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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

OR

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

For the transition period from            to

Commission File Number 001-38191

MUSTANG BIO, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

47-3828760

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

377 Plantation Street

Worcester, MA 01605

(Address including zip code of principal executive offices)

(781) 652-4500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

MBIO

NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No   

Class of Common Stock

 

Outstanding Shares as of August 9, 2020

Class A Common Stock, $0.0001 par value

 

845,385

Common Stock, $0.0001 par value

 

55,728,325

Table of Contents

MUSTANG BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

3

Item 1.

Unaudited Condensed Financial Statements

3

Condensed Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019

3

Condensed Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

4

Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

5

Condensed Statements of Cash Flows for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

7

Notes to the Condensed Financial Statements (Unaudited)

8

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

27

Item 4.

Controls and Procedures

27

PART II. OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

73

Signatures

74

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

MUSTANG BIO, INC.

Condensed Balance Sheets

($ in thousands, except for share and per share amounts)

June 30, 

December 31, 

    

2020

    

2019

ASSETS

 

  

 

  

Current Assets:

 

  

 

  

Cash and cash equivalents

$

85,361

$

61,413

Other receivables - related party

 

25

 

19

Prepaid expenses and other current assets

 

886

 

1,631

Total current assets

 

86,272

 

63,063

 

  

 

  

Property, plant and equipment, net

 

7,675

 

6,779

Fixed assets - construction in process

 

493

 

1,157

Restricted cash

 

1,000

 

1,000

Other assets

 

250

 

250

Operating lease right-of-use asset, net

1,140

1,196

Total Assets

$

96,830

$

73,445

 

  

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current Liabilities:

 

  

 

  

Short-term notes payable

$

5,000

$

1,250

Accounts payable and accrued expenses

8,996

5,668

Payables and accrued expenses - related party

 

491

 

596

Operating lease liabilities - short-term

265

257

Total current liabilities

 

14,752

 

7,771

 

  

 

  

Notes payable

8,959

12,179

Operating lease liabilities - long-term

2,090

1,843

Total Liabilities

 

25,801

 

21,793

 

  

 

  

Commitments and Contingencies

 

  

 

  

 

  

 

  

Stockholders’ Equity

 

  

 

  

Preferred stock ($0.0001 par value), 2,000,000 shares authorized, 250,000 shares of Class A preferred stock issued and outstanding as of June 30, 2020 and December 31, 2019 respectively

 

 

Common Stock ($0.0001 par value), 85,000,000 shares authorized

 

  

 

  

Class A common shares, 845,385 shares issued and outstanding as of June 30, 2020 and December 31, 2019 respectively

 

 

Common shares, 54,826,243 and 39,403,519 shares issued and outstanding as of June 30, 2020 and December 31, 2019 respectively

 

5

 

4

Common stock issuable, 0 and 1,206,667 shares as of June 30, 2020 and December 31, 2019 respectively

 

 

4,923

Additional paid-in capital

 

222,938

 

172,184

Accumulated deficit

 

(151,914)

 

(125,459)

Total Stockholders’ Equity

 

71,029

 

51,652

Total Liabilities and Stockholders’ Equity

$

96,830

$

73,445

The accompanying notes are an integral part of these condensed financial statements.

3

Table of Contents

MUSTANG BIO, INC.

Condensed Statements of Operations

($ in thousands, except for share and per share amounts)

(Unaudited)

For the three months ended June 30, 

For the six months ended June 30, 

    

2020

    

2019

    

2020

    

2019

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

$

9,830

$

6,823

$

19,144

$

13,783

Research and development – licenses acquired

 

1,300

 

200

 

1,550

 

650

General and administrative

 

2,991

 

3,189

 

4,947

 

5,533

Total operating expenses

 

14,121

 

10,212

 

25,641

 

19,966

Loss from operations

 

(14,121)

 

(10,212)

 

(25,641)

 

(19,966)

 

  

 

  

 

  

 

  

Other income (expense)

 

  

 

  

 

  

 

  

Interest income

 

142

 

387

 

405

 

539

Interest expense

 

(619)

 

(574)

 

(1,219)

 

(585)

Total other income (expense)

 

(477)

 

(187)

 

(814)

 

(46)

Net Loss

$

(14,598)

$

(10,399)

$

(26,455)

$

(20,012)

 

 

  

 

 

  

Net loss per common share outstanding, basic and diluted

$

(0.32)

$

(0.29)

$

(0.61)

$

(0.62)

 

  

 

  

 

  

 

  

Weighted average number of common shares outstanding, basic and diluted

 

45,023,030

 

36,306,710

 

43,497,173

 

32,149,352

The accompanying notes are an integral part of these condensed financial statements.

4

Table of Contents

MUSTANG BIO, INC.

Condensed Statements of Stockholders’ Equity

($ in thousands, except for share amounts)

(Unaudited)

For the Three Months Ended June 30, 2020

Common 

Additional 

Total 

Class A Preferred Stock

Class A Common Shares

Common Shares

Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Issuable

    

Capital

    

Deficit

    

Equity

Balances at March 31, 2020

 

250,000

$

 

845,385

$

 

42,076,840

$

4

$

$

183,116

$

(137,316)

$

45,804

Issuance of common shares, net of offering costs - At-the-Market Offering

 

 

 

 

 

886,800

 

 

 

2,933

 

 

2,933

Issuance of common shares, equity fee on At-the-Market Offering

 

 

 

 

 

22,170

 

 

 

77

 

 

77

Issuance of common shares, net of offering costs - Public Offering

 

 

 

 

 

11,455,604

 

1

 

 

34,923

 

 

34,924

Issuance of common shares, equity fee on Public Offering

 

 

 

 

 

286,390

 

 

 

932

 

 

932

Stock-based compensation expenses

 

 

 

 

 

98,439

 

 

 

957

 

 

957

Exercise of warrants

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(14,598)

 

(14,598)

Balances at June 30, 2020

 

250,000

$

 

845,385

$

 

54,826,243

$

5

$

$

222,938

$

(151,914)

$

71,029

For the Six Months Ended June 30, 2020

Common 

Additional 

Total 

Class A Preferred Stock

Class A Common Shares

Common Shares

Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Issuable

    

Capital

    

Deficit

    

Equity

Balances at December 31, 2019

 

250,000

$

 

845,385

$

 

39,403,519

$

4

$

4,923

$

172,184

$

(125,459)

$

51,652

Issuance of common shares - Founders Agreement

 

 

 

 

 

1,206,667

 

 

(4,923)

 

4,923

 

 

Issuance of common shares, net of offering costs - At-the-Market Offering

 

 

 

 

 

2,135,634

 

 

 

7,843

 

 

7,843

Issuance of common shares, equity fee on At-the-Market Offering

 

 

 

 

 

53,390

 

 

 

202

 

 

202

Issuance of common shares, net of offering costs - Public Offering

 

 

 

 

 

11,455,604

 

1

 

 

34,923

 

 

34,924

Issuance of common shares, equity fee on Public Offering

 

 

 

 

 

286,390

 

 

 

932

 

 

932

Issuance of common shares under ESPP

 

 

 

 

 

68,351

 

 

 

169

 

 

169

Stock-based compensation expenses

 

 

 

 

 

213,689

 

 

 

1,762

 

 

1,762

Exercise of warrants

 

 

 

 

 

2,999

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(26,455)

 

(26,455)

Balances at June 30, 2020

 

250,000

$

 

845,385

$

 

54,826,243

$

5

$

(0)

$

222,938

$

(151,914)

$

71,029

5

Table of Contents

For the Three Months Ended June 30, 2019

Common 

Additional 

Total 

Class A Preferred Stock

Class A Common Shares

Common Shares

Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Issuable

    

Capital

    

Deficit

    

Equity

Balances at March 31, 2019

 

250,000

$

 

1,000,000

$

 

27,561,433

$

3

$

$

117,158

$

(88,683)

$

28,478

Conversion of Class A common shares to common shares

(137,608)

137,608

Issuance of common shares, net of offering costs -At-the-Market Offering

3,506,222

21,972

21,972

Issuance of common shares - Equity fee on At-the-Market Offering

87,656

495

495

Issuance of common shares, net of offering costs - Public Offering

7,906,250

1

29,484

29,485

Issuance of common shares - Equity fee on Public Offering

197,656

791

791

Stock-based compensation expenses

 

 

 

 

 

50,000

 

 

 

622

 

 

622

Exercise of warrants

 

 

 

 

 

7,491

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(10,399)

 

(10,399)

Balances at June 30, 2019

 

250,000

$

 

862,392

$

 

39,454,316

$

4

$

$

170,522

$

(99,082)

$

71,444

For the Six Months Ended June 30, 2019

Common 

Additional 

Total 

Class A Preferred Stock

Class A Common Shares

Common Shares

Stock

Paid-in

Accumulated

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Issuable

    

Capital

    

Deficit

    

Equity

Balances at December 31, 2018

 

250,000

$

 

1,000,000

$

 

26,610,183

$

3

$

2,085

$

113,378

$

(79,070)

$

36,396

Issuance of common shares - Founders Agreement

 

 

 

 

 

709,314

 

 

(2,085)

 

2,085

 

 

Issuance of common shares- Equity fee on Horizon Notes to Fortress Biotech

108,069

375

375

Issuance of warrants- Horizon Notes

 

 

 

 

 

 

 

 

888

 

 

888

Conversion of Class A Common shares to common shares

(137,608)

137,608

Issuance of common shares, net of offering shares -At-the-Market Offering

3,506,222

21,972

21,972

Issuance of common shares - Equity fee on At-the-Market Offering

87,656

495

495

Issuance of common shares, net of offering costs- Public Offering

7,906,250

1

29,484

29,485

Issuance of common shares- Equity fee on Public Offering

197,656

791

791

Stock-based compensation expenses

126,000

1,054

1,054

Exercise of warrants

 

 

 

 

 

65,358

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

(20,012)

 

(20,012)

Balances at June 30, 2019

 

250,000

$

 

862,392

$

 

39,454,316

$

4

$

$

170,522

$

(99,082)

$

71,444

The accompanying notes are an integral part of these condensed financial statements.

6

Table of Contents

MUSTANG BIO, INC.

Condensed Statements of Cash Flows

($ in thousands)

(Unaudited)

For the six months ended June 30, 

    

2020

    

2019

Cash Flows from Operating Activities:

 

  

 

  

Net loss

$

(26,455)

$

(20,012)

Accretion of debt discount

 

529

 

232

Issuance of common shares - Equity fee on At-the-Market Offering to Fortress Biotech

 

202

 

495

Issuance of common shares - Equity fee on Public Offering to Fortress Biotech

932

791

Issuance of common shares - Equity fee on Horizon Notes to Fortress Biotech

375

Research and development - licenses acquired

1,550

650

Stock-based compensation expenses

 

1,762

 

1,054

Depreciation expense

 

798

 

588

Amortization of operating lease right-of-use assets

 

56

 

65

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

 

 

  

Changes in operating assets and liabilities:

 

 

  

Prepaid expenses and other current assets

 

1,606

 

413

Other receivables - related party

(867)

(128)

Accounts payable and accrued expenses

 

2,017

 

(279)

Payable and accrued expenses - related party

 

(105)

 

523

Lease liabilities

255

(28)

Net cash used in operating activities

 

(17,720)

 

(15,261)

 

  

 

  

Cash Flows from Investing Activities:

 

  

 

  

Maturity of certificate of deposit

 

 

17,604

Purchase of research and development licenses

 

(250)

 

(450)

Purchase of fixed assets

 

(1,090)

 

(955)

Net cash (used in) provided by investing activities

 

(1,340)

 

16,199

 

  

 

  

Cash Flows from Financing Activities:

 

  

 

  

Proceeds from Horizon Notes

 

 

15,000

Debt issuance costs

(1,230)

Proceeds from issuance of common shares - At-the-Market Offering

8,023

22,515

Offering costs for the issuance of common shares - At-the-Market Offering

(180)

(543)

Proceeds from issuance of common shares - Public Offering

37,230

31,625

Offering costs for the issuance of common shares - Public Offering

(2,234)

(2,140)

Proceeds from issuance of common shares under ESPP

169

Net cash provided by financing activities

 

43,008

 

65,227

 

  

 

  

Net change in cash, cash equivalents and restricted cash

 

23,948

 

66,165

Cash, cash equivalents and restricted cash, beginning of the period

 

62,413

 

16,969

Cash, cash equivalents and restricted cash, end of the period

$

86,361

$

83,134

 

  

 

  

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

683

$

341

 

  

 

  

Supplemental disclosure of noncash investing and financing activities:

 

  

 

  

Fixed assets (acquired but not paid)

$

127

$

183

Issuance of common shares - Founders Agreement

$

4,923

$

2,085

Research and development licenses included in accounts payable and accrued expenses

$

1,300

$

200

Offering costs for the issuance of common shares - Public Offering, in accounts payable and accrued expenses

$

72

$

Issuance of warrants - Horizon Notes

$

$

888

The accompanying notes are an integral part of these condensed financial statements

7

Table of Contents

Mustang Bio, Inc.

Notes to the Condensed Financial Statements

(Unaudited)

Note 1 - Organization, Description of Business and Liquidity and Capital Resources

Mustang Bio, Inc. (the “Company” or “Mustang”) was incorporated in Delaware on March 13, 2015. Mustang is as a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapy into potential cures for hematologic cancers, solid tumors and rare genetic diseases. The Company may acquire rights to these technologies by licensing the rights or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.

The Company is a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

Liquidity and Capital Resources

The Company has incurred substantial operating losses and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of June 30, 2020, the Company had an accumulated deficit of $151.9 million.

The Company has funded its operations to date primarily through the sale of equity and its venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), herein referred to as the “Horizon Notes.” The Company expects to continue to use the proceeds from previous financing transactions primarily for general corporate purposes, including financing the Company’s growth, developing new or existing product candidates, and funding capital expenditures, acquisitions and investments. The Company currently anticipates that its cash and cash equivalents balances at June 30, 2020, are sufficient to fund its anticipated operating cash requirements for at least one year from the date of this Form 10-Q.

The Company will be required to expend significant funds in order to advance the development of its product candidates. The Company will require additional financings through equity and debt offerings, collaborations and licensing arrangements or other sources to fully develop, prepare regulatory filings, obtain regulatory approvals and commercialize its existing and any new product candidates. In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus.  However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.

Note 2 - Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2019, which were included in the Company’s Form 10-K and filed with the SEC on March 16, 2020. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

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Table of Contents

Mustang Bio, Inc.

Notes to the Condensed Financial Statements

(Unaudited)

Use of Estimates

The Company’s unaudited condensed financial statements include certain amounts that are based on management’s best estimates and judgments. The Company’s significant estimates include, but are not limited to, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Due to the uncertainty inherent in such estimates actual results could differ from those estimates.

Net Loss per Share

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period less unvested restricted stock. Since dividends are declared, paid and set aside among the holders of shares of common stock and Class A common shares pro-rata on an as-if-converted basis, the two-class method of computing net loss per share is not required. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of warrants or outstanding Class A preferred shares, as their inclusion would be anti-dilutive.

The table below summarizes potentially dilutive securities that were not considered in the computation of diluted net loss per share because they would be anti-dilutive.

For the six months ended June 30, 

    

2020

    

2019

Warrants

 

5,402,671

 

5,433,524

Options

 

1,141,675

 

1,241,675

Class A Preferred Shares

 

250,000

 

250,000

Unvested restricted stock awards

 

219,059

 

552,636

Unvested restricted stock units

 

1,499,228

 

968,334

Total

 

8,512,633

 

8,446,169

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Form 10-K filed with the SEC on March 16, 2020.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that expected credit losses relating to financial assets are measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

9

Table of Contents

Mustang Bio, Inc.

Notes to the Condensed Financial Statements

(Unaudited)

Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), - Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020, did not have a material impact on its condensed financial statements and related disclosures.

Note 3 - License, Clinical Trial and Sponsored Research Agreements

Research and Development Expenses - All Licenses

For the three and six months ended June 30, 2020 and 2019, the Company recorded the following expense in research and development for licenses acquired:

For the three months ended June 30, 

For the six months ended June 30, 

($ in thousands)

    

2020

    

2019

    

2020

    

2019

City of Hope National Medical Center

CD123

$

334

$

$

334

$

250

CS1

200

200

IL13Rα2

333