impairment. The Company determined the aggregate carrying value of the asset group (approximately $ 1.4 million as of December 31, 2021) was in excess of the aggregate estimated fair value and recorded an impairment charge of $ 0.6 million to the right-of-use asset and approximately $ 0.1 million to associated property and equipment during the year ended December 31, 2021. The fair value was determined based on the amount and timing of estimated net future cash flows, discounted at a risk-adjusted rate of 10 %. On March 12, 2019, the Company entered into a lease agreement for office and lab space in Houston, Texas at MD Anderson through April 2021 . Under the terms of the lease agreement, the Company leases approximately 1,038 square feet and was required to make rental payments F- 16 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS at an average monthly rate of approximately $ 2 thousand through April 2021. On October 15, 2019, the Company entered into a lease agreement for additional office and laboratory space in Houston through February 2027 . Under the terms of the lease, the Company leases from MD Anderson, approximately 8,443 square feet and is initially required to make rental payments of approximately $ 17 thousand per month through February 2027, subject to an annual base rent increase of approximately 3.0 % throughout the term. Effective April 7, 2020, the Company leased an additional 5,594 square feet from MD Anderson. The Company is initially required to make rental payments of approximately $ 12 thousand per month through February 2027 , subject to an annual base rent increase of approximately 3.0 % throughout the term. On December 15, 2020, the Company entered into a second agreement with MD Anderson to lease additional space on MD Anderson’s campus (the “2020 Lease”). The Company is initially required to make rental payments of approximately $ 37 thousand per month through April 2028, subject to an annual base rent increase of approximately 3.0 % throughout the term beginning in April 2023. The 2020 Lease may be extended for one additional five-year term at the Company's election. In April 2022, the Company modified the 2020 Lease, which reduced the Company's leased space from 18,111 square feet to 3,228 square feet. As a result, the associated lease liability and right-of-use asset were remeasured to $ 0.4 million based on revised lease payments. A gain of $ 0.1 million was recorded on the lease modification during the year ended December 31, 2022. The Company is initially required to make payments of approximately $ 7 thousand per month through April 2028, subject to an annual base rent increase of approximately 3.0 % throughout the term. The 2020 Lease may be extended for one additional five-year term at the Company's election. The components of lease expense were as follows: Year Ended December 31, ($ in thousands) 2022 2021 Operating lease cost $ 756 $ 1,394 Total lease cost $ 756 $ 1,394 Weighted-average remaining lease term (years) 4.13 5.58 Weighted-average discount rate 8.26 % 8.00 % The Company paid $ 0.8 million for amounts included in the measurement of the lease liabilities for the year-ended December 31, 2022. The Company did no t recognize new operating lease assets obtained in exchange for operating lease liabilities for the year-ended December 31, 2022. As of December 31, 2022, the maturities of the Company’s operating lease liabilities were as follows (in thousands): Maturity of Lease Liabilities Operating Leases 2023 757 2024 780 2025 804 2026 712 2027 158 Thereafter 31 Total lease payments 3,242 Less: imputed interest ( 496 ) Present value of lease payments $ 2,746 In June 2022, the Company executed an agreement to sub-sublease 4,772 square feet of subleased office space in Boston. The term of the sub-sublease is from July 1, 2022 to June 30, 2025 and provides the sub-subtenant with an option to extend through to July 31, 2026. For the year ended December 31, 2022, the Company recognized $ 0.1 million in lease income, which is classified within other income (expense), net in the Statement of Operations. Under the current terms of the agreement, lease income for the remainder of the sub-sublease term is expected to be $ 0.2 million in 2023, $ 0.2 million in 2024 and $ 0.1 million in 2025. 9. Commitments and Contingencies Exclusive License Agreement with PGEN Therapeutics On October 5, 2018, the Company entered into an exclusive license agreement, or License Agreement, with PGEN Therapeutics, or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation. Pursuant to the terms of the F- 17 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS License Agreement, the Company has exclusive, worldwide rights to research, develop and commercialize (i) TCR products designed for neoantigens for the treatment of cancer, (ii) products utilizing Precigen’s RheoSwitch gene switch, or RTS, for the treatment of cancer, referred to as IL-12 Products and (iii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) BCMA for the treatment of cancer, subject to certain obligations to pursue such target under the License and Collaboration Agreement effective March 27, 2015 between us, Precigen and ARES TRADING S.A., a subsidiary of Merck KGaA, as assigned by Precigen to PGEN. Under the License Agreement, the Company also has exclusive, worldwide rights for certain patents relating to the Sleeping Beauty technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products. The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts, as defined in the License Agreement, to develop and commercialize IL-12 products, CD19 products and TCR Products. In consideration of the licenses and other rights granted by PGEN, the Company pays PGEN an annual license fee of $ 0.1 million and the Company reimbursed PGEN for certain historical costs of the licensed programs. The Company will make milestone payments totaling up to an additional $ 52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from low-single digits to high-single digits on the net sales derived from the sale of any approved IL-12 products and CAR products. The Company will also pay PGEN royalties ranging from low-single digits to mid-single digits on the net sales derived from the sale of any approved TCR products, up to a maximum royalty amount of $ 100.0 million in the aggregate. The Company will also pay PGEN 20 % of any sublicensing income received by us relating to the licensed products. The Company is responsible for all development costs associated with each of the licensed products. PGEN will pay the Company royalties ranging from low-single digits to mid-single digits on the net sales derived from the sale of PGEN’s CAR products, up to a maximum royalty amount of $ 100.0 million. No royalty amounts were incurred during the years ended December 31, 2022 and 2021. In October 2020, the Company entered into an amendment to the License Agreement relating to the transfer of certain materials and PGEN’s obligations to provide transition assistance relating to the IL-12 products. License Agreement and 2015 Research and Development Agreement —The University of Texas MD Anderson Cancer Center On January 13, 2015 , the Company, together with Precigen, entered into the MD Anderson License with MD Anderson (which Precigen subsequently assigned to PGEN). Pursuant to the MD Anderson License, the Company, together with PGEN, holds an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson, including technologies relating to novel CAR T-cell therapies, non-viral gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches, Natural Killer, or NK Cells, and TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who served as the Company’s Chief Executive Officer from May 2015 until February 2021 and was formerly a tenured professor of pediatrics at MD Anderson. On August 17, 2015, the Company, Precigen and MD Anderson entered into the 2015 R&D Agreement to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and development of new and ongoing research programs. The rights and obligations of Precigen under the 2015 R&D Agreement were assigned to the Company pursuant to the Fourth Amendment to 2015 R&D Agreement which was entered into on September 19, 2019 (the “Fourth Amendment”) with an effective date of October 5, 2018. The activities under the 2015 R&D Agreement are directed by a joint steering committee comprised of two members from the Company and one member from MD Anderson. As provided under the MD Anderson License, the Company provided funding for research and development activities in support of the research programs under the 2015 R&D Agreement for a period of three years and in an amount of no less than $ 15.0 million and no greater than $ 20.0 million per year. On November 14, 2017, the Company entered into an amendment to the 2015 R&D Agreement, extending its term until April 15, 2021. In connection with the execution of the 2019 R&D Agreement described below, on October 22, 2019, the Company amended the 2015 R&D Agreement to extend the term of the 2015 R&D Agreement until December 31, 2026 and to allow cash resources on hand at MD Anderson under the 2015 R&D Agreement to be used for development costs under the 2019 Research and Development Agreement, or the 2019 R&D Agreement, which we entered into on October 22, 2019, with MD Anderson, pursuant to which we agreed to collaborate with respect to the TCR program. The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson F- 18 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS License, the Company, together with Precigen, shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will have the right to convert the MD Anderson License into a non-exclusive license if the Company and Precigen are not using commercially reasonable efforts to commercialize the licensed intellectual property on a case-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if the Company and Precigen are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may also terminate the agreement with written notice upon material breach by the Company and Precigen, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both the Company and Precigen and may be terminated by the mutual written agreement of the Company, PGEN, and MD Anderson. 2019 Research and Development Agreement—The University of Texas MD Anderson Cancer Center Under the 2019 R&D Agreement, the Company and MD Anderson will, among other things, collaborate on programs to expand the Company's TCR library and conduct clinical trials. The activities under the 2019 R&D Agreement are directed by a joint steering committee comprised of two members from the Company and one member from MD Anderson. The Company will own all inventions and intellectual property developed under the 2019 R&D Agreement and the Company will retain all rights to all, intellectual property, patentable or not, for oncology products manufactured using non-viral gene transfer technologies under the 2019 R&D Agreement, including the Company's Sleeping Beauty technology. The Company has granted MD Anderson an exclusive license for such intellectual property to develop and commercialize autologous TCR products manufactured using viral gene transfer technologies, and any products outside the field of oncology and a non-exclusive license for allogenic TCR products manufactured using viral-based technologies. Under the 2019 R&D Agreement, the Company agreed, beginning on January 1, 2021, to reimburse MD Anderson up to a total of $ 20.0 million for development costs under the 2019 R&D Agreement, after the funds from the 2015 R&D Agreement are exhausted. In addition, the Company will pay MD Anderson royalties on net sales of its TCR products. The Company is required to make performance-based payments upon the successful completion of clinical and regulatory benchmarks relating to its TCR products. The aggregate potential benchmark payments are $ 36.5 million, of which only $ 3.0 million will be due prior to the first marketing approval of the Company's TCR products. The royalty rates and benchmark payments owed to MD Anderson may be reduced upon the occurrence of certain events. The Company also agreed to sell its TCR products to MD Anderson at preferential prices and will sell the Company's TCR products in Texas exclusively to MD Anderson for a limited period of time following the first commercial sale of the Company's TCR products. For the year ended December 31, 2022, the Company incurred clinical expenses of $ 0.8 million from MD Anderson related to this agreement, compared to $ 0.3 million for the year ended December 31, 2021. The 2019 R&D Agreement will terminate on December 31, 2026 and either party may terminate the 2019 R&D Agreement following written notice of a material breach. The 2019 R&D Agreement also contains customary provisions related to indemnification obligations, confidentiality and other matters. In connection with the execution of the 2019 R&D Agreement, on October 22, 2019, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of the Company's common stock, which is referred to as the MD Anderson Warrant. The MD Anderson Warrant has an initial exercise price of $ 0.001 per share, expires on December 31, 2026 , and vests in four parts upon the occurrence of certain clinical milestones. As of December 31, 2022, the milestones have not been met. License Agreement with the NCI On May 28, 2019, the Company entered into a patent license agreement, or the Patent License, with the NCI. Pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property to develop and commercialize patient-derived (autologous), peripheral blood T-cell therapy products engineered by transposon-mediated gene transfer to express TCRs reactive to mutated KRAS, TP53 and EGFR neoantigens. In addition, pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property for manufacturing technologies to develop and commercialize autologous, peripheral blood T-cell therapy products engineered by non-viral gene transfer to express TCRs, as well as a non-exclusive, worldwide license to certain additional manufacturing technologies. On May 29, 2019, January 8, 2020, September 28, 2020, April 16, 2021, May 4, 2021 and August 13, 2021 the Company amended the Patent License to expand its TCR library to include additional TCRs reactive to mutated KRAS and TP53 neoantigens licensed from the NCI. The terms of the Patent License require the Company to pay the NCI minimum annual royalties in the amount of $ 0.3 million, which amount will be reduced to $ 0.1 million once the aggregate minimum annual royalties paid by the Company equals $ 1.5 million. F- 19 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. Of such payments, the aggregate potential benchmark payments are $ 4.3 million, of which aggregate payments of $ 3.0 million are due only after marketing approval in the United States or in Europe, Japan, Australia, China or India. The first benchmark payment of $ 0.1 million was paid during the year ended December 31, 2022 upon the initiation of the Company's TCR-T Library Phase 1/2 Trial, which was a qualifying Phase 1 clinical trial under the terms of the Patent License. In addition, the Company is required to pay the NCI one-time benchmark payments following aggregate net sales of licensed products at certain aggregate net sales ranging from $ 250.0 million to $ 1.0 billion. The aggregate potential amount of these benchmark payments is $ 12.0 million. The Company must also pay the NCI royalties on net sales of products covered by the Patent License at rates in the low to mid-single digits depending upon the technology included in a licensed product. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NCI a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense. The Patent License will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. The NCI may terminate or modify the Patent License in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the Patent License, or any portion thereof, in the Company's sole discretion at any time upon 60 days’ written notice to the NCI. In addition, the NCI has the right to: (i) require the Company to sublicense the rights to the product candidates covered by the Patent License upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs and (ii) terminate or modify the Patent License, including if the Company is not satisfying requirements for public use as specified by federal regulations. For the year ended December 31, 2022 the Company incurred $ 0.7 million of expenses and incurred $ 0.5 million of expenses for the year ended December 31, 2021. Cooperative Research and Development Agreement (CRADA) with the NCI On January 9, 2017, the Company entered into a Cooperative Research and Development Agreement, or the CRADA, with the NCI. The purpose of this collaboration was to advance a personalized TCR-T approach for the treatment of solid tumors. Using the Company's Sleeping Beauty technology, the NCI would analyze a patient’s own cancer cells, identify their unique neoantigens and TCRs reactive against those neoantigens and then use the Company's Sleeping Beauty technology to transpose one or more TCRs into T cells for re-infusion. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with the Company's researchers. The Company is responsible for providing the NCI with the test materials necessary for them to conduct their studies, and eventually, clinical trials pursuant to the CRADA. Inventions, data and materials discovered or produced in connection with performance of the research plan under the CRADA will remain the sole property of the party who produced the discovery. The parties will jointly own all inventions jointly discovered under the research plan. The owner of any invention under the CRADA will make the decision to file a patent covering the invention, or in the case of a jointly owned invention, the Company will have the first opportunity to file a patent covering the invention. If the Company fails to provide timely notice of its decision to the NCI or decides not to file a patent covering the joint invention, the NCI has the right to make the filing. For any invention solely owned by the NCI or jointly made by the NCI and the Company for which a patent application was filed, the U.S. Public Health service grants the Company an exclusive option to elect an exclusive or non-exclusive commercialization license. For inventions owned solely by the NCI or jointly owned by the NCI and the Company, which are licensed according to the terms described above, the Company agreed to grant to the U.S. government a non-exclusive, non-transferable, irrevocable and paid up license to practice the invention or have the invention practiced on its behalf throughout the world. The Company is also required to grant the U.S. government a non-exclusive, non-transferable, irrevocable and paid up license to practice the invention or have the invention practiced on its behalf throughout the world for any of the Company's solely owned inventions. The agreement may be terminated by any of the parties upon 60 days prior written consent. The NCI has a cleared Investigational New Drug Application, or IND, that would permit them to begin this trial. To the Company's knowledge, the trial has not yet enrolled. The progress and timeline for this trial, including the timeline for dosing patients, are under control of the NCI. In February 2019, the Company extended the CRADA with the NCI until January 9, 2022, committing an additional $ 5.0 million to this program; however, for the third and fourth quarters of 2021, the Company was not required to make payments toward the program as agreed with the NCI. Therefore, as of December 31, 2022, the Company made $ 3.8 million of payments under the February 2019 CRADA extension, and the NCI has agreed that this is full satisfaction of the agreement and no further payments are due under the $ 5.0 million commitment. In March 2022, the Company entered into an amendment to the CRADA that was retroactive, effective January 9, 2022 to extend the term of the F- 20 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS CRADA until January 9, 2023. In June 2022, the Company entered into the Fourth Amendment to the CRADA, or the CRADA Fourth Amendment, which, among other things, extended the term of the CRADA until January 9, 2025. In connection with the CRADA Fourth Amendment, the Company agreed to contribute $ 1.0 million per year, payable on a quarterly basis, beginning in the first quarter of 2023. The Company did no t incur expenses under the CRADA for the year ended December 31, 2022, as compared to $ 1.3 million for the year ended December 31, 2021. Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University System On August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which the Company refers to, collectively, as the Licensors. Under this agreement, the Company was granted an exclusive, worldwide license to rights (including rights to U.S. and foreign patent and patent applications and related improvements and know-how) for the manufacture and commercialization of two classes of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin. Under the terms of the agreement, the Company may be required to make additional payments to the Licensors upon achievement of certain milestones in varying amounts which, on a cumulative basis could total up to an additional $ 4.5 million. In addition, the Licensors are entitled to receive royalty payments on sales from a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certain circumstances. During the year ended December 31, 2022, $ 2.5 million was incurred as a one-time milestone payment under the terms of the agreement, compared to $ 0.1 million for the year ended December 31, 2021. The Company incurred $ 2 thousand in royalty expenses on sales under this agreement during the year ended December 31, 2022, and did no t incur royalty expenses on sales under this agreement during the year ended December 31, 2021. Collaboration Agreement with Solasia Pharma K.K. On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia Pharma K. K., or Solasia, which was amended on July 31, 2014 to include an exclusive worldwide license and amended on October 14, 2021 to revise certain payment schedule details, or, as so amended, the Solasia License and Collaboration Agreement. Pursuant to the Solasia License and Collaboration Agreement, the Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenic molecules, in all indications for human use. As consideration for the license, the Company is eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales of darinaparsin, once commercialized, and a percentage of any sublicense revenue generated by Solasia. Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s licensors, as defined in the Solasia License and Collaboration Agreement, will receive a portion of all milestone and royalty payments made by Solasia to the Company in accordance with the terms of the Solasia License and Collaboration Agreement with the licensors, as described above. In June 2022, Solasia announced that darinaparsin had been approved from relapsed or refractory Peripheral T-Cell Lymphoma by the Ministry of Health, Labor and Welfare in Japan. During the year ended December 31, 2022, the Company earned $ 2.9 million of collaboration revenue under the Solasia License and Collaboration Agreement primarily related to Solasia's achievement of certain sales-based milestones in Japan, compared to $ 0.4 million during the year ended December 31, 2021. 10. Warrants In connection with the Company’s November 2018 private placement that provided net proceeds of approximately $ 47.1 million, the Company issued warrants to purchase an aggregate of 18,939,394 shares of common stock, which became exercisable six months after the closing of the private placement, or the November 2018 Warrants. The November 2018 Warrants had an exercise price of $ 3.01 per share and have a five-year term. The fair value of the November 2018 Warrants was estimated at $ 18.4 million using a Black-Scholes model with the following assumptions: expected volatility of 71 %, risk free interest rate of 2.99 %, expected life of five years and no dividends. On July 26, 2019 and September 12, 2019, the Company entered into agreements with existing investors whereby the investors exercised the November 2018 Warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $ 3.01 per share. Proceeds from the warrant exercise after deducting placement agent fees and other related expenses of $ 1.1 million were approximately $ 52.5 million. The Company issued participating investors new warrants to purchase up to 17,803,031 additional shares of common stock, or the 2019 Warrants, as consideration for the warrant holders to exercise their November 2018 Warrants. The 2019 Warrants will expire on the fifth anniversary of the initial exercise date and have an exercise price of $ 7.00 . The 2019 Warrants were valued using a Black-Scholes valuation model and resulted in a $ 60.8 million non-cash charge in the Company’s statement of operations in 2019. F- 21 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS On October 22, 2019, the Company entered into the 2019 R&D Agreement with MD Anderson. In connection with the execution of the 2019 R&D Agreement, the Company issued the MD Anderson Warrant to purchase 3,333,333 shares of common stock. The MD Anderson Warrant has an initial exercise price of $ 0.001 per share and grant date fair value of $ 14.5 million. The MD Anderson Warrant expires on December 31, 2026 and vests upon the occurrence of certain clinical milestones. The Company will recognize expense on the MD Anderson Warrant in the same manner as if the Company paid cash for services to be rendered. For the year ended December 31, 2022 and 2021, the Company did not recognize any expense related to the MD Anderson Warrant as the clinical milestones had not been achieved. On August 6, 2021, the Company entered into the Loan and Security Agreement with SVB. Refer to Note 4, Debt . In connection with the Loan and Security Agreement, the Company issued SVB warrants to purchase 432,844 shares of common stock with an exercise price of $ 2.22 per share. The warrants have a ten-year life and were fully vested upon issuance. The fair value of the warrants was estimated at $ 0.8 million using a Black-Scholes model with the following assumptions: expected volatility of 79 %, risk free interest rate of 1.31 %, expected life of ten years and no dividends. On December 28, 2021, the Company entered into the Amended Loan and Security Agreement, as described in Note 4, Debt, in connection with which, the original warrants issued to SVB were amended and restated. As amended and restated, the SVB Warrants are for up to 649,615 shares of common stock, in the aggregate, at an exercise price per share of $ 1.16 . The SVB Warrants expire on August 6, 2031 and were fully vested upon issuance. Using a Black-Scholes model with an expected volatility of 81 %, risk free interest rate of 1.49 %, expected life of 10 years and no dividends, the Company recorded a $ 0.2 million increase in the fair value of the SVB Warrants due to the modification of the SVB Warrants during the year ended December 31, 2021. The Company assessed whether the SVB Warrants require accounting as derivatives. The Company determined that the SVB Warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with ASC 815, Derivatives and Hedging . As such, the Company has concluded the SVB Warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity. 11. Restructuring On September 27, 2021, in order to lower its existing cost structure in connection with the realignment of its business strategy, the Company announced a strategic reduction in force and notified approximately 60 full-time employees of its intention to terminate their services on or, in most cases, before November 30, 2021. Certain of the notified employees had employment agreements that provided for enhanced severance benefits. The severance benefits, apart from certain continuing Company-paid health care benefits for up to twelve months, were paid in 2021. The remaining benefits were paid in 2022, which reduced the severance benefits accrual to $ 0 as of December 31, 2022. The Company incurred the following costs associated with termination benefit payments resulting from the strategic reduction in force: December 31, ($ in thousands) 2021 Research and development $ 2,368 General and administrative 1,289 Total severance expense $ 3,657 12. Income Taxes There is no provision for income taxes because the Company has incurred operating losses since inception. The reported amounts of income tax expense for the years ended December 31, 2022 and 2021 differ from the amounts that would result from applying domestic federal statutory F- 22 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS tax rates to pretax losses primarily because of the changes in the valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2022 and 2021 are as follows: December 31, (in thousands) 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 171,070 $ 164,486 Start-up and pre-clinical studies 17,204 21,705 Research and development credit carryforwards 40,116 39,817 Stock-based compensation 698 706 Capitalized acquisition costs 2,180 2,946 Lease liability 618 1,278 Depreciation 239 102 Capitalized research expenses 5,156 - Other 27 156 237,308 231,196 Less valuation allowance ( 236,827 ) ( 230,119 ) Total deferred tax assets 481 1,077 Right-of-use asset ( 481 ) ( 1,077 ) Total deferred tax liabilities $ ( 481 ) $ ( 1,077 ) Net deferred taxes $ — $ — Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 2022, the Company has aggregate net operating loss carryforwards for federal tax purposes of approximately $ 665.5 million, of which approximately $ 341.7 million expire at various dates through December 31, 2037 and approximately $ 323.8 million can be carried forward indefinitely. The Company also has approximately $ 497.9 million of state net operating loss carryforwards available to offset future state taxable income, expiring at various dates through 2042. Additionally, the Company has approximately $ 40.1 million of federal and state research and development credits at December 31, 2022, expiring in varying amounts through 2042 , which may be available to reduce future taxes. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since it is more likely than not that these future benefits will not be realized. However, these deferred tax assets may be available to offset future income tax liabilities and expenses. The valuation allowance increased by $ 6.7 million in 2022 due primarily to net operating loss carryforwards and the increase in research and development credits. Income taxes using the federal statutory income tax rate differ from the Company’s effective tax rate primarily due to non-deductible expenses related to the Company’s issuance of warrants along with the change in the valuation allowance on deferred tax assets. A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows: Year Ended December 31, (in thousands) 2022 2021 Federal income tax at statutory rates 21 % 21 % State income tax, net of federal tax benefit 3 % 3 % Research and development credits 2 % 3 % Research and development true-up - 2 % 0 % Stock-based compensation - 1 % - 1 % Federal/state rate change - 5 % - 2 % Change in valuation allowance - 18 % - 24 % Effective tax rate 0 % 0 % The Company adopted ASC 740, Accounting for Uncertain Tax Positions on January 1, 2007. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” ASC 740 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. The F- 23 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS Company did not establish any additional reserves for uncertain tax liabilities upon adoption of ASC 740. There were no adjustments to its uncertain tax positions in the years ended December 31, 2022 and 2021. The Company has not recognized any interest and penalties in the statements of operations because of the Company’s net operating losses and tax credits that are available to be carried forward. When necessary, the Company will account for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. The Company does not expect the amounts of unrecognized benefits will change significantly within the next twelve months. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and state jurisdictions for the years ended December 31, 1999 through 2022 to the extent net operating losses continue to be carried forward to 2022. Beginning in 2022, the Tax Cuts and Jobs Act of 2017, or the Tax Act, eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to capitalize and amortize them over five years pursuant to IRC Section 174. The mandatory capitalization requirement had no impact to the overall deferred tax assets due to the Company's loss position and full valuation allowance. 13. Stock Option Plan The Company adopted the 2012 Equity Incentive Plan, or the 2012 Plan, in May 2012. Including subsequent increases, the Company had reserved 14,000,000 shares for issuance. On December 31, 2022, there were 1,089,296 shares reserved for issuance and no shares available for future grant. The Company adopted the 2020 Equity Incentive Plan, or the 2020 Plan, in June 2020. The Company reserved 21,000,000 shares for issuance plus a carryover of 1,066,275 shares from the 2012 Plan for a total of 22,066,275 shares. In addition, returning shares from the 2012 Plan are available for issuance under the 2020 Plan. As of December 31, 2022, there were 9,319,326 shares reserved for issuance and 15,460,088 shares available for future grant. Stock options generally vest ratably in either quarterly or annual installments over three or four years, commencing on the first anniversary of the grant date and have contractual terms of ten years. Stock options to directors generally vest ratably over one or two years and have contractual terms of ten years. Stock options are valued using the Black-Scholes option pricing model and compensation is recognized based on such fair value over the period of vesting on a straight-line basis. Proceeds from the option exercises during the year ended December 31, 2022 amounted to $ 21 thousand and during the year ended December 31, 2021 amounted to $ 1.0 million. The intrinsic value of these options amounted to $ 26 thousand for the year ended December 31, 2022 and $ 0.8 million for the year ended December 31, 2021. Stock option activity under the Company's stock options plans for the years ending December 31, 2022 and 2021 were as follows: (in thousands, except share and per share data) Number of Shares Weighted- Average Exercise Price Weighted- Average Contractual Term (Years) Aggregate Intrinsic Value Outstanding, December 31, 2020 6,840,719 3.81 Granted 9,380,438 2.62 Exercised ( 363,109 ) 2.86 Cancelled ( 5,192,179 ) 3.65 Outstanding, December 31, 2021 10,665,869 $ 2.87 Granted 4,697,500 1.08 Exercised ( 26,250 ) 0.80 Cancelled ( 4,928,497 ) 3.34 Outstanding, December 31, 2022 10,408,622 $ 1.84 8.69 $ 3 Options exercisable, December 31, 2022 3,891,598 $ 2.46 8.08 $ — Options exercisable, December 31, 2021 4,410,312 $ 3.85 7.53 $ — Options available for future grant, December 31, 2022 15,460,088 On December 31, 2022, total unrecognized compensation costs related to non-vested stock options outstanding amounted to $ 6.2 million. The cost is expected to be recognized over a weighted-average period of 1.92 years. F- 24 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS Restricted Stock For the year ended December 31, 2022 the Company issued 280,000 shares of restricted stock and 1,601,224 in the year ended December 31, 2021 to employees and directors. During the year ended December 31, 2022, the Company repurchased 18,750 shares at a price of $ 2.41 per share to cover payroll taxes for one employee exercise, which is in accordance with the original terms of the award. There were no repurchases by the Company for the year ended December 31, 2021. A summary of the status of restricted stock as of December 31, 2022 and 2021 is as follows: Number of Shares Weighted-Average Grant Date Fair Value Unvested, December 31, 2020 786,280 3.08 Granted 1,601,224 2.60 Vested ( 754,137 ) 3.40 Cancelled ( 434,787 ) 3.45 Unvested, December 31, 2021 1,198,580 $ 2.10 Granted 280,000 0.82 Vested ( 306,617 ) 2.28 Cancelled ( 232,901 ) 3.15 Unvested, December 31, 2022 939,062 $ 1.40 As of December 31, 2022, there was $ 1.1 million of total unrecognized stock-based compensation expense related to non-vested restricted stock arrangements. The expense is expected to be recognized over a weighted-average period of 1.78 years. 14. Employee Benefit Plan The Company sponsors a qualified 401(k) retirement plan under which employees are allowed to contribute certain percentages of their pay, up to the maximum allowed under Section 401(k) of the IRC, or the 401(k) Plan. The Company may make contributions to the 401(k) Plan at its discretion. The Company contributed approximately $ 0.5 million to the 401(k) Plan during the year ended December 31, 2022 and $ 0.7 million during the year ended December 31, 2021. 15. Joint Venture On December 18, 2018, the Company entered into a Framework Agreement with TriArm whereby the parties agreed to launch Eden BioCell to lead clinical development and commercialization of certain Sleeping Beauty -generated CAR-T therapies as set forth in a separate license agreement. On January 3, 2019, Eden BioCell was incorporated in Hong Kong as a private company. Eden BioCell, the Company and TriArm entered into a Share Subscription Agreement on January 23, 2019, where the Company and TriArm agreed to contribute certain intellectual property, services and cash (only with respect to TriArm) to Eden BioCell to subscribe for a certain number of newly issued ordinary shares in the share capital of Eden BioCell. The closing of the transaction occurred on July 5, 2019. The Framework Agreement and Share Subscription Agreements were each respectively amended to be effective as of this date. Upon consummation of the joint venture, Eden BioCell and the Company also entered into a license agreement, pursuant to which the Company licensed the rights to Eden BioCell for third generation Sleeping Beauty -generated CAR-T therapies targeting the CD19 antigen for the territory of China (including Macau and Hong Kong), Taiwan and Korea. TriArm and the Company each received a 50 % equity interest in the joint venture in exchange for their contributions to Eden BioCell. The Company determined that Eden BioCell was considered a variable interest entity, or VIE, and concluded that it is not the primary beneficiary of the VIE as it did not have the power to direct the activities of the VIE. As a result, the Company accounts for the equity interest in Eden BioCell under the equity method of accounting as it has the ability to exercise significant influence. In March 2021, Eden BioCell began treating patients in a clinical trial with the Company’s investigational CD19 RPM CAR-T cell therapy, under the IND cleared by the Taiwan FDA in December 2020. In the first half of 2021, two patients were treated in this trial. The lead investigator at National Taiwan University in Taipei, has reported no serious adverse safety events in either of these patients. Laboratory results continue to support, as previously published, that non-viral Sleeping Beauty gene transfer is effective in genetically modifying autologous T-cells. Patients were infused two days after gene transfer, thus shortening the turnaround time and demonstrating an advantage over viral methods. F- 25 Table of Contents Alaunos Therapeutics, Inc. NOTES TO FINANCIAL STATEMENTS Based on laboratory data from the first two patients generated between March and May 2021, the TriArm/Eden team concluded, in concert with the investigator and the Company, that further process development work is required. For the years ended December 31, 2022 and 2021, Eden BioCell incurred a net loss. In September 2021, TriArm and the Company mutually agreed to dissolve the joint venture, which has now been terminated. The Eden BioCell entity is in the process of being dissolved. F- 26