Registrant’s telephone number, including area code: ~~(508) 473-5993~~+44-1223-497400

Indicate by check mark whether the ~~registrant~~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~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ NO ☐ No ☐

Indicate by check mark whether the ~~registrant~~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~~Registrant was required to submit such files). Yes☒ NO ☐ 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.

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~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yes~~ YES ☐ NO ☐ No ☒

AsThe number of shares of Registrant’s Common Stock outstanding as of November ~~2, 2020, the registrant had 17,267,202 shares of common stock, $0.0001 par value per share, outstanding.~~8, 2021 was 20,624,494.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “design,” “expect,” “seek,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.

~~These forward-looking statements include, but are not limited to, statements about:~~

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results or events to differ materially from the forward-looking statements that we make include, but are not limited to, the following:

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. You should also read carefully the risk factors described in our ~~Annual Report on Form 10-K~~ ~~for the year ended December 31, 2019, our~~ ~~Quarterly Report on Form 10-Q~~ ~~for the quarter ended March 31, 2020 and our~~ ~~Quarterly Report on Form 10-Q~~ for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on February 14, 2020, May 7, 2020 and August 10, 2020, respectively, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~F-star Therapeutics, Inc.

~~(Unaudited)~~Condensed Consolidated Statements of Operations and Comprehensive Loss

~~SPRING BANK PHARMACEUTICALS, INC.~~Condensed Consolidated Statements of Stockholders’ Equity

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~For the three months ended September 30, 2021 and 2020

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~Condensed Consolidated Statements of Cash Flows (Unaudited)

1. ~~NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~Nature of Business and Summary of Significant Accounting Policies

Nature of Business

~~Spring Bank Pharmaceuticals,~~F-star Therapeutics, Inc. ~~(the~~(collectively with its subsidiaries, “F-star” or the “Company”) is a clinical-stage biopharmaceutical company ~~engaged~~dedicated to developing next generation immunotherapies to transform the lives of patients with cancer. F-star is pioneering the use of tetravalent (2+2) bispecific antibodies to create a paradigm shift in cancer therapy. The Company has four second-generation immuno-oncology ("IO") therapeutics in the clinic, each directed against some of the most promising IO targets in drug development, including LAG-3 and CD137. F-star’s proprietary antibody discovery platform is protected by a vast intellectual property portfolio, with 500 granted and ~~development of novel therapeutics for~~pending patent applications relating to its platform technology and associated product pipeline. The Company has attracted multiple partnerships with biopharma targeting the ~~treatment of a range of cancers~~significant unmet needs across several disease areas, including oncology, immunology, and ~~inflammatory diseases using~~CNS. F-star’s goal is to offer patients better and more durable benefits than currently available immuno-oncology treatments by developing medicines that seek to block tumor immune evasion. Through its proprietary ~~small molecule nucleotide platform.~~ tetravalent, bispecific natural antibody (mAb²~~The Company designs~~™) format, F-star’s mission is to generate highly differentiated medicines with monoclonal antibody-like manufacturability, good safety and tolerability. With four distinct binding sites in a natural human antibody format, F-star believes its ~~compounds to selectively target and modulate~~proprietary technology will overcome many of the ~~activity of specific proteins implicated in various disease states.~~ ~~The Company’s~~ ~~internally-developed programs are primarily designed to stimulate and/or dampen immune responses.~~ ~~The Company is devoting its resources to advancing multiple programs in its STING (STimulator of INterferon Genes) product portfolio.~~

Until January 2020, the Company was also developing inarigivir, an orally-administered investigational selective immunomodulator, as a potential treatment for chronic hepatitis B virus, or HBV. Inarigivir was being evaluated in multiple clinical trials, including the Company’s Phase 2b CATALYST trials, designed to evaluate both treatment-naïve and virally-suppressed non-cirrhotic patients with HBV under multiple dosing regimens. On January 29, 2020, the Company announced that it terminated all clinical development of inarigivir for the treatment of HBVchallenges facing current immuno-oncology therapies, due to the ~~occurrence~~strong pharmacology enabled by tetravalent bispecific binding.

Share Exchange Agreement

On November 20, 2020, F-star Therapeutics, Inc., formerly known as Spring Bank Pharmaceuticals, Inc., completed a business combination (the “Transaction”) with F-star Therapeutics Limited (“F-star Ltd”) in accordance with the terms of ~~unexpected serious adverse events, including one patient death, in~~ the ~~Company’s Phase 2b CATALYST trial.~~

OnShare Exchange Agreement, dated July 29, 2020 ~~the Company and F-star Therapeutics Limited (“F-star”) entered into a Share Exchange Agreement~~ (the “Exchange Agreement”), by and among the Company, F-star Ltd and certain holders of capital stock and convertible notes of F-star Ltd (each a “Seller”, and collectively with holders of F-star Ltd securities who subsequently became parties to the Exchange Agreement, the “Sellers”). Pursuant to the Exchange Agreement, each ordinary share of F-star Ltd outstanding immediately prior to the closing of the Transaction (the “Closing”) was exchanged by the Sellers that owned such F-star Ltd shares for a number of duly authorized, validly issued, fully paid and non-assessable shares of Company common stock pursuant to ~~which, subject to~~ the ~~satisfaction or waiver of the conditions~~exchange ratio formula set forth in the Exchange Agreement (the “Exchange Ratio”), rounded to the nearest whole share of Company common stock (after aggregating all fractional shares of Company common stock issuable to such Seller). Also, on November 20, 2020, in connection with, and prior to completion of, the Transaction, Spring Bank effected a 1-for-4 reverse stock split of its common stock (the “Reverse Stock Split”) and, following the completion of the Transaction, changed its name to F-star Therapeutics, Inc. Following the completion of the Transaction, the business of the Company became the business conducted by F-star, which is a clinical-stage immuno-oncology company focused on cancer treatment through its proprietary tetravalent bispecific antibody programs. Unless otherwise noted, all references to share amounts in this report reflect the Reverse Stock Split.

Liquidity

On March 30, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Leerink LLC (“SVB Leerink”) with respect to an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, as amended, under which the Company could offer and sell, from time to time in its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million through SVB Leerink as its sales agent. As of May 6, 2021, the Company had issued and sold 979,843 shares of common stock for gross proceeds of $9.5 million, resulting in net proceeds of $9.1 million after deducting sales commissions and offering expenses. On May 6, 2021, the Company terminated the Sales Agreement.

On August 13, 2021, the Company entered into a Sales Agreement (the “2021 Sales Agreement”) with SVB Leerink with respect to an at-the-market offering program under which the Company may 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

SVB Leerink as its sales agent. As of September 30, 2021 Company had 0t offered or sold any common stock under the 2021 Sales Agreement.

On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering (the “Underwritten Public Offering”) of 10.4 million shares of the Company’s common stock, par value $0.0001 per share. The underwritten public offering resulted in gross proceeds of $73.1 million. The Company incurred $4.4 million in issuance costs and $0.5 million of professional fees associated with the underwritten public offering, resulting in net proceeds to the Company of $68.2 million.

On April 1, 2021, the Company, as borrower, entered into a Venture Loan and Security Agreement (the “Loan and Security Agreement”) with Horizon Technology Finance Corporation (“Horizon”), as lender and collateral agent for itself. The Loan and Security Agreement provides for 4 separate and independent $2.5 million term loans (“Loan A”, “Loan B”, “Loan C”, and “Loan D”) (with each of Loan A, Loan B, Loan C and Loan D, individually a “Term Loan” and, collectively, the “Term Loans”), whereby, upon the satisfaction of all the conditions to the funding of the Term Loans, each Term Loan will be delivered by Horizon to the Company in the following manner: (i) Loan A was delivered by Horizon to the Company by April 1, 2021, (ii) Loan B was delivered by Horizon to the Company by April 1, 2021, (iii) Loan C was delivered by Horizon to the Company by June 30, 2021, and (iv) Loan D was delivered by Horizon to the Company by June 30, 2021. The Company may only use the proceeds of the Term Loans for working capital or general corporate purposes as contemplated by the Loan and Security Agreement. On April 1, 2021, the Company drew down $5 million. On June 22, 2021, the Company drew down another $5 million under this facility.

The Company has incurred significant losses and has an accumulated deficit of $83.2 million as of September 30, 2021. F-star expects to incur substantial losses in the foreseeable future as it conducts and expands its research and development activities and clinical trial activities. As of September 30, 2021, the Company had cash of $71.1 million and working capital of $67.3 million. As of November 10, 2021, the date of issuance of the condensed consolidated financial statements, the Company’s cash and cash equivalents on hand will be sufficient to fund its current operating plan and planned capital expenditures for at least the next 12 months.

The Company may continue to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will ~~acquire the entire issued share~~be successful in raising additional working capital, ~~of F-star with F-star continuing as the combined company (the “Exchange”). The Exchange~~or if it is ~~expected~~able to ~~close in the fourth quarter of 2020, subject~~raise additional working capital, it may be unable to ~~the approval of the Company’s stockholders at a special meeting of stockholders to be held~~do so on ~~November 19, 2020, as well as other customary conditions.~~

Since its inception in 2002 and prior to its initial public offering (“IPO”) in May 2016, the Company built its technology platform and product candidate pipeline, supported by grants and through private financings. The Company has 3 wholly owned subsidiaries: Sperovie Biosciences, Inc. formed in September 2015, SBP Securities Corporation formed in December 2016 and SBP International Limited formed in May 2019.

commercially favorable terms. The Company’s ~~success is dependent upon~~failure to raise future capital or enter into other such arrangements if and when needed would have a negative impact on its ability to successfully complete clinical development and obtain regulatory approval of its product candidates, successfully commercialize approved products, generate revenue, and, ultimately, attain profitable operations.

~~The pandemic caused by an outbreak of a new strain of coronavirus, or the COVID-19 pandemic, that is affecting the~~ ~~United States~~ and global economy and financial markets is also impacting the Company’s employees, patients, communities and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition ~~will depend on future developments that are highly uncertain~~ and ~~cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken~~its ability to ~~contain it or treat~~develop its impact and the economic impact on local, regional, national and international markets. The Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce.product candidates.

Basis of Presentation ~~and Liquidity~~

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). and the rules and regulations of the Securities Exchange Commission ("SEC") for interim financial statements.

The accompanying interim condensed consolidated financial statements as of September 30, ~~2020~~2021, and for the three and nine months ended September 30, 2021 and 2020, and ~~2019, and related interim~~ information contained within the notes to ~~the~~these condensed consolidated financial statements, are unaudited. ~~In management’s opinion, the~~These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited annual financial statements and ~~include~~in management's opinion contain all ~~adjustments~~adjustrevisionments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of September 30, ~~2020,~~2021, results of operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, statement of stockholders’ equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 and its cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. These interim condensed consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and ~~accompanying~~ notes ~~contained~~thereto included in the Company’s Annual Report filed on SEC Form 10-K for the year ended December 31, ~~2019, as filed with the Securities and Exchange Commission (“SEC”) on February 14,~~ 2020. The results for

the three and nine months ended September 30, ~~2020~~2021, are not necessarily indicative of the results expected for the full fiscal year or any interim period.

As8

Revision of Previously Issued Financial Statements

In September ~~30, 2020,~~2021, the Company ~~had~~identified an error in its accounting treatment for research and development expenses. This error resulted in an overstatement of research and development expenses for the first six months of 2021 and accrued expenses and other current liabilities as of March 31, 2021 and June 30, 2021. The Company assessed the materiality of this error on prior period financial statements in accordance with the SEC Staff Accounting Bulletin Number 99, Materiality, and ASC 250-10, Accounting Changes and Error Corrections. The Company determined that this error was not material to the financial statements of any prior interim period. To correct the immaterial misstatement, the Company decreased accumulated deficit ~~of $146.2~~by $0.3 million ~~and $20.0 million in cash, cash equivalents and marketable securities. On April 8, 2020, the Company repaid in full its $20.0 million convertible term loan (see Note 9).~~

~~The Company expects its $20.0 million in cash, cash equivalents and marketable securities~~ as of ~~September~~June 30, 2020 will be sufficient to fund operations for at least the next twelve months. There is no guarantee that the Exchange will be completed. The Company does not expect to raise any additional funds prior to the completion of the Exchange. However, if the Exchange is not completed, the Company may require significant additional funds earlier than it currently expects in order to conduct clinical trials and preclinical and discovery activities. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish valuable rights to its technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to the Company.2021.

Principles of Consolidation

The Company’s interim condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the FASB. The accompanying condensed consolidated financial statements include the accounts of ~~the Company~~F-star Therapeutics, Inc. and its wholly owned subsidiaries, Sperovie Biosciences, Inc., SBP Securities Corporation and SBP International Limited. Sperovie Biosciences, Inc. had operations consisting mainly of legal fees associated with intellectual property activities as of September 30, 2020. Sperovie Biosciences, Inc. was a joint borrower with the Company under the Company’s convertible term loan (see Note 9). SBP Securities Corporation had assets primarily related to investments in marketable securities and operations consisting primarily of interest income as of September 30, 2020. SBP International Limited had operations consisting mainly of clinical trial oversight, including European data protection oversight, as of September 30, 2020.subsidiaries. All ~~intercompany~~inter-company balances and transactions between the consolidated companies have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of ~~revenues and~~ expenses during the reporting ~~period.~~years. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the fair value of the assets and liabilities acquired in the transaction between Spring Bank and F-star Ltd fair value of the convertible loan containing embedded derivatives, the fair value of contingent value rights, the accrual for research and development expenses, revenue recognition, fair values of acquired intangible assets and impairment review of those assets, warrants, share based compensation expense, and income taxes. The Company bases its estimates ~~and assumptions~~ on historical experience, ~~when available~~known trends and ~~on various~~other market-specific or other relevant factors that it believes to be reasonable under the circumstances. ~~Significant~~Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience. Changes in estimates ~~relied upon~~are recorded in ~~preparing~~ the accompanying financial statements related to the fair value of warrants, accounting for stock-based compensation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actualperiod in which they become known. Actual results ~~may~~could differ from ~~these estimates.~~those estimates or assumptions.

Concentrations of credit risk and of significant suppliers

~~Cash and Cash Equivalents~~

Cash equivalents are stated at fair value and include short-term, highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Included in cash and cash equivalents as of September 30, 2020 are money market fund investments of $8.2 million and included in cash and cash equivalents as of December 31, 2019 are money market fund investments of $21.1 million and United States treasury securities of $6.0 million, which are reported at fair value (see Note 5).

~~Restricted Cash~~

As of December 31, 2019, restricted cash consisted of approximately $234,000, which was held as a security deposit required in conjunction with a lease agreement for the Company’s principal office and laboratory space entered into in October 2017. As of September 30, 2020, the Company had 0 restricted cash and the security deposit was included in other assets, long-term.

~~Concentration of Credit Risk~~

Financial instruments that ~~subject~~potentially expose the Company to ~~significant~~ concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents ~~restricted cash and marketable securities. Substantially all of the Company’s cash is held at~~in financial institutions in amounts that ~~management believes to be of high credit quality. Deposits with these financial institutions may~~could exceed ~~the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand and, therefore, bear minimal risk.~~

~~Investments in Marketable Securities~~

government-insured limits. The Company ~~invests excess cash balances in short-term and long-term marketable securities.~~ does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships.

The Company ~~classifies investments~~is dependent on contract research organizations to provide its clinical trials and third-party manufacturers to supply products for research and development activities in marketable securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. At each balance sheet date presented, all investments in securities are classified as available-for-sale. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in the value of the investment,its programs. In particular, the Company ~~considers all available evidence~~relies and expects to ~~evaluate~~continue to rely on a small number of manufacturers to supply its requirements for

supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the ~~extent to which the decline is “other than temporary,” including the intention to sell~~availability of raw materials.

Property, plant and ~~if so, marks the investment to market through a charge to the Company’s consolidated statements of operations and comprehensive loss.~~equipment

Property, ~~and Equipment, Net~~

~~Property~~plant and equipment are ~~recorded~~stated at ~~cost. Costs associated with maintenance and repairs are expensed as incurred.~~ cost, less accumulated depreciation. Depreciation expense is ~~provided~~recognized using the straight-line method over the estimated useful ~~lives:~~lives of the respective assets as follows:


~~Asset Category~~		Estimated Useful Economic Life
~~Equipment~~Leasehold property improvements, right of use assets		~~5-7 years~~Lesser of lease term or useful life
~~Furniture and fixtures~~Laboratory equipment		5 years
~~Leasehold improvements~~	Furniture and office equipment	~~Lesser of 10~~	3 years ~~or the remaining~~ ~~term of the respective lease~~

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in ~~operating lease~~ right-of-use (“ROU”) assets, ~~other current liabilities~~ and ~~operating~~ lease ~~liabilities~~obligations in the Company’s consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, an impairment loss is recorded for the difference between the carrying value and fair value of the asset. As of September 30, ~~2020,~~ 2021, 0 such impairment has ~~occurred.~~been recorded.

License and collaboration arrangements and revenue recognition

The Company’s revenues are generated primarily through license and collaboration agreements with pharmaceutical and biotechnology companies. The terms of these arrangements may include (i) the grant of intellectual property rights (IP licenses) to therapeutic drug candidates against specified targets, developed using the Company’s proprietary mAb2 bispecific antibody platform, (ii) performing research and development services to optimize drug candidates, and (iii) the grant of options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees.

The terms of these arrangements typically include payment to the Company of one or more of the following:

non-refundable, upfront license fees; payments for research and development services; fees upon the exercise of options to obtain additional services or licenses; payments based upon the achievement of defined collaboration objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.

The Company has adopted FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. To date, the Company has entered into License and Collaboration Agreements with Denali Therapeutics, Inc. (“Denali”), Ares Trading S.A. (“Ares,”)

an affiliate of Merck KGaA, Darmstadt, Germany) and in July 2021 with AstraZeneca AB ("AstraZeneca"), which were determined to be within the scope of ASC 606.

Research and development costs

Research and ~~Development Costs~~

development costs are expensed as incurred. Research and development expenses ~~consist primarily~~are comprised of costs incurred ~~for the Company’s research activities, including discovery efforts, and the development of product candidates, which include:~~

•

expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical activities and clinical trials on the Company’s behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in the Company’s preclinical and clinical trials;

•

~~salaries, benefits and other related costs, including stock-based compensation expense, for personnel in the Company’s research and development functions;~~

•

~~costs of outside consultants, including their fees, stock-based compensation and related travel expenses;~~

•

~~the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;~~

•

~~costs related to compliance with regulatory requirements; and~~

•

~~facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.~~

~~The Company expenses~~in performing research and development activities, including compensation expense, share-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as ~~incurred. The Company recognizes external development costs based on an evaluation~~well as the cost of licensing technology. Typically, upfront payments and milestone payments made for the ~~progress to completion~~licensing of ~~specific tasks using information provided to the Company by its vendors and its clinical investigative sites. Payments for these activities~~technology are ~~based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in the Company’s consolidated financial statements~~expensed as ~~prepaid or accrued~~ research and development in the period in which they are incurred, except for payments relating to intellectual property rights with future alternative use which will be expensed when the intellectual property is in use. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Warrants

The Company accounts for ~~freestanding~~ warrants within stockholders equity or as liabilities based on the characteristics and provisions of each instrument. The Company evaluates outstanding warrants in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. If none of the criteria in the evaluation in these standards are met, the warrants are classified as a component of ~~stockholders~~stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement. Warrants that meet the criteria are classified as liabilities and remeasured to their fair value at the end of each reporting period.

Stock-Based Compensation

The Company’s stock-based payments include stock options, performance-based restricted stock units (“performance-based RSUs”), time-based restricted stock units (“time-based RSUs”) and grants of common stock. The Company accounts for ~~all stock-based payment awards granted~~share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”(“ASC 718”). ASC 718 requires companies to employees and nonemployees using a fair value method. The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is generally the vesting period, on a straight-line basis. The Company accounts for forfeitures as they occur.

~~The Company measures~~estimate the fair value of equity-based payment awards on the ~~performance-based RSUs relating to the total share return performance using a Monte Carlo valuation model.~~date of grant. The ~~Company measures the fair~~ value of the performance-based RSUs relating to the milestone performance goals using the fair value method and the probability that the specified performance criteria will be met. Each quarter the Company updates its assessmentportion of the ~~probability~~award that is ultimately expected to vest is recognized as an expense over the ~~specified milestone criteria will be achieved and adjusts its estimate of the fair value, if necessary. Stock-based compensation expense is classified~~requisite service period in the ~~accompanying~~Company’s consolidated statements of operations and comprehensive ~~loss based on the department to which the related services are provided.~~loss.

Fair value measurements of financial instruments

~~Financial Instruments~~

The Company’s financial instruments consist of cash, ~~equivalents, marketable securities,~~ accounts payable, ~~a term loan~~CVRs and liability classified warrants. The carrying amounts of cash ~~and cash equivalents~~ and accounts payable approximate their fair value due to the short-term nature of those financial instruments. The fair value of CVRs and the ~~marketable securities and~~ liability classified warrants are remeasured to fair value each reporting ~~period (see Note 5). The fair value of the term loan approximates its face value due to market terms.~~period.

Net loss per share

~~Fair Value Measurements~~

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (“ASC”) 820, ~~Fair Value Measurements and Disclosures~~ (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

~~Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.~~

~~Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.~~

~~Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.~~

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s assets and liabilities measured at fair value on a recurring basis include cash equivalents, marketable securities and warrant liabilities.

~~Net Loss Per Share~~

~~Basic~~computes net loss per share ~~is computed by dividing~~in accordance with ASC Topic 260, Earnings Per Share (“ASC 260”) and related guidance, which requires two calculations of net (loss) income attributable to the Company’s shareholders per share to be disclosed: basic and diluted. Convertible preferred shares are considered participating securities and are included in the calculation of basic and diluted net ~~loss by~~(loss) income per share using the ~~weighted-average number of~~two-class method. In periods where the Company reports net losses, such losses are not allocated to the convertible preferred shares ~~of common stock outstanding~~ for the ~~period.~~ computation of basic or diluted net (loss) income.

Diluted net ~~loss~~(loss) income per share is ~~computed by dividing~~ the same as basic net (loss) income per share for the periods in which the Company had a net loss bybecause the ~~weighted-average number~~inclusion of ~~shares of common stock and dilutive~~outstanding common stock equivalents ~~outstanding~~would be anti-dilutive.

Income taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the ~~period, determined using~~expected future tax consequences of events that have been recognized in the ~~treasury-stock method and the as if-converted method, for convertible securities, if inclusion of these instruments is dilutive.~~

~~For the three and nine months ended September 30, 2020 and 2019, both methods are equivalent. Basic and diluted net loss per share is described further in Note 2.~~

~~Income Taxes~~11

consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined ~~based upon~~on the basis of the differences between the consolidated financial ~~statement carrying amounts~~statements and ~~the~~ tax basis of ~~existing~~ assets and liabilities ~~as well as net operating loss and tax credit carryforwards~~ using enacted tax rates ~~expected to be~~ in effect infor the ~~years~~year in which the differences are expected to reverse. ~~Deferred~~Changes in deferred tax assets and liabilities are ~~reduced by a valuation allowance if~~recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that ~~some~~all or a portion ~~or all~~ of the deferred tax ~~asset~~assets will not be ~~realized.~~

~~The Company assesses its~~realized, a valuation allowance is established through a charge to income tax ~~positions~~expense. The potential recovery of deferred tax assets is evaluated by estimating the potential for future taxable profits, if any.

Research and ~~records~~development tax ~~benefits based upon management’s evaluation~~credit

As the entities located in the United Kingdom carry out extensive research and development activities, they seek to benefit from the UK research and development tax credit cash rebate regime known as the Small and Medium-sized Enterprises R&D Tax Credit Program (the “SME Program”). Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on the Company’s behalf and certain internal overhead costs incurred as part of research projects. The tax credit received in the United Kingdom pursuant to the SME Program permits companies to deduct an extra 130% of their qualifying costs from their yearly profit or loss, as well as the normal 100% deduction, to make a total 230% deduction. If the company is incurring losses, it is entitled to claim a tax credit worth up to 14.5% of the ~~facts, circumstances~~surrenderable loss. To qualify for relief under the SME Program, companies are required to employ fewer than 500 staff and ~~information available at~~have a turnover of under €100.0 million or a balance sheet total of less than €86.0 million.

Research and development tax credits received in the ~~reporting date. For those~~United Kingdom are recorded as a reduction in research and development expenses. The UK research and development tax ~~positions where it~~credit is ~~more likely than~~payable to companies after surrendering tax losses and is not ~~that~~dependent on current or future taxable income. As a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions whereresult, it is not ~~more likely than not~~reflected as part of the income tax provision.

During the nine months ended September 30, 2021 the Company received $3.4 millionin research and development tax credits related to the year ended December 31, 2020.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a ~~tax benefit will~~liability has been incurred and the amount can be ~~sustained, 0 tax benefit~~reasonably estimated. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential loss range is ~~recognized~~probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the consolidated ~~financial statements. The Company classifies interest and penalties associated with such uncertain tax positions as a component~~statements of ~~interest expense. As of September 30, 2020 and December 31, 2019, the Company has 0t identified any material uncertain tax positions.~~

~~Guarantees and Indemnifications~~

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.

The Company leases its principal office and laboratory space in Hopkinton, Massachusetts under a non-cancelable operating lease. The Company has standard indemnification arrangements under the lease that require it to indemnify the landlords against liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or nonperformance under the Company’s lease.

Through September 30, 2020, the Company had 0t experienced any losses related to these indemnification obligations and 0 material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, concluded that the fair value of these obligations is negligible, and 0 related reserves were established.

~~Segment Information~~

Operating segments are identified as components of an enterprise about which separate and discrete financial information is available for evaluation by the chief operating decision maker, the Company’s chief executive officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and ~~manages its business in 1 operating segment and does not track expenses on a program-by-program basis.~~comprehensive loss.

Recently Issued Accounting Pronouncements

In ~~August 2020,~~June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial ~~Accounting Standards Board~~Instruments (“~~FASB”~~ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. In November 2019, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2020-06, Debt -~~ 2019-10,~~Debt with Conversion and Other Options (Subtopic 470-20) and~~ Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging ~~- Contracts in Entity’s Own Equity~~

~~(Subtopic 815-40)~~.(Topic 815), and Leases (Topic 842): Effective Dates ~~The amendments in~~to amend the effective date of ASU ~~removes certain separation models~~2016-13, for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. In addition, the ASU expands disclosure requirements for convertible instruments and simplifies areas ~~of the guidance for~~ ~~diluted earnings-per-share calculations that are impacted by the amendments.~~ ~~The ASU is effective for public business~~ entities ~~that meet the definition of a Securities and Exchange Commission (“SEC”) filer, excluding smaller~~eligible to be “smaller reporting companies,” as defined by the SEC, ~~for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are~~to be effective for fiscal years beginning after December 15, ~~2023,~~2022, including interim periods within those fiscal years. Early adoption is permitted. The Company has not elected to early adopt ASU No. 2016-13. The Company is currently evaluating the potential impact that the adoption of ~~this standard may~~ASU 2016-13 will have on the Company’s ~~consolidated~~ financial ~~statements.~~position and results of operations.

This ASU removes, modifies and adds certain disclosure requirements of ASC Topic 820. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this standard as of January 1, 2020; however, the adoption of this standard did not impact the Company’s consolidated financial statements.

9. Stockholders’ Equity

Common Stock

On March 30, 2021, the Company entered into a ~~definitive agreement~~Sales Agreement with SVB Leerink with respect to an "at-the-market” (“ATM”) offering program under which the ~~private placement of 1,644,737~~Company could offer and sell, from time to time at its sole discretion, shares of its common stock, ~~and warrants to purchase 1,644,737 shares of common stock (the “November 2016 Private Placement Warrants”) to a group of accredited investors. These investors paid $9.12 for each~~par value $0.0001 per share, ~~of common stock and warrant to purchase one share of common stock. The November 2016 Private Placement Warrants are exercisable at~~having an ~~exercise~~aggregate offering price of ~~$10.79 per share~~up to $50.0 million (the “Placement Shares”) through SVB Leerink as its sales agent.

Upon delivery of a placement notice in April 2021, and ~~expire on November 23, 2021. The Company evaluated~~subject to the terms and conditions of ~~these warrants and concluded that they are liability-classified. In November 2016,~~the Sales Agreement, SVB Leerink began to sell the Placement Shares. Under the Sales Agreement, the Company ~~recorded the fair value of these warrants of approximately $8.3 million using~~agreed to pay SVB Leerink a ~~Black-Scholes pricing model. The Company must recognize any change in the value~~commission equal to three percent of the ~~warrant liability each reporting period~~gross sales proceeds of any Placement Shares, and also provided SVB Leerink with customary indemnification and contribution rights. For the three months ended June 30, 2021, the Company issued and sold 979,843 shares, for gross proceeds of $9.5 million, resulting in net proceeds of $9.2 million after deducting sales commissions. On May 6, 2021, the ~~statement of operations. As of September 30, 2020 and December 31, 2019,~~Company terminated the ~~fair value of the November 2016 Private Placement Warrants was approximately $56,000 and $0.3 million, respectively, and 10,960 shares have been exercised to date (see Note 5).~~Sales Agreement.

~~A summary of the Black-Scholes pricing model assumptions used to record the fair value of the warrants is as follows:~~

September 30,
2020

December 31,
2019

Risk-free interest rate

0.1
%

1.6
%
Expected term (in years)

1.1

1.9

Expected volatility

100.0
%

100.0
%
Expected dividend yield

0
%

0
%

~~In September 2019,~~On August 13, 2021, the Company entered into a ~~term loan~~new Sales Agreement (the ~~“Convertible Term Loan”~~“2021 Sales Agreement”) with ~~Pontifax Medison Finance (Israel) L.P.~~SVB Leerink with respect to an at-the-market offering program under which the Company may offer and ~~Pontifax Medison Finance (Cayman) L.P.,~~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 SVB Leerink as ~~lenders,~~its sales agent. As of September 30, 2021, Company had not offered or sold any common stock under the 2021 Sales Agreement.

On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering of 10.4 million shares of the Company’s common stock. The underwritten public offering resulted in gross proceeds of $73.1 million. The Company incurred $4.4 million in issuance costs and ~~Pontifax Medison Finance GP, L.P.,~~$0.5 million of professional fees associated with the underwritten public offering, resulting in ~~its capacity as administrative agent and collateral agent for itself and~~net proceeds to the ~~lenders, providing for a $20.0 million term loan~~ Company of $~~(see Note 9)~~68.2. million.

Warrants

In connection with the ~~Company’s~~ ~~Convertible Term~~entry into the Loan and Security Agreement (refer to Note 8), the Company has issued to ~~certain lenders~~Horizon warrants to purchase ~~250,000~~an aggregate number of shares of the Company’s common stock ~~(the “Pontifax Warrants”). Prior~~in an amount equal to ~~their amendment~~$100,000 divided by the exercise price for each respective warrant. If at any time the Company files a registration statement relating to an offering for its own account, or the account of others, of any of its equity securities, the Company has agreed to include such number of shares underlying the warrants in ~~April 2020 (see Note 9),~~such registration statement as requested by the ~~Pontifax Warrants were~~holder. The warrants, which are exercisable for an aggregate of 42,236 shares, will be exercisable for a period of seven years at ana per-share exercise price of ~~$6.57 per share. The Pontifax Warrants expire on September 19, 2025. The Company evaluated~~$9.47, which is equal to the terms of the Pontifax Warrants and concluded that they are equity-classified. The fair value of the Pontifax Warrants was estimated on the issuance date using a Black-Scholes pricing model based on the following assumptions: an expected term of 6.0 years; expected stock10-day average closing price ~~volatility of 83.2%; a risk-free interest rate of 1.7%; and a dividend yield of 0%. The aggregate fair value of the Pontifax Warrants on~~prior to January 15, 2021, the date ~~of issuance was approximately $0.6 million and was recorded as a discount~~on which the term sheet relating to the ~~term loan~~Loan and ~~will be amortized over the life of the term loan using the effective interest rate method. The aggregate fair value remaining on the payoff date~~Security Agreement was ~~$0.5 million and was included~~entered

into, subject to certain adjustments as specified in the loss on extinguishment of the Convertible Term Loan upon repayment (see Note 9). In connection with the repayment of the Convertible Term Loan, the Pontifax Warrants were amended and restated to amend the exercise price to $2.08 per share, which was equal to 1.5 times the weighted-average closing price of the Company’s Common Stock during the 90 days prior to the repayment date. All other terms of the Pontifax Warrants remained the same. During the nine months endedwarrant. At September 30, ~~2020,~~2021, there ~~was an incremental expense of approximately $54,000 as a result of the amendment of the Pontifax Warrant exercise price.~~were 42,236 warrants outstanding.

In September 2019, the Company issued warrants to a service provider to purchase 15,000 shares of common stock (the “September 2019 Warrants”). The September 2019 Warrants are exercisable at an exercise price of $4.21 per share and expire on September 19, 2021. The Company evaluated the terms of the September 2019 Warrants and concluded that they are equity-classified. The fair value of the September 2019 Warrants was estimated on the applicable issuance date using a Black-Scholes pricing model based on the following assumptions: an expected term of 2.0 years; expected stock price volatility of 69.4%; a risk-free interest rate of 1.7%; and a dividend yield of 0%. The aggregate fair value of the September 2019 Warrants on the date of issuance was approximately $19,000. Approximately $13,000 and $6,000 has been expensed during the periods ended September 30, 2020 and December 31, 2019, respectively.

A summary of the warrant activity for the nine months ended September 30, ~~2020 and for the year ended December 31, 2019~~2021, is as follows:


	Warrants Outstanding
Outstanding at December 31, ~~2018~~2020		~~1,662,124~~144,384
~~Grants~~Exercises		~~265,000~~(51,054	)
~~Exercises~~Issued		042,236
~~Expirations/cancellations~~Expired		0(10,837	)
~~Outstanding at December 31, 2019~~		~~1,927,124~~
~~Grants~~		0
~~Exercises~~		0
~~Expirations/cancellations~~		0
Outstanding at September 30, ~~2020~~2021		~~1,927,124~~124,729

~~8. STOCKHOLDERS’ EQUITY~~10. Stock Option Plans

~~Common~~Incentive Plans

The Company maintains two equity incentive plans (the "Plans") that provide for the granting of stock options, share appreciation rights, restricted shares, restricted share units, performance share units and ~~Preferred Stock~~

~~In August 2017,~~certain other share based awards as provided in the ~~Company entered into a Controlled Equity~~ ~~Offering~~^SM~~Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), pursuant~~Plans to ~~which the Company may offer and sell, from time to time through Cantor, shares~~certain employees, members of the ~~Company’s common stock having an aggregate offering price~~board of ~~up to $50.0 million. The Company pays Cantor a commission rate equal to 3.0%~~directors, consultants or other service providers of the ~~aggregate gross proceeds from each sale. During the nine months ended~~Company, with a prescribed contractual term not to exceed ten years. As of September 30, 2020, the Company sold an aggregate of 690,895 shares of its common stock, pursuant to the Sales Agreement at a weighted-average selling price of $1.32 per share, which resulted in approximately $0.8 million in net proceeds to the Company. There2021, there were 0 shares sold during the three months ended September 30, 2020. During the nine months ended September 30, 2019, the Company sold an aggregate of 600 shares of its common stock pursuant to the Sales Agreement at a weighted-average selling price of $10.03 per share, which resulted in de minimis net proceeds to the Company. There were 0 shares sold during the three months ended September 30, 2019 and the Company does not intend to issue any shares under the Sales Agreement between September 30, 2020 and the closing of the Exchange.

~~2014 Stock Incentive Plan and 2015 Stock Incentive Plan~~196,910

~~In April 2014, the Company’s Board of Directors approved the 2014 Stock Incentive Plan (the “2014 Plan”) and authorized 750,000~~ shares of common stock ~~to be issued under the 2014 Plan.~~

The Company’s 2015 Stock Incentive Plan (the “2015 Plan”) became effective immediately prior to the closing of the Company’s IPO on May 11, 2016. Upon the effectiveness of the 2015 Plan, 116,863 shares of common stock that remained available for grant under the ~~2014 Plan became available for grant~~Plans. Awards granted under the ~~2015 Plan, and 0 further awards were available to be issued under the 2014 Plan.~~

The Company’s Board of Directors initially adopted the 2015 Plan in December 2015, subject to stockholder approval, and authorized 750,000 shares of Common Stock to be issued under the 2015 Plan. The 2014 Plan and 2015 Plan provide for the issuance of common stock, stock options and other stock-based awards to employees, officers, directors, consultants and advisorsPlans generally vest over a four-year period with 25% or 28% of the ~~Company.~~

~~Amended~~award vesting on the first anniversary of the commencement date and ~~Restated 2015 Stock Incentive Plan~~

~~In March 2018,~~ the ~~Board~~balance vesting monthly over the remaining three years. Grants are generally awarded with a contractual terms of 10 years from the date of the grant. For certain senior members of management and directors, the board of directors approved an alternative vesting schedule. The share reserve under one of the ~~Amended and Restated 2015 Plan. Upon receipt~~Plans automatically increases on January 1st each year, in an amount equal to 4% of ~~stockholder approval at~~ the ~~Company’s 2018 annual meeting in June 2018, the 2015 Plan was amended and restated in its entirety increasing the authorized~~total number of shares outstanding as of common stock reserved for issuance by 800,000 shares (the Amended and Restated 2015 Plan, and together with the 2014 Plan, the “Stock Incentive Plans”). Upon receipt of stockholder approval at the Company’s 2020 annual meeting in June 2020, the Amended and Restated 2015 Plan was further amended to increase the authorized number of shares of common stock reserved for issuance by 1,150,000 shares. Following this approval there are 2,816,863 shares authorized for issuance pursuant to the Amended and Restated 2015 Plan. In addition, to the extent any outstanding awards under the 2014 Plan expire, terminate or are otherwise surrendered, cancelled or forfeited after the closingDecember 31 of the ~~Company’s IPO, those shares are added to the authorized shares under the Amended and Restated 2015 Plan.~~preceding year.

~~The total amount of shares authorized for issuance under all~~ Stock ~~Incentive Plans is 3,450,000. As of September 30, 2020, the Company had 1,360,791 shares available for issuance under the Amended and Restated 2015 Plan.~~option valuation

The ~~exercise price of stock options cannot be less than the~~ fair value of stock option grants is estimated using the ~~common stock on~~Black-Scholes option-pricing model with the ~~date of grant. Stock options awarded under the Stock Incentive Plans expire 10 years after the grant date, unless the Board sets a shorter term. There were 0 stock options granted prior to 2015.~~following assumptions:


	Black-Scholes Option- Pricing
	September 30, 2021			December 31, 2020
Risk-free interest rate	0.76%-0.86%			0.17% – 0.42%
Expected volatility		92.9	%	82.8%-98.3%
Expected dividend yield		0	%		0	%
Expected life (in years)		5.1			5.1

The ~~following~~ table below summarizes ~~the~~stock option activity under the ~~Stock Incentive Plans for the nine months ended September 30, 2020 and the year ended December 31, 2019:~~Company’s stock option plans:

Options

Weighted-Average
Exercise Price
Per Share

Aggregate
Intrinsic
Value

Outstanding at December 31, 2018

1,299,565

$
11.18

$
881,385

     Granted

395,500

9.61

—

     Exercised

—

—

—

     Cancelled

(22,750
)

13.36

—

Outstanding at December 31, 2019

1,672,315

10.78

—

     Granted

270,000

1.44

—

     Exercised

—

—

—

     Cancelled

(587,312
)

10.23

—

Options outstanding at September 30, 2020

1,355,003

$
9.15

$
—

Options exercisable at September 30, 2020

929,497

$
10.71

$
—


Stock Option Activity
	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value
						(in years)		(in thousands)
Outstanding as of December 31, 2020		533,559		$	3.33		9.30	$	8,494
Granted		624,986			7.76		8.99		(1,008	)
Exercised		(19,805	)		0.12		8.15		500
Forfeited and expired		(55,550	)		5.98		9.38		157
Outstanding as of September 30, 2021		1,083,190			5.80		8.98		6,011
Options exercisable at September, 2021		232,626			5.86		8.26		2,801

~~As of September 30, 2020, all options outstanding have a weighted-average remaining contractual life of 6.9 years.~~ The ~~weighted-average~~weighted average grant date fair value of ~~all stock~~ options granted for the nine months ended September 30, 2020 was $0.99. Intrinsic value at September 30, 2020 and December 31, 2019 is based on the closing price of the Company’s common stock on that date of $1.34 per share and $1.58 per share, respectively.

In January 2018, the Company issued a stock option award as an inducement grant for the purchase of an aggregate of 50,000 shares of the Company’s common stock, outside of the Stock Incentive Plans, at an exercise price of $12.02 per share. In February 2019, the Company issued a stock option award as an inducement grant for the purchase of an aggregate of 40,000 shares of the Company’s common stock, outside of the Stock Incentive Plans, at an exercise price of $10.39 per share. These inducement grants are excluded from the option activity table above.

~~The assumptions the Company used to determine the fair value of stock options granted to employees and directors~~ during the nine months ended September 30, 2021 and 2020 was $6.15and ~~2019 are as follows, presented on a weighted-average basis:~~

For the Nine Months Ended September 30,

2020

2019

Risk-free interest rate

0.7
%

2.5
%
Expected term (in years)

5.9

5.9

Expected volatility

82.8
%

81.1
%
Expected dividend yield

0
%

0
%

$~~Restricted Stock Units~~1.65

~~Performance-Based Restricted Stock Units~~

In January 2019, the Company issued performance-based RSUs to senior management under the Amended and Restated 2015 Plan that represented shares potentially issuable in the future subject to the satisfaction of certain performance milestones as well as a service condition. per share, respectively. The vesting of 50% of the performance-based RSUs was based upon the Company’s performance relative to a peer group over a two-year performance period, from January 1, 2019 through December 31, 2020, measured by the Company’s relative total shareholder return. The vesting of 25% of the performance-based RSUs was based on the achievement of a performance goal milestone as of December 31, 2019 and the vesting of the remaining 25% of the performance-based RSUs was based upon the achievement of a performance goal milestone as of December 31, 2020.

The Company estimated the fair value of total shareholder return performance-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortizes those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that the Company uses to estimate the fair value of total shareholder return performance-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of options vested during the ~~total shareholder return performance-based RSUs at the date of grant must~~

be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

The Company estimates the fair value of milestone performance-based RSUs at the date of grant using the fair value method and the probability that the specified performance criteria will be met and amortizes the fair value over the requisite service period for each separately vesting tranche of the award when attainment of the milestone is deemed probable. The assumption used to determine the fair value of the performance-based RSUs granted to management in 2019 for the performance goal milestone units is based on the market price of the award on the grant date. Each quarter the Company updates its assessment of the probability that the specified criteria will be achieved and adjusts its estimate of the fair value, if necessary.

~~The total stock-based compensation recognized for the three and~~ nine months ended September 30, ~~2019 for the RSUs~~2021 and 2020 was ~~approximately $0.1~~$4.2 million and ~~$0.4~~$4.4 million, respectively. As of September 30, 2019, the Company adjusted stock-based compensation approximately $0.1 million for previously recognized stock-based compensation for the December 31, 2019 clinical milestone estimated to be not probable at that time.

Restricted Stock Units

Time-Based Restricted Stock Units (RSU)

In March 2020, the Company and the recipients of these performance-based RSUs agreed to cancel the agreements and as a result, 139,350 shares were returned to the Amended and Restated 2015 Plan. The Company recognized the remaining expense for the total shareholder return performance-based RSUs in the amount of $0.3 million during the nine months ended ~~September~~ ~~30, 2020. The Company did not recognize any expense related to the milestone performance-based RSUs.~~

~~In April 2020,~~February 2021, the Company issued 360,000 performance-based RSUs to senior management under the Amended and Restated 2015 Plan that represented shares potentially issuable in the future subject to the satisfaction of certain performance milestones. The vesting of 50% of the performance-based RSUs is based on the achievement of a performance goal milestone as of December 31, 2020 and the vesting of the remaining 50% of the performance-based RSUs is based upon the achievement of a performance goal milestone as of December 31, 2021. For the three and nine months ended September 30, 2020, the Company recognized approximately $48,000 and $91,000 expense, respectively, related to the performance-based RSUs.

~~Time-Based Restricted Stock Units~~

~~In March 2020, the Company issued 199,000~~310,385 time-based RSUs to employees and directors under the Amended and Restated 2015 Plan. The weighted average grant date fair value of the time-based RSUs was ~~$1.41~~$8.57 for the ~~three and~~ nine months ended September 30, ~~2020.~~2021. The vesting for the time-based RSUs ~~is 50%~~occurs either immediately, after ~~one-year from the grant date and the remaining 50% as of December 31, 2021.~~one year or after four years. For the three and nine months ended September 30, ~~2020,~~2021, the Company recognized approximately ~~$33,000~~$0.4 million and ~~$76,000 expense~~$1.8 million in expenses related to the time-based ~~RSUs, respectively.~~RSUs.

The ~~following~~ table below is a rollforward of all RSU activity under the Stock Incentive Plans The table below summarizes activity relating to RSUs for the nine months ended September 30, ~~2020:~~

Restricted
Stock Units

Weighted-Average
Grant Date
Fair Value

Total nonvested units at December 31, 2019

139,350

$
7.86

     Granted

559,000

1.41

     Vested

—

—

     Cancelled

(166,350
)

6.82

Total nonvested units at September 30, 2020

532,000

$
1.07

2021:

~~Stock-Based~~


RSU Activity
	Restricted Stock Units			Weighted- Average Grant Date Fair Value
Total nonvested units at December 31, 2020		69,749		$	11.73
Granted		310,385			8.57
Vested		(83,889	)		9.34
Total nonvested units at September 30, 2021		296,245		$	9.10

Share-based Compensation

The ~~following table summarizes the Company’s stock-based~~Company recorded share-based compensation expense in the following expense categories for the three and nine months ended September 30, 2021 and 2020 of its consolidated statements of operations and ~~2019~~comprehensive loss (in thousands):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Stock-based compensation:

2020

2019

2020

2019

Research and development

$
163

$
314

$
609

$
971

General and administrative

281

497

1,126

1,854

Total Stock-based compensation

$
444

$
811

$
1,735

$
2,825


Share-Based Compensation
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development expenses	$	1,115	$	1,135	$	4,197	$	1,682
General and administrative expenses		400		59		1,357		517
	$	1,515	$	1,194	$	5,554	$	2,199

~~The fair value of stock options vested during the nine months ended September 30, 2020 was $1.8 million.~~ At September 30, ~~2020,~~2021, there was ~~$2.0~~$4.4 million of unrecognized stock-based compensation expense relating to stock options granted pursuant to the Stock Incentive Plans, which will be recognized over the weighted-average remaining vesting period of ~~2.0~~2.7 years.

At September 30, ~~2020,~~2021, there was ~~$0.4~~$1.5 million of unrecognized stock-based compensation expense relating to the time-based RSUs granted pursuant to the Stock Incentive Plans, which will be recognized over the weighted-average remaining vesting period of ~~1.3~~3.0 years.

11. Significant Agreements

~~Reserved Shares~~License and Collaboration agreements

~~As of~~For the nine months ended September 30, ~~2020~~2021 and ~~December 31, 2019,~~2020, the Company ~~reserved~~had License and Collaboration agreements (“LCAs”) with Denali, Ares and AstraZeneca. The following table summarizes the ~~following shares~~revenue recognized in the Company’s consolidated statements of ~~common stock for issuance of shares resulting~~operations and comprehensive loss from ~~exercise of outstanding warrants~~these arrangements (in thousands):


Revenue by Collaboration Partner
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Ares	$	0		8,691		2,800		9,945
Denali		0		504		117		1,148
AstraZeneca		500	$	0		500	$	0
Other		251	$	0		251	$	0
Total	$	751	$	9,195	$	3,668	$	11,093

2019 License and ~~options, convertible shares from the Convertible Term Loan, as well as issuance of shares available for grant under the Stock Incentive Plans:~~

September 30,

December 31,

2020

2019

IPO warrants

28,347

28,347

November private placement warrants

1,633,777

1,633,777

Convertible term loan

—

2,329,143

Pontifax warrants

250,000

250,000

September 2019 warrants

15,000

15,000

Amended and restated 2015 stock incentive plan

3,247,794

2,160,338

Inducement awards

90,000

90,000

Total

5,264,918

6,506,605

collaboration agreement with Ares Trading S.A.

~~9. CONVERTIBLE TERM LOAN~~Summary

~~In September~~On May 13, 2019, the Company entered into a ~~Convertible Term Loan~~licensing and collaboration agreement ("2019 LCA") with Pontifax Medison Finance (Israel) L.P. and Pontifax Medison Finance (Cayman) L.P., as lenders, and Pontifax Medison Finance GP, L.P., in its capacity as administrative agent and collateral agent for itself and the lenders (collectively, the “Lenders”), providing for a $20.0 million term loan (the “Convertible Term Loan”),Ares, pursuant to which the Company ~~received~~granted the option to enter into a worldwide, exclusive license to certain patents and know-how to develop, manufacture and commercialize two separate mAb2 antibody products that each contain a specific Fcab and a Fab target pair (each a licensed product).

For the exclusive rights granted in relation to the first molecule, an option fee of $11.1 million was paid by Ares to the Company. Following receipt of the option fee, Ares became responsible for the development of the molecule and development, regulatory and sales-based royalties become payable to Company upon achievement of specified events.

On July 15, 2020, a deed of amendment (the “2020 Amendment”) was entered into in respect of the 2019 LCA. The 2020 Amendment had two main purposes (i) to grant additional options to acquire intellectual property rights for a third and fourth molecule; and (ii) to allow Ares to exercise its option early to acquire intellectual property rights to the second molecule included in the 2019 LCA as well as to terminate the R&D services. An option fee of $8.5 million was paid by Ares to the Company on ~~September 19,~~exercise of the option to acquire rights to the second molecule.

During March 2021 Ares paid an option fee of $2.7 million to acquire the rights to the third molecule.

As a result of the 2020 Amendment, the maximum amount payable by Ares on the achievement of certain development and regulatory milestones in the aggregate was increased to $473.9 million, and the maximum amount payable on the achievement of certain commercial milestones was increased to $292.3 million. In addition, to the extent that any product candidates covered by the exclusive licenses granted to Ares are commercialized, the Company will be entitled to receive a single digit royalty based on a percentage of net sales on a country-by-country basis.

Revenue recognition

Management has considered the performance obligations identified in the Ares LCA and concluded that the option for the grant of intellectual property rights is not distinct from the provision of R&D services, as the R&D services would significantly modify the early-stage intellectual property. As a result, the option for the grant of intellectual property rights and the provision of R&D services has been combined into a single performance obligation for each individual molecule included in the 2019 ~~(the “Closing Date”).~~LCA. The Company ~~incurred issuance costs~~recognized revenue using the cost-to-cost method, which it believes best depicted the transfer of ~~$0.4 million and Pontifax Warrants costs~~control of ~~$0.6 million. The Convertible Term Loan issuance costs and Pontifax Warrant costs are shown as an offset~~the services to the ~~Convertible Term Loan~~customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ~~balance sheet~~ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.

The total transaction price for the 2019 LCA, was initially determined to be $15.4 million, consisting of the upfront payment for the first molecule and ~~are amortized using~~research and development funding for the ~~effective interest method~~research term for the second molecule. Variable consideration to ~~interest expense through September 23, 2023 (the “Maturity Date”). In April~~be paid to the company upon reaching certain milestones had been excluded from the calculation, as at the inception of the contract, it was not probable that a significant reversal of revenue recognized would not occur in a subsequent reporting period.

There were two components identified in the 2020 Amendment, each of which was accounted for as a separate performance obligation. The first component, the grant of the additional options to acquire intellectual property rights for the third and fourth molecule, was deemed to be distinct, as the customer can benefit from it on its own, and it is independent of the delivery of other performance obligations in the 2019 LCA. Additionally, as the amount of consideration reflects a standalone selling price, the Company ~~entered into~~determined that the second component is accounted for as a ~~prepayment notice and pay-off letter with~~separate contract.

The second component, which allowed the ~~Lenders, which provided for the full repayment in cash of the $20.0 million Convertible Term Loan and amended the~~customer to exercise price with respect to the Pontifax Warrants. Upon repayment of the Convertible Term Loan, the Company incurred a loss on extinguishment of debt, which included $0.3 million for a prepayment fee, $0.4 million of unamortized issuance costs, $0.5 million in unamortized Pontifax Warrant costs and approximately $54,000 for the Pontifax Warrant amendment (see Note 7).

~~Pursuant to the Convertible Term Loan, the Company was entitled, at~~ its option to ~~prepay some or all~~acquire intellectual property rights to the second molecule early, is considered to be a modification of the ~~then outstanding principal balance and all accrued and unpaid interest on~~2019 LCA. This is because the ~~Convertible Term Loan, together with a prepayment charge equal to 3%~~option is not independent of the ~~principal amount being prepaid.The Lenders were entitled, at their option, to elect to convert~~R&D services provided under the ~~then outstanding Convertible Term Loan amount~~2019 LCA, and ~~all accrued~~therefore the goods and ~~unpaid interest thereon into shares of the Company’s common stock at a conversion price of $8.76 per share.~~

The Company’s obligations were secured by a security interest, senior to any current and future debts and to any security interest, in all of the Company’s right, title, and interest in, to and under all of its property and other assets, subject to limited exceptions including the Company’s intellectual property. The Convertible Term Loan contained customary events of default, representations, warranties and covenants, including a material adverse effect clause.services are not distinct. The Company updated the transaction price and measure of progress for the performance obligation relating to this molecule.

For the three and nine months ended September 30, 2020, $0.2 million and $1.5 million was ~~required to maintain a minimum cash balance of $7.0 million~~recognized in ~~its accounts.~~

~~Upon the occurrence of an event of default, a default interest rate of an additional 4% per annum would have been applied~~relation to the ~~outstanding loan balances, and the Lenders would have been able to declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the~~ ~~Convertible Term Loan~~ ~~and under applicable law. The Company evaluated the accounting for the~~ ~~Convertible Term Loan~~ ~~and identified an embedded derivative related to the contingent interest feature. The Company determined the fair value of the contingent interest feature to be de minimis.~~

In addition, the Company issued the Lenders warrants to purchase an aggregate of 250,000 shares of the Company’s common stock (the “Pontifax Warrants”). The Pontifax Warrants are exercisable for a period of six years from the Closing Date and were exercisable at an exercise price of $6.57 per share prior to their amendment in April 2020. ~~The aggregate fair value of the Pontifax Warrants on the date of issuance was approximately $0.6 million and was recorded as a discount to the term loan and will be amortized over the~~

~~life of the term loan using the effective interest rate method~~. ~~The aggregate fair value remaining on the payoff date was $0.5 million and was~~first antibody included in the loss on extinguishment of the Convertible Term Loan upon repayment. In connection with the repayment of the Convertible Term Loan, the Pontifax Warrants were amended and restated to amend the exercise price to $2.08 per share, which was equal to 1.5 times the weighted-average closing price of the Company’s Common Stock during the 90 days prior to the repayment date. All other terms of the Pontifax Warrants remained the same. 2020 Amendment.

During the nine months ended September 30, 2021, Ares provided notice of its intention to exercise its option granted under the 2020 ~~there~~Amendment to acquire the intellectual property rights for an additional molecule and $2.7 million was recognized at a point in time in respect of the option exercise.

License and collaboration agreement with Denali Therapeutics, Inc.

Summary

In August 2016 the Company entered into an ~~incremental expense~~exclusive license and collaboration agreement (the “Denali LCA”) with Denali. Under the terms of ~~approximately $54,000~~the Denali LCA, Denali was granted the right to nominate up to three Fcab targets for approval (“Accepted Fcab Targets”), within the first three years of the date of the agreement. Upon entering into the Denali LCA, Denali had selected Transferrin receptor as the first Accepted Fcab Target and paid an upfront fee of $5.5 million to the Company. In May 2018, Denali exercised its right to nominate two additional Fcab targets and identified a second Accepted Fcab Target. Denali made a one-time payment to the F-star group for the ~~amendment~~two additional Accepted Fcab Targets of $6.0 million and extended the time period for its selection of the ~~Pontifax Warrant exercise~~third Accepted Fcab Target until August 2020.

Under the terms of the agreement the Company is entitled to receive contingent payments that relate to certain defined preclinical, clinical, regulatory, and commercial milestones with a maximum value of $49.5 million.

Revenue recognition

The Company has considered the performance obligations identified in the contracts and concluded that the grant of intellectual property rights is not distinct from the provision of R&D services, as the R&D services are expected to significantly modify the early-stage intellectual property. As a result, the grant of intellectual property rights and the provision of R&D services has been combined into a single performance obligation for this contract.

The initial transaction price ~~which is~~for first Accepted Fcab Target was deemed to be $7.1 million consisting of $5.0 million for the grant of intellectual property rights and $2.1 million for R&D services. The initial transaction price for the second Accepted Fcab target was $5.1 million, consisting of $3.0 million for the grant of intellectual property rights and $2.1 million for R&D services. During the year ended December 31, 2019, the transaction price for the first Accepted Fcab was increased to $6.6 million due to achievement of a $1.5 million milestone that on initial recognition of the Denali LCA was not included in the ~~loss~~transaction price, as it was not deemed probable that a reversal would not occur in a future reporting period.

All performance obligations were deemed to have been fully satisfied during the year ended December 31, 2019 in respect of the first Accepted Fcab Target, and during the three months ended March 30, 2021 in respect of the second Accepted Fcab Target. As a result, 0 revenue was recognized in respect of these targets for the three months ended September 30, 2021. In respect of the second Accepted Fcab Target, for the nine months ended September 30, 2021 and 2020, the Company recognized $0.1 million and $1.1 million, respectively, and for the three months ended September 30, 2020, the Company recognized $0.5 million.

2021 Agreement with AstraZeneca

Summary

On July 7, 2021 the Company entered into a License Agreement with AstraZeneca AB. Under the terms of the agreement the Company has granted an exclusive license to certain patents and know-how to develop, manufacture and commercialize STING inhibitor compounds. AstraZeneca will be responsible for all future research, development and commercialization activities.

For the exclusive rights granted, an initial upfront fee of $0.5 million was paid by AstraZeneca to the Company during the three months ended September 2021. The Company is entitled to receive additional contingent near-term preclinical milestones of $11.5 million, plus maximum contingent payments that relate to certain defined development and regulatory milestones of $96.5 million and commercial milestones of $221.3 million, as well as royalty payments based upon a single digit percentage on ~~extinguishment~~net sales of ~~debt (see Note 7).~~products developed. Pursuant to the STING Antagonist CVR Agreement, 80% of net proceeds received the Company under the License Agreement with AstraZeneca will be payable, pursuant to the Exchange Agreement, to common stockholders of Spring Bank as of November 19, 2020, immediately prior to the Closing of the transaction.

Revenue recognition

Management has identified a single performance obligation in the contract, which is the grant of intellectual property rights.

The total transaction price was initially determined to be $0.5 million, consisting only of the upfront payment. Variable consideration to be paid to the company upon reaching certain milestones has been excluded from the calculation, as at the inception of the contract, it is not probable that a significant reversal of revenue recognized would not occur in a subsequent reporting period. The transaction price was allocated to the single performance obligation, which was deemed to be fully satisfied on the grant of intellectual property rights, and therefore the initial upfront fee was recognized at a point in time.

In the three and nine months ended September 30, 2021, the Company recorded revenue of $0.5 million in respect of this contract.

Summary of Contract Assets and Liabilities

Up-front payments and fees are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements. A contract asset is a conditional right to consideration in exchange for goods or services that the Company has transferred to a customer. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

The following table presents changes in the balances of the Company’s contract liabilities (in thousands):


	Deferred revenue balance at January 1, 2021		Additions		Revenue recognized			Impact of exchange rates			Deferred revenue balance at September 30, 2021
Deferred revenue
Ares collaboration	$	37	$	0	$	(37	)	$	0		$	0
Denali collaboration		263		0		(117	)		(146	)		0
Total deferred revenue	$	300	$	0	$	(154	)	$	(146	)	$	0

During the nine months ended September 30, ~~2020,~~2021, all revenue recognized by the Company ~~recorded interest expense~~as a result of changes in the contract liability balances in the respective periods was based on proportional performance.

12. Commitments and Contingencies

Lease Obligations

On January 27, 2021, the Company signed an operating lease for three years for its corporate headquarters in Cambridge, United Kingdom, which has approximately $511,000, in connection with the Convertible Term Loan. There was 0 interest expense during the three months ended September 30, 2020. There was approximately $63,000 in interest expense recorded during the three and nine months ended ~~September~~2.3 ~~30, 2019.~~

~~10. LEASES~~

years remaining. The Company also has ~~operating~~ leases for ~~its principal office~~the former Spring Bank headquarters and laboratory space ~~and the Company’s former headquarters.~~in Hopkinton, Massachusetts, which are being subleased. The Company’s leases have remaining lease terms of approximately ~~8.1~~ 7.1 years for its former principal office and laboratory space, which includes an option to extend the lease for up to 5five years ~~and approximately 0.7 years for its former headquarters.~~ . The Company’s former ~~headquarters location is~~locations are being subleased through the remainder of the lease term.

~~Other information related to leases as of September 30, 2020 and 2019 was as follows:~~

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

Cash paid for amounts included in the measurement of lease liabilities:

2020

2019

2020

2019

Operating cash flow from operating leases (in thousands)

$
149

$
143

$
440

$
273

Right-of-use assets obtained in exchange for lease obligations:

Operating leases (in thousands)

$
—

$
2,980

$
—

$
2,980

~~As of September 30, 2020 and December 31, 2019, the weighted average remaining lease term for operating leases was 7.8 years and 8.3 years, respectively.~~

~~As of September 30, 2020 and December 31, 2019, the weighted average discount rate for operating leases was 8% for both periods.~~

Operating lease costs under the leases for the ~~three and~~ nine months ended September 30, ~~2020~~2021, were approximately $165,000 and $495,000, respectively. Total operating lease costs for the three and nine months ended September 30, 2020 were offset by $29,000 and $79,000, respectively, for sublease income and variable lease cost payments. Operating lease costs under the leases for the three and nine months ended September 30, 2019 were approximately $130,000 and $390,000, respectively. Total operating lease costs for the three and nine months ended September 30, 2019 were offset by $22,000 and $59,000, respectively, for sublease income and variable lease cost payments.$0.8 million.

The following table summarizes the Company’s maturities of operating lease liabilities as of September 30, ~~2020~~2021 (in thousands):

Year

2020 (excluding the nine months ended September 30, 2020)

$
149

2021

508

2022

450

2023

462

2024

474

Thereafter

1,931

Total lease payments
$
3,974

Less: present value discount

(1,012
)
Total

$
2,962

~~11. COMMITMENTS AND CONTINGENCIES~~

~~Contingencies~~


Maturities of Operating Lease Liabilities
Periods
For the period October 1, 2021 to December 31, 2021	$	242
2022		978
2023		990
2024		474
2025		486
Thereafter		1,444
Total lease payments	$	4,614

~~On September 3, 2020, a~~Sublease

The Company ~~stockholder filed a complaint~~subleases the former Spring Bank offices in ~~the United States District Court~~Hopkinton, Massachusetts. Operating sublease income under operating lease agreements for the ~~Southern District~~nine months ended September 30, 2021, was $0.4 million. This sublease

has a remaining lease terms of ~~New York (Lenthall v. Spring Bank Pharmaceuticals, Inc. et al, Case No. 1:20-cv-07219 (S.D.N.Y.)~~7.1 ~~), against~~years. Future expected cash receipts from our sublease as of September 30, 2021, are as follows (in thousands):


Future Expected Cash Receipts From Sublease
Period
For the period October 1, 2021 to December 31, 2021	$	56
2022		462
2023		474
2024		486
2025		498
Thereafter		1,481
Total sublease receipts	$	3,457

Service Agreements

As of September 30, 2021, the Company had contractual commitments of $2.6 million with a contract manufacturing organization (“CMO”) for activities that are ongoing or are scheduled to start between three and ~~the members~~nine months of the ~~Company’s Board of Directors (the “individual defendants”), alleging violations of Section 14(a)~~date of the ~~Exchange Act and Rule 14a-9 promulgated thereunder, and as against~~statement of financial position. Under the ~~individual defendants, alleging violations of Section 20(a)~~terms of the ~~Exchange Act and of Delaware state law. The plaintiff alleges that the defendants made materially misleading disclosures in the Company’s Form S-4 registration statement filed in connection~~agreement with the proposed Exchange (the “Form S-4”), by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) Ladenburg’s fairness opinion and (iii) any financial analyses conducted on the Company. The plaintiff in Lenthall seeks declaratory and injunctive relief to enjoin the Exchange as well as damages and attorneys’ and experts’ fees.

~~On September 8, 2020, in the United States District Court for the District of Delaware, a purported class action (Adam Franchi v. Spring Bank Pharmaceuticals, Inc. et al, Case No. 1:20-cv-01198 (D. Del.)~~) was filed against the Company, members of the Company’s Board of Directors and F-star, alleging violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and as against the individual defendants, alleging violations of Section 20(a) of the Exchange Act. This complaint alleges that the defendants made materially misleading disclosures in the Form S-4 by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) the confidentiality agreements entered into by the Company prior to its engagement of Ladenburg, (iii) the process leading up to the execution of the Exchange Agreement and (iv) any financial analyses performed by Ladenburg. The plaintiff in Franchi seeks declaratory and injunctive relief to enjoin the Exchange; or in the event of consummation of the Exchange, rescissory damages against the defendants; filing by the defendants of a Registration Statement deemed not to be materially misleading by the plaintiff; and attorneys’ and experts’ fees.

~~On September 18, 2020, in the United States District Court for the Southern District of New York, another Company stockholder filed a complaint (Arshad v. Spring Bank Pharmaceuticals, Inc., et al., Case No. 1:20-cv-07723 (S.D.N.Y.)~~), against the Company and the members of the Company’s Board of Directors, alleging violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and as against the individual defendants, alleging violations of Section 20(a) of the Exchange Act. The plaintiff alleges that the defendants made materially misleading disclosures in the Form S-4 by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) Ladenburg’s Opinion and (iii) the process relating to the Exchange. The plaintiff in Arshad seeks declaratory and injunctive relief to enjoin the Exchange; or in the event of consummation of the Exchange, rescissory damages against the defendants; filing by the defendants of a Registration Statement deemed not to be materially misleading by the plaintiff; and attorneys’ and experts’ fees.

~~On October 29, 2020, in the United States District Court Eastern District of New York, another Company stockholder filed a complaint (Nowakowski v. Spring Bank Pharmaceuticals, Inc., et al., Case No. 1:20-cv-05219 (E.D.N.Y.)~~), against the Company and the members of the Company’s Board of Directors, alleging violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and as against the individual defendants, alleging violations of Section 20(a) of the Exchange Act. The plaintiff alleges that the defendants made materially misleading disclosures in the Form S-4 by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) Ladenburg’s fairness opinion and (iii) the process relating to the Exchange. The plaintiff in Nowakowski seeks declaratory and injunctive relief to enjoin the Exchange; or in the event of consummation of the Exchange, rescissory damages against the defendants; declaration that defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder; and attorneys’ and experts’ fees.

The Company believes that the complaints set forth above are without merit and intends to defend against them vigorously. There can be no assurance, however, that the Company or any defendant will be successful. At present,CMO, the Company is ~~unable~~committed to ~~estimate potential losses,~~pay for some activities if ~~any, related~~those activities are cancelled up to ~~these lawsuits.~~

~~The Company accrues for contingent liabilities~~three, six or nine months prior to the ~~extent~~commencement date.

Contingent value rights

The acquisition-date fair value of the Contingent Value Rights ("CVR") liability represents the future payments that are contingent upon the achievement of sale or licensing for the STING product candidates. The fair value of the contingent value rights is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. The current liability of the CVR was $0.6 million and $2.1 million at September 30, 2021 and December 31, 2020, respectively. The long term liability of the CVR was $2.9 million and $0.4 million at September 30, 2021 and December 31, 2020, respectively. Changes in the fair value of the liability ~~is probable and estimable. There are 0 accruals for contingent liabilities in these consolidated financial statements.~~

~~12. SUBSEQUENT EVENTS~~

The Company has evaluated subsequent events through the date on which the consolidated financial statements were issued to ensure that this Quarterly Report on Form 10-Q includes appropriate disclosure of events bothwill be recognized in the consolidated ~~financial statements~~statement of operations and ~~events which occurred subsequently but were not recognized in~~comprehensive loss until settlement.

13. Subsequent Events

On October 19, 2021, the ~~consolidated financial statements.~~Company entered into a License and Collaboration Agreement with Janssen Biotech, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson. The agreement was facilitated by Johnson & Johnson Innovation. Under the terms of the agreement, F-star has granted Janssen a worldwide, exclusive royalty-bearing license to research, develop, and commercialize up to five novel bispecific antibodies directed to Janssen therapeutic targets using F-star’s proprietary Fcab™ and mAb2™ platforms. Janssen will be responsible for all research, development and commercialization activities under the agreement. Under the terms of the agreement F-star is entitled to receive upfront fees of $17.5 million with total potential income of up to $1.35 billion. F-star is also eligible to receive potential tiered mid-single digit royalties on annual net sales.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Item 2.~~

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

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, ~~2019,~~2020, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K filed with the ~~United States Securities and Exchange Commission, or the~~ SEC on ~~February 14, 2020.~~March 30, 2021.

This report contains forward-looking statements that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA. Forward-looking statements involve risks and uncertainties. In this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking ~~statements.~~statements due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q or under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021, as may be updated by Part II, Item 1A, Risk Factors of our subsequently filed Quarterly Reports on Form 10-Q. We caution our readers that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

~~Overview~~24

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements by terms including, but not limited to, “may,” “likely,” “will,” “should,” “would,” “design,” “expect,” “seek,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.

These forward-looking statements include, but are not limited to, statements about:



our ongoing and planned preclinical studies and clinical trials;



preclinical study data and clinical trial data and the timing of results of our ongoing clinical studies and/or trials;



our plans to seek and enter into clinical trial collaborations and other broader collaborations;



the direct and indirect impact of the COVID-19 pandemic on our business operations and financial condition, including manufacturing, research and development costs, clinical trials, regulatory processes and employee expenses; and



our estimates regarding prospects, strategies, expenses, operating capital requirements, results of operations and needs for additional financing.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results or events to differ materially from the forward-looking statements that we make include, but are not limited to, the following:



We are a clinical-stage biopharmaceutical company engaged in the discovery and development of novel therapeutics for the treatment of a range of cancers and inflammatory diseases using our proprietary small molecule nucleotide platform. We design our compounds to selectively target and modulate the activity of specific proteins implicated in various disease states. Our internally-developed programs are primarily designed to stimulate and/or dampen immune responses. ~~We have devoted resources to advancing multiple programs~~very early in our ~~STING product portfolio, including our STING agonist clinical program in oncology, our STING antagonist compounds for inflammatory diseases,~~development efforts and our ~~STING agonist antibody drug conjugate (ADC) program for oncology.~~

Until January 2020, we had been developing inarigivir soproxil, an orally-administered investigational selective immunomodulator, as a potential treatment for chronic hepatitis B virus. In April 2019, we launched two Phase 2 global trials (CATALYST 1 and CATALYST 2) examining the administration of inarigivir 400mg as monotherapy and co-administered with a nucleotideproduct candidates may not be successful in ~~naïve and virally suppressed chronic HBV patients. On January 29, 2020, we announced that we were terminating all~~later stage clinical ~~development of inarigivir for the treatment of HBV due to the occurrence of unexpected serious adverse events, including one patient death,~~trials. Results obtained in our ~~Phase 2b CATALYST trial.~~

~~Key Developments~~

~~On July 29, 2020, we entered into a share exchange agreement, or the Exchange Agreement, with F-star Therapeutics Limited, or F-star, a private company registered in England~~preclinical studies and ~~Wales, and the holders~~clinical trials to date are not necessarily indicative of issued shares in the capital of F-star and the holders of convertible notes of F-star, pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Exchange Agreement, we will acquire the entire issued share capital of F-star, with F-star Therapeutics, Inc. to continue as the combined company, which we collectively refer to as the Exchange. The Exchange is expected to close in the fourth quarter of 2020, subject to the approval by our stockholders at a special meeting of stockholdersresults to be ~~held on November 19, 2020,~~obtained in future clinical trials. As a result, our product candidates may never be approved as ~~well as other customary conditions. Upon completion of the Exchange, Spring Bank Pharmaceuticals, Inc.~~marketable therapeutics.

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We will ~~be renamed F-star Therapeutics, Inc., and is expected~~need additional funding to ~~trade on the Nasdaq Capital Market under the ticker symbol “FSTX”.~~

~~The Exchange is intended to create a company focused on transforming the lives of patients with cancer through~~complete the development of ~~innovative tetravalent bispecific (mAb2™) antibodies. The combined company will advance its immuno-oncology pipeline~~our product candidates and before we can expect to become profitable from the sales of ~~multiple tetravalent bispecific antibody~~our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs ~~including the Company’s STING (STimulator~~or commercialization efforts.

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We rely, and expect to continue to rely, on third parties to conduct our clinical trials and to manufacture our product candidates for preclinical and clinical testing. These third parties may not perform satisfactorily, which could delay our product development activities.

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If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of ~~INterferon Gene) agonist, SB 11285, currently in~~operations, financial condition and prospects.

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We may not be able to retain key executives or to attract, retain and motivate key personnel. If we are unable to retain such key personnel, it could have a ~~Phase 1/2 clinical trial.~~

material adverse impact on our business and prospects.

~~Since the signing~~

Business interruptions resulting from COVID-19 outbreak or similar public health crises could cause a disruption of the ~~Exchange Agreement~~development of our product candidates and adversely impact our business.

You should read this Quarterly Report on ~~July 29, 2020,~~Form 10-Q and the documents that we have ~~primarily been focused~~filed as exhibits to this Quarterly Report on ~~conducting activities~~Form 10-Q completely and with ~~respect to SB 11285,~~the understanding that our ~~intravenously (IV)-administered STING agonist product candidate, which is currently being administered as a monotherapy and in combination in a Phase 1 trial.~~actual future results may be

~~Spring Bank Programs~~25

~~The paragraphs that follow reflect Spring Bank’s programs as a stand-alone entity. For a discussion of~~materially different from what we expect. You should also read carefully the ~~business of the combined company, assuming the completion of the Exchange, see Spring Bank’s~~ factors described in “Item 1A. Risk Factors” in our ~~Final Prospectus and Proxy Statement~~Annual Report on Form 10-K, for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on ~~October 20, 2020.~~March 30, 2021, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

Overview

F-star Therapeutics, Inc. (collectively with its subsidiaries, “F-star” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to developing next generation immunotherapies to transform the lives of patients with cancer. F-star is pioneering the use of tetravalent (2+2) bispecific antibodies to create a paradigm shift in cancer therapy. The ~~pandemic caused~~Company has four second generation immuno-oncology ("IO") therapeutics in the clinic, each directed against some of the most promising IO targets in drug development, including LAG-3 and CD137. F-star’s proprietary antibody discovery platform is protected by an ~~outbreak~~extensive IP estate. F-star has over 500 granted patents and pending patent applications relating to its platform technology and associated product pipeline. The Company has attracted multiple partnerships with biopharma targeting the significant unmet needs across several disease areas, including oncology, immunology, and CNS. F-star’s goal is to offer patients better and more durable benefits than currently available immuno-oncology treatments by developing medicines that seek to block tumor immune evasion. Through our proprietary tetravalent, bispecific natural antibody (mAb²™) format, our mission is to generate highly differentiated medicines with monoclonal antibody-like manufacturability, good safety and tolerability. With four distinct binding sites in a natural human antibody format, we believe that our proprietary technology will overcome many of the challenges facing current immuno-oncology therapies, due to the strong pharmacology enabled by tetravalent bispecific binding.

Our Programs

F-star’s most advanced product candidate, FS118, is currently being evaluated in a proof-of-concept Phase 2 trial in PD-1/PD-L1 acquired resistance head and neck cancer patients. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are validated targets in immuno-oncology. Phase 1 data from 43 heavily pre-treated patients with advanced cancer, who have failed PD-1/PD-L1 therapy, showed that administration of FS118 was well-tolerated with no dose limiting toxicities up to 20 mg/kg. In addition, a disease control rate (“DCR”), defined as either a complete response, partial response or stable disease, of 49% was observed in 39 evaluable patients receiving dose levels of FS118 of 1mg/kg or greater. In acquired resistance patients, DCR was 59% (16 out of 27 patients) and long-term (greater than six months) disease control was observed in six of these patients. We expect to provide an update from the proof-of-concept Phase 2 trial in PD-1/PD-L1 acquired resistance head and neck cancer patients in mid-2022. Recent data from an external randomized phase 3 trial in patients with previously untreated, locally advanced or metastatic melanoma provides clinical validation for the combination of LAG-3 and PD-1 inhibition. This clinical benefit in targeting PD-1 and LAG-3 gives us reason to believe that FS118 has potential to benefit patients not only with acquired resistance, but also in preventing resistance in patients receiving PD-1 monotherapy. We are initiating a clinical trial in checkpoint inhibitor (CPI) naïve patients in biomarker enriched non-small cell lung cancer (“NSCLC”) and diffuse large B cell lymphoma (“DLBCL”) populations in second half of 2021.

F-star’s second product candidate, FS120, aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb2 bispecific antibody that is designed to bind to and stimulate OX40 and CD137, two proteins found on the surface of T cells that both function to enhance T cell activity. F-star is developing FS120 alone and in combination with PD-1/PD-L1 therapy for the treatment of tumors where PD-1/PD-L1 products are approved, and which have co-expression of OX40 and CD137 in the tumor microenvironment. F-star initiated a Phase 1 clinical trial in patients with advanced cancers in the fourth quarter of 2020 and has completed the accelerated dose titration phase during the fourth quarter of 2021. We are continuing further dose escalation to determine an optimal dosing regimen to initiate a combination of FS120 and the PD-1 inhibitor, pembrolizumab, in 2022. Pembrolizumab will be supplied under clinical trial collaboration and supply agreement with Merck & Co..

F-star’s third product candidate, FS222, aims to improve outcomes particularly in low PD-L1 expressing tumors and is a mAb2 bispecific antibody that is designed to target both the costimulatory CD137 and the inhibitory PD-L1 receptors, which are co-expressed in a number of tumor types. F-star initiated a Phase 1 clinical trial in patients with advanced cancers for FS222 in late 2020. We believe there is a strong rationale to combine FS222 with other anti-cancer agents, including targeted therapy and chemotherapy, and this can be done within the Phase 1 study. We expect to report an update on the current single agent dose escalation study in the fourth quarter of 2021.

SB 11285, which F-star acquired pursuant to a business combination with Spring Bank Pharmaceuticals, Inc. (“Spring Bank”), is a next generation cyclic dinucleotide STimulator of INterferon Gene (“STING”) agonist designed to improve checkpoint inhibition outcomes as an immunotherapeutic compound for the treatment of selected cancers. SB 11285 appeared to be well tolerated both alone and in combination with atezolizumab across all dose levels tested to-date, including five dose levels as monotherapy and three dose levels as a combination. Initial analysis showed that pharmacokinetics (PK) were in-line with the predicted profile for rapid cellular uptake, a characteristic of second generation STING agonists. F-star is continuing with further dose-escalation and in parallel pursuing strategic business development opportunities for SB 11285. We expect to report an update on this study in the second half of 2022.

Share Exchange Agreement

On November 20, 2020, the Company, formerly known as Spring Bank, completed a business combination (the “Transaction”) with F-star Therapeutics Limited (“F-star Ltd”) in accordance with the terms of the Share Exchange Agreement, dated July 29, 2020 (the “Exchange Agreement”), by and among the Company, F-star Ltd and certain holders of the capital stock and convertible notes of F-star Ltd (each a “Seller”, and collectively with holders of F-star Ltd securities who subsequently became parties to the Exchange Agreement, the “Sellers”). Pursuant to the Exchange Agreement, each ordinary share of F-star Ltd outstanding immediately prior to the closing of the Transaction (the “Closing”) was exchanged by the Sellers that owned such F-star Ltd shares for a number of duly authorized, validly issued, fully paid and non-assessable shares of Company common stock pursuant to an exchange ratio formula as set forth in the Exchange Agreement (the “Exchange Ratio”), rounded to the nearest whole share of Company common stock (after aggregating all fractional shares of Company common stock issuable to such Seller). Also, on November 20, 2020, in connection with, and prior to completion of, the Transaction, Spring Bank effected a 1-for-4 reverse stock split of its common stock (the “Reverse Stock Split”) and, following the completion of the Transaction, changed its name to F-star Therapeutics, Inc. Following the completion of the Transaction, the business of the Company became the business conducted by F-star, which is a clinical-stage immuno-oncology company focused on cancer treatment through its proprietary tetravalent bispecific antibody programs. Unless otherwise noted, all references to share amounts in this report reflect the Reverse Stock Split.

Under the terms of the Exchange Agreement, at the Closing, Spring Bank issued an aggregate of 4,620,618 shares of its common stock to F-star Ltd stockholders, based on an Exchange Ratio of 0.1125 shares of Spring Bank common stock for each F-star Ltd ordinary share, stock option and restricted stock unit (“RSU”) outstanding immediately prior to the Closing. The Exchange Ratio was determined through arms-length negotiations between Spring Bank and F-star Ltd pursuant to a formula set forth in the Exchange Agreement.

Pursuant to the Exchange Agreement, immediately prior to the Closing, certain investors in F-star Ltd purchased $15.0 million of F-star Ltd ordinary shares (the “Pre-Closing Financing”). These ordinary shares of F-star Ltd were then exchanged at the Closing for shares of the Company’s common stock in the Transaction at the Exchange Ratio.

Pursuant to the Exchange Agreement, all outstanding options to purchase Spring Bank common stock were accelerated immediately prior to the Closing and each outstanding option with an exercise price greater than the closing price of the stock on the Closing Date was exercised in full and all other outstanding options to purchase Company common stock were cancelled effective as of the Closing Date.

Immediately following the Reverse Stock Split and the Closing, there were approximately 4,449,559 shares of Spring Bank common stock outstanding. Following the Closing, the F-star Ltd stockholders beneficially owned approximately 53.7% of the combined company’s common stock, and the existing stockholders of Spring Bank beneficially owned approximately 46.3% of the combined company’s common stock. Concurrently with the execution of the Exchange Agreement, certain officers and directors of Spring Bank and F-star Ltd and certain

stockholders of F-star Ltd entered into lock-up agreements, pursuant to which they agreed to certain restrictions on transfers of any shares of the Company’s common stock for the 180-day period following the Closing, other than the shares of the Company’s common stock received in exchange for ordinary shares of F-star Ltd subscribed for in the Pre-Closing Financing and pursuant to certain other limited exceptions.

In addition, at the Closing, Spring Bank, F-star Ltd, a representative of Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent, entered into a STING Agonist Contingent Value Rights Agreement (the “STING Agonist CVR Agreement”). Pursuant to the Exchange Agreement and the STING Agonist CVR Agreement, each pre-Reverse Stock Split share of Spring Bank common stock held by stockholders as of the record date on November 19, 2020, immediately prior to the Closing, received a dividend of one contingent value right (“CVR”) (“STING Agonist CVR”), payable on a pre-Reverse Stock Split basis, entitling such holders to receive, in connection with certain transactions involving proprietary STING agonist compound designated as SB 11285 occurring on or prior to the STING Agonist CVR Expiration Date (as defined below) that resulted in aggregate Net Proceeds (as defined in the STING Agonist CVR Agreement) at least equal to the Target Payment Amount (as defined below), an aggregate amount equal to the greater of (i) 25% of the Net Proceeds received from all CVR Transactions (as defined in the STING Agonist CVR Agreement) and (ii) an aggregate amount equal to the product of $1.00 and the total number of shares of Company common stock outstanding as of such record date (not to exceed an aggregate amount of $18.0 million) (the “Target Payment Amount”).

The CVR payment obligation expires on the later of 18 months following the Closing or the one-year anniversary of the date of the final database lock of the STING clinical trial (as defined in the STING Agonist CVR Agreement) (the “STING Agonist CVR Expiration Date”). The STING Agonist CVRs are not transferable, except in certain limited circumstances, are not certificated or evidenced by any instrument, do not accrue interest and are not registered with the SEC or listed for trading on any exchange. Until the STING Agonist CVR Expiration Date, subject to certain exceptions, the Company is required to use commercially reasonable efforts to (a) complete the STING Trial and (b) pursue a CVR Transaction. The STING Agonist CVR Agreement became effective upon the Closing and, unless terminated earlier in accordance with its terms, will continue in effect until the STING Agonist CVR Expiration Date the payment or all CVR payment amounts are paid pursuant to their terms.

At the Closing, Spring Bank, F-star Ltd, a representative of Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent, also entered into a STING Antagonist Contingent Value Rights Agreement (the “STING Antagonist CVR Agreement”). Pursuant to the Exchange Agreement and the STING Antagonist CVR Agreement, each share of common stock held by Spring Bank stockholders as of November 19, 2020, immediately prior to the Closing, received a dividend of one CVR (“STING Antagonist CVR”) entitling such holders to receive, in connection with the execution of a potential development agreement (the “Approved Development Agreement”) and certain other transactions involving proprietary STING antagonist compound occurring on or prior to the STING Antagonist CVR Expiration Date (as defined below) equal to: 80% of all net proceeds (as defined in the STING Antagonist CVR Agreement) received by the Company after the Closing pursuant to (i) the Approved Development Agreement, if any, and (ii) all CVR Transactions (as defined in the STING Antagonist CVR Agreement) entered into prior to the STING Antagonist CVR Expiration Date.

The STING Antagonist CVRs are not transferable, except in certain limited circumstances, are not certificated or evidenced by any instrument, do not accrue interest, and are not registered with the SEC or listed for trading on any exchange. Until the STING Antagonist CVR Expiration Date, subject to certain exceptions, the Company is required to use commercially reasonable efforts to (a) consummate the Approved Development Agreement, (b) to perform the terms of the Approved Development Agreement and (c) pursue CVR Transactions. The STING Antagonist CVR Agreement became effective upon the Closing and, unless terminated earlier in accordance with its terms, will continue in effect until the STING Antagonist CVR Expiration Date or all CVR payment amounts are paid pursuant to their terms. On July 8, 2021, the Company entered into a License Agreement with AstraZeneca AB (“AstraZeneca”) under which AstraZeneca will receive global rights to research, develop and commercialize next generation STING inhibitor compounds. Under the terms of the agreement, AstraZeneca is granted exclusive access to and will be responsible for all future research, development and commercialization of the STING inhibitor compounds. F-star is eligible to receive upfront and near-term payments of up to $12 million upon meeting certain milestones. In addition, F-star will be eligible for development and sales milestone payments of over $300 million, as well as single digit percentage royalty payments. Payments received by F-star are subject to a contingent value

rights agreement (CVR 2), under which 80% will be payable to stockholders of F-star that were previously stockholders of Spring Bank prior to the business combination between F-star and Spring Bank.

The acquisition-date fair value of the CVR liability represents the future payments that are contingent upon the achievement of sale or licensing for the product candidates. The fair value of the contingent consideration acquired of $2.5 million as of December 31, 2020, and $3.5 million as of September 30, 2021, is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. Changes in the fair value of the liability will be recognized in the consolidated statement of operations and comprehensive loss until settlement. For the three months ended September 30, 2021, the estimated fair value increased to $3.5 million which resulted in a $0.4 million charge on the Consolidated Statements of Operations and Comprehensive Loss.

All issued and outstanding F-star Ltd share options granted under F-star’s three legacy equity incentive plans became exercisable in full immediately prior to the Closing. At the Closing, all issued share options and restricted stock units granted by F-star Ltd under the F-star Therapeutics Limited 2019 Equity Incentive Plan were replaced by options and awards on the same terms (including vesting), of the combined company’s common stock, based on the Exchange Ratio.

The Company’s common stock, which is listed on the Nasdaq Capital Market, traded through the close of business on Friday, November 20, 2020, under the ticker symbol “SBPH” and continued trading on the Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the ticker symbol “FSTX” beginning on Monday, November 23, 2020. Commencing on November 23, 2020, the Company’s common stock was represented by a new ~~strain~~CUSIP number, 30315R 107.

The Transaction was accounted for as a business combination using the acquisition method of ~~coronavirus, or~~accounting under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Transaction was accounted for as a reverse acquisition with F-star Ltd being deemed the acquiring company for accounting purposes. Under ASC 805, F-star Ltd as the accounting acquirer, recorded the assets acquired and liabilities assumed of Spring Bank in the Transaction at their fair values as of the acquisition date.

F-star Ltd was determined to be the accounting acquirer based on an analysis of the criteria outlined in ASC 805 and the facts and circumstances specific to the Transaction, including the fact that immediately following the Transaction: (1) F-star Ltd shareholders owned the majority of the voting rights of the combined company; (2) F-star Ltd designated a majority (five of eight) of the initial members of the board of directors of the combined company; and (3) F-star Ltd senior management held the key positions in senior management of the combined company. As a result, upon consummation of the Transaction, the historical financial statements of F-star Ltd became the historical financial statements of the combined organization.

Impact of COVID-19 on our Business

We continue to closely monitor the impact of the COVID-19 pandemic, ~~that is affecting~~including the ~~United States~~emergence and ~~global economy and financial markets is also impacting~~spread of variants of COVID-19, on all aspects on our business, including how the pandemic continues to impact our employees, ~~patients, communities~~clinical trials, development programs, manufacturing supply, and other aspects of our operations. Overall, the global pandemic and consequent restrictions have resulted in a three to six-month delay in the operationalization of some aspects of our research and development operations. Specifically, by the way of example, patient enrollment in our FS118 Phase 2 trial has been somewhat slower than anticipated as a result of limited clinical trial staffing at certain study sites combined with some investigative sites inability to support remote site monitoring. While the COVID-19 pandemic did not have a material adverse effect on our reported results for the nine months ended September 30, 2021, we are unable to predict the ultimate impact that the pandemic may have on our business, ~~operations.~~future results of operations, financial position, or cash flows. The ~~full~~ extent to which our operations may be impacted by the COVID-19 pandemic will ~~directly or indirectly impact our business, results of operations and financial condition will~~ depend largely on future developments, ~~that~~which are highly uncertain and cannot be accurately predicted, including new information ~~that~~which may emerge concerning the severity of the outbreak, including the emergence and spread of variants of COVID-19, such as the delta variant, and actions ~~taken~~by government authorities to contain ~~it or treat its impact and~~ the ~~economic impact on local, regional, national and international markets. Management is actively monitoring this situation and~~outbreak.

Recent Developments

Subsequent Events

On October 19, 2021, the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. In the paragraphs that follow, we have described impacts of the COVID-19 pandemic on our clinical and preclinical development programs.

~~STING Agonist~~

We continue to develop our lead STING agonist product candidate, SB 11285, as a next-generation immunotherapeutic agent for the treatment of selected cancers. SB 11285 is currently being evaluated as an intravenously (IV)-administered monotherapy in a Phase 1a/1b multicenter, dose escalation clinical trial in patients with advanced solid tumors. Phase 1a of this trial is a dose-escalation study with IV SB 11285 monotherapy which allows combination with a checkpoint inhibitor after the completion of the first two cohorts of the trial. Phase 1b of this trial is designed to explore IV SB 11285 antitumor activity in combination with a checkpoint inhibitor in tumor types expected to be responsive to immunotherapy. In February 2020, weCompany entered into a ~~clinical collaboration~~License and Collaboration Agreement with ~~Roche~~Janssen Biotech, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”). The agreement was facilitated by Johnson & Johnson Innovation. Under the terms of the agreement, F-star has granted Janssen a worldwide, exclusive royalty-bearing license to research, develop, and commercialize up to five novel bispecific antibodies directed to Janssen therapeutic targets using F-star’s proprietary Fcab™ and mAb2™ platforms. Janssen will be responsible for all research, development and commercialization activities under the agreement. Under the terms of the agreement, F-star is entitled to receive upfront fees of $17.5 million with total potential income of up to $1.35 billion. F-star is also eligible to receive potential tiered mid-single digit royalties on annual net sales.

Components of Operating Results

License revenue

To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales for the ~~use~~foreseeable future. Our revenue consists of ~~Roche’s PD-L1 checkpoint inhibitor atezolizumab (Tecentriq®~~collaboration revenue under our license and collaboration agreements with Ares Trading S.A. (“Ares”), Denali Therapeutics, Inc. (“Denali”) ~~in the combination cohorts of this trial.~~

We initiated dosing in the initial monotherapy cohort of this Phase 1 trial in the fourth quarter of 2019. In August 2020, we initiated the first combination cohort of this Phase 1 trial examining the co-administration of SB 11285 and ~~atezolizumab. Although several of the institutions involved in the conduct of this trial have suspended patient enrollment in all of their clinical trials~~AstraZeneca, including amounts that are recognized related to upfront payments, milestone payments, option exercise payments, and amounts due to us for research and development services. In the ~~COVID-19 pandemic,~~future, revenue may include new collaboration agreements, additional milestone payments, option exercise payments, and royalties on any net product sales under our collaborations. We expect that any revenue we ~~have been able~~generate will fluctuate from period to continue dosing patients in this trial at multiple sites and completed the dosing of patients in the third cohort in August 2020. Depending on whether we are able to continue enrolling and dosing patients in this Phase 1 trial, we plan to complete the fourth monotherapy cohort during the fourth quarter of 2020. Spring Bank anticipates that it will announce monotherapy data in the fourth quarter of 2020 and hopes to generate sufficient data from the Phase 1a/1b IV STING agonist program by the end of the first half of 2021 to enable advancement into a Phase 2 clinical trial. While Spring Bank currently anticipates this Phase 1 trial will remain open and currently enrolled patients will continue on study, all clinical sites activated for the study may determine to stop enrolling and/or dosing patientsperiod as a result of the ~~impact~~timing and amount of ~~the COVID-19 pandemic, which has the potential to impact both the advancement into combination cohorts and the availability of data in 2020 and the first half of 2021.~~

~~STING Antagonist~~

We have also explored the use of our novel STING antagonist compounds for the treatment of certain autoimmune and inflammatory diseases where the STING pathway is involved. Our STING antagonists are selectively designed to block aberrant activation of the STING pathway, which contributes to the causes of certain autoimmune and inflammatory diseases, including STING-associated vasculopathy with onset in infancy (SAVI), systemic lupus erythematosus (SLE) and other proinflammatory-mediated diseases. In July 2019, we presented preclinical data from a novel STING antagonist compound, which showed potent inhibition of interferon and pro-inflammatory cytokines in wild type and mutant STING ~~in vitro~~ ~~models.~~ ~~In vivo~~ administration of this compound antagonized STING-agonist-induced interferon and cytokine production in the blood, spleen and liver in mice, illustrating the potential that this compound has for therapeutic applications in interferonopathies, as well as autoimmune and inflammatory diseases. Furthermore, in August 2019, we entered into a research agreement with the University of Texas Southwestern Medical School to evaluate our small molecule STING antagonist compounds.

~~SARS-CoV-2~~

In April 2020, we announced that we were exploring programs and collaborations to study our portfolio of RIG-I agonist and STING agonist compounds as potential therapeutics and vaccine adjuvants for SARS-CoV-2, the virus responsible for COVID-19. We have continued to work with the National Institute of Allergy and Infectious Diseases (NIAID) to examine multiple compounds from our RIG-I agonist and STING agonist portfolio in the Middle East Respiratory Syndrome Coronavirus (MERS-CoV) assay and the SARS-CoV-2 antiviral assay. We are also pursuing the inclusion of inarigivir soproxil, a RIG-I agonist, as an adjuvant therapy in ongoing clinical trials involving Bacille Calmette-Guerin (BCG) vaccines against SARS-CoV-2.

~~To date, we have devoted substantially all of our resources to~~license, research and development ~~efforts, including conducting clinical trials for our product candidates, protecting our intellectual property~~services, and ~~providing general~~milestone and ~~administrative support for these operations. We have not generated any revenue to date~~ other than from grants from the National Institutes of Health, or NIH. No additional funding remains available to us under any grant for the development of any of our product candidates. We have funded our operations primarily through proceeds received from private placements of convertible notes, common stock and/or warrants; the exercise of options and warrants; NIH grant funding; and public offerings of securities.

We have incurred significant annual net operating losses in every year since our inception and expect to continue to incur significant expenses and net operating losses for the foreseeable future. Our net losses for the three and nine months ended payments.~~September~~ ~~30, 2020 were $5.4 million and $20.1 million, respectively, and our net losses for the three and nine months ended~~ ~~September~~ 30, 2019 were $6.9 million and $16.7 million, respectively. As of September 30, 2020, we had an accumulated deficit of $146.2 million. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to continue to incur significant expenses and increasing operating losses for the next several years.

We do not expect to raise any additional funds prior to the completion of the Exchange. However, if the Exchange is not completed, we may require significant additional funds earlier than we currently expect in order to conduct clinical trials and preclinical and discovery activities. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us.

There is no guarantee that the Exchange will be completed. As of September 30, 2020, we had $20.0 million in cash, cash equivalents and marketable securities. We expect that our cash, cash equivalents and marketable securities as of September 30, 2020 will be sufficient to fund operations for at least the next twelve months. This estimate assumes no additional funding from new collaboration agreements or equity financings.Operating Expenses

~~Financial Operations Overview~~

~~Operating expenses~~

~~Our operating expenses since inception have consisted primarily of research~~Research and development ~~expense and general and administrative costs.~~costs

Research and development

costs are expensed as incurred. Research and development expenses ~~consist primarily~~are comprised of costs incurred ~~for our research activities, including our discovery efforts, and the development of our product candidates, which include:~~

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expenses incurred under agreements with third parties, including CROs that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in our preclinical and clinical trials;

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~~salaries, benefits and other related costs, including stock-based compensation expense, for personnel in our research and development functions;~~

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~~costs of outside consultants, including their fees, stock-based compensation and related travel expenses;~~

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~~the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;~~

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~~costs related to compliance with regulatory requirements; and~~

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~~facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.~~

~~We expense~~in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as ~~incurred. We recognize~~well as the cost of licensing technology. Typically, upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred, except for payments relating for intellectual property rights with future alternative use which will be expensed when the intellectual property is in use. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Those expenses associated with R&D and clinical costs primarily include:

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expenses incurred under agreements with contract research organizations (“CROs”) as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials;

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expenses incurred for outsourced professional scientific development services;

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costs for laboratory materials and supplies used to support our research activities;



allocated facilities costs, depreciation, and other expenses, which include rent and utilities;



up-front, milestone and management fees for maintaining licenses under our third-party licensing agreements; and



compensation expense.

The Company recognizes external ~~development~~R&D costs based on an evaluation of the progress to completion of specific tasks using information provided to usit by ~~our vendors~~its internal program managers and ~~our clinical investigative sites. Payments for these~~service providers.

Research and development activities are ~~based on~~central to the ~~terms~~Company’s business models. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the ~~individual agreements, which may differ from~~increased size and duration of later stage clinical trials. As a result, the ~~pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses.~~

~~Our direct~~Company expects that research and development expenses ~~are not currently tracked on a program-by-program basis. Until January 2020, we were primarily focused on~~will increase over the ~~research~~next several years as the Company increases personnel costs, initiate and ~~development of inarigivir. Going forward,~~conduct additional clinical trials and ~~at least until~~prepare regulatory filings related to the completion of the Exchange, we expect our primary focus to be on the research and development of compounds targeting the STING pathway. Our direct research and development expenses consist primarily of external costs, such as fees paid to investigators, consultants and CROs in connection with our preclinical studies and clinical trial and regulatory fees. We do not allocate employee-related costs and other indirect costs to specific research and development programs.various product candidates.

The successful development of our product candidates is highly uncertain. ~~Accordingly,~~As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of ~~any of our~~these product candidates. We are also unable to predict when, if ever, wematerial net cash inflows will ~~generate revenues~~commence from ~~SB 11285 or any of~~ our ~~other~~ product candidates. This is due to the numerous risks and uncertainties associated with developing ~~medicines,~~products, including the ~~uncertainties related to:~~uncertainty of:



research and development support of our product candidates, including conducting future clinical trials of FS118, FS120, FS222 and SB 11285;



progressing the clinical development of FS118, FS120, FS222 and SB11285;



establishing an appropriate safety profile with investigational new drug-enabling studies to advance our programs into clinical development;



identifying new product candidates to add to our development pipeline;



successful enrollment in, and the initiation and completion of clinical trials;



the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;



commercializing the product candidates, if and when approved, whether alone or in collaboration with others;



establishing commercial manufacturing capabilities or making arrangements with third party manufacturers;



the development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials;



addressing any competing technological and market developments, as well as any changes in governmental regulations;



negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations under such arrangements;



maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how, as well as obtaining and maintaining regulatory exclusivity for our product candidates;



continued acceptable safety profile of the drugs following approval; and



attracting, hiring, and retaining appropriately qualified personnel.

•

~~establishing an appropriate safety profile for our product candidates;~~

•

~~successful enrollment in and completion of clinical trials;~~

•

~~receipt of marketing approvals from applicable regulatory authorities;~~

•

~~establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;~~

•

~~obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;~~

•

~~launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; and~~

•

~~if a product is approved, a continued acceptable safety profile of the product.~~

A change in the outcome of any of these variables with respect to ~~any~~the development of ~~our~~a product ~~candidates would significantly~~candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, the U.S. Food and Drug Administration, European Medicines Agency or another regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or we may experience significant trial delays due to patient enrolment or other reasons, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. In addition, we may obtain unexpected results from our clinical trials, and we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and

~~We anticipate~~31

uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

In September 2021, the Company identified an error in its accounting treatment for research and development expenses. This error resulted in an overstatement of research and development expenses ~~will trend below comparable~~for the first six months of 2021 and accrued expenses and other current liabilities as of March 31, 2021 and June 30, 2021. The Company assessed the materiality of this error on prior period ~~levels~~financial statements in accordance with the ~~near future~~SEC Staff Accounting Bulletin Number 99, Materiality, and ASC 250-10, Accounting Changes and Error Corrections. The Company determined that this error was not material to the financial statements of any prior interim period. To correct the immaterial misstatement, the Company decreased accumulated deficit by $0.3 million as ~~a result~~ of ~~reduced research and development activities and a reduced headcount of research and development personnel.~~June 30, 2021.

General and administrative expenses

General and administrative expenses consist primarily of salaries, related benefits, travel, and ~~other related costs, including stock-based~~share-based compensation expense for personnel in ~~our~~ executive, finance, ~~corporate and business development~~legal and administrative functions. General and administrative expenses also include ~~legal fees relating to~~facility-related costs, patent filing and ~~corporate matters;~~prosecution costs, insurance and marketing costs and professional fees for legal, consulting, accounting, ~~auditing,~~audit, tax services and ~~consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation~~ costs ~~and allocated expenses for rent and maintenance of facilities and other operating costs.~~

~~We anticipate our~~associated with being a public company. Other expense also includes foreign currency transaction losses. The Company expects that general and administrative expenses will ~~remain consistent with comparable prior period levels~~increase in the ~~near future.~~ ~~We will continue to incur expenses associated with~~future as the Company expands its operating activities and incurs costs of being a US public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer insurance premiums, and investor and public relations costs.company.

Other income ~~(expense)~~and expenses, net

Other income ~~(expense) consists of~~and expenses, net, is primarily rent received from subletting an office in the United States and interest ~~income earned~~received on ~~our cash, cash equivalents, restricted cash~~overdue trade receivable balances, bank interest received, and ~~marketable securities,~~ interest expense, ~~paid~~which is primarily bank interest payable and similar charges, the interest liability on ~~the Convertible Term Loan~~leased assets and ~~the loss on extinguishment of~~convertible debt ~~for repayment of the Convertible Term Loan.~~

~~Change in fair value of warrant liabilities~~

~~Change in fair value of warrant liabilities consists of a gain or (loss) related to the change~~notes, changes in the fair value of CVR and foreign exchange losses incurred. Foreign exchange gain (loss) is foreign exchange gains or losses due to the ~~warrants issued~~fluctuation of the GBP, U.S. dollar and/or the Euro. Change in ~~connection~~the fair value of convertible debt is the fair value adjustment of the convertible notes as measured using level 3 inputs which was converted on November 20, 2020, with ~~our private placement offering in November 2016, resulting from factors such as a change in our stock price and a change in expected stock price volatility.~~the transaction with Spring Bank.

~~Critical Accounting Policies and Significant Judgments and Estimates~~Income tax

~~Our consolidated financial statements are prepared in accordance with generally accepted accounting principles~~The Company is subject to corporate taxation in the United States, United Kingdom and Austria.

Our UK established entities have generated losses and some profits in the United Kingdom since inception and have therefore not paid significant UK corporation tax. Our Austrian subsidiary has historical losses in Austria with more recent profits, which has resulted in payment of ~~America.~~Austrian corporation tax in the years ended December 31, 2020, and 2019. The ~~preparation~~corporation tax benefit (tax) presented in the Company’s statements of ~~our consolidated financial statements~~comprehensive income (loss) represents the tax impact from its operating activities in the United States, United Kingdom and ~~related disclosures requires our management~~Austria, which have generated taxable income in certain periods. As the entities located in the United Kingdom carry out extensive research and development activities, they seek to benefit from the UK research and development tax credit cash rebate regime known as the Small and Medium-sized Enterprises R&D Tax Credit Program (the “SME Program”). Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on the Company’s behalf and certain internal overhead costs incurred as part of research projects.

The tax credit received in the United Kingdom pursuant to the SME Program permits companies to deduct an extra 130% of their qualifying costs from their yearly profit or loss, as well as the normal 100% deduction, to make ~~estimates~~a total 230% deduction. If the company is incurring losses, it is entitled to claim a tax credit worth up to 14.5% of the surrenderable loss. To qualify for relief under the SME Program, companies are required to employ fewer than 500 staff and ~~assumptions that affect~~have a turnover of under €100.0 million or a balance sheet total of less than €86.0 million.

Research and development tax credits received in the ~~reported amount~~United Kingdom are recorded as a reduction in research and development expenses. The UK research and development tax credit is payable to companies after surrendering tax losses and is not dependent on current or future taxable income. As a result, it is not reflected as part of ~~assets, liabilities, revenue, costs~~the income tax provision.

During the nine months ended September 30, 2021 the Company received $3.4 million in research and ~~expenses~~development tax credits related to the year ended December 31, 2020.

Income tax expense was not material for the three and related disclosures. We believe that the estimates and assumptions underlying the accounting policies described therein may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these current estimates based on different assumptions and under different conditions.nine months ended September 30, 2021.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:



CROs in connection with performing research services on our 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 and material.

•

~~CROs in connection with performing research services on our 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.~~

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage clinical trials on our 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 our 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 successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate 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 our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our 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 us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

~~Warrants Issued in 2016 Private Placement~~

In connection with our private placement offering in November 2016, or the November private placement, we issued warrants to purchase 1,644,737 shares of common stock, which we refer to as the November 2016 Warrants. These warrants are exercisable at an exercise price of $10.79 per share. We evaluated the terms of these warrants and concluded that they should be liability-classified. In November 2016, we recorded theContingent value rights

The acquisition-date fair value of ~~these warrants~~the CVR liability represents the future payments that are contingent upon the achievement of ~~approximately $8.3 million. We recognize any change in~~sale or licensing for the STING product candidates. The fair value of the ~~warrant liability each reporting period~~contingent value rights is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. Changes in ~~the statement of operations. As of September 30, 2020,~~ the fair value of the ~~warrants was approximately $56,000, which is a decrease~~liability will be recognized in the consolidated statement of ~~approximately $243,000 from~~operations and comprehensive loss until settlement.

Share-based compensation

The Company accounts for share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). ASC 718 requires companies to estimate the fair value of ~~approximately $299,000 as~~equity-based payment awards on the date of ~~December 31, 2019. See Note 7~~grant. The value of the ~~notes~~portion of the award that is ultimately expected to vest is recognized as an expense over the ~~unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~Stock-Based Compensation~~

~~We issue stock-based awards to employees and non-employees, generally~~requisite service period in the ~~form of stock options or performance-based restricted stock units. We account for our stock-based compensation awards in accordance with Financial Accounting Standards Board, (FASB) ASC Topic 718,~~ ~~Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employees, including grants of employee stock options and modifications to existing stock awards, to be recognized in the~~Company’s consolidated statements of operations and comprehensive ~~loss based on their fair values.~~loss.

~~We measure stock options and other stock-based~~The Company records the expense for option awards using a graded vesting method. The Company accounts for forfeitures as they occur. For share-based awards granted to ~~employees, nonemployees and directors based on~~non-employee consultants, the ~~fair value on~~measurement date is the date of ~~grant and recognize the corresponding~~grant. The compensation expense ~~of those awards,~~is then recognized over the requisite service period, which is ~~generally~~ the vesting period of the respective award. We account for forfeitures as they occur. Generally, we issue stock options and performance based restricted stock units with service-based vesting conditions and record the expense for these awards using the straight-line method. Each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the

The fair value of stock options (“options”) on the ~~performance-based restricted stock units (“performance-based RSUs”) if necessary.~~

~~We estimate the fair value of each stock option~~ grant ~~using~~date is determined utilizing the Black-Scholes option-pricing ~~model. Use of this~~model using the single-option approach. The Black-Scholes option pricing model requires ~~that we make~~the use of highly subjective and complex assumptions, ~~as to~~including an option’s expected term and the ~~fair value of our common stock, the~~price volatility of ~~our common~~the underlying stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we lack company-specific historical and implied volatility information due in part to the limited time in which we have operated as a publicly traded company, we estimate our expected volatility based on the historical volatility of a group of publicly traded peer companies. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. We use the simplified method prescribed by the SEC’s Staff Accounting Bulletin No. 107, ~~Share-Based Payment~~, to calculate the expected term of options granted to employees and directors. We base the expected term of options granted to consultants and nonemployees on the contractual term of the options. We determine the risk-free interest rate by reference to the United States Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

We recognize forfeitures as they occur and the compensation expense is reversed in the period that the forfeiture occurs. The assumptions we used to determine the fair value of granted stock options in nine months ended September 30, 2020 and 2019 are as follows:

For the Nine Months Ended September 30,

2020

2019

Risk-free interest rate

0.7
%

2.5
%
Expected term (in years)

5.9

5.9

Expected volatility

82.8
%

81.1
%
Expected dividend yield

0
%

0
%

~~The assumptions used~~ to determine the fair value of the ~~time-based RSUs granted~~award.

The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss Income in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Results of Operations

Comparison of the three months ended September 30, 2021 and 2020

The table below summarizes our results of operations for the three months ended September 30, 2021 and 2020 :


	Three Months Ended September 30,
	2021			2020			Change
	(in thousands)
Statements of Comprehensive Income
License revenue	$	751		$	9,195		$	(8,444	)
Operating expenses:
Research and development		5,113			5,321			(208	)
General and administrative		5,239			7,261			(2,022	)
Total operating expenses	$	10,352		$	12,582		$	(2,230	)
Loss from operations		(9,601	)		(3,387	)		(6,214	)
Other non-operating income (expense):
Other income (expense)		(746	)		506			(1,252	)
Change in fair value of convertible notes		—			(446	)		446
Change in fair value of liability		(444	)		—			(444	)
Loss before income taxes		(10,791	)		(3,327	)		(7,464	)
(Loss) benefit for income taxes		—			(124	)		124
Net loss	$	(10,791	)	$	(3,451	)	$	(7,340	)

Licensing and Research & Development Services Revenue

Revenue for the three months ended September 30, 2021 was $0.8 million compared to ~~management during~~$9.2 million for the three months ended September 30, 2020, a decrease of approximately $8.4 million. This $8.4 million decrease is due primarily to a reduction of $7.7 million of licensing revenue and a $0.7 million reduction in R&D services revenue.

Research and development costs

Total Research and development expenses were $5.1 million for the three months ended September 30, 2021, as compared to $5.3 million for the prior year's third quarter. This $0.2 million decrease for the three months ended September 30, 2021, was due to an increase in clinical CRO costs of $1.6 million, due to a full quarter of Phase 1

clinical trial costs for FS120 and FS222 and SB11285 in 2021, a $0.9 million increase in R&D staff related costs, and $0.3 million in lab consumables, all offset by a $2.3 million reduction in the UK R&D tax credit, and decreases in manufacturing costs of $0.4 million and other allocated costs of $0.3 million.

General and administrative expense

General and administrative expense for the three months ended September 30, 2021, decreased by approximately $2.0 million over the prior comparable quarter, primarily due to a decrease in legal and professional costs of $2.6 million, due to costs incurred in the comparative period in preparation for the share exchange transaction with Spring Bank, and a decrease in staff costs of $0.6 million, offset by increases in insurance costs of $0.5 million, rent and repairs of $0.5 million, primarily due to the leased buildings acquired in the Spring Bank transaction, and other administrative costs of $0.2 million.

Other income (expenses)

Other income (expense) for the three months ended September 30, 2021, consisted primarily of rental income of $0.2 million offset by foreign exchange losses of $0.6 million and interest expense on the term debt of $0.3 million. In addition, there was a loss of $0.4 million for the change in fair value of the CVR liability.

For the three months ended September 30, 2020, the total expense of $0.5 million consisted of other income of $0.8 million of foreign currency gains offset by $0.3 million of interest related to the convertible notes.

A gain of $0.4 million was recorded in relation to a fair value adjustment for the convertible notes.

Comparison of the nine months ended September 30, 2021 and 2020

The table below summarizes our results of operations for the nine months ended September 30, 2021 and 2020 ~~is based on~~:


	Nine Months Ended September 30,
	2021			2020			Change
	(in thousands)
Statements of Comprehensive Income
License revenue	$	3,668		$	11,093		$	(7,425	)
Operating expenses:
Research and development		20,536			10,695			9,841
General and administrative		18,169			13,805			4,364
Total operating expenses	$	38,705		$	24,500		$	14,205
Loss from operations		(35,037	)		(13,407	)		(21,630	)
Other non-operating income (expense):
Other income (expense)		230			(1,164	)		1,394
Change in fair value of convertible notes		—			(2,330	)		2,330
Change in fair value of liability		(1,027	)		—			(1,027	)
Loss before income taxes		(35,834	)		(16,901	)		(18,933	)
(Loss) benefit for income taxes		(190	)		(171	)		(19	)
Net loss	$	(36,024	)	$	(17,072	)	$	(18,952	)

Licensing and Research & Development Services Revenue

Revenue for the ~~market price of the award on the grant date, which~~nine months ended September 30, 2021, was ~~a weighted average fair value~~$3.7 million compared with $11.1 million for the nine months ended September 30, 2020, a decrease of ~~$1.41 per share.~~

These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest.

~~The impact of our stock-based compensation expense for stock options and performance based restricted stock units granted to employees and non-employees may~~ $7.4 million.~~grow~~ ~~in future periods if the fair value of our common stock increases.~~

~~The following table summarizes the classification of our stock-based compensation expenses recognized~~Revenue from contracts with Ares decreased by $7.1 million due to a reduction in ~~our consolidated statements of operations~~licensing revenue and ~~comprehensive loss (in thousands):~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Stock-based compensation:

2020

2019

2020

2019

Research and development

$
163

$
314

$
609

$
971

General and administrative

281

497

1,126

1,854

Total stock-based compensation

$
444

$
811

$
1,735

$
2,825

R&D services revenue.

~~JOBS Act~~35

In ~~April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act,~~addition, there was ~~enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period provided~~a $1.0 million decrease relating to licensing and R&D services revenue with Denali. All performance obligations relating to this Denali contract were satisfied in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, as an EGC, we could have delayed the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.February 2021.

~~Subject to certain conditions, as an EGC, we intend to rely on certain exemptions afforded~~These were offset by ~~the JOBS Act, including the exemption from certain requirements~~$0.5 million in revenue related to the ~~disclosure of executive compensation~~license agreement with AstraZeneca executed in ~~our periodic reports~~July 2021 and ~~proxy statements,~~$0.2 million in other revenue.

Research and ~~the requirement that we hold a nonbinding advisory vote on executive compensation~~development costs

Costs related to research and any golden parachute payments; the requirement that the auditors provide an attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earliest of the last day of the fiscal year in which we have total annual gross revenues of approximately $1.07 billion or more; the last day of the fiscal year following the fifth anniversary of the date of the completion of the closing of our initial public offering, or IPO, which is December 31, 2021; the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

~~Results of Operations~~

~~Comparison of the Three and Nine Months Ended September 30, 2020 and 2019~~

~~The following table summarizes our results of operations~~development for the ~~three and~~ nine months ended September 30, ~~2020 and 2019 (in thousands):~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2020

2019

Change

2020

2019

Change

Operating expenses:

Research and development

$
2,516

$
5,228

$
(2,712
)

$
11,023

$
18,070

$
(7,047
)
General and administrative

2,832

2,247

585

7,875

7,547

328

Total operating expenses

5,348

7,475

(2,127
)

18,898

25,617

(6,719
)
Loss from operations

(5,348
)

(7,475
)

2,127

(18,898
)

(25,617
)

6,719

Other income (expense)

8

208

(200
)

(1,425
)

894

(2,319
)
Change in fair value of warrant liabilities

(18
)

355

(373
)

243

8,061

(7,818
)
Net loss

$
(5,358
)

$
(6,912
)

$
1,554

$
(20,080
)

$
(16,662
)

$
(3,418
)

~~Research and development expenses~~.

~~Research and development expenses during~~2021 was $20.5 million, an increase of approximately $9.8 million, compared to $10.7 million for the ~~three~~nine months ended September 30, ~~2020 and 2019 were $2.5~~2020.

This $9.8 million ~~and $5.2 million, respectively. The decrease of $2.7 million during~~increase for the ~~three~~nine months ended September 30, ~~2020~~2021, was primarily due to increases in clinical CRO and clinical assay costs of $4.7 million, due to a full nine months of Phase 1 clinical trial costs for FS120 and FS222 and SB11285, a $3.0 million increase in manufacturing costs, $0.9 million in R&D staff costs, $0.8 million in share-based compensation expense, $0.5 million in laboratory consumables, and a $0.4 million decrease in the UK R&D tax incentive credit (which is recorded as a credit against R&D expenditure), offset by a decrease of $0.3 million in allocated costs and a decrease in ~~spending on preclinical~~other R&D costs of $0.2 million, due to the timing of other project-related activities.

General and ~~clinical trial-related activities~~administrative expense

General and administrative expense for ~~inarigivir~~the nine months ended September 30, 2021 was $18.2 million, an increase of approximately $4.4 million, compared to $13.8 million for the nine months ended September 30, 2020.This increase was primarily due to $2.5 million in share-based compensation expense, $1.5 million in insurance and ~~manufacturing~~other costs of being a public company, $0.4 million in legal and professional fees, $0.3 million in IT costs and $0.6 million in rent and repairs, primarily related to the leased buildings acquired in the Spring Bank transaction. These increases were offset by a decrease in staff costs of $0.9 million.

Other income (expenses)

Other income for ~~inarigivir and~~

~~SB 11285~~the nine months ended September 30, 2021 of ~~$2.1 million, as well as~~ ~~other research and development related expenses of $0.6~~$0.2 million ~~including~~consisted of $0.5 million of other income relating to sub-lease rental income, a foreign exchange gain of $0.2 million, offset by interest payable on the term debt facility of $0.5 million.

In addition, there was an expense of $1.0 million ~~laboratory supplies,~~ for the change in fair value of the CVR.~~salaries and benefits costs and~~ ~~non-cash charges for stock-based compensation.~~

~~Research and development expenses during~~For the nine months ended September 30, 2020, other expense of $1.2 million consisted of foreign currency losses of $0.9 million, interest expense of $0.8 million in relation to the convertible debt, offset by other income of $0.5 million from the UK government Coronavirus Job Retention Scheme, for staff that were furloughed in the first half of 2020.

In addition, a fair value adjustment in respect of the convertible debt of $2.3 million was recorded.

Liquidity and ~~2019 were $11.0~~Capital Resources

Sources of liquidity

From our inception through September 30, 2021, we have not generated any revenue from product sales, and we have incurred significant operating losses and negative cash flows from our operations. We do not expect to generate significant revenue from sales of any products for several years, if at all.

As of September 30, 2021, the Company had an accumulated deficit of $83.2 million, cash of $71.1 million and ~~$18.1~~working capital of $67.3 million. The future success of the Company is dependent on its ability to successfully obtain additional working capital, obtain regulatory approval for and successfully launch and commercialize its product candidates and to ultimately attain profitable operations. As of November 10, 2021 the Company’s cash and

cash equivalents on hand will be sufficient to fund its current operating plan and planned capital expenditures for at least the next 12 months.

Historically, we have financed our operations with proceeds from the sale and issuance of equity securities, proceeds from the issuance of notes payable and proceeds received in connection with our collaboration arrangements and for providing research and development services. We expect this historical financing trend to continue if and until we are able obtain regulatory approval for and successfully commercialize one or more of our drug candidates, although there can be no assurance that we will obtain regulatory approval or successfully commercialize any of our current or planned future product candidates.

On March 30, 2021, the Company entered into a Sales Agreement with SVB Leerink LLC ("SVB Leerink") with respect to an at-the-market offering program under which the Company could offer and sell, from time to time in its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million ~~respectively.~~through SVB Leerink as its sales agent. As of May 6, 2021, the Company had issued and sold 979,843 shares, for gross proceeds of $9.5 million, resulting in net proceeds of $9.2 million after deducting sales commissions. On May 6, 2021, the Company terminated the Sales Agreement.

On August 13, 2021, the Company entered into a new Sales Agreement (the “2021 Sales Agreement”) with SVB Leerink with respect to an at-the-market offering program under which the Company may 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 SVB Leerink as its sales agent. As of September 30, 2021 Company had not offered or sold any common stock under the 2021 Sales Agreement.

On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering of 10.4 million shares of the Company’s common stock, par value $0.0001 per share. The ~~decrease~~underwritten public offering resulted in gross proceeds of $73.1 million. The Company incurred $4.4 million in issuance costs and $0.5 million of professional fees associated with the underwritten public offering, resulting in net proceeds to the Company of $68.2 million.

On April 1, 2021, the Company, as borrower, entered into the Loan and Security Agreement with Horizon, as lender and collateral agent for itself. The Loan and Security Agreement provides for four (4) separate and independent $2.5 million term loans (Loan A, Loan B, Loan C, and Loan D), whereby, upon the satisfaction of all the conditions to the funding of the Term Loans, each Term Loan will be delivered by Horizon to the Company in the following manner: (i) Loan A was delivered by Horizon to the Company by April 1, 2021, (ii) Loan B was delivered by Horizon to the Company by April 1, 2021, (iii) Loan C was delivered by Horizon to the Company by June 30, 2021, and (iv) Loan D was delivered by Horizon to the Company by June 30, 2021. The Company may only use the proceeds of the Term Loans for working capital or general corporate purposes as contemplated by the Loan and Security Agreement. On April 1, 2021, the Company drew down $5 million. On June 22, 2021, the Company drew down another $5 million under this facility.

Cash Flows

The following table summarizes our cash flows for each of the periods presented:


Summarized cash flow information
	Nine Months Ended September 30,
	2021			2020			Change
	(in thousands)
Net cash used in operating activities	$	(34,048	)		(118	)	$	(33,930	)
Net cash used in investing activities		(643	)		(50	)		(593	)
Net cash provided by financing activities		87,048			850			86,198
Effect of exchange rate changes on cash		167			(56	)		223
Net increase in cash	$	52,524		$	626		$	51,898

Operating activities

Net cash used of $34.0 million in operating activities for the nine months ended September 30, 2021, consisted of the net loss of $36.0 million adjusted for changes in operating assets and liabilities of $5.1 million and offset by non-cash charges of $7.1 million, ~~during~~primarily for share-based compensation expense of $5.6 million, fair value adjustment of the CVR liability of $1.0 million, depreciation and amortization of $0.5 million, non-cash interest expense of $0.1 million, offset by foreign exchange gains of $0.1 million.

Net cash used of $0.1 million in operating activities for the nine months ended September 30, 2020, was primarily due to a ~~decrease~~net loss of $17.1 million offset by changes in ~~spending on preclinical studies~~operating assets and ~~clinical trial-related activities for inarigivir~~liabilities of $9.8 million and ~~manufacturing costsfor inarigivir and~~ ~~SB 11285 of $5.9 million, as well as~~ ~~other research and development related expenses of $1.2 million,~~ ~~including~~ ~~laboratory supplies,~~ ~~salaries and benefits costs and~~ non-cash charges ~~for stock-based compensation.~~

~~General~~of $7.2 million. The non-cash charges included share-based compensation of $2.2 million, foreign exchange losses of $1.0 million, depreciation of $0.9 million, non-cash interest expense of $0.8 million relating to the convertible notes and ~~administrative expenses~~changes in fair value of convertible notes of $2.3 million..

~~General and administrative expenses during~~Investing activities

For the ~~three~~nine months ended September 30, 2021 and 2020, net cash used in investing activities was $0.6 million and ~~2019 were $2.8 million and $2.2~~$0.1 million, respectively. ~~The increase~~In both periods this related to the purchase of ~~$0.6 million during~~capital equipment.

Financing activities

For the ~~three~~nine months ended September 30, ~~2020~~2021, net cash provided by financing activities was ~~primarily due to an increase~~$87.0 million. This included $77.3 million raised on the issue of common stock, with $9.1 million of the total generated from the “at the market” offering and $68.2 million generated from the underwritten public offering, offset by $0.5 million legal fees in ~~legal-related~~connection with the offering. In addition, we received net proceeds of $9.8 million from the Loan and Security Agreement with Horizon and third-party debt issuance costs of ~~$0.8~~$0.1 million ~~offset by a net decrease in other general and administrative costs of $0.2 million.~~were paid.

~~General and administrative expenses during~~For the nine months ended September 30, 2020, and 2019 were $7.9 million and $7.5 million, respectively. The increase of $0.3 million during the nine months ended September 30, 2020 was primarily due to an increase in legal-related costs of $0.6 million, consulting-related costs of $0.3 million and net other general and administrative costs of $0.1 million, offset by a decrease in non-cash charges for stock-based compensation of $0.7 million.

~~Other income (expense). Other income (expense) during the three months ended September 30, 2020 is comprised of interest income.~~Interest income during the three months ended September 30, 2020 was approximately $8,000 and was primarily related to the interest earned on marketable securities. There was no interest expense as of September 30, 2020. Other income (expense) during the nine months ended September 30, 2020 is comprised of interest income, offset by interest expense and loss on extinguishment of debt.Interest income was approximately $293,000 and was primarily related to the interest earned on marketable securities. Interest expense was approximately $511,000 and was due to the interest expense incurred on the Convertible Term Loan. Loss on extinguishment of debt was approximately $1.2 million and was due to the repayment of the Convertible Term Loan.

~~Other income (expense) during the three and nine months ended September 30, 2019 is comprised of interest income, offset by interest expense.~~Interest income during the three and nine months ended September 30, 2019 was approximately $271,000 and approximately $957,000, respectively, and was primarily due to the interest earned on marketable securities. Interest expense during the three and nine months ended September 30, 2019 was $0.1 million during both periods and was due to the interest expense incurred on the Convertible Term Loan.

~~Change in fair value of warrant liabilities~~. The change in fair value of warrant liabilities during the three months ended September 30, 2020 was a loss of approximately $18,000 and the change in fair value of warrant liabilities during the nine months ended September 30, 2020 was a gain of approximately $243,000. The change in fair value of warrant liabilities during the three and nine months ended September 30, 2019 was a gain of $0.4 million and $8.1 million, respectively. The change in value each period was solely due to the change in the fair value of the November 2016 Warrants, primarily as a result of the change in our stock price and stock price volatility.

~~Liquidity and Capital Resources~~

~~Sources of Liquidity~~

From our inception through September 30, 2020, we have financed our operations through proceeds received from private placements of convertible notes, common stock and/or warrants, the exercise of options and warrants, NIH grant funding and public offerings of securities. As of ~~September~~ ~~30, 2020, we had cash, cash equivalents and marketable securities totaling $20.0 million and an accumulated deficit of $146.2 million.~~

~~In August 2017, we entered into a Controlled Equity Offering~~^SM Sales Agreement, or Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock having an aggregate offering price of up to $50.0 million. We pay Cantor a commission rate equal to 3.0% of the aggregate gross proceeds from each sale. Shares sold under the Sales Agreement were offered and sold pursuant to our Registration Statement on Form S-3 (Registration No. 333-218399) that was declared effective by the SEC on June 12, 2017, which we refer to as the S-3 Registration Statement, and a prospectus supplement and accompanying base prospectus that we filed with the SEC on August 18, 2017. During the nine months ended September 30, 2020, we sold an aggregate of 690,895 shares of our common stock, pursuant to the Sales Agreement at a weighted-average selling price of $1.32 per share, which resulted in approximately $0.8 million in net proceeds to the Company. There were no shares sold during the three months ended September 30, 2020 and we do not intend to issue any shares under the Sales Agreement between September 30, 2020 and the closing of the Exchange. During the nine months ended September 30, 2019, we sold an aggregate of 600 shares of our common stock under the Sales Agreement at a weighted average

~~selling price of $10.03 per share, which resulted in de minimis net proceeds. There were no shares sold during the three months ended September 30, 2019.~~

In September 2019, we entered into a loan and security agreement with certain affiliates of Pontifax Medison Finance, or the Lenders, that provided for a $20.0 million term loan and bears annual interest at a rate of 8.0%, which we refer to as the Convertible Term Loan. The Convertible Term Loan provided for interest-only payments for twenty-four months and repayment of the aggregate outstanding principal balance of the loan in quarterly installments starting upon expiration of the interest only period and continuing through September 19, 2023. The Lenders could have, at their option, elected to convert some or all of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of our common stock at a conversion price of $8.76 per share.

On April 8, 2020, we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cash on April 8, 2020 of our $20.0 million Convertible Term Loan. The pay-off letter provided that the repayment amount would be approximately $20.3 million, which included payment in full of all outstanding principal and accrued interest underlying the Convertible Term Loan and $0.3 million for a prepayment fee. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Convertible Term Loan terminated upon the Lenders’ receipt of the repayment amount.In connection with the repayment of the Convertible Term Loan, the warrants previously issued to the lenders were amended and restated so that the new exercise price is $2.08, which was equal to 1.5 times the weighted-average closing price of our common stock during the 90 days prior to the repayment date and resulted in an incremental expense of approximately $54,000. All other terms and conditions of the Pontifax Warrants remain the same.

We made the decision to repay the Convertible Term Loan as a result of changes in our operating needs following our announcement in the first quarter of 2020 that we were discontinuing the development of our HBV program, as well as the cost of capital associated with the Convertible Term Loan.

~~Cash Flows~~

~~The following table summarizes sources and uses of cash for each of the periods presented (in thousands):~~

For the Nine Months Ended
September 30,

2020

2019

Net cash used in operating activities

$
(15,730
)

$
(20,471
)
Net cash provided by investing activities

16,226

20,559

Net cash (used in) provided by financing activities

(19,451
)

19,559

Net (decrease) increase in cash, cash equivalents and restricted cash

$
(18,955
)

$
19,647

~~Net cash used in operating activities~~. The use of cash in both periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities during the nine months ended September 30, 2020 and 2019 was $15.7 million and $20.5 million, respectively. The decrease in cash used in operating activities during the nine months ended September 30, 2020 compared to nine months ended September 30, 2019 of $4.8 million was primarily due to a decrease in the non-cash change in the fair value of the warrant liability of $7.8 million, non-cash change in stock-based compensation of $1.1 million and prepaid expense and other current assets of $1.0 million, offset by an increase in net loss of $3.4 million, loss on extinguishment of debt of $1.2 million and other net changes of $0.5 million.

~~Net cash provided by investing activities~~. Net cash provided by investing activities during the nine months ended September 30, 2020 and 2019 was $16.2 million and $20.6 million, respectively. The cash provided by investing activities during the nine months ended September 30, 2020 was primarily the result of $37.2 million in proceeds from the sale of marketable securities, which was offset by $21.0 million for the purchase of marketable securities. The cash used in investing activities during the nine months ended September 30, 2019 was primarily the result of $26.8 million in proceeds from the sale of marketable securities, which was offset by $6.0 million for the purchase of marketable securities and $0.2 million for the purchase of property and equipment.

~~Net cash (used in) provided by financing activities. Net cash used in financing activities during the nine months ended September 30, 2020 was $19.5 million and~~ net cash provided by financing activities ~~during the nine months ended September 30, 2019~~ was ~~approximately $19.6 million. Net cash used in financing activities during the nine months ended September 30, 2020~~$0.9 million, which was primarily the result of $20.3 million for payment of the Convertible Term Loan and prepayment charge, offset by $0.8 million of net proceeds from our at-the-market offering program under the Sales Agreement. Net cash provided by financing activities during the

~~nine months ended September 30, 2019 was the result of $20.0 million of proceeds~~generated from the ~~Convertible Term Loan~~issuance of convertible notes.

Future Funding Requirements

The Company has incurred significant losses and ~~Pontifax Warrants, offset by $0.4~~has an accumulated deficit of $83.2 million ~~of issuance costs in connection with the Convertible Term Loan and Pontifax Warrants.~~

~~Funding Requirements~~

Asas of September 30, ~~2020, we had $20.0 million~~2021. F-star expects to incur substantial losses in ~~cash,~~the foreseeable future as it conducts and expands its clinical trial and research and development activities. As of November 10, 2021 the Company’s cash and cash equivalents ~~and marketable securities.~~ ~~We expect that our cash, cash equivalents~~ ~~and~~ ~~marketable securities as of~~ ~~September~~ ~~30, 2020~~on hand will be sufficient to fund ~~operations~~its current operating plan and planned capital expenditures for at least the next ~~twelve~~12 months. ~~This estimate assumes no additional funding from new collaboration agreements or equity financings.~~

The Company may continue to seek additional working capital through the sale and issuance of equity securities, debt financing, collaboration arrangements or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise additional capital or enter into other financing arrangements if and when needed would have an adverse impact on its business, results of operations and financial condition and its ability to develop its product candidates.

Our future capital ~~requirements as a stand-alone company, if the proposed Exchange were not to be completed, are difficult to forecast. Our future funding~~ requirements will depend on many factors, ~~including, but not limited to:~~including:



our ability to raise capital in light of the impacts of the ongoing global COVID-19 pandemic on the global financial markets;



the scope, progress, results, and costs of drug discovery, preclinical development, laboratory testing, drug manufacturing and clinical trials for the product candidates we have developed or may develop;



our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development programs, particularly in light of the global COVID-19 pandemic;



the costs associated with our manufacturing process development and evaluation of third-party manufacturers and suppliers;

•

~~the continued clinical development of SB 11285, our lead STING agonist product candidate;~~



the costs, timing and outcome of regulatory review of our product candidates;

•

~~the costs involved in conducting preclinical and clinical activities for our STING and COVID-19 programs;~~

•

~~the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;~~

•

~~the extent to which we may elect to continue product development activities in the future, if at all; and~~

•

~~the timing and completion of the Exchange.~~

~~We do not expect to raise any additional funds prior to~~ the ~~completion~~costs of ~~the Exchange. However, if the Exchange is not completed, we may require significant additional funds earlier than we currently expect in order to conduct clinical trials~~preparing and ~~preclinical and discovery activities. Because of the numerous risks and uncertainties associated with the development and commercialization~~submitting marketing approvals for any of our product candidates that successfully complete clinical trials, and the costs of maintaining marketing authorization and related regulatory compliance for any products for which we ~~are unable to estimate~~ obtain marketing approval;



the ~~amounts~~costs of ~~increased capital outlays~~preparing, filing, and ~~operating expenditures associated with~~prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;



the costs of future ~~research~~activities, including product sales, medical affairs, marketing, manufacturing, and ~~development activities.~~

Todistribution, for any product candidates for which we receive marketing approval;



the terms of our current and any future license agreements and collaborations; and the extent to which we acquire or in-license other product candidates, technologies and intellectual property;



the ~~Exchange is not completed~~success of our collaborations with Janssen, AZ, Ares and ~~our capital resources are insufficient to meet our future operating~~Denali and capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements. However, additional funding may not be available to us on acceptable terms or at all, and other partners;



our ability to ~~obtain funding~~establish and maintain additional collaborations on favorable terms, if at all; and



the costs of operating as a public company.

Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP and the rules and regulations of the SEC for interim financial statements. The preparation of our condensed consolidated financial statements and related disclosures requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates and assumptions underlying the accounting policies described therein may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be ~~adversely affected by~~our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these current estimates based on different assumptions and under different conditions. There have been no material changes to the ~~uncertainty~~Company’s critical accounting policies and ~~volatility~~estimates as disclosed in the ~~United States capital markets relating to~~Company’s Annual Report filed on SEC Form 10-K for the ~~ongoing COVID-19 pandemic. In addition,~~year ended December 31, 2020, filed with the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling convertible debt securities, further dilution to our existing stockholders may result. In addition, pursuant to the instructions to Form S-3, if we file a new S-3 shelf registration statement, we would only have the ability to sell shares under such registration statement, during any 12-month period, in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates, which is commonly referred to as our “public float.” If adequate funds are not available, we may be required to obtain funds through collaborators that may require us to relinquish rights to our technologies or drug candidates that we might otherwise seek to develop or commercialize independently.SEC on March 30, 2021.

Contractual Obligations and Commitments

In ~~September~~ 2019, we entered into the Convertible Term Loan with the Lenders that provided for a $20.0 million term loan with an annual interest rate of 8.0%. The Convertible Term Loan provided for interest-only payments for twenty-four months and repayment of the aggregate outstanding principal balance of the term loan in quarterly installments starting upon expiration of the interest only period and continuing through September 19, 2023. On April 8, 2020, we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cash on April 8, 2020 of the Convertible Term Loan. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Loan terminated upon the Lenders’ receipt of the repayment amount. ~~The Convertible Term Loan and the subsequent repayment are described in Note 9 to the notes to the consolidated financial statements contained in this Quarterly Report on Form 10-Q.~~

We enter into contracts in the normal course of business with ~~third party~~third-party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. We have not included our payment obligations under these contracts ~~in the table~~ as these contracts generally provide for termination upon notice, and therefore, we believe that our non-cancelable obligations under these agreements are not material, and we cannot reasonably estimate the timing of if

and when they will occur. We could also enter into additional research, manufacturing, supplier and other agreements in the future, which may require up-front payments and even long-term commitments of cash.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

~~Recently Issued Accounting Pronouncements~~Emerging Growth Company and Smaller Reporting Company Status

~~In August 2020, the Financial Accounting Standards Boards~~We are an emerging growth company, (“~~FASB”~~EGC”) ~~issued Accounting Standards Update (“ASU”) No. 2020-06, Debt -~~ ~~Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)~~.~~The amendments~~as defined in the ~~ASU removes certain separation models for convertible~~Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an EGC until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering (December 31, 2021), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our ordinary shares held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year or (4) the date on

which we have issued more than $1.0 billion in non-convertible debt ~~instruments~~securities during the prior three-year period. The JOBS Act permits an EGC to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, ~~convertible preferred stock~~as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that ~~require the separation of a convertible debt instrument into a debt component and an equity or derivative component.~~are not emerging growth companies. In addition, we intend to rely on the ~~ASU expands disclosure~~other exemptions and reduced reporting requirements ~~for convertible instruments and simplifies areas~~provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, we are entitled to rely on certain exemptions as an EGC we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), (ii) provide all of the ~~guidance for diluted earnings-per-share calculations~~compensation disclosure that ~~are impacted~~may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that has or may be adopted by the ~~amendments.~~ ~~The ASU is effective~~Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of Spring Bank’s initial public ~~business entities that~~offering (December 31, 2021) or until we no longer meet the ~~definition~~requirements of being an EGC, whichever is earlier.

We are also a ~~Securities and~~smaller reporting company as defined under the Exchange ~~Commission (“SEC”) filer, excluding~~Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as ~~defined~~(i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the ~~SEC, for~~last business day of our second fiscal ~~years beginning after December 15, 2021, including interim periods within those~~quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal ~~years. For all other entities,~~year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the ~~amendments are effective for~~last business day of our second fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the adoption of this standard may have on our consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement~~quarter..This ASU removes, modifies and adds certain disclosure requirements of ASC Topic 820. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2019. We adopted this standard as of January 1, 2020; however, the adoption of this standard did not impact our consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk.~~

We are ~~exposed~~a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act for this reporting period and are not required to market risk related to changes in interest rates. Our cash, cash equivalents and marketable securities of $20.0 million as of September 30, 2020, consisted of cash, cash equivalents and marketable securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes inprovide the general level of United States interest rates. However, because a significant amount of the marketable securities in our investment portfolio are short-term in nature, an immediate 10% change in market interest rates would not be expected to have a material impact on the fair market value of our investment portfolio or on our financial condition or results of operations.information required under this item.

Item 4. Controls and Procedures.

~~Item 4.~~

~~Controls and Procedures.~~

Evaluation of Disclosure Controls and Procedures

~~Our~~As of September 30, 2021, our management, ~~with~~under the ~~participation~~supervision of our ~~principal executive officer~~Chief Executive Officer and ~~our principal financial officer, evaluated, as~~Chief Financial Officer, performed an evaluation of ~~the end of the period covered by this Quarterly Report on Form 10-Q,~~ the effectiveness of our disclosure controls and ~~procedures. Based on that evaluation of our disclosure controls and~~ procedures as of September 30, 2020, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act ~~of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed~~ to ensure that information required to be disclosed by ~~a company~~the Company in the reports that it files or submits under the Exchange Act ~~are~~is recorded, processed, summarized and reported within the time periods specified inby the ~~SEC’s~~SEC rules and ~~forms. Disclosure controls~~forms, and ~~procedures include, without limitation, controls and procedures designed to ensure~~ that such information ~~required to be disclosed by us in the reports we file or submit under the Exchange Act~~ is accumulated and communicated to our management, including our ~~principal executive officer~~Chief Executive Officer and ~~principal financial and accounting officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. ~~Management recognizes that any~~Based on this evaluation, our Chief Executive Officer and Chief Financial Officer determined the material weaknesses in our internal controls as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as described below, our disclosure controls and procedures ~~no matter how well designed and operated, can provide only reasonable assurance~~were not effective as of ~~achieving their objectives and~~September 30, 2021.

Management’s Annual Report on Internal Control over Financial Reporting

We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control-Integrated Framework. Based on that evaluation, our management, ~~necessarily applies its judgment~~including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of September 30, 2021, due to material weaknesses in ~~evaluating~~internal control over financial reporting, associated with (i) the ~~cost-benefit relationship~~lack of ~~possible~~formal policies and procedures and sufficient complement of personnel to implement effective segregation of duties and (ii) the lack of sufficient formality and evidence of controls over key reports, contracts and ~~procedures.~~

spreadsheets.~~Inherent Limitations of Internal Controls~~

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future ~~periods~~years 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.

As an EGC under the JOBS Act, we are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Remediation Plans

As discussed above, the material weaknesses over effective controls on the financial statement close and reporting process as well as lack of an effective control environment with formal processes and procedures and not having sufficient formality and evidence of controls as of December 31, 2020, were not fully remediated as of September 30, 2021. We have commenced measures to remediate these material weaknesses and have hired additional finance and accounting personnel with appropriate expertise to perform specific functions which we believe will allow for proper segregation of duties, design key controls and implement improved processes and internal controls. We will continue to assess our finance and accounting staffing needs to ensure remediation of these material weaknesses. The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~nine~~three months ended September 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a result of the COVID-19 pandemic, in March 2020, certain of our employees began working remotely. We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

~~Item 1.~~

~~Legal Proceedings.~~

~~On September 3, 2020, a Company stockholder filed a complaint in the United States District Court for the Southern District of New York (Lenthall v. Spring Bank Pharmaceuticals, Inc. et al, Case No. 1:20-cv-07219 (S.D.N.Y.)~~), against the Company and the members of the Company’s Board of Directors (the “individual defendants”), alleging violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and as against the individual defendants, alleging violations of Section 20(a) of the Exchange Act and of Delaware state law. The plaintiff alleges that the defendants made materially misleading disclosures in the Company’s Form S-4 registration statement filed in connection with the proposed Exchange (the “Form S-4”), by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) Ladenburg’s fairness opinion and (iii) any financial analyses conducted on the Company. The plaintiff in Lenthall seeks declaratory and injunctive relief to enjoin the Exchange as well as damages and attorneys’ and experts’ fees.

~~On September 18, 2020, in the United States District Court for the Southern District of New York, another Company stockholder filed a complaint (Arshad v. Spring Bank Pharmaceuticals, Inc., et al., Case No. 1:20-cv-07723 (S.D.N.Y.)~~), against the Company and the members of the Company’s Board of Directors, alleging violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and as against the individual defendants, alleging violations of Section 20(a) of the Exchange Act. The plaintiff alleges that the defendants made materially misleading disclosures in the Form S-4 by allegedly omitting material information with respect to (i) financial projections relating to the Company and F-star, (ii) Ladenburg’s fairness opinion and (iii) the process relating to the Exchange. The plaintiff in Arshad seeks declaratory and injunctive relief to enjoin the Exchange; or in the event of consummation of the Exchange, rescissory damages against the defendants; filing by the defendants of a Registration Statement deemed not to be materially misleading by the plaintiff; and attorneys’ and experts’ fees.

The Company believes that the complaints set forth above are without merit and intends to defend against them vigorously. There can be no assurance, however, that the Company or any defendant will be successful. At present, the Company is unable to estimate potential losses, if any, related to these lawsuits.

From time to time, we may become involved in ~~other~~ legal proceedings arising in the ordinary course of our business. We are not presently a party to any material litigation.

Item 1A. Risk Factors.

~~Item 1A.~~

~~Risk Factors.~~

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item ~~1A.~~1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019, or~~2020, as filed with the ~~Form 10-K, in Part II, Item 1A of our~~ ~~Quarterly Report~~SEC on ~~Form 10-Q~~ ~~for the quarter ended~~ March ~~31, 2020 and in Part II, Item 1A of our~~ ~~Quarterly Report on Form 10-Q~~ ~~for the quarter ended June~~ 30, ~~2020,~~2021, which could materially affect our business, financial condition, or results of operations. ~~There~~Except as disclosed below, there have been no material changes ~~in or additions~~ to the risk factors described in our Annual Report on Form 10-K filed with the SEC on March 30, 2021, as updated by “Part II, Item 1A, Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, filed with the SEC on May 17, 2021 and August 13, 2021, respectively.

Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation is costly and any required licenses may not be available on commercially reasonable terms.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation proceedings, oppositions and inter partes reexamination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates.

In particular, we are aware of a “method of use” patent issued in 2021 in the United States to E.R. Squibb & Sons, L.L.C. that expires in 2029, subject to the timely payment of maintenance fees and absent any patent term extension, and which includes claims directed to a method for treating cancer in a subject comprising administering to the subject an anti-LAG-3 antibody and an anti-PD-L1 antibody, which antibodies are specified in a subclaim as being in a bispecific molecule. We believe, based on our review of this U.S. patent, that the patent claims are impermissibly broad and that there would be strong arguments available to us should we decide to challenge its validity in court or USPTO post-grant proceedings, based on prior art and lack of written description and enablement for the entire scope of the claims. If we succeed in developing and obtaining regulatory approval to market our product candidate FS118 in the future, this patent, prior to its expiration, could impact our commercial plans for FS118 in the United States. We do not expect the patent to have any impact on commercialization of FS118 outside of the United States, and we do not expect the patent to impact our pre-commercial development of FS118 inside or outside of the United States. We are also aware of a “second medical use” patent issued in 2021 in Europe to Bristol-Myers Squibb Company, which includes claims protecting until 2036 (subject to the timely payment of annual renewal fees and absent any supplementary protection certificates based on the patent) an anti-PD-1 or anti-PD-L1 antibody that inhibits PD-1 activity for use in a method for treating a subject identified as HPV positive and afflicted with a tumor derived from a HPV positive squamous cell carcinoma head and neck cancer, the method comprising administering to the subject a therapeutically effective amount of the antibody. Multiple parties, including Regeneron Pharmaceuticals, Inc. and Merck Sharp and Dohme Corp, have filed oppositions at the European Patent Office challenging the validity of this European patent. We believe, based on our review of this European patent and the oppositions that have been filed, that there are strong grounds to argue that the patent is invalid due to lack of novelty and inventive step based on prior art as well as impermissible added matter and lack of sufficiency. If not revoked or amended to a form that poses no or a sufficiently reduced risk to our business, this patent, prior to its expiration, could impact our commercial plans for FS118 and FS222 in Europe, but we do not

expect the patent to impact our pre-commercial development efforts. Patent litigation is costly and time-consuming and there is no assurance that we would prevail, should we initiate or defend such litigation. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties.

Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our products or product candidates or elements thereof, our manufacture or uses relevant to our development plans, the targets of our mAb2 product candidates, or other attributes of our mAb2 product candidates or our mAb2 technology. In such cases, we may not be in a position to develop or commercialize products or product candidates unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms or at all.

It is also possible that we fail to identify relevant patents or patent applications. For example, certain U.S. applications filed after November 29, 2000 that will not be filed outside the United States may remain confidential until issuance of a patent. In general, patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications relating to our products or platform technology could have been filed by others without our knowledge. Furthermore, we operate in a highly competitive field, and given our limited resources, it is unreasonable to monitor all patent applications purporting to gain broad coverage in the ~~previous sentence~~areas in which we are active. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.

Parties making claims of infringement against us or defending against our invalidity actions may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. If we fail in any such dispute, in addition to being forced to pay damages, we or our licensees may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. We may be required to seek a license to any such technology that we are found to infringe, which license may not be available on commercially reasonable terms, or at all. Even if we or our collaboration partners obtain a license, it may be non-exclusive; thereby giving our competitors access to the same technologies licensed to us or our licensors or collaboration partners. Moreover, such a license may require us to pay royalties to the licensor; thus, reducing our expected revenues. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent in the United States. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, they could have a substantial adverse effect on our share price. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

In addition, if the breadth or strength of protection provided by our or our collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

~~Item 6.~~

~~Exhibits.~~

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit ~~Index.~~Index set forth immediately prior to the signature page.

EXHIBIT INDEX


Exhibit Number	Description
~~Exhibit~~ ~~Number~~		~~Description~~

~~2.1~~	10.1	~~Share Exchange~~Sales Agreement, dated ~~as of July 29, 2020,~~August 13, 2021, by and ~~among Spring Bank Pharmaceuticals, Inc.,~~between F-star Therapeutics, ~~Limited~~Inc. and ~~the persons listed therein~~SVB Leerink LLC (incorporated by reference to Exhibit ~~2.1~~1.2 to the ~~Registrant’s Current Report~~Registration Statement on Form ~~8-K~~S-3 filed ~~July 30, 2020 (Commission File~~by the Registrant on August 13, 2021, Reg. No. ~~001-37718)~~333-258783).

~~10.1~~	10.2*±	~~Form~~License Agreement between F-star Therapeutics, Inc. and Astrazeneca AB, dated as of STING Agonist CVR Agreement by and among Spring Bank, F-star, a representative of the Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed July 30, 2020 (Commission File No. 001-37718).July7, 2021.

~~10.2~~	10.3*±	~~Form~~License and Collaboration Agreement between F-Star Therapeutics, Inc. and Janssen Biotech, Inc., dated as of STING Antagonist CVR Agreement by and among Spring Bank, F-star, a representative of the Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed July 30, 2020 (Commission File No. 001-37718)October 19, 2021.

~~10.3~~		~~Form of Company Lock-up Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed July 30, 2020 (Commission File No. 001-37718).~~31.1*

~~10.4~~		~~Form of Seller Lock-Up Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed July 30, 2020 (Commission File No. 001-37718).~~

~~10.5~~		~~Form of Voting Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed July 30, 2020 (Commission File No. 001-37718).~~

10.6*		~~Form of Retention and Bonus Award Agreement.~~

10.7*		~~Form of Retention and Bonus Award Agreement.~~

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
		99
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
		;lk;
32.1**		Certification of Principal Executive Officer ~~and~~Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*	Certification of Principal Financial Officer Pursuant to 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 ~~- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, has been formatted in Inline XBRL.


*	~~Cover Page Interactive Data File (embedded within~~Filed herewith.
±	Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the ~~Inline XBRL document)~~identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

* ~~Filed herewith.~~

** Furnished herewith. This certification is not deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and is not deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.45

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements 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.


	~~Spring Bank Pharmaceuticals,~~		F-star Therapeutics, Inc.

Date: November ~~3, 2020~~10 2021	~~By:~~		By:	/s/ ~~Lori Firmani~~Eliot R. Forster
			~~Lori Firmani~~	Eliot R. Forster, Ph.D.
			~~Vice President of Finance~~
		~~(Principal Financial~~President and ~~Accounting Officer)~~ Chief Executive Officer

~~Delaware~~	~~52-2386345~~
Delaware	52-2386345
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~35 Parkwood Drive, Suite 210~~Eddeva B920 Babraham Research Campus ~~Hopkinton, MA~~Cambridge, United Kingdom	~~01748~~CB22 3AT
(Address of principal executive offices)	(Zip Code)


Large accelerated filer	☐	Accelerated filer	☒☐

Non-accelerated filer	☐ ☒	Smaller reporting company	☒

		Emerging growth company	☒

	September 30,			December 31,
	2020			2019
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	9,988		$	28,709
Marketable securities		9,993			25,746
Prepaid expenses and other current assets		2,599			3,522
Total current assets		22,580			57,977
Property and equipment, net		1,926			2,234
Operating lease right-of-use assets		2,504			2,717
Restricted cash		—			234
Other assets		234			35
Total	$	27,244		$	63,197
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,135		$	2,210
Accrued expenses and other current liabilities		2,777			2,438
Accrued interest payable		—			403
Operating lease liabilities, current		333			355
Total current liabilities		6,245			5,406
Convertible term loan, net of unamortized discount		—			19,070
Warrant liabilities		56			299
Operating lease liabilities, noncurrent		2,629			2,869
Other long-term liabilities		—			27
Total liabilities		8,930			27,671
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 10,000,000 shares at September 30, 2020 and December 31, 2019; 0 shares issued or outstanding at September 30, 2020 and December 31, 2019		—			—
Common stock, $0.0001 par value—authorized, 200,000,000 shares at September 30, 2020 and December 31, 2019; 17,267,202 and 16,513,763 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		2			2
Additional paid-in capital		164,562			161,924
Accumulated deficit		(146,245	)		(126,165	)
Accumulated other comprehensive loss		(5	)		(235	)
Total stockholders’ equity		18,314			35,526
Total	$	27,244		$	63,197


	September 30,			December 31,
	2021			2020
	Unaudited
Assets
Current Assets:
Cash and cash equivalents	$	71,050		$	18,526
Other receivables		436			0
Prepaid expenses and other current assets		3,173			3,976
Tax incentive receivable		1,502			3,563
Total current assets		76,161			26,065
Property and equipment, net		1,011			789
Right of use asset		3,501			2,782
Goodwill		14,885			14,926
In-process research and development and intangible assets, net		18,790			18,986
Other long-term assets		450			61
Total assets	$	114,798		$	63,609
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	1,569		$	4,597
Accrued expenses and other current liabilities		5,642			9,461
Contingent value rights		648			2,080
Lease obligations, current		976			539
Deferred revenue		0			300
Total current liabilities		8,835			16,977
Long term Liabilities:
Term debt		9,535			0
Lease obligations		2,875			2,622
Contingent value rights		2,899			440
Deferred tax liability		576			576
Total liabilities		24,720			20,615
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; authorized, 10,000,000 shares at September 30, 2021 and December 31, 2020; 0 shares issued or outstanding at September 30, 2021 and December 31, 2020		0			0
Common Stock, $0.0001 par value; authorized 200,000,000 shares at September 30, 2021 and December 31, 2020; 20,623,041 and 9,100,117 shares issued and outstanding at September 30, 2021 and December 31, 2020		2			1
Additional paid-in capital		174,410			91,238
Accumulated other comprehensive loss		(1,142	)		(1,077	)
Accumulated deficit		(83,192	)		(47,168	)
Total stockholders’ equity		90,078			42,994
Total liabilities and stockholders’ equity	$	114,798		$	63,609

	For the Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(20,080	)	$	(16,662	)
Adjustments for:
Depreciation		287			263
Loss on the disposal of property and equipment		25			—
Operating lease right-of-use asset amortization		213			196
Change in fair value of warrant liabilities		(243	)		(8,061	)
Loss on extinguishment of convertible term loan		1,207			—
Non-cash interest expense		77			10
Non-cash investment expense		(247	)		(60	)
Non-cash stock-based compensation		1,735			2,825
Non-cash issuance of warrants to a service provider		—			19
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		923			(78	)
Other assets		(199	)		132
Accounts payable		925			1,106
Accrued expenses and other liabilities		(91	)		(82	)
Operating lease liabilities		(262	)		(79	)
Net cash used in operating activities		(15,730	)		(20,471	)
Cash flows from investing activities:
Proceeds from sale of marketable securities		37,230			26,767
Purchases of marketable securities		(21,000	)		(6,000	)
Purchases of property and equipment		(4	)		(208	)
Net cash provided by investing activities		16,226			20,559
Cash flows from financing activities:
Payment of convertible term loan and prepayment fee		(20,300	)		—
Proceeds from term loan and warrants		—			20,000
Issuance costs in connection with term loan and warrants		—			(447	)
Proceeds from issuance of common stock in connection with at-the-market offering, net of issuance costs		849			6
Cash (used in) provided by financing activities		(19,451	)		19,559
Net (decrease) increase in cash, cash equivalents and restricted cash		(18,955	)		19,647
Cash, cash equivalents and restricted cash, beginning of period		28,943			14,958
Cash, cash equivalents and restricted cash, end of period	$	9,988		$	34,605
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	7		$	21
Cash paid for interest, net	$	837		$	53


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


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


		Page
	~~PART I.~~ ~~FINANCIAL INFORMATION~~	~~Page~~
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020	32
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020	43
	Condensed Consolidated ~~Statements~~Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	54
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021, and 2020	76
	Notes to Unaudited Condensed Consolidated Financial Statements	87
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3340
Item 4.	Controls and Procedures	3340
	~~PART II.OTHER INFORMATION~~
	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3542
Item 1A.	Risk Factors	3542
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3	Defaults Upon Senior Securities	44
Item 4	Mine Safety Disclosures	44
Item 5	Other Information	44
Item 6.	Exhibits	3644
Exhibit Index		3745
Signatures		38

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	2,516		$	5,228		$	11,023		$	18,070
General and administrative		2,832			2,247			7,875			7,547
Total operating expenses		5,348			7,475			18,898			25,617
Loss from operations		(5,348	)		(7,475	)		(18,898	)		(25,617	)
Other income (expense):
Interest income		8			271			293			957
Interest expense		—			(63	)		(511	)		(63	)
Loss on extinguishment of convertible term loan		—			—			(1,207	)		—
Change in fair value of warrant liabilities		(18	)		355			243			8,061
Net loss		(5,358	)		(6,912	)		(20,080	)		(16,662	)
Unrealized gain/(loss) on marketable securities		(4	)		(20	)		230			(233	)
Comprehensive loss	$	(5,362	)	$	(6,932	)	$	(19,850	)	$	(16,895	)
Net loss per common share - basic and diluted	$	(0.31	)	$	(0.42	)	$	(1.19	)	$	(1.01	)
Weighted-average number of shares outstanding - basic and diluted		17,248,545			16,459,155			16,942,582			16,446,582

For the Three Months Ended	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders’
September 30, 2020	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at June 30, 2020		17,248,545	$	2	$	164,118	$	(140,887	)	$	(1	)	$	23,232
Stock-based compensation		—		—		419		—			—			419
Issuance of common stock for services rendered		18,657		—		25		—			—			25
Net unrealized gain on marketable securities		—		—		—		—			(4	)		(4	)
Net loss		—		—		—		(5,358	)		—			(5,358	)
Balance at September 30, 2020		17,267,202	$	2	$	164,562	$	(146,245	)	$	(5	)	$	18,314

For the Three Months Ended	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders’
September 30, 2019	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at June 30, 2019		16,459,155	$	2	$	159,975	$	(111,818	)	$	(218	)	$	47,941
Stock-based compensation		—		—		752		—			—			752
Issuance of common stock for services rendered		17,187		—		59		—			—			59
Issuance of warrants in connection with term loan		—		—		552		—			—			552
Issuance of warrants to a service provider		—		—		19		—			—			19
Offering costs in connection with common stock offering		—		—		25		—			—			25
Net unrealized loss on marketable securities		—		—		—		—			(20	)		(20	)
Net loss		—		—		—		(6,912	)		—			(6,912	)
Balance at September 30, 2019		16,476,342	$	2	$	161,382	$	(118,730	)	$	(238	)	$	42,416


	Stockholders’ Equity
	Common Shares
For the Three Months Ended September 30, 2021	Number of Shares		Value		Capital in Excess of par Value		Accumulated Other Comprehensive Loss			Accumulated deficit			Total Stockholders’ Equity
Balance at June 30, 2021 as originally stated		20,586,562	$	2	$	172,895	$	(1,218	)	$	(72,686	)	$	98,993
Adjustment (see note 1)		—		—		—	$	(41	)	$	285		$	244
Revised balance at June 30, 2021		20,586,562	$	2	$	172,895	$	(1,259	)	$	(72,401	)	$	99,237
Equity adjustment from foreign currency translation		—		—		—		117			—			117
RSU vesting and stock option exercises		36,479		—		—		—			—			—
Share-based compensation		—		—		1,515		—			—			1,515
Net loss		—		—		—		—			(10,791	)		(10,791	)
Balance at September 30, 2021		20,623,041	$	2	$	174,410	$	(1,142	)	$	(83,192	)	$	90,078


	Stockholders’ Equity
	Seed preferred		Series A preferred		Common Shares
For the Three Months Ended September 30, 2020	Number of shares		Number of shares		Number of shares		Value		Capital in Excess of par Value		Accumulated Other Comprehensive Loss			Accumulated deficit			Total Stockholders’ Equity
Balance at July 1, 2020		103,611		1,441,418		4,312,137	$	1	$	32,723	$	(1,224	)	$	(35,170	)	$	(3,670	)
Equity adjustment from foreign currency translation		—		—		—		—		—		14			—			14
Share-based compensation		—		—		—		—		1,194		—			—			1,194
Net loss		—		—		—		—		—		—			(3,451	)		(3,451	)
Balance at September 30, 2020		103,611		1,441,418		4,312,137	$	1	$	33,917	$	(1,210	)	$	(38,621	)	$	(5,913	)

For the Nine Months Ended	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders’
September 30, 2020	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2019		16,513,763	$	2	$	161,924	$	(126,165	)	$	(235	)	$	35,526
Stock-based compensation		—		—		1,660		—			—			1,660
Issuance of common stock for services rendered		62,544		—		75		—			—			75
Issuance of common stock in connection with at-the-market offering, net of issuance costs		690,895		—		849		—			—			849
Convertible term loan warrant amendment				—		54		—			—			54
Net unrealized gain on marketable securities		—		—		—		—			230			230
Net loss		—		—		—		(20,080	)		—			(20,080	)
Balance at September 30, 2020		17,267,202	$	2	$	164,562	$	(146,245	)	$	(5	)	$	18,314

For the Nine Months Ended	Common Stock				Additional Paid-in		Accumulated			Other Comprehensive			Total Stockholders’
September 30, 2019	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2018		16,434,614	$	2	$	157,931	$	(102,068	)	$	(5	)	$	55,860
Stock-based compensation		—		—		2,647		—			—			2,647
Issuance of common stock for services rendered		41,128		—		202		—			—			202
Issuance of common stock in connection with at-the-market offering, net of issuance costs		600		—		6		—			—			6
Issuance of warrants in connection with term loan		—		—		552		—			—			552
Issuance of warrants to a service provider		—		—		19		—			—			19
Offering costs in connection with common stock offering		—		—		25		—			—			25
Net unrealized loss on marketable securities		—		—		—		—			(233	)		(233	)
Net loss		—		—		—		(16,662	)		—			(16,662	)
Balance at September 30, 2019		16,476,342	$	2	$	161,382	$	(118,730	)	$	(238	)	$	42,416


	Stockholders’ Equity
	Common Shares
For the Nine Months Ended September 30, 2021	Number of Shares		Value		Capital in Excess of par Value		Accumulated Other Comprehensive Loss			Accumulated deficit			Total Stockholders’ Equity
Balance at December 31, 2020		9,100,117	$	1	$	91,238	$	(1,077	)	$	(47,168	)	$	42,994
Issuance of warrants in connection with term loan		—		—		326		—			—			326
Issuance of common stock in connection with at-the-market offering, net of issuance costs		979,843		—		9,115		—			—			9,115
Issuance of common stock in connection with public offering, net of issuance costs		10,439,347		1		68,177		—			—			68,178
Equity adjustment from foreign currency translation				—		—		(65	)		—			(65	)
RSU vesting and stock option exercises		103,734		—		—		—			—			—
Share-based compensation		—		—		5,554		—			—			5,554
Net loss		—		—		—		—			(36,024	)		(36,024	)
Balance at September 30, 2021		20,623,041	$	2	$	174,410	$	(1,142	)	$	(83,192	)	$	90,078


Purchase Price Allocation
Number of full common shares		4,449,559
Multiplied by fair value per share of common stock	$	4.84
Purchase price	$	21,536
Cash and cash equivalents	$	9,779
Marketable securities		5,000
Prepaid expenses and other assets		935
Operating lease right of use asset		2,784
Intangible assets		4,720
Goodwill		10,451
Accounts payable, accrued expenses and other liabilities		(5,453	)
Contingent value rights		(2,520	)
Liability and equity based warrants		(422	)
Deferred tax liability		(576	)
Operating lease liability		(3,162	)
Fair value of net assets acquired	$	21,536


Potential Dilutive Shares
	For the Three and Nine Months Ended September 30,
	2021		2020
Convertible debt shares		0		185,732
Common stock warrants		124,729		481,781
Stock options and RSUs		528,871		1,660,906


	September 30, 2021						December 31, 2020
	In-process R&D		Intangible assets		Total		In-process R&D		Intangible assets		Total
Cost	$	18,912	$	4,469	$	23,381	$	23,554	$	—	$	23,554
Less: accumulated amortization		0		65		65		0		0		0
Less: impairments		4,526		0		4,526		4,568		—		4,568
	$	14,386	$	4,404	$	18,790	$	18,986	$	—	$	18,986

	September 30,		December 31,
Investments - Current:	2020		2019
Debt securities - available for sale	$	9,993	$	25,746
Total	$	9,993	$	25,746

	At September 30, 2020
	Cost Basis		Accumulated Unrealized Gains		Accumulated Unrealized Losses				Fair Value
Investments - Current:
United States treasury securities	$	9,998	$	—	$	(5	)		$	9,993
Total	$	9,998	$	—	$	(5	)		$	9,993

	At December 31, 2019
	Cost Basis		Accumulated Unrealized Gains		Accumulated Unrealized Losses				Fair Value
Investments - Current:
Corporate bonds	$	4,990	$	—	$	(58	)		$	4,932
United States treasury securities		20,979		—		(165	)			20,814
Total	$	25,969	$	—	$	(223	)	⁽¹⁾	$	25,746


Property, Plant and Equipment, net
	September 30,		December 31,
	2021		2020
Leasehold improvements	$	203	$	15
Laboratory equipment		2,211		1,788
Furniture and office equipment		161		169
		2,575		1,972
Less: Accumulated depreciation		1,564		1,183
	$	1,011	$	789

	Amortized Cost		Fair Value
Due in one year or less	$	9,998	$	9,993
Total	$	9,998	$	9,993

			Fair Value Measurement at September 30, 2020
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds⁽¹⁾	$	8,246	$	8,246	$	—	$	—
United States treasury securities		9,993		—		9,993		—
Total	$	18,239	$	8,246	$	9,993	$	—

Liabilities:
Warrant liabilities	$	56	$	—	$	—	$	56
Total	$	56	$	—	$	—	$	56

			Fair Value Measurement at December 31, 2019
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds ⁽¹⁾	$	21,065	$	21,065	$	—	$	—
United States treasury securities ⁽¹⁾		5,982		—		5,982		—
Fixed income securities		25,746		—		25,746		—
Total	$	52,793	$	21,065	$	31,728	$	—

Liabilities:
Warrant liabilities	$	299	$	—	$	—	$	299
Total	$	299	$	—	$	—	$	299


	Fair Value Measurements as of September 30, 2021 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent value rights	$	—	$	—	$	3,547	$	3,547
Warrants		—		—		11		11
	$	—	$	—	$	3,558	$	3,558


	Fair Value Measurements as of December 31, 2020 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent value rights	$	—	$	—	$	2,520	$	2,520
Warrants		—		—		37		37
	$	—	$	—	$	2,557	$	2,557


Change in Level 3 Liabilities
	November 2016 Private Placement Warrants			Contingent Value Rights
Balance at December 31, 2020	$	37		$	2,520
Warrants exercised		(26	)		0
Change in fair value of CVR		0			1,027
Balance at September 30, 2021	$	11		$	3,547

	November Private Placement Warrants
Balance at December 31, 2018	$	8,511
Change in fair value		(8,212	)
Balance at December 31, 2019		299
Change in fair value		(243	)
Balance at September 30, 2020	$	56

	September 30, 2020			December 31, 2019
Risk-free interest rate		0.1	%		1.6	%
Expected term (in years)		1.1			1.9
Expected volatility		100.0	%		100.0	%
Expected dividend yield		0	%		0	%

	Options			Weighted-Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at December 31, 2018		1,299,565		$	11.18	$	881,385
Granted		395,500			9.61		—
Exercised		—			—		—
Cancelled		(22,750	)		13.36		—
Outstanding at December 31, 2019		1,672,315			10.78		—
Granted		270,000			1.44		—
Exercised		—			—		—
Cancelled		(587,312	)		10.23		—
Options outstanding at September 30, 2020		1,355,003		$	9.15	$	—
Options exercisable at September 30, 2020		929,497		$	10.71	$	—

	Restricted Stock Units			Weighted-Average Grant Date Fair Value
Total nonvested units at December 31, 2019		139,350		$	7.86
Granted		559,000			1.41
Vested		—			—
Cancelled		(166,350	)		6.82
Total nonvested units at September 30, 2020		532,000		$	1.07

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Stock-based compensation:	2020		2019		2020		2019
Research and development	$	163	$	314	$	609	$	971
General and administrative		281		497		1,126		1,854
Total Stock-based compensation	$	444	$	811	$	1,735	$	2,825

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities:	2020		2019		2020		2019
Operating cash flow from operating leases (in thousands)	$	149	$	143	$	440	$	273
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (in thousands)	$	—	$	2,980	$	—	$	2,980

Year
2020 (excluding the nine months ended September 30, 2020)	$	149
2021		508
2022		450
2023		462
2024		474
Thereafter		1,931
Total lease payments	$	3,974
Less: present value discount		(1,012	)
Total	$	2,962