10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2022

OR

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

 

Commission File Number: 001-33038

 

Alaunos Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

84-1475642

(State or other jurisdiction of

incorporation or organization)

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

8030 El Rio Street

Houston, TX 77054

(346) 355-4099

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

 

 

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

 

TCRT

 

The Nasdaq Stock Market LLC

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 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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of August 10, 2022, the number of outstanding shares of the registrant's common stock, $0.001 par value, was 216,174,542 shares.

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are all statements contained in this Quarterly Report that are not historical fact, and in some cases can be identified by terms such as: “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning.

These statements are based on management’s current beliefs and assumptions and on information currently available to management. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

our ability to raise substantial additional capital to continue as a going concern, fund our planned operations and repay our existing indebtedness;
estimates regarding our expenses, use of cash, timing of future cash needs and anticipated capital requirements;
the development of our product candidates, including statements regarding the initiation, timing, progress and results of our preclinical studies, clinical trials and research and development programs;
our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials;
the risk that final trial data may not support interim analysis of the viability of our product candidates;
our expectation regarding the safety and efficacy of our product candidates;
the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration, or FDA, or equivalent foreign regulatory agencies for our product candidates and for which indications;
our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existing license agreements;
our ability to enter into partnerships or strategic collaboration agreements and our ability to achieve the results and potential benefits contemplated from relationships with collaborators;
our ability to maintain and establish collaborations and licenses;
our expectation of developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;
our estimates regarding the potential market opportunity for our product candidates;
the anticipated rate and degree of commercial scope and potential, as well as market acceptance of our product candidates for any indication, if approved;
the anticipated amount, timing and accounting of contract liabilities, milestones and other payments under licensing, collaboration or acquisition agreements, research and development costs and other expenses;
our intellectual property position, including the strength and enforceability of our intellectual property rights;
our ability to attract and retain qualified employees and key personnel; and
our expectations regarding the impact of the COVID-19 pandemic, including the expected duration of disruption to key clinical trial activities, limitations on travel, quarantine and social distancing protocols, diversion of healthcare resources away from the conduct of our clinical trials, and other immediate and long-term impacts and effects on our business and operations.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law,

i


 

we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context requires otherwise, references in this Quarterly Report to “Alaunos,” the “Company,” “we,” “us” or “our” refer to Alaunos Therapeutics, Inc., and its subsidiaries.

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. We own the trademarks Alaunos™, Ziopharm® and hunTR™ as well as the graphic trademark found on our website. Other trademarks, service marks and trade names appearing in this Quarterly Report are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Quarterly Report are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

ii


 

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

 

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report. Some of the more significant risks include the following:

We will require substantial additional financial resources to continue as a going concern, continue ongoing development of our product candidates and pursue our business objectives; if we are unable to obtain these additional resources when needed, we may be forced to delay or discontinue our planned operations, including clinical testing of our product candidates.
Our plans to develop and commercialize non-viral adoptive cellular therapies based on T-cell receptor, or TCR, therapies can be considered as new approaches to cancer treatment, the successful development of which is subject to significant challenges.
Our current product candidates are based on novel technologies and are supported by limited clinical data and we cannot assure you that our current and planned clinical trials will produce data that supports regulatory approval of one or more of these product candidates.
We will need to attract, recruit and retain qualified personnel, and we will continue to rely on key scientific and medical advisors, and their knowledge of our business and technical expertise would be difficult to replace.
Our existing indebtedness, together with our other financial obligations and contractual commitments, could adversely affect our financial condition and restrict our future operations. For instance, if we fail to achieve certain clinical milestones or equity raise requirements, we will be required to deposit a significant amount of cash into an account to be held as collateral.
If we are unable to obtain the necessary United States or worldwide regulatory approvals to commercialize any product candidate, our business will suffer.
Our product candidates are in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able to submit a Biologics License Application, or BLA, to the FDA and any failure or delay in completing clinical trials for our product candidates could harm our business.
Our cell-based immuno-oncology product candidates rely on the availability of reagents, specialized equipment, and other specialty materials and infrastructure, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
If we are unable either to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will be unable to commercialize our product candidates successfully.
Our immuno-oncology product candidates may face competition in the future from biosimilars.
If we or our licensors fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish and our ability to successfully commercialize our products may be impaired.
Our stock price has been, and may continue to be, volatile.
Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, including the COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our clinical research organizations, or CROs, shippers and others.

iii


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021

2

 

Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited)

3

 

Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 (unaudited)

4

 

Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)

6

 

Notes to Unaudited Financial Statements (unaudited)

7

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

Controls and Procedures

26

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Alaunos Therapeutics, Inc.

BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS:

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,011

 

 

$

76,054

 

Receivables

 

 

 

 

 

1,111

 

Prepaid expenses and other current assets

 

 

1,350

 

 

 

1,666

 

Total current assets

 

 

61,361

 

 

 

78,831

 

Property and equipment, net

 

 

9,671

 

 

 

10,941

 

Right-of-use asset

 

 

2,357

 

 

 

4,420

 

Deposits

 

 

42

 

 

 

42

 

Other non-current assets

 

 

500

 

 

 

631

 

Total assets

 

$

73,931

 

 

$

94,865

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

474

 

 

$

1,368

 

Current portion of long-term debt

 

 

20,051

 

 

 

7,868

 

Accrued expenses

 

 

5,725

 

 

 

6,076

 

Lease liability, current

 

 

525

 

 

 

729

 

Total current liabilities

 

 

26,775

 

 

 

16,041

 

Long-term debt

 

 

4,472

 

 

 

16,250

 

Lease liability, non-current

 

 

2,476

 

 

 

4,518

 

Other non-current liabilities

 

 

28

 

 

 

 

Total liabilities

 

$

33,751

 

 

$

36,809

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock $0.001 par value; 420,000,000 shares authorized, 216,174,542 shares issued and outstanding at June 30, 2022 and 350,000,000 shares authorized, 216,127,443 shares issued and outstanding at December 31, 2021

 

 

216

 

 

 

216

 

Additional paid-in capital

 

 

902,536

 

 

 

900,693

 

Accumulated deficit

 

 

(862,572

)

 

 

(842,852

)

Total stockholders' equity

 

 

40,180

 

 

 

58,057

 

Total liabilities and stockholders' equity

 

$

73,931

 

 

$

94,865

 

 

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

2


 

Alaunos Therapeutics, Inc.

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,937

 

 

 

13,570

 

 

 

11,518

 

 

 

26,906

 

General and administrative

 

 

3,429

 

 

 

9,069

 

 

 

6,935

 

 

 

17,296

 

Gain on lease modification

 

 

(133

)

 

 

 

 

 

(133

)

 

 

 

Total operating expenses

 

 

9,233

 

 

 

22,639

 

 

 

18,320

 

 

 

44,202

 

Loss from operations

 

 

(9,233

)

 

 

(22,639

)

 

 

(18,320

)

 

 

(44,202

)

Interest expense

 

 

(740

)

 

 

 

 

 

(1,425

)

 

 

 

Other income (expense), net

 

 

41

 

 

 

(31

)

 

 

25

 

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(9,932

)

 

$

(22,670

)

 

$

(19,720

)

 

$

(44,224

)

Net loss applicable to common stockholders

 

$

(9,932

)

 

$

(22,670

)

 

$

(19,720

)

 

$

(44,224

)

Basic and diluted net loss per share

 

$

(0.05

)

 

$

(0.11

)

 

$

(0.09

)

 

$

(0.21

)

Weighted average common shares outstanding, basic and diluted

 

 

214,998,893

 

 

 

214,426,406

 

 

 

214,972,876

 

 

 

214,191,839

 

 

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

 

 

3


 

Alaunos Therapeutics, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share and per share data)

 

For the Three Months Ended June 30, 2022

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

 

215,950,561

 

 

$

216

 

 

$

901,546

 

 

$

(852,640

)

 

$

49,122

 

Stock-based compensation

 

 

 

 

 

 

 

 

990

 

 

 

 

 

 

990

 

Restricted stock awards

 

 

280,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled restricted common stock

 

 

(56,019

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,932

)

 

 

(9,932

)

Balance at June 30, 2022

 

 

216,174,542

 

 

$

216

 

 

$

902,536

 

 

$

(862,572

)

 

$

40,180

 

 

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

 

For the Six Months Ended June 30, 2022

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

216,127,443

 

 

$

216

 

 

$

900,693

 

 

$

(842,852

)

 

$

58,057

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,843

 

 

 

 

 

 

1,843

 

Restricted stock awards

 

 

280,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled restricted common stock

 

 

(232,901

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,720

)

 

 

(19,720

)

Balance at June 30, 2022

 

 

216,174,542

 

 

$

216

 

 

$

902,536

 

 

$

(862,572

)

 

$

40,180

 

 

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

 

4


 

For the Three Months Ended June 30, 2021

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

215,257,674

 

 

$

215

 

 

$

891,081

 

 

$

(785,655

)

 

$

105,641

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,290

 

 

 

 

 

 

5,290

 

Exercise of employee stock options

 

 

10,667

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Restricted stock awards

 

 

412,898

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Cancelled restricted common stock

 

 

(122,091

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,670

)

 

 

(22,670

)

Balance at June 30, 2021

 

 

215,559,148

 

 

$

216

 

 

$

896,390

 

 

$

(808,325

)

 

$

88,281

 

 

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

 

For the Six Months Ended June 30, 2021

 

 

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

 

 

 

 

 

 

 

 

7,486

 

 

 

 

 

 

7,486

 

Exercise of employee stock options

 

 

363,109

 

 

 

 

 

 

1,036

 

 

 

 

 

 

1,036

 

Restricted stock awards

 

 

726,224

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Cancelled restricted common stock

 

 

(122,091

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(44,224

)

 

 

(44,224

)

Balance at June 30, 2021

 

 

215,559,148

 

 

$

216

 

 

$

896,390

 

 

$

(808,325

)

 

$

88,281

 

 

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

5


 

Alaunos Therapeutics, Inc.

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

For the Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(19,720

)

 

$

(44,224

)

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

 

 

 

 

 

 

Depreciation

 

 

1,374

 

 

 

1,219

 

Amortization of financing costs

 

 

405

 

 

 

 

Stock-based compensation

 

 

1,843

 

 

 

7,486

 

Reduction in the carrying amount of right-of-use assets

 

 

2,196

 

 

 

(721

)

Gain on lease modification

 

 

(133

)

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

Receivables

 

 

1,111

 

 

 

(2,961

)

Prepaid expenses and other current assets

 

 

316

 

 

 

5,820

 

Other non-current assets

 

 

131

 

 

 

493

 

Increase (decrease) in:

 

 

 

 

 

 

Accounts payable

 

 

(894

)

 

 

22

 

Accrued expenses

 

 

(368

)

 

 

(4,742

)

Lease liabilities

 

 

(2,246

)

 

 

843

 

Other non-current liabilities

 

 

28

 

 

 

 

Net cash used in operating activities

 

 

(15,957

)

 

 

(36,765

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(86

)

 

 

(2,594

)

Net cash used in investing activities

 

 

(86

)

 

 

(2,594

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

1,036

 

Net cash provided by financing activities

 

 

 

 

 

1,036

 

Net decrease in cash and cash equivalents

 

 

(16,043

)

 

 

(38,323

)

Cash and cash equivalents, beginning of period

 

 

76,054

 

 

 

115,069

 

Cash and cash equivalents, end of period

 

$

60,011

 

 

$

76,746

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,002

 

 

$

 

Amounts included in accrued expenses and accounts payable related to property and equipment

 

$

17

 

 

$

258

 

 

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

 

 

6


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.
Organization

Overview

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-T cell 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 cancer hotspot mutation TCR library to design and manufacture personalized cell therapies that target neoantigens arising from shared tumor-specific 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. The Company continues to seek a partner for this program.

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 ("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.

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 June 30, 2022, the Company had approximately $60.0 million of cash and cash equivalents. The Company’s accumulated deficit at June 30, 2022 was approximately $862.6 million. Given its current development plans and cash management efforts, the Company anticipates cash resources will be sufficient to fund operations into the second quarter of 2023. The Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, management may need to curtail its development efforts and planned operations to conserve cash.

Based on the current cash forecast, 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, which raises substantial doubt as to the Company's ability to continue as a going concern. 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.

As of June 30, 2022, there were 216,174,542 shares of common stock outstanding and an additional 33,008,978 shares of common stock reserved for issuance pursuant to outstanding stock options and warrants.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures required by generally accepted accounting principles in the United States, or GAAP, have been condensed or omitted pursuant to such rules and regulations.

It is management’s opinion that the accompanying unaudited interim financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair presentation of the financial position of the Company and its results of operations and cash flows for the periods presented. The unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 30, 2022, or the Annual Report.

The results disclosed in the statements of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses

7


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Impact of COVID-19 Pandemic

With the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business and operations. The Company continues to evaluate the impact of the COVID-19 global pandemic on patients, healthcare providers and its employees, as well as its operations and the operations of its business partners and healthcare communities. In response to the COVID-19 pandemic, the Company has implemented policies at its locations to mitigate the risk of exposure to COVID-19 by its personnel. The extent to which the COVID-19 pandemic impacts the Company’s business, clinical development and regulatory efforts and the value of its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, the result of vaccination efforts and the effectiveness of any other actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

2.
Financings

2021 Loan and Security Agreement

On August 6, 2021, the Company entered into a Loan and Security Agreement (the "Loan and Security Agreement") with Silicon Valley Bank and affiliates of Silicon Valley Bank (collectively, "SVB"). The Loan and Security Agreement provided for an initial term loan of $25.0 million funded at the closing (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 (the "Term B Tranche").

Effective December 28, 2021, the Company, entered into a First Amendment (the “Amendment”) to the Loan and Security Agreement (as so amended, the "Amended Loan and Security Agreement").

The Amended Loan and Security Agreement extends the interest-only period through August 31, 2022 and provides for an automatic extension of the interest-only period through August 31, 2023, if the Amended Milestones (as defined below) are met by August 31, 2022. The Amendment eliminated the Term B Tranche, which remained unfunded, leaving only the Term A Tranche (the "SVB Facility"). Under the Amended Loan and Security Agreement, the SVB Facility will mature on August 1, 2023; however, if the Company achieves the Amended Milestones on or prior to August 31, 2022, then the maturity will automatically extend to August 1, 2024.

Please refer to Note 4 - Debt, for further discussion of the Loan and Security Agreement and the Amended Loan and Security Agreement.

3.
Summary of Significant Accounting Policies

 

The Company’s significant accounting policies were identified in the Company’s Annual Report. There have been no material changes in those policies since the filing of its Annual Report.

4.
Debt

The carrying values of the Company's debt obligation were as follows:

 

 

 

June 30,

 

($ in thousands)

 

2022

 

Loan and Security Agreement

 

$

25,423

 

Unamortized discount on Loan and Security Agreement

 

 

(900

)

Total debt

 

 

24,523

 

Less: current portion of long-term debt

 

 

(20,051

)

Long-term debt

 

$

4,472

 

 

As of June 30, 2022, the SVB Facility was fully drawn in the amount of $25.0 million. 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 June 30, 2022, interest on the outstanding loans was 9.25%. The Amended Loan and Security Agreement

8


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

provides for an interest-only period which extends through August 31, 2022 and may be automatically extended through August 31, 2023 if, on or prior to August 31, 2022, SVB receives evidence satisfactory to it, confirming that the Company has (i) received at least $50.0 million in net cash proceeds from the sale of the Company’s equity securities after the date of the Amended Loan and Security Agreement, on terms acceptable to SVB, and (ii) achieved positive data in the first cohort of the Library TCR-T Trial endorsed by an independent safety monitoring committee as a safe dose to proceed (together, the “Amended Milestones”). After the interest-only payment period, aggregate outstanding borrowings are payable in twelve consecutive, equal monthly installments of principal plus accrued interest.

 

All outstanding principal and accrued and unpaid interest under the SVB Facility and all other outstanding obligations under the Amended Loan and Security Agreement are due and payable on August 1, 2023; however, if the Company achieves the Amended Milestones on or prior to August 31, 2022, then the maturity will be automatically extended to August 1, 2024. In addition to the payment of the outstanding principal plus accrued interest due, the Company will also owe SVB 5.75% of the original principal amounts borrowed as a final payment (the "Final Payment"). The Company is permitted to make up to two prepayments, subject to a prepayment premium, of the SVB Facility, each such payment to be at least $5.0 million. Such prepayment premium would be 3.00% of the principal amount of the SVB Facility if prepaid prior to the first anniversary of the effective date, 2.00% of the principal amount of the SVB Facility if prepaid on or after the first anniversary of the effective date but prior to the second anniversary of the effective date and 1.00% of the principal amount of the SVB Facility if prepaid on or after the second anniversary of the effective date but prior to the maturity date. No amount that has been repaid may be reborrowed.

 

The Amended Loan and Security Agreement requires the Company 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 if the Company does not achieve the Amended Milestones on or prior to August 31, 2022. In the event a cash collateralization were to occur, so long as no event of default has occurred, $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, in each case, so long as (i) after subtracting such scheduled payment, the sum of (a) the aggregate outstanding principal, (b) accrued and unpaid interest and (c) the Final Payment is less than $9,770,933 and $5,604,167, respectively and (ii) the balance in the collateral account after the release would equal or exceed $10.0 million and $6.0 million, respectively. 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 achieves certain clinical milestones, in each case at an exercise price per share of $2.22.

 

In connection with its entry into the Amendment, 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 SVB Warrants, which will be amortized into interest expense over the period to August 1, 2023. Interest expense was $0.7 million for the three months ended June 30, 2022 and was $1.4 million for the six months ended June 30, 2022.

 

The fair value of the Amended Loan and Security Agreement as of June 30, 2022 approximates its face value due to proximity to the transaction.

5.
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.

9


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

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 June 30, 2022 and December 31, 2021 are as follows:

 

($ in thousands)

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

Balance as of
June 30,
2022

 

 

Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)