The Company, in accordance with its certificate of incorporation, as amended in July 2016, which was retroactively applied, is authorized to issue 50,000,000 common shares with a par value of $0.0001 per share, of which 1,000,000 shares are designated as “Class A Common Stock” and 15,000,000 shares are designated as “Class B Common Stock” see below Fortress Issuances and Note 4.

 

In connection with the Company’s formation, Fortress subscribed for 7,000,000 shares of the Class B Common Stock and 2,000,000 shares of the Company’s Common Stock, pursuant to the Founders Agreement. Fortress paid the par value of $900 in 2016. The fair value of the Company’s common shares approximated par value as no licenses had been transferred at that time. Dividends, if and when declared, are to be distributed pro-rata to the Class A, B and Common Stock holders.

 

The holders of Common Stock are entitled to one vote per share of Common Stock held. The holders of Class A Common Stock are entitled to the number of votes equal to the number of whole shares of Common Stock into which the shares of Class A Common Stock held by such holder are convertible and for a period of ten years from its issuance, the holders of the Class A Common Stock have the right to appoint one member of the board of directors of Mustang; to date, the holders of Class A Common Stock have not yet appointed such director.

 

The Class B Common Stockholders are entitled, for each share of Class B Common Stock held, to a number of votes equal to 1.1 times a fraction, the numerator of which is the sum of (A) the shares of outstanding Common Stock and (B) the whole shares of Common Stock into which the shares of outstanding Class A Common Stock and the Class B Common Stock are convertible and the denominator of which is the number of shares of outstanding Class B common shares.

 

Pursuant to the Founders Agreement, on March 13, 2016 the Company issued 250,000 shares of Class B Common Stock to Fortress, which equaled 2.5% of the fully diluted outstanding equity of Mustang at the time of issuance for the annual equity fee (see Note 4).

 

In February 2017, COH executed a waiver and acknowledgement agreement permitting issuance of the COH Anti-Dilution Shares in the form of Mustang common stock rather than Class A common shares as originally required, and such shares were issued. Therefore, in February 2017, the Company reclassed $1.7 million of common shares issuable liability to additional paid-in capital and issued 293,588 common shares to COH. As of December 31, 2017, COH owns 1,000,000 Class A common shares and 293,588 common shares. The shares were valued utilizing a weighted market model at approximately $5.73 per share or approximately $1.7 million.

  

On March 13, 2017, the Company issued to Fortress 767,264 shares of common stock at $5.73 per share representing the stock dividend payable in connection with Fortress’ ownership of Class A Preferred Stock. Pursuant to this issuance, the Company recorded a $4.4 million decrease in common shares issuable and a corresponding increase in additional paid in capital to account for the issuance of the PIK Dividend.

   

The holders of common stock are entitled to one vote per share of common stock held.

 

In July 2018, the Company filed a shelf registration statement on Form S-3 (the "S-3"), which was declared effective in July 2018. Under the S-3, the Company may sell up to a total of $75 million of its securities. In connection with the S-3, the Company entered into an At-the-Market Issuance Sales Agreement (the "ATM") with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the "Agents"), relating to the sale of shares of common stock. Under the ATM, the Company pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. No securities have been issued by the Company under the S-3 registration as of December 31, 2018.

Pursuant to the Founders Agreement, the Company issued 834,756 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully diluted outstanding equity of the Company on March 12, 2018.

 

  

On January 31, 2017, the Company closed the sixth round of financing totaling gross proceeds of $55.5 million, before expenses, in a private placement of shares and warrants for which NSC was the placement agent and received a fee of $5.5 million or approximately 10% of the gross proceeds. The Company issued 8,536,774 unregistered shares of common stock and 2,134,193 warrants in connection with this transaction. In addition, NSC received 853,677 warrants or approximately 10% of the shares issued.

On March 31, 2017, the Company closed the seventh round of financing totaling gross proceeds of $0.4 million, before expenses, in a private placement of shares and warrants for which NSC was the placement agent and received a fee of approximately $42,000 or approximately 10% of the gross proceeds. The Company issued 64,000 unregistered shares of common stock and 16,000 warrants in connection with this transaction. In addition, NSC received 6,400 warrants or approximately 10% of the shares issued.

 

On August 3, 2017, the Company closed the final round of financing totaling gross proceeds of $65,000. The Company issued 10,000 unregistered shares of common stock and 2,500 warrants in connection with this transaction. In addition, NSC received 1,000 warrants or approximately 10% of the shares issued.

 

Pursuant to the Founders Agreement, the Company issued 982,533 shares to Fortress, representing 2.5% of the aggregate number of shares of common stock issued in the offerings noted above. For the year ended December 31, 2017, the Company recorded expense of approximately $1.2 million, related to this issuance (based upon the fair value of common shares on the date of issuance), which is included in general and administrative expenses in the Company’s Statements of Operations. For the year ended December 31, 2017, the Company recorded in research and development license acquired expenses on the Statement of Operations of $9.6 million or 834,756 shares of common stock issuable to Fortress on the anniversary of the A&R Founders Agreement, representing 2.5% of the Company’s outstanding shares at March 12, 2018, at $11.45 per share (fair value of common shares on March 12, 2018).

 

In July 2018, the Company filed a shelf registration statement on Form S-3 (the "S-3"), which was declared effective in July 2018. Under the S-3, the Company may sell up to a total of $75 million of its securities. In connection with the S-3, the Company entered into an At-the-Market Issuance Sales Agreement (the "ATM") with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the "Agents"), relating to the sale of shares of common stock. Under the ATM, the Company pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. No securities have been issued by the Company under the S-3 registration as of December 31, 2018.

   

 

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation, on March 13, 2017, the Company issued 767,264 shares of common stock to Fortress, which equaled to 2.5% of the fully diluted outstanding equity of the Company at the time of issuance, for the annual stock dividend. The Company recorded an expense of approximately $4.4 million in research and development licenses-acquired related to this stock grant during the year ended December 31, 2016.

 

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation, on March 13, 2018, the Company issued 834,756 shares of common stock to Fortress, which equaled to 2.5% of the fully diluted outstanding equity of the Company at the time of issuance, for the annual stock dividend. The Company recorded an expense of approximately $9.6 million in research and development licenses-acquired related to these issuable shares during the year ended December 31, 2017.

 

In connection with the Mustang Founders Agreement, the Company issued 365,639 shares of common stock to Fortress representing 2.5% of the total shares issued in it’s Offering which commenced September 16, 2016 and ended in August 2017. See description of Offering above.

 

Pursuant to the Company’s Second Amended and Restated Certificate of Incorporation, on January 1, 2019, the Company issued 709,314 shares of common stock to Fortress, which equaled 2.0%, on a pro rata basis, of the fully diluted outstanding equity of the Company at the time of issuance, for the annual stock dividend. The Company recorded an expense of approximately $2.1 million in research and development licenses-acquired related to these issuable shares during the year ended December 31, 2018.

 

The Company has in effect the 2016 Incentive Plan (the “Incentive Plan”). The Incentive Plan was adopted in 2016 by our stockholders and the compensation committee of the Company’s board of directors and is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan initially authorized grants to issue up to 2,000,000 shares of authorized but unissued common stock and expires 10 years from adoption and limits the term of each option to no more than 10 years from the date of grant. In June 2018, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 5,000,000 shares. Total shares available for the issuance of stock-based awards under the Incentive Plan was 2,049,689 shares at December 31, 2018.

 

On April 24, 2017, the Company announced that Manuel Litchman, M.D., had been appointed President and Chief Executive Officer. Dr. Litchman was also appointed to the Company’s Board of Directors.

 

The employment agreement grants Dr. Litchman an option to purchase 1,041,675 shares of the Company’s common stock (the “Option”). The Option has an exercise price per share equal to the fair market value of a share the Company’s common stock, $5.73 on the date of the grant of the stock option, subject to the conditions and vesting schedule set forth in his Employment Agreement.

 

On April 7, 2017, the Company granted 200,000 options to two employees of Fortress, who provide services to the Company in connection with our research and development. These options have an exercise price of $5.73, representing the fair market value of a share the Company’s common stock on the date of the grant of the stock option.

 

Both grants have the following vesting schedule: 50% of the options vest over-time (“Time Based Option”) with 25% vesting over 12 months of continued service and the remaining shares vesting in 12 equal quarterly installments thereafter, subject to continued employment. The remaining 50% (the “Performance Options”) vest and become exercisable upon the occurrence of the following milestones being achieved: (i) 25% of the Performance Options vest upon the dosing of the first patient in the first Phase 2 clinical trial of any Company product candidate, (ii) 25% of the Performance Options vest upon the dosing of the first patient in the first Phase 2 clinical trial of a second Company product candidate, (iii) 25% of the Performance Options vest upon the Company’s achievement of a fully-diluted market capitalization of $500,000,000 and (iv) 25% of the Performance Options vest upon the Company’s achievement of a fully-diluted market capitalization of $1,000,000,000.

 

The value of the stock options granted approximated $5.5 million and was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, expected dividend yield, and an exercise price of $5.73. Mustang does not expect to pay dividends in the foreseeable future. As a result, the expected dividend yield is 0%. The fair value associated with the market award vesting was determined utilizing a binomial valuation methodology and the following assumptions:

 

 

The following table summarizes stock option activities for the year ended December 31, 2018 and 2017:

 

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related to options of $1.1

2.0 years. Effective on January 1, 2017, the Company elected to account for forfeited awards as they occur as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

  

 

Certain employees and directors have been awarded restricted stock. The restricted stock vesting consists of milestone and time-based vesting. The following table summarizes restricted stock award activities for the year ended December 31, 2018 and 2017:

 

 

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related to restricted stock of $1.9

2.5 years. This amount does not include, as of December 31, 2018, 68,158 shares of restricted stock outstanding which are performance-based and vest upon achievement of certain corporate milestones. Stock-based compensation expense for milestone awards will be measured and recorded if and when it is probable that the milestone will be achieved.

 

  

The following table summarizes restricted stock units activities for the year ended December 31, 2018 and 2017:

 

 

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $4.2

2.2 years. This amount does not include, as of December 31, 2018, 230,000 shares of restricted stock units outstanding issued to non-employees, the expense for which is determined each reporting period at the measurement date. The expense is recognized over the vesting period of the award.

 

The following table summarizes stock-based compensation expense for the years ended December 31, 2018 and 2017 (in thousands).

 

 

For the years ended December 31, 2018 and 2017, the Company recognized stock-based compensation of $5.0 million and $2.0 million, respectively.

 

 

In connection with the Company’s offering of shares of common stock in a private placement, each investor received a warrant equal to 25% of the common shares purchased in connection with the offering. Further, NSC received Placement Agent Warrants.

 

A summary of warrant activities for years ended December 31, 2018 and 2017 is presented below:

 

 

Upon the exercise of warrants, the Company will issue new shares of Common Stock.