UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2020~~

2021

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

For the transition period from

Commission File Number:

001-37718

~~Spring Bank Pharmaceuticals, Inc.~~

F-STAR THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

+44-1223-497400

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


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	~~SBPH~~ FSTX	The Nasdaq Stock Market ~~LLC~~	(Nasdaq Capital Market)

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~~ ☒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~~ ☒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.


Large accelerated filer	☐	☐	Accelerated filer	☒	☐

Non-accelerated filer	☐	☒	Smaller reporting company		☒

			Emerging growth company	☒	☒

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

Indicate by check mark whether the ~~registrant~~Registrant is a shell company (as defined in

Rule 12b-2

of the Exchange Act). ~~Yes~~ YES ☐ No NO ☒

The number of ~~November 2, 2020, the registrant had 17,267,202~~ shares of ~~common stock, $0.0001 par value per share, outstanding.~~

Registrant’s Common Stock outstanding as of August 7, 2021 was 20,620,021.

~~Spring Bank Pharmaceuticals,~~

Table of Contents

F-star

Therapeutics, Inc.

INDEX

PART I. FINANCIAL INFORMATION


	~~PART I.FINANCIAL INFORMATION~~			Page
		Forward- Looking Statements			2
Item 1.		Consolidated Financial Statements (Unaudited)			3
		Consolidated Balance Sheets at June 30, 2021 and December 31, 2020			3
		Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020			4
	~~Consolidated Statements of Stockholders’ Equity~~	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021, and 2020	7		5
		Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020			6
		Notes to Unaudited Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	23		31
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	33		45
Item 4.		Controls and Procedures	33		45
	~~PART II.OTHER INFORMATION~~
~~Item 1.~~	~~Legal Proceedings~~	35 PART II. OTHER INFORMATION
~~Item 1A.~~	~~Risk Factors~~		35
Item 6. 1.	~~Exhibits~~	36 Legal Proceedings			47
~~Exhibit Index~~ Item 1A.	37	Risk Factors			47
~~Signatures~~ Item 2	38	Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3		Defaults Upon Senior Securities			47
Item 4		Mine Safety Disclosures			47
Item 5		Other Information			47
Item 6.		Exhibits			47
Exhibit Index					48
Signatures					49

Table of Contents

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 ~~such as~~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 proposed combination with F-star Therapeutics Limited (“F-star”);~~

•

~~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; and~~

our ongoing and planned preclinical studies and clinical trials;

•

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

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:

•Our proposed business combination with F-star is subject to a number of closing conditions, including a condition requiring our stockholders to approve the issuance of Spring Bank common stock at the closing of the proposed combination, and it may never occur. Even if this proposed combination is completed, the number of shares of our common stock to be issued to the holders of share capital of F-star will be based on an exchange ratio formula that is subject to adjustment based on, among other things, the amount of our net cash upon the closing of the business combination and the amount of proceeds from a concurrent private placement conducted by F-star. This exchange ratio is not adjustable based on the value of our shares of common stock or on the value of the share capital of F-star. The proposed combination also contemplates that our stockholders as of a date prior to the closing of the business combination will receive two separate contingent value rights related to our STING programs. There can be no assurance that our stockholders will ever receive payment pursuant to these rights, and these rights may expire valueless.

•We are very early in our development efforts and our product candidates may not be successful in later stage clinical trials. Results obtained in our preclinical studies and clinical trials to date are not necessarily indicative of results to be obtained in future clinical trials. As a result, our product candidates may never be approved as marketable therapeutics.

•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.

•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 operations, financial condition and prospects.

•Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.

We are very early in our development efforts and our product candidates may not be successful in later stage clinical trials. Results obtained in our preclinical studies and clinical trials to date are not necessarily indicative of results to be obtained in future clinical trials. As a result, our product candidates may never be approved as marketable therapeutics.

We will need additional funding to complete the development of our product candidates and before we can expect to become profitable from the sales of 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 or commercialization efforts.

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.

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 operations, financial condition and prospects.

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 material adverse impact on our business and prospects.

Business interruptions resulting from the coronavirus disease

(“COVID-19”)

outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.

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 “Item 1A. Risk Factors” 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 (the “SEC”) on ~~February 14, 2020, May 7, 2020 and August 10, 2020, respectively,~~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.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

~~SPRING BANK PHARMACEUTICALS, INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

F-star

Therapeutics, Inc.

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share ~~Data)~~

Amounts)

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


	June 30,			December 31
	2021			2020
	Unaudited
Assets
Current Assets:
Cash and cash equivalents	$	81,648		$	18,526
Other receivables		72			0
Prepaid expenses and other current assets		3,439			3,976
Tax incentive receivable		160			3,563

Total current assets		85,319			26,065
Property and equipment, net		1,157			789
Right of use asset		3,758			2,782
Goodwill		15,009			14,926
In-process research and development		19,249			18,986
Other long-term assets		482			61

Total assets	$	124,974		$	63,609

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	2,427		$	4,597
Accrued expenses and other current liabilities		6,300			9,461
Contingent value rights		314			2,080
Lease obligations, current		912			539
Deferred revenue		—			300

Total current liabilities		9,953			16,977
Long term Liabilities:
Term debt		9,466			0
Lease obligations		3,197			2,622
Contingent value rights		2,789			440
Deferred tax liability		576			576

Total liabilities		25,981			20,615

Commitments and contingencies		0			0

Stockholders’ equity:
Preferred stock, $0.0001 par value; authorized, 10,000,000 shares at June 30, 2021 and December 31, 2020; 0 shares issued or outstanding at June 30, 2021 and December 31, 2020		0			0
Common Stock, $0.0001 par value; authorized 200,000,000 shares at June 30, 2021 and December 31, 2020; 20,586,562 and 9,100,117 shares issued and outstanding at June 30, 2021 and December 31, 2020		2			1
Additional paid-in capital		172,895			91,238
Accumulated other comprehensive loss		(1,218	)		(1,077	)
Accumulated deficit		(72,686	)		(47,168	)

Total stockholders’ equity		98,993			42,994

Total liabilities and stockholders’ equity	$	124,974		$	63,609

See accompanying notes to consolidated financial statements.

~~SPRING BANK PHARMACEUTICALS, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~

Table of Contents

F-star

Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In Thousands, Except Share and Per Share ~~Data)~~

Amounts)

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 June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
License revenue	$	0		$	543		$	2,917		$	1,898
Operating expenses:
Research and development		8,437			2,093			15,704			5,493
General and administrative		6,501			3,236			12,930			6,425

Total operating expenses		14,938			5,329			28,634			11,918

Loss from operations		(14,938	)		(4,786	)		(25,717	)		(10,020	)
Other non-operating (expense) income:
Other income (expense)		(46	)		(143	)		972			(1,670	)
Change in fair value of convertible debt		0			(1,498	)		0			(1,884	)
Change in fair value of conti n gent value rights		(583	)		0			(583	)		0

Loss before income taxes		(15,567	)		(6,427	)		(25,328	)		(13,574	)
Income tax expense		(82	)		(35	)		(190	)		(47	)

Net loss	$	(15,649	)	$	(6,462	)	$	(25,518	)	$	(13,621	)

Net loss attributable to common stockholders	$	(15,649	)	$	(6,462	)	$	(25,518	)	$	(13,621	)

Basic and diluted adjusted net loss per common shares	$	(0.92	)	$	(3.53	)	$	(1.95	)	$	(7.44	)

Weighted-average number of shares outstanding, basic and diluted		17,022,417			1,830,075			13,083,230			1,829,993

Other comprehensive loss:
Net loss	$	(15,649	)	$	(6,462	)	$	(25,518	)	$	(13,621	)
Other comprehensive (loss) gain :
Foreign currency translation		324			387			(141	)		410

Total comprehensive loss	$	(15,325	)	$	(6,075	)	$	(25,659	)	$	(13,211	)

See accompanying notes to consolidated financial statements.

~~SPRING BANK PHARMACEUTICALS, INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~

Table of Contents

F-star

Therapeutics, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In ~~Thousands, Except Share and Per Share Data)~~

Thousands)

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


	For the Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(25,518	)	$	(13,621	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share based compensation expense		4,039			1,005
Foreign currency (gain) loss		(570	)		1,478
Loss ( gain ) on disposal of tangible fixed assets		(9	)		6
Depreciation		297			334
Non-cash interest		82			532
Amortization of debt issuance costs		15			0
Fair value adjustments		583			1,884
Operating right of use asset		494			337
Changes in operating assets and liabilities:
Other receivables		(72	)		0
Prepaid expenses and other current assets		593			905
Tax incentive receivable		3,493			5,909
Accounts payable		(2,231	)		1,210
Accrued expenses and other current liabilities		(3,278	)		(2,126	)
Deferred revenue		(308	)		(5	)
Operating lease liability		(520	)		(330	)
Other long term asset		(423	)		0

Net cash used in operating activities		(23,333	)		(2,482	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(658	)		(62	)
Proceeds from sale of property, plant and equipment		15			0

Net cash used in investing activities		(643	)		(62	)

Cash flows from financing activities:
Proceeds from issuance of convertible notes		0			500
Net proceeds from issuance of common stock		77,293			0
Net proceeds from term debt		9,845			0
Payment of debt issuance costs		(92	)		0

Net cash provided by financing activities		87,046			500

Net increase (decrease) in cash and cash equivalents		63,070			(2,044	)
Effect of exchange rate changes on cash		52			(201	)
Cash and cash equivalents at beginning of period		18,526			4,901

Cash and cash equivalents at end of period	$	81,648		$	2,656

Supplemental disclosure of cash flow information
Cash paid for income taxes	$	36		$	14
Purchases of property and equipment included in accounts payable and accrued expenses	$	182		$	0
Cash paid for interest	$	115		$	0

Non-cash investing and financing activities:
Additions to ROU assets obtained from new operating lease liabilities	$	1,468		$	0
Issuance of warrants	$	326		$	0

See accompanying notes to consolidated financial statements.

~~SPRING BANK PHARMACEUTICALS, INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER~~

Table of Contents

F-star

Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended June 30, 2021 and 2020 ~~AND 2019~~

(Unaudited)

(In Thousands, Except Share ~~and Per Share Data)~~

Amounts)

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
For the Three Months Ended June 30, 2021					Common Shares				Capital in Excess of par Value		Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
For the Three Months Ended June 30, 2021					Number of Shares		Value		Capital in Excess of par Value		Accumulated Other Comprehensive Loss			Accumulated deficit			Total Stockholders’ Equity
Balance at March 31, 2021						9,100,320	$	1	$	93,418	$	(1,542	)	$	(57,037	)	$	34,840
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						—		—		—		324			—			324
Stock option exercises						67,052		—		—		—			—			—
Share-based compensation						—		—		1,859		—			—			1,859
Net loss						—		—		—		—			(15,649	)		(15,649	)

Balance at June 30, 2021						20,586,562	$	2	$	172,895	$	(1,218	)	$	(72,686	)	$	98,993


	Stockholders’ Equity
For the Three Months Ended June 30, 2020	Seed preferred		Series A preferred		Common Shares				Capital in Excess of par Value		Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
For the Three Months Ended June 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 March 31, 2020		103,611		1,441,418		4,145,611	$	1	$	32,252	$	(1,611	)	$	(28,708	)	$	1,934
Issuance of common stock for services rendered		—		—		4,252				—		—			—			—
Issuance of common stock in connection with at-the-market offering, net of issuance costs		—		—		162,274		—		—		—			—			—
Equity adjustment from foreign currency translation		—		—		—		—		—		387			—			387
Share-based compensation		—		—		—		—		471		—			—			471
Net loss		—		—		—		—		—		—			(6,462	)		(6,462	)

Balance at June 30, 2020		103,611		1,441,418		4,312,137	$	1	$	32,723	$	(1,224	)	$	(35,170	)	$	(3,670	)

See accompanying notes to consolidated financial statements.

~~SPRING BANK PHARMACEUTICALS, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Table of Contents

F-star

Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2021 and 2020

(Unaudited)

(In ~~Thousands)~~

Thousands, Except Share Amounts)

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


					Stockholders’ Equity
For the Six Months Ended June 30, 2021					Common Shares				Capital in Excess of par Value		Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
For the Six Months Ended June 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						—		—		—		(141	)		—			(141	)
Stock option exercises						67,255		—		—		—			—			—
Share-based compensation						—		—		4,039		—			—			4,039
Net loss						—		—		—		—			(25,518	)		(25,518	)

Balance at June 30, 2021						20,586,562	$	2	$	172,895	$	(1,218	)	$	(72,686	)	$	98,993


	Stockholders’ Equity
For the Six Months Ended June 30, 2020	Seed preferred		Series A preferred		Common Shares				Capital in Excess of par Value		Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
For the Six Months Ended June 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 December 31, 2019		103,611		1,441,418		4,128,441	$	1	$	31,718	$	(1,634	)	$	(21,549	)	$	8,536
Issuance of common stock for services rendered		—		—		10,972		—		—		—			—			—
Issuance of common stock in connection with at-the-market offering, net of issuance costs		—		—		172,724		—		—		—			—			—
Equity adjustment from foreign currency translation		—		—		—		—		—		410			—			410
Share-based compensation		—		—		—		—		1,005		—			—			1,005
Net loss		—		—		—		—		—		—			(13,621	)		(13,621	)

Balance at June 30, 2020		103,611		1,441,418		4,312,137	$	1	$	32,723	$	(1,224	)	$	(35,170	)	$	(3,670	)

See accompanying notes to consolidated financial statements.

~~Spring Bank Pharmaceuticals,~~

Table of Contents

F-star

Therapeutics, Inc.

Notes to Consolidated Financial Statements

1. ~~NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Nature of Business

~~Spring Bank Pharmaceuticals,~~ and Summary of Significant Accounting Policies

Nature of Business

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’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 tetravalent, bispecific natural antibody (mAb²

™

) 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 proprietary technology will overcom

many of th

challenges facing current immuno-oncology therapies, due to the ~~discovery~~strong pharmacology enabled by tetravalent bispecific binding.

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 ~~development~~neck cancer patients. FS118 is a tetravalent mAb

bispecific antibody targeting two receptors,

PD-L1

and

LAG-3,

both of ~~novel therapeutics~~which are established pivotal targets in immuno-oncology.

F-star’s

second product candidate, FS120, aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb

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’s

third product candidate, FS222, aims to improve outcomes in low

PD-L1

expressing tumors and is a mAb

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. 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. The product candidates FS120, FS222 and SB 11285 are all in Phase 1 clinical trials.

Share Exchange Agreement

On November 20, 2020,

F-star

Therapeutics, Inc., formerly known as Spring Bank Pharmaceuticals, Inc., completed a ~~range~~business combination (the “Transaction”) with

F-star

Therapeutics Limited

(“F-star

Ltd”) in accordance with the terms of ~~cancers and inflammatory diseases using its proprietary small molecule nucleotide platform.~~ ~~The Company designs its compounds to selectively target and modulate~~ 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 HBV due to the occurrence 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 ~~will acquire~~became the ~~entire~~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, ~~capital of F-star with F-star continuing as~~stock option and restricted stock unit (“RSU”) outstanding immediately prior to the ~~combined company (the “Exchange”).~~Closing. The Exchange ~~is expected~~Ratio was determined through arms-length negotiations between Spring Bank and

F-star

Ltd pursuant to ~~close~~a formula set forth in the ~~fourth quarter of 2020, subject~~Exchange Agreement.

Pursuant to the ~~approval~~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 same 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 Spring Bank common stock on the date of the Closing (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.

Table of Contents

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 Company’s common stock outstanding. 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 ~~special meeting~~representative of

the

Spring Bank stockholders prior to bethe 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 Company 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 the 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 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 CVR payment obligations expire on the seventh anniversary of the Closing (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 plc (“AstraZeneca”) under which AstraZeneca will receive global rights to research, develop and commercialize next generation Stimulator of Interferon Genes (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 ~~other customary conditions.~~

~~Since its inception in 2002 and~~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.

Table of Contents

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 $3.1 million as of June 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 June 30, 2021, the estimated fair value increased to $3.1 million which resulted in a $0.6 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 (the “2019 Plan”) were replaced by options (“Replacement Options”) and awards (“Replacement RSUs”), on the same terms (including vesting), for Company common stock, based o

the Exchange Ratio.

The Company’s common stock, which

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 CUSIP number, 30315R 107.

The Transaction was accounted for as a business combination using the acquisition method of 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 acquisitio

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 (see Note 2 of the financial statements).

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.

Liquidity

On March 30, 2021, the Company entered into a Sales Agreement (the “2021 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 ~~initial~~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 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 ~~(“IPO”~~

(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 ~~May 2016,~~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 ~~built its technology platform~~of $68.2 million.

On April 1, 2021, the Company, as borrower, entered into a Venture Loan and ~~product candidate pipeline, supported~~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 ~~grants~~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 ~~through private financings.~~ (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.

Table of Contents

The Company has ~~3 wholly owned subsidiaries: Sperovie Biosciences, Inc. formed~~incurred significant losses and has an accumulated deficit of $72.7 million as of June 30, 2021. F-star expects to incur substantial losses in ~~September 2015, SBP Securities Corporation formed~~the foreseeable future as it conducts and expands its research and development activities and clinical trial activities. As of August 13, 2021, the date of issuance of the consolidated financial statements, the Company’s cash and cash equivalents 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 be successful in ~~December 2016 and SBP International Limited formed in May 2019.~~

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 ~~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 consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying interim financial statements as of ~~September~~June 30, ~~2020~~2021, and for the ~~three~~six and ~~nine~~three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and related interim information contained within the notes to the financial statements, are unaudited. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of ~~September~~June 30, ~~2020,~~2021, results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, statement of stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 and its cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. These interim financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes contained in the Company’s Annual Report on 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~~six months ended ~~September~~June 30, ~~2020~~2021, are not necessarily indicative of the results expected for the full fiscal year or any interim period.

Principles of ~~September 30, 2020, the Company had an accumulated deficit of $146.2 million and $20.0 million~~Consolidation

The Company’s financial statements have been prepared in ~~cash, cash equivalents and marketable securities. On April 8, 2020, the Company repaid~~conformity with U.S. GAAP. Any reference 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 30, 2020 will be sufficient~~these notes to ~~fund operations for at least the next twelve months. There~~applicable guidance is ~~no guarantee that the Exchange will be completed. The Company does not expect~~meant to ~~raise any additional funds prior~~refer to the ~~completion~~authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) 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.

~~Principles of Consolidation~~

FASB. The accompanying consolidated financial statements include the accounts of ~~the Company~~

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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 balances and transactions between the consolidated companies have been eliminated in consolidation.

Use of Estimates

The preparation of ~~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 consolidated financial statements and the reported amounts of ~~revenues and~~ expenses during the reporting ~~period.~~years. Significant estimates and assumptions reflected in these 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

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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.~~

~~Cash~~those estimates or assumptions.

Concentrations of credit risk 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~~

significant suppliers

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.

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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~~		~~Useful Life~~
~~Equipment~~		~~5-7 years~~ Estimated Useful Economic Life
Leasehold property improvements, right of use assets		Lesser of lease term or useful life
Laboratory equipment		5 years
Furniture and ~~fixtures~~ office equipment		53 years
~~Leasehold improvements~~		~~Lesser of 10 years or the remaining~~ ~~term of the respective lease~~

Leases

~~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~~us

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~~June 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 mAb

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”), and Ares Trading S.A. (“Ares,”an affiliate of Merck KGaA, Darmstadt, Germany) which were determined to be within the scope of ASC 606.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination as to whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

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Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. The promised goods or services in the Company’s contracts with customers primarily consist of license rights to the Company’s intellectual property for research and development, research and development services, options to acquire additional research and development services, and options to obtain additional licenses, such as a commercialization license for a potential product candidate. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources; and (ii) the promised good or service is separately identifiable from other promises in the contract.

In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. The Company estimates the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company

re-evaluates

the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative

catch-up

basis in the period of adjustment.

After the transaction price is determined, it is allocated to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an input method. The Company accounts for contract modifications as a separate contract if both of the following conditions are met:

(i)	the scope of the contract increases because of the addition of promised goods or services that are distinct; and

(ii)	the price of the contract increases by an amount of consideration that reflects standalone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract.

If a contract modification is deemed to not be a separate contract, then the transaction price is updated and allocated to the remaining performance obligations (both from the existing contract and the modification). Previously recognized revenue for goods and services that are not distinct from the modified goods or services is adjusted based upon an updated measure of progress for the partially satisfied performance obligations.

If a contract modification is deemed to be a separate contract, any revenue recognized under the original contract is not retrospectively adjusted and any performance obligations remaining under the original contract continue to be recognized under the terms of that contract.

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The Company’s collaboration revenue arrangements include the following:

Up-front

License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable,

up-front

fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from

non-refundable,

up-front

fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: The Company’s collaboration agreements may include development and regulatory milestones. The Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company

re-evaluates

the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded o

a cumulative

catch-up

basis, which would affect collaboration revenue and net loss in the period of adjustment.

Customer Options: The Company evaluates the customer options to obtain additional items (i.e., additional license rights) for material rights, or options to acquire additional goods or services for free or at a discount. Optional future services that reflect their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. If optional future services include a material right, they are accounted for as performance obligations. The Company determines an estimated standalone selling price of any material rights for the purpose of allocating the transaction price. The Company considers factors such as the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.

Research and Development ~~Costs~~

Services: The promises under the Company’s collaboration agreements may include research and development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts.

Research and development costs

Research and 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 for 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.

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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~~share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”(“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards ~~granted to employees and nonemployees using a fair value method. The measurement date for employee awards is~~on the date of ~~grant, and stock-based compensation costs are~~grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the ~~employees’~~ requisite service period ~~which is generally~~in the Company’s consolidated statements of operations and comprehensive loss.

The Company records the expense for option awards using a graded vesting ~~period, on a straight-line basis.~~method. The Company accounts for forfeitures as they occur.

For share-based awards granted to

non-employee

consultants, the measurement date for

non-employee

awards is the date of grant. The compensation expense is then recognized over the requisite service period, which is the vesting period of the respective award.

The Company ~~measures~~reviews stock award modifications when there is an exchange of original award for a new award. The Company calculates for the incremental fair value based on the difference between the fair value of the ~~performance-based RSUs relating to the total share return performance using a Monte Carlo valuation model. The Company measures~~modified award and the fair value of the ~~performance-based RSUs relating~~original award immediately before it was modified. The Company immediately recognizes the incremental value as compensation cost for vested awards and recognizes, on a prospective basis over the remaining requisite service period, the sum of the incremental compensation cost and any remaining unrecognized compensation cost for the original award on the modification date.

The fair value of stock options (“options”) on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock, to ~~the milestone performance goals using~~determine the fair value of the award.

Historically, given the absence of an active market for the ordinary shares of

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Ltd, the board of directors determined the estimated fair value of the Company’s equity instruments based on input from management, which utilized the most recently available independent third-party valuation, and considered a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector. Each valuation methodology included estimates and assumptions that require judgment. These estimates and assumptions included a number of objective and subjective factors in determining the value of

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Ltd ordinary shares at each grant date. The expected volatility for

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Ltd was calculated based on reported volatility data for a representative group of publicly traded companies for which historical information was available. The historical volatility was calculated based on a period of time commensurate with the assumption used for the expected term. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

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Ltd used the simplified method, under which the expected term is presumed to be the midpoint between the vesting date and the ~~probability that~~end of the ~~specified performance criteria will~~contractual term.

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Ltd utilized this method due to the lack of historical exercise data and the plain nature of its share-based awards. We expect to continue to utilize this methodology until such time as we have adequate historical data regarding the volatility of our traded stock price.

The Company uses the remaining contractual term for the expected life of

non-employee

awards. The expected dividend yield is assumed to be ~~met. Each quarter~~zero, as the Company ~~updates its assessment of the probability that the specified milestone criteria will be achieved~~has never paid dividends and ~~adjusts its estimate of the fair value, if necessary. Stock-based~~has no current plans to pay any dividends.

The Company classifies share-based compensation expense ~~is classified~~ in ~~the accompanying~~its consolidated statements of operations and comprehensive loss ~~based on~~in the ~~department to~~same manner in which the ~~related services~~award recipient’s payroll costs are ~~provided.~~

~~Financial Instruments~~

classified or in which the award recipient’s service payments are classified.

Fair value measurements of 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~~period.

Fair value ofis defined as the ~~term loan approximates its face value due~~exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market ~~terms.~~

for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820,

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~~ (“Measurement

(“ASC 820”), establishes a fair value hierarchy ~~of inputs used when available.~~for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). 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~~

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ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy ~~applies only to~~that distinguishes between 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:~~

following:

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

liabilities.

Level ~~2—Valuations based on~~2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or ~~for which all significant~~similar assets or liabilities, or other inputs that are observable ~~either directly~~ or ~~indirectly.~~

can be corroborated by observable market data.

Level ~~3—Valuations that require~~3 — Unobservable inputs that ~~reflect the Company’s own assumptions~~are supported by little or no market activity that are ~~both~~ significant to determining the fair value ~~measurement~~of the assets or liabilities, including pricing models, discounted cash flow methodologies and ~~unobservable.~~

similar techniques.

To the extent that the 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~~carrying amounts reflected in the consolidated balance sheets for cash and ~~liabilities measured at fair value on a recurring basis include~~ cash equivalents, ~~marketable securities~~ and ~~warrant liabilities.~~

other current assets, research and development incentives receivable, accounts payable and accrued liabilities and other current liabilities approximate their fair values, due to their short-term nature.

Net ~~Loss Per Share~~

~~Basic~~loss per share

The Company 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~~consolidated financial statements or in 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~~

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.~~

realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company ~~assesses its income tax positions and records tax benefits based upon management’s evaluation of~~accounts for uncertainty the ~~facts, circumstances and information available at~~consolidated financial statements by applying a

two-step

process to determine the ~~reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest~~ amount of tax benefit ~~with a greater than 50%~~to be recognized. First, the tax position must be evaluated to determine the likelihood ~~of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where~~that it ~~is not more likely than not that a tax benefit~~ will be sustained 0upon external examination by the taxing authorities. If the tax position is deemed

more-likely-than-not

to be sustained, the tax position is then assessed to determine the amount of benefit ~~is recognized~~to recognize in the consolidated financial statements. The ~~Company classifies~~amount of the benefit that may be recognized is the largest amount that will more likely than not be realized upon ultimate settlement. Any provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and ~~penalties associated with such uncertain~~penalties.

Research and development tax ~~positions~~credits received in the United Kingdom are recorded as a ~~component of interest expense. As of September 30, 2020~~reduction to research and ~~December 31, 2019,~~development expenses. The U.K. research and development tax credit is payable to the Company after surrendering tax losses and is not dependent on current or future taxable income. As a result, it is not reflected as part of the income tax provision If, in the future, any UK research and development tax credits generated are utilized to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.

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Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has ~~0t identified any material uncertain tax positions.~~

~~Guarantees~~been incurred and ~~Indemnifications~~

~~As permitted under Delaware law,~~the amount can be reasonably estimated. At each reporting date, the Company ~~indemnifies its officers~~evaluates whether or not a potential loss amount or a potential loss range is probable and ~~directors~~reasonably estimable under the provisions of the authoritative guidelines that address accounting for ~~certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.~~

contingencies. The Company ~~leases its principal office~~expenses costs as incurred in relation to such legal proceedings as general and ~~laboratory space in Hopkinton, Massachusetts under a non-cancelable operating lease. The Company has standard indemnification arrangements under~~administrative expense within 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~~consolidated statements of operations 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.

comprehensive loss.

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 1one operating segment and does not track expenses on a

program-by-program

basis.

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 -~~ ~~Debt with Conversion and Other Options (Subtopic 470-20) and~~

2019-10,

Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging ~~- Contracts in Entity’s Own Equity~~

(Topic 815), and Leases (Topic 842): Effective Dates

~~(Subtopic 815-40)~~.~~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.~~

~~In August 2018,~~position and results of operations.

2. Business Combination

As described in Note 1, on November 20, 2020,

F-star

Ltd completed a business combination with Spring Bank. For accounting purposes, the ~~FASB~~purchase price was based on (i) the fair value of Spring Bank common stock as of the Transaction date of $21.5 million, which was determined based on the number of shares of common stock issued ~~ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820), Disclosure Framework – Changes~~in connection with the Transaction, and (ii) the portion of the fair value attributable to

in-the-money

fully and partially vested stock options and warrants.

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The purchase price is allocated to the ~~Disclosure Requirement for Fair Value Measurement~~.~~This ASU removes, modifies~~fair value of assets and ~~adds certain disclosure requirements~~liabilities acquired as follows in the table below (in thousands, except shares of ~~ASC Topic 820. The ASU is effective for all entities for fiscal years,~~common stock 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.

~~2. NET LOSS PER SHARE~~

fair value per share):


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

3. Net Loss Per Share

The following table summarizes the computation of basic and diluted net loss per share of the Company for such periods (in thousands, except share and per share data):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2020

2019

2020

2019

Net loss

$
(5,358
)

$
(6,912
)

$
(20,080
)

$
(16,662
)
Weighted-average number of shares outstanding - basic and diluted

17,248,545

16,459,155

16,942,582

16,446,582

Net loss per common share - basic and diluted

$
(0.31
)

$
(0.42
)

$
(1.19
)

$
(1.01
)


Net Loss Per Share
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(15,649	)	$	(6,462	)	$	(25,518	)	$	(13,621	)
Weighted average number shares outstanding, basic and diluted		17,022,417			1,830,075			13,083,230			1,829,993

Net loss income per common, basic and diluted	$	(0.92	)	$	(3.53	)	$	(1.95	)	$	(7.44	)

Diluted net loss per share of common ~~share~~stock is the same as basic net loss per share of common ~~share~~stock for all periods presented.

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The following table provides the potentially dilutive securities outstanding, prior to the use of the treasury stock method or

if-converted

method, have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact due to the losses reported:

For the Three and Nine Months Ended September 30,

2020

2019

Convertible debt

—

2,329,143

Common stock warrants

1,927,124

1,927,124

Stock options and inducement awards

1,445,003

1,762,315

Restricted stock units

532,000

185,800

~~3. INVESTMENTS~~

~~Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity~~


Potential Dilutive Shares
	For the Three and Six Months Ended June 30,
	2021		2020
Convertible debt shares		—		182,758
Common stock warrants		128,479		—
Stock options and RSUs		1,313,522		257,259

. Property, Plant and ~~preserve capital.~~

~~The following table summarizes the Company’s investments, by category, as of September 30, 2020~~Equipment, net

Property, plant and ~~December 31, 2019 (in thousands):~~

September 30,

December 31,

Investments - Current:

2020

2019

Debt securities - available for sale

$
9,993

$
25,746

Total

$
9,993

$
25,746

~~A summary of the Company’s available-for-sale classified investments as of September 30, 2020 and December 31, 2019~~equipment, net consisted of the following (in thousands):

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

⁽¹⁾ ~~$(12) of unrealized losses are included in the cash and cash equivalents balance as of December 31, 2019, a total of $(235) netunrealized losses at December 31, 2019.~~

~~The amortized cost and fair value of the Company’s available-for-sale investments, by contract maturity, as of September 30, 2020 consisted of the following (in thousands):~~


Property, Plant and Equipment, net
	June 30,		December 31
	2021		2020
Leasehold improvements	$	209	$	15
Laboratory equipment		2,252		1,788
Furniture and office equipment		166		169

		2,627		1,972
Less: Accumulated depreciation		1,470		1,183

	$	1,157	$	789

Amortized Cost

Fair Value

Due in one year or less

$
9,998

$
9,993

Total

$
9,998

$
9,993

~~4. PROPERTY AND EQUIPMENT, NET~~

~~Property and equipment as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):~~

September 30,

December 31,

2020

2019

Equipment

$
1,278

$
1,278

Furniture and fixtures

385

450

Leasehold improvements

1,356

1,356

Total property and equipment

3,019

3,084

Less: accumulated depreciation

(1,093
)

(850
)
Property and equipment, net

$
1,926

$
2,234

Depreciation expense for the ~~three and nine~~six months ended ~~September~~June 30, 2021 and 2020 was ~~$96,000~~$0.3 million and ~~$287,000,~~$0.3 million, respectively. ~~Depreciation expense for~~

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. Fair Value Measurements

The following tables present information about the ~~three and nine months ended September 30, 2019 was $92,000 and $263,000, respectively.~~

~~5. FAIR VALUE MEASUREMENTS~~

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its United States treasury securities and fixed income securities within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs.

~~A summary of the~~Company’s financial assets and liabilities ~~that are~~ measured at fair value ason a recurring basis and indicate the level of ~~September 30, 2020 and December 31, 2019 is as follows~~the fair value hierarchy utilized to determine such fair values (in thousands):

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

⁽¹⁾Money market funds and United States treasury securities with maturities of less than 90 days at the date of purchase are included within cash and cash equivalents in the accompanying consolidated balance sheets and are recognized at fair value.


	Fair Value Measurements as of June 30 2021 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent value rights	$	—	$	—	$	3,103	$	3,103
Warrants		—		—		11		11

	$	—	$	—	$	3,114	$	3,114


	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

The following table ~~reflects~~reflect

the ~~change~~chang

in the Company’s Level 3 liabilities, which consists of ~~the~~ warrants, ~~issued in a private placement in November 2016 (see Note 7),~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 (in thousands):

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


Change in Level 3 Liabilities
	November 2016 Private Placement Warrants			Contingent Value Rights
Balance at December 31, 2020	$	37		$	2,520
Warrants exercised		(26	)		—
Change in fair value of CVR		—			583

Balance at June 30, 2021	$	11		$	3,103

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6. ~~ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

Accrued Expenses and other Current Liabilities

Accrued expenses as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, consisted of the following (in thousands):

September 30,

December 31,

2020

2019

Preclinical and clinical studies

$
1,159

$
1,473

Compensation and benefits

1,085

614

Accounting and legal

424

240

Other

109

111

Total accrued expenses and other current liabilities

$
2,777

$
2,438


	June 30,		December 31
	2021		2020
Clinical Trial Costs	$	2,304	$	3,394
Severance		887		1,953
Compensation and B enefits		1,277		1,361
Professional F ees		1,518		1,593
Other		314		1,160

	$	6,300	$	9,461

7. ~~WARRANTS~~

Term Debt

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 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. The Company incurred $0.3 million of debt issuance costs and issued $0.3 million of warrants.

The term note matures on the

48-month

anniversary following the funding date therefore $5 million becomes due on April 1, 2025, and $5 million will become due on June 22, 2025. The principal balance the Term Loan bears a floating interest. The interest rate is calculated initially and, thereafter, each calendar month as the sum of (a) the per annum rate of interest from time to time published in The Wall Street Journal as contemplated by the Loan and Security Agreement, or any successor publication thereto, as the “prime rate” then in effect, plus (b) 6.25%; provided that, in the event such rate of interest is less than 3.25%, such rate shall be deemed to be 3.25% for purposes of calculating the interest rate. Interest is payable on a monthly basis based on each Term Loan principal amount outstanding the preceding month.

The Company may, at its option upon at least five business days’ written notice to Horizon, prepay all or any portion of the outstanding Term Loan by simultaneously paying to Horizon an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Term Loan so prepaid; plus (ii) an amount equal to (A) if such Term Loan is prepaid on or before the Loan Amortization Date (as defined in the Loan and Security Agreement) applicable to such Term Loan, three percent of the then outstanding principal balance of such Term Loan, (B) if such Term Loan is prepaid after the Loan Amortization Date applicable to such Term Loan, but on or before the date that is 12 months after such Loan Amortization Date, two percent of the then outstanding principal balance of such Term Loan, or (C) if such Term Loan is prepaid more than 12) months after the Loan Amortization Date applicable to such Term Loan, one percent of the then outstanding principal balance of such Term Loan; plus (iii) the outstanding principal balance of such Term Loan; plus (iv) all other sums, if any, that had become due and payable under the Loan and Security Agreement.

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The Company’s debt obligation consisted of the following (in thousands)


Term Debt
	June 30,			December 31,
	2021			2020
Term Loan A and B due April 2025	$	5,000		$	0
Term Loan C and D due June 2025		5,000			0

Term debt		10,000			0
Less: Unamortized deferred issuance costs		(231	)		0
Less: Warrant discount and interest		(303	)		0

Total debt obligations- long term	$	9,466		$	0
		��

. Stockholders’ Equity

Common Stock

On March 30, 2021, the Company entered into the 2021 Sales Agreement with SVB Leerink with respect to an

”at-the-market”

(“ATM”) offering program under which the Company could offer and sell, from time to time at 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 (the “Placement Shares”) through SVB Leerink as its sales agent.

Upon delivery of a placement notice in April 2021, and subject to the terms and conditions of the 2021 Sales Agreement, SVB Leerink began to sell the Placement Shares. Under the 2021 Sales Agreement, the Company agreed to pay SVB Leerink a commission equal to three percent of the 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 Company terminated 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 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.

Warrants

In connection with ~~the Company’s IPO, the Company issued~~Spring Bank’s initial public offering (“IPO”) in 2016, there was an issuance of warrants to the sole book-running manager ~~for the IPO a warrant~~ to purchase ~~27,600~~7,087 shares of common ~~stock in May 2016 and a warrant to purchase 747 shares of common stock in June 2016 (together, the “IPO Warrants”).~~stock. The ~~IPO Warrants are~~warrants were exercisable at an exercise price of ~~$15.00~~$60.00 per share and ~~expire~~expired on May 5, 2021. ~~The Company evaluated the terms of the IPO Warrants and concluded that they should be equity-classified. The fair value of the May~~

During 2016, IPO Warrants was estimated on the applicable issuance dates using a Black-Scholes pricing model based on the following assumptions: an expected term of 4.99 years; expected stock price volatility of 87%; a risk-free rate of 1.20%; and a dividend yield of 0%. The fair value of the June 2016 IPO Warrants was estimated on the applicable issuance dates using a Black-Scholes pricing model based on the following assumptions: an expected term of 4.92 years; expected stock price volatility of 87%; a risk-free interest rate of 1.23%; and a dividend yield of 0%. The aggregate fair value of the IPO Warrants on the date of issuance was approximately $0.2 million.

~~In November 2016, the Company~~Spring Bank entered into a definitive agreement with respect to the private placement of ~~1,644,737~~411,184 shares of common stock and warrants to purchase ~~1,644,737~~408,444 shares of common stock (the “November 2016 Private Placement Warrants”) to a group of accredited investors. ~~These investors paid $9.12 for each share of common stock and warrant to purchase one share of common stock.~~ The November 2016 Private Placement Warrants are exercisable at an exercise price of ~~$10.79~~$43.16 per share and expire on November 23, 2021. The Company evaluated the terms of these warrants and concluded that they are liability-classified. ~~In November 2016, the Company recorded the fair value of these warrants of approximately $8.3 million using a Black-Scholes pricing model.~~ The Company must recognize any change in the value of the warrant liability each reporting period in the statement of ~~operations.~~operations and comprehensive loss. As of ~~September~~June 30, ~~2020 and December 31, 2019,~~2021, the fair value of the November 2016 Private Placement Warrants was approximately ~~$56,000~~$11,000 and ~~$0.3 million, respectively, and 10,960 shares~~388,451 warrants have been exercised to ~~date (see Note 5).~~

~~A summary of the Black-Scholes pricing model assumptions used to record the fair value of the~~date. At June 30, 2021, there were 19,993 warrants ~~is as follows:~~

outstanding.

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~~

During 2019, ~~the Company~~Spring Bank entered into a ~~term~~ loan ~~(the “Convertible Term Loan”)~~agreement 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, providing for a $20.0 million term loan~~ ~~(see Note 9)~~. ~~In connection with the Company’s~~ ~~Convertible Term Loan, the Company~~pursuant to which Spring Bank issued to ~~certain~~the lenders warrants to purchase ~~250,000~~62,500 shares of common stock (the “Pontifax Warrants”). ~~Prior to their amendment in April 2020 (see Note 9), the~~The Pontifax Warrants ~~were~~are exercisable at ~~an exercise price of $6.57~~$8.32 per ~~share. The Pontifax Warrants~~share and expire on September 19, 2025. The Company evaluated the terms of the ~~Pontifax Warrants~~warrants and concluded that they ~~are~~should be 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 stock 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 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 included 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 WarrantsAt June 30, 2021, there 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. 62,500 warrants outstanding.

During ~~the nine months ended September 30, 2020, there was an incremental expense of approximately $54,000 as a result of the amendment of the Pontifax Warrant exercise price.~~

~~In September~~ 2019, ~~the Company~~Spring Bank issued warrants to a service provider to purchase ~~15,000~~3,750 shares of common stock (the “September 2019 Warrants”). The September 2019 Warrants are exercisable at an exercise price of ~~$4.21~~$16.84 per share and expire on September 19, 2021. The Company evaluated the terms of the ~~September 2019 Warrants~~warrants and concluded that they ~~are~~should be equity-classified. ~~The fair value~~At June 30, 2021, there were 3,750 warrants outstanding.

In connection with the entry into the Loan and Security Agreement, (see Note 7), the Company has issued to Horizon warrants to purchase an aggregate number of shares of the ~~September 2019 Warrants was estimated on~~Company’s common stock in an amount equal to $100,000 divided by the ~~applicable issuance date using~~

exercise

price for each respective

arrant. If at any time the Company files a ~~Black-Scholes pricing model based on~~registration statement relating to an offering for its own account, or the ~~following assumptions:~~account of others, of any of its equity securities, the Company has agreed to include such number of shares underlying the

arrants in such registration statement as requested by the holder. The

arrants, which are exercisable for an ~~expected term~~aggregate of ~~2.0 years; expected stock~~42,236 shares, will be exercisable for a period of seven years at a

per-share

exercise price ~~volatility~~ of ~~69.4%; a risk-free interest rate of 1.7%; and a dividend yield of 0%. The aggregate fair value of~~$9.47, which is equal to the ~~September 2019 Warrants on~~

10-day

average closing price prior to January 15, 2021, the date ~~of issuance~~on which the term sheet relating to the Loan and Security Agreement was ~~approximately $19,000. Approximately $13,000 and $6,000 has been expensed during~~entered into, subject to certain adjustments as specified in the ~~periods ended September~~

arrant. At June 30, ~~2020 and December 31, 2019, respectively.~~

2021, there were 42,236 warrants outstanding.

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

	~~Warrants~~
	Warrants Outstanding
Outstanding at December 31, ~~2018~~ 2020		~~1,662,124~~ 144,384
~~Grants~~ Exercises		~~265,000~~ (51,054	)
~~Exercises~~ Issued		0 42,236
~~Expirations/cancellations~~ Expired		0 (7,087	)

Outstanding at ~~December 31, 2019~~ June 30, 2021		~~1,927,124~~ 128,479
~~Grants~~		0
~~Exercises~~		0
~~Expirations/cancellations~~		0
~~Outstanding at September 30, 2020~~		~~1,927,124~~

~~8. STOCKHOLDERS’ EQUITY~~

~~Common~~. Stock Option Plans

Incentive Plans

On June 14, 2019, as part of a group restructuring, the

F-star

Ltd board of directors and ~~Preferred Stock~~

shareholders approved the 2019 Plan. The initial maximum number of ordinary shares that could be issued under the 2019 Plan was 2,327,736. This number consisted of 1,922,241 new ordinary shares and 405,495 new ordinary shares as replacements for grants under the previous

F-star

group entities’ legacy share option schemes (the

F-star

Alpha Limited Share Option Scheme, the

F-star

Beta Share Option Scheme and the GmbH

F-star

EMI Share Option Scheme). In ~~August 2017,~~addition, the GmbH Employee Share Option Plan was transferred to

F-star

Ltd from GmbH. This plan grants the beneficiaries participation rights only, beneficiaries would receive a proportion of the exit proceeds realized by shareholders, but the plan does not grant the right to purchase shares. The transfer of the participation rights occurred at the same exchange ratio as used for the exchange of GmbH shares for shares issued by

F-star

Ltd.

Awards granted under the 2019 Plan generally vest over a four-year service period with 28% of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining three years. Awards generally expire 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.

As result of the Transaction, the share reserve automatically increased on January 1

of the year following the year in which

the

Nasdaq listing occurred, in an amount equal to 4% of the total number of shares outstanding as of December 31 of the preceding year. As a result,

additional 364,005 shares

were added to

the 2019

Plan effective January 1, 2021

. As of June 30, 2021, there were 68,842 shares available for issuance under the 2019 Plan.

In conjunction with the Transaction, all issued and outstanding

F-star

Ltd share options granted under the three

F-star

Ltd legacy equity incentive plans became exercisable in full immediately prior to the Closing. At the Closing, all issued share options and RSUs granted by

F-star

Ltd under the 2019 Plan were replaced by the Replacement Options and Replacement RSUs on the same terms (including vesting), for Company common stock, based on the Exchange Ratio. The Company determined that the exchange of

F-star

Ltd awards for the Company ~~entered into~~awards would be accounted for as a ~~Controlled Equity~~ ~~Offering~~^SM~~Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), pursuant~~modification of awards under ASC 718. The Company concluded that the modification would not affect the number of awards expected to vest or the service period over which compensation expense related to awards would be recognized, since the ~~Company may offer~~vesting schedule applicable to each Replacement Option would be the same as the vesting schedule applicable to the original option that it replaced. In addition, the Replacement RSUs and ~~sell, from time~~Replacement Options are subject to ~~time through Cantor, shares~~substantially the same terms and conditions as the original RSUs and original options, respectively, and did not provide holders of the ~~Company’s common stock having~~Replacement Options or Replacement RSUs with any additional benefits that the holders did not have under their original options or original RSUs. In addition, the fair value of an ~~aggregate offering price~~award tranche immediately after modification was less than the fair value of ~~up to $50.0 million. The Company pays Cantor a commission rate equal to 3.0%~~that award tranche immediately before modification. Therefore, total compensation cost recognized for the Replacement RSUs, and Replacement Options equaled the grant-date fair value of the aggregate gross proceeds from each sale. During the nine months ended 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. 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, 2019original awards, and the Company ~~does not intend~~continues to ~~issue any shares under~~recognize the ~~Sales Agreement between September 30, 2020 and the closing~~grant date fair values of the ~~Exchange.~~

~~2014~~modified awards over their respective service periods.

Amended and Restated 2015 Stock Incentive Plan

In March 2018, the Spring Bank board of directors approved Spring Bank’s Amended and Restated 2015 Stock Incentive Plan (the “Amended and Restated 2015 ~~Stock Incentive Plan~~

~~In April 2014,~~Plan” and, together with the ~~Company’s Board of Directors approved the~~Spring Bank’s 2014 Stock Incentive Plan (the “2014 ~~Plan”~~Plan

”

) ~~and authorized 750,000 shares of common stock to be issued under~~, the ~~2014 Plan.~~

~~The Company’s 2015 Stock~~“Stock Incentive ~~Plan (the “2015 Plan”~~Plans”) 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 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 advisors of the Company.

~~Amended and Restated 2015 Stock Incentive Plan~~

~~In March 2018, the Board approved the Amended and Restated 2015 Plan.~~. Upon receipt of stockholder approval at ~~the Company’s~~Spring Bank’s 2018 annual meeting in June 2018, ~~the~~Spring Bank’s 2015 Stock Incentive Plan was amended and restated in its entirety, increasing the authorized number of shares 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,~~shares. Pursuant to 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~~1,666,863 shares authorized for ~~issuance pursuant to the Amended and Restated 2015 Plan.~~issuance. In addition, to the extent any outstanding awards under the 2014 Plan expire, terminate, or are otherwise surrendered, cancelled or forfeited after the closing of ~~the Company’s~~Spring Bank’s IPO, those shares are added to the authorized shares under the Amended and Restated 2015 Plan.

The total ~~amount~~number of shares authorized for issuance under both the 2014 Plan and the Amended and Restated 2015 Plan is 2,300,000.

Pursuant to the Exchange Agreement, all ~~Stock Incentive Plans is 3,450,000.~~outstanding option

to purchase Company common stock were accelerated immediately prior to the Closing and each outstanding option with an exercise price less than the trading price of the Company common stock as of the close of trading 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. As of ~~September~~June 30, ~~2020,~~2021, the Company had ~~1,360,791~~98,831 shares available for issuance under the Amended and Restated 2015 Plan.

Stock option valuation

The ~~exercise price~~fair value of stock option grants is estimated using the Black-Scholes option-pricing model with the following assumptions:


	Black-Scholes Option-Pricing
	June 30, 2021	December 31 2020

Risk-free interest rate	0.78%	0.17% – 0.42%
Expected volatility	90.4%	82.8%-98.3%
Expected dividend yield	0%	0%
Expected life (in years)	5.1	5.1

Expected Term

—The expected term represents management’s best estimate for the options ~~cannot~~to be ~~less than~~exercised by option holders.

Volatility

—Since

F-star

Ltd did not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry, whose businesses were considered to be comparable to that of

F-star

Ltd, over a period equivalent to the expected term of the share-based awards. After the Closing of the Transaction, the volatility of the Company’s Common Stock is used to determine volatility of the share-based awards at grant date.

Risk-Free Interest Rate

—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for

zero-coupon

U.S. Treasury notes with maturities approximately equal to the share-based awards’ expected term.

Dividend Rate

—The expected dividend is zero, as the Company has not paid, nor does it anticipate paying any dividends on its common stock in the foreseeable future.

Fair Value of Common Stock

— Prior to the Transaction,

F-star

Ltd estimated fair value used three different methodologies: the income approach, the market approach, and cost approach. The income approach uses the estimated present value of economic benefits. The market approach exams observable market values for similar assets or securities. The cost approach uses the concept of replacement cost as an indicator of value and the notion that an investor would pay no more for an asset that what it would cost to replace the asset with one of equal utility. After the Closing of the Transaction, the fair value of the ~~common stock on~~Company’s Common Stock is used to estimate the ~~date~~fair value of ~~grant. Stock options awarded under~~ the ~~Stock Incentive Plans expire 10 years after the~~share-based awards at grant ~~date, unless the Board sets a shorter term. There were 0 stock options granted prior to 2015.~~

date. The following table summarizes ~~the~~stock option activity under the ~~Stock Incentive Plans for~~Company’s stock option plans:

Table of Contents


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		617,886			7.77		9.66		994
Exercised		(3,670	)		0.12		8.16		101
Forfeited and expired		(19,212	)		2.27		9.15		257

Outstanding as of June 30, 2021		1,128,563			5.79		9.11		6,323

Options exercisable at June 30, 2021		150,671			8.35		7.37		1,739

The weighted average grant date fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, and the year ended December 31, ~~2019:~~

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

$
—

As of September 30, 2020, all options outstanding have a weighted-average remaining contractual life of 6.9 years. The weighted-average fair value of all stock options granted for the nine months ended September 30, 2020, was ~~$0.99. Intrinsic value at September 30, 2020~~$6.16 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~~$14.45 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, 2020 and 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~~

~~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. 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~~six months ended June 30, 2021, 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~~year ended ~~September 30, 2019 for the RSUs~~December 31, 2020, was ~~approximately $0.1~~$3.0 million and ~~$0.4~~$2.0 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~~six months ended ~~September~~June 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~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized approximately ~~$33,000~~$0.5 million and ~~$76,000 expense~~$1.4 million in expenses related to the time-based ~~RSUs, respectively.~~

RSUs.

The following table is a rollforward of all RSU activity under the Stock Incentive Plans for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~

2021:

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

~~Stock-Based Compensation~~


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		(63,545	)		8.57

Total nonvested units at June 30, 2021		316,589		$	9.31

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~~six months ended ~~September~~June 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 June 30,				For the Six Months ended June 30,
	2021		2020		2021		2020

Research and development expenses	$	531	$	169	$	944	$	380
General and administrative expenses		1,328		302		3,095		625

	$	1,859	$	471	$	4,039	$	1,005

~~The fair value of stock options vested during the nine months ended September~~

At June 30, ~~2020 was $1.8 million. At September 30, 2020,~~2021, there was ~~$2.0~~$7.5 million of unrecognized stock-based compensation expense relating to stock options granted pursuant to the Stock Incentive Plans, which will be recognized over ~~the~~th

weighted-average remaining vesting period of ~~2.0~~3.0 years.

At ~~September~~June 30, ~~2020,~~2021, there was ~~$0.4~~$1.9 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~~3.4 years.

~~Reserved Shares~~

Table of Contents

. Significant Agreements

License and Collaboration agreements

For the six months ended June 30, 2021 and 2020, the Company had License and Collaboration agreements (“LCAs”) with Denali and Ares. The following table summarizes the revenue recognized in the Company’s consolidated statements of operations and comprehensive loss from these arrangements, (in thousands):


Revenue by Collaboration Partner
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020

Ares	$	0		359		2,800		1,254
Denali		0		184		117		644

Total	$	0	$	543	$	2,917	$	1,898

License and collaboration agreement with Denali Therapeutics, Inc.

Summary

In August 2016, Biotechnology,

F-star

Gamma Limited (a related party until May 30, 2018)

(“F-star

Gamma”), and GmbH entered into a license and collaboration agreement (the “Denali LCA”) with Denali. The goal of the collaboration was the development of certain constant Fc domains of an antibody with

non-native

antigen binding activity (“Fcabs”), to enhance delivery of therapeutics across the blood brain barrier into the brain. The collaboration was designed to leverage

F-star

Gamma’s modular antibody technology and Denali’s expertise in the development of therapies for neurodegenerative diseases. In connection with the entry into the collaboration agreement, Denali also purchased from the

F-star

Gamma shareholders an option, which was referred to as the

buy-out-option,

to acquire all of the outstanding shares of

F-star

Gamma pursuant to a

pre-negotiated

share purchase agreement.

On May 30, 2018, Denali exercised

this

buy-out

option and entered into a share purchase agreement (the “Purchase Agreement”) with the shareholders of

F-star

Gamma and Shareholder Representative Services LLC, pursuant to which Denali acquired all of the outstanding shares of

F-star

Gamma (the “Acquisition”).

As a result of ~~September 30, 2020~~the Acquisition,

F-star

Gamma has become a wholly owned subsidiary of Denali and Denali changed the entity’s name to Denali BBB Holding Limited. In addition, Denali became a direct licensee of certain of

F-star’s

intellectual property (by way of Denali’s assumption of

F-star

Gamma’s license agreement with Biotechnology (the

“F-star

Gamma License”)). Denali made initial exercise payments to Biotechnology and the former shareholders of

F-star

Gamma under the Purchase Agreement and the

F-star

Gamma License, in the aggregate, of $18.0 million, less the net liabilities of

F-star

Gamma, which were approximately $0.2 million. $4.0 million was payable to the Company. In addition, Denali is required to make future contingent payments, to the Company and the former shareholders of

F-star

Gamma, with a maximum aggregate of $437.0 million upon the achievement of certain defined preclinical, clinical, regulatory, and commercial milestones. Of this total, a maximum of $91.4 million is payable to the Company. The total amount of the contingent payments varies, based on whether the Company delivers an Fcab that meets

pre-defined

criteria and whether the Fcab has been identified solely by the Company or solely by Denali or jointly by the Company and Denali.

Under the terms of 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 transferring receptor as the first Accepted Fcab Target and paid an upfront fee of $5.5 million to

F-star

Gamma, which included selection of the first Accepted Fcab Target. 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 two additional Accepted Fcab Targets of $6.0 million and extended the time period for its selection of the third Accepted Fcab Target until August 2020.

Under the terms of the Denali LCA,

F-star

Gamma was prohibited from developing, commercializing and manufacturing any antibody or other molecule that incorporated any Fcab directed to an Accepted Fcab Target, or any such Fcab as a standalone product, and from authorizing any third party to take any such action.

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 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, and $5.1 million for the second Accepted Fcab Target 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 ~~Company reserved~~transaction price for the ~~following shares~~first Accepted Fcab was increased to $6.6 million due to achievement of ~~common stock~~a $1.5 million milestone that on initial recognition of the

Denali LCA

was not included in the transaction price, as it was not deemed probable that a reversal would not occur in a future reporting period.

All performance obligations in respect of the first Accepted Fcab Target identified in the contract were deemed to have been fully satisfied during the year ended December 31, 2019.

All performance obligations in respect of the second Accepted Fcab Target identified in the Denali LCA were deemed to have been fully satisfied in February 2021 and as a

result, 0 revenue was recognized in regard to this target for ~~issuance~~the three months ended June 30, 2021. In respect of ~~shares resulting from exercise of outstanding warrants~~the second Accepted Fcab Target, for the six months ended June 30, 2021 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

~~9. CONVERTIBLE TERM LOAN~~

In September 2019, the Company entered into a Convertible Term Loan 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”), which the Company received on September 19, 2019 (the “Closing Date”). The Company incurred issuance costs of $0.4 million and Pontifax Warrants costs of $0.6 million. The Convertible Term Loan issuance costs and Pontifax Warrant costs are shown as an offset to the Convertible Term Loan on the balance sheet and are amortized using the effective interest method to interest expense through September 23, 2023 (the “Maturity Date”). In April 2020, the Company recognized $0.1 million and $0.6 million, respectively, and for the three months ended June 20, 2020, the Company recognized $0.2 million.

2019 License and collaboration agreement with Ares Trading S.A.

In June 2017,

F-star

Delta Ltd (“Delta”) entered into ~~a prepayment notice~~an LCA and ~~pay-off letter~~an Option Agreement with the Lenders, which provided for the full repayment in cash of the $20.0 million Convertible Term Loan and amended the 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, t~~he Company was entitled, at its option, to prepay some or all of the then outstanding principal balance and all accrued and unpaid interest on the Convertible Term Loan, together with a prepayment charge equal to 3% of the principal amount being prepaid.The Lenders were entitled, at their option, to elect to convert the then outstanding Convertible Term Loan amount and all accrued 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. The Company was required to maintain a minimum cash balance of $7.0 million 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 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~~Ares (the ~~“Pontifax Warrants”~~“Ares LCA”). 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~~purpose of the ~~Pontifax Warrants~~Ares LCA was for the companies to collaborate on the ~~date~~development of ~~issuance~~tetravalent bispecific antibodies against five drug target pairs. The Option Agreement granted Ares a call option to acquire the entire issued share capital of Delta. Under the Ares LCA, Delta was ~~approximately $0.6 million~~obligated to use commercially reasonable efforts to perform research 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~~development activities on the ~~payoff date~~five selected target pairs, under mutually agreed research plans. The activities were governed by a joint steering committee formed by an equal number of representatives from both parties.

On May 14, 2019, the Ares LCA agreement with Ares was ~~$0.5 million and was 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~~convert the existing purchase option over the entire share capital of Delta to an intellectual property licensing arrangement that included the exclusive grant of development and exploitation rights to one tetravalent bispecific antibody directed against immuno-oncology targets and the option to acquire the exclusive right to an additional antibody. As part of the amended Ares LCA, Delta gained exclusive rights to FS118, now

F-star’s

lead product candidate, which is currently in a

proof-of-concept

clinical trial. As discussed further below, this amended and restated Ares LCA was accounted for a separate contract, rather than a contract amendment.

For the exclusive rights granted in relation to the first molecule, an option fee of $11.1 million was paid by Ares to Delta. Following receipt of the option fee, Ares becomes responsible for the development of the molecule and development, regulatory and sales-based royalties become payable to Company upon achievement of specified events. Delta is eligible to receive $71.6 million in development milestones and $83.9 million in regulatory milestones.

For the second antibody included within the amended and restated agreement, Delta is obliged to perform research activities under plans agreed by both parties. Ares will pay for all R&D costs half-yearly in advance until the company delivers the data package specified in the research plan. Ares can then elect to pay a fee of $14.0 million to exercise their option to take an exclusive intellectual property license, which allows them to control the development and exploitation of the molecule. Following receipt of the option fee, Ares is responsible for the development of the molecule and development, regulatory and sales-based royalties become payable t

Delta upon achievement of specified events. Delta is eligible to receive $48.7 million in development milestones and $61.6 million in regulatory milestones.

Development milestone payments are triggered upon achievement by each product candidate of a defined stage of clinical development and regulatory milestone payments are triggered upon approval to market a product candidate by the U.S. Food and Drug Administration or other global regulatory authorities. Sales-based milestones are payable based upon aggregate annual worldwide net sales in all indications of all licensed products. Delta is eligible to receive $168.0 million in sales-based milestones. In addition, to the extent that any product candidates covered by the exclusive licenses granted to Ares are commercialized, Delta will be entitled to receive a single digit royalty base

on a percentage of net sales on a

country-by-country

basis.

On July 15, 2020, a deed of amendment (the “2020 Amendment”) was enacted in respect of the May 13, 2019, amendment to the Ares LCA. The 2020 Amendment had two main purposes (i) to grant additional options to acquire intellectual property rights for a further two molecules; and (ii) to allow Ares to exercise its option early to acquire intellectual property rights to the second molecule included in the agreement as well as to terminate the R&D services.

Table of Contents

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 are expected to 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 all molecules under the original contract and each individual molecule included in the May 13, 2019, amendment to the Ares LCA. The Company recognizes revenue using the

cost-to-cost

method, which it believes best depicts the transfer of control of the services to the customer. Under the

cost-to-cost

method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.

All performance obligations in the original Ares LCA were deemed to have been fully satisfied on termination of the Ares LCA on

May 13, 2019, and no further revenue is expected to be recognized. The total transaction price for the Ares LCA, as amended, was initially determined to ~~$2.08 per share,~~be $15.4 million, consisting of the upfront payment and research and development funding for the research term. Variable consideration to 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 ~~equal~~accounted for as a separate performance obligation. The grant of the additional options to ~~1.5 times~~acquire intellectual property rights was deemed to be distinct, as the ~~weighted-average closing~~customer can benefit from it on its own, and it is independent of the delivery of other performance obligations in the Ares LCA. Additionally, as the amount of consideration reflects a standalone selling price, the Company determined that the second component is accounted for as a separate contract.

For the three

and

six months ended June 30, 2020, $0.4 million and $1.3 million was recognized in relation to the first antibody included in the 2020 Amendment.

The second component that allows the customer to exercise its option to acquire intellectual property rights early is considered to be a modification of the Ares LCA, as the option is not independent of the R&D services provided under the Ares LCA, and therefore the goods and services are not distinct. The Company updated the transaction price and measure of progress for the performance obligation relating to this 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 $479.3 million, and the maximum amount payable on the achievement of certain commercial milestones was increased to $295.7 million.

During

the three and six months ended June 30, 2021, Ares provided notice of its intention to exercise its option granted under the 2020 Amendment to acquire the intellectual property rights for an additional molecule.

During the

six month

s ended

June 2021, $2.7 million was recognized at a point in time in respect of the option exercise.

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.

Table of Contents

The following table presents changes in the balances 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.~~ contract liabilities (in thousands):


	Deferred revenue balance at January 1, 2021		Additions		Revenue recognized			Impact of exchange rates			Deferred revenue balance at June 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~~six months ended ~~September~~June 30, ~~2020, there~~2021, all revenue recognized by the Company as a result of changes in the contract liability balances in the respective periods was based on proportional performance.

. Commitments and Contingencies

Lease Obligations

On January 27, 2021, the Company signed an ~~incremental expense of approximately $54,000~~operating lease for three years for its corporate headquarters in Cambridge, United Kingdom. The Company also has leases for the ~~amendment of the Pontifax Warrant exercise price, which is included in the loss on extinguishment of debt (see Note 7).~~

During the nine months ended September 30, 2020, the Company recorded interest expense of 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~~ ~~30, 2019.~~

~~10. LEASES~~

~~The Company has operating leases for its principal office~~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~~7.3 years for its former principal office and laboratory space, which includes an option to extend the lease for up to ~~5 years, and approximately 0.7 years for its former headquarters.~~five years. 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~~six months ended ~~September~~June 30, ~~2020~~2021, were approximately ~~$165,000 and $495,000, respectively.~~$0.6 million. Total operating lease costs for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2021, were offset by ~~$29,000 and $79,000, respectively,~~an immaterial amount 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.

income.

The following table summarizes the Company’s maturities of operating lease liabilities as of ~~September~~June 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


Maturities of Operating Lease Liabilities
Periods

For the period July 1, 2021 to December 31, 2021	$	417
2022		843
2023		854
2024		474
2025		486
Thereafter		1,444

Total lease payments	$	4,518

~~11. COMMITMENTS AND CONTINGENCIES~~

~~Contingencies~~

~~On September 3, 2020, a~~

Sublease

The Company ~~stockholder filed a complaint~~subleasesthe former Spring Bank offices in ~~the United States District Court~~Hopkinton, Massachusetts. Operating sublease income under operating lease agreements for the ~~Southern District~~ six months ended June 30, 2021, was an immaterial amount. 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.)), against~~7.3 years. Future expected cash receipts from our sublease as of June 30, 2021,

are as follows (in thousands):


Future Expected Cash Receipts From Sublease
Period
For the period July 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 June 30, 2021, the Company had contractual commitments of $1.9 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~~CMO, the Company is committed to ~~(i) financial projections relating~~pay for some activities if those activities are cancelled up to three, six or nine months prior to the commencement date.

. Subsequent events

On July 8, 2021, the Company entered into a License Agreement with AstraZeneca under which AstraZeneca will receive global rights to research, develop and ~~F-star, (ii) Ladenburg’s fairness opinion~~commercialize next generation STING inhibitor compounds. Under the terms of the agreement, AstraZeneca is granted exclusive access to and ~~(iii) any financial analyses conducted on~~will be responsible for all future research, development and commercialization of the ~~Company. The plaintiff in Lenthall seeks declaratory~~STING inhibitor compounds.

F-star

is eligible to receive upfront and ~~injunctive relief~~near-term payments of up to ~~enjoin the Exchange~~$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 ~~damages and attorneys’ and experts’ fees.~~

~~On September 8, 2020, in the United States District Court for the District~~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 ~~Delaware, a purported class action (Adam Franchi v.~~

F-star

that were previously stockholders of 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 relatingprior to the ~~Company~~ business combination between

F-star

and ~~F-star, (ii) the confidentiality agreements entered into by the Company prior to its engagement~~Spring Bank.

See Note 1 for a further description of ~~Ladenburg, (iii) the process leading up to the execution~~this CVR.

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.~~

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.

March 30, 2021.

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

~~We are~~

F-star

Therapeutics, Inc.

(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’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 ~~discovery~~challenges facing current immuno-oncology therapies, due to the strong pharmacology enabled by tetravalent bispecific binding.

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 ~~development~~neck cancer patients. FS118 is a tetravalent mAb

bispecific antibody targeting two receptors,

PD-L1

and

LAG-3,

both of ~~novel therapeutics~~which are established pivotal 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 intend to initiate clinical trials 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 mAb

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 ~~range~~Phase 1 clinical trial in patients with advanced cancers in the fourth quarter of ~~cancers~~2020 and ~~inflammatory diseases using our proprietary small molecule nucleotide platform.~~ plans to provide an update on the accelerated dose titration phase of this study later this year. We ~~design our compounds~~have recently entered a clinical trial collaboration and supply agreement with MSD to ~~selectively target~~evaluate the combination of FS120 and ~~modulate~~ the ~~activity of specific proteins implicated~~

PD-1

inhibitor, pembrolizumab.

F-star’s

third product candidate, FS222, aims to improve outcomes in ~~various disease states. Our internally-developed programs are primarily~~low

PD-L1

expressing tumors and is a mAb

bispecific antibody that is designed to ~~stimulate and/or dampen immune responses.~~ 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 ~~have devoted resources~~believe there is a strong rationale to ~~advancing multiple programs~~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 this study in ~~our STING product portfolio, including our STING~~late 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 ~~clinical program in oncology, our STING antagonist compounds for inflammatory diseases, and our STING agonist antibody drug conjugate (ADC) program for oncology.~~

~~Until January 2020, we had been developing inarigivir soproxil,~~designed to improve checkpoint inhibition outcomes as 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 nucleotide in naïve and virally suppressed chronic HBV patients. On January 29, 2020, we announced that we were terminating all clinical development of inarigivirimmunotherapeutic compound for the treatment of ~~HBV due~~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 ~~occurrence~~predicted profile for rapid cellular uptake, a characteristic of ~~unexpected serious adverse events, including one patient death,~~second generation STING agonists.

F-star

is continuing with further dose-escalation and in ~~our Phase 2b CATALYST trial.~~

~~Key Developments~~

parallel pursuing strategic business development opportunities for SB 11285. In June 2021, a U.S. patent was granted to

F-star

with claims protecting the composition of matter of SB 11285.

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 the Share Exchange Agreement, dated July 29, 2020 ~~we entered into~~(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 ~~share exchange agreement, or~~“Seller”, and collectively with holders of

F-star

Ltd securities who subsequently became parties to the Exchange Agreement, ~~with~~ the “Sellers”). Pursuant to the Exchange Agreement, each ordinary share of

F-star ~~Therapeutics Limited, or~~

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 ~~private company registered in England~~number of duly authorized, validly issued, fully paid and ~~Wales, and the holders~~

non-assessable

shares of ~~issued shares in the capital of F-star and the holders of convertible notes of F-star,~~Company common stock pursuant to ~~which, subject to the satisfaction or waiver of the conditions~~an exchange ratio formula as set forth in the Exchange Agreement ~~we will acquire~~(the “Exchange Ratio”), rounded to the ~~entire issued~~nearest whole share ~~capital~~ of ~~F-star,~~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 ~~continue~~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 ~~combined company, which we collectively refer to as the Exchange. The Exchange is expected to close in the fourth quarter of 2020, subject~~Rights Agent, entered into a STING Agonist Contingent Value Rights Agreement (the “STING Agonist CVR Agreement”). Pursuant to the ~~approval~~Exchange Agreement and the STING Agonist CVR Agreement, each

pre-Reverse

Stock Split share of Spring Bank common stock held by ~~our~~ stockholders ~~at a special meeting~~as of ~~stockholders to be held~~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 plc (“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 ~~other customary conditions. Upon completion~~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 ~~Exchange, Spring Bank Pharmaceuticals, Inc.~~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 $3.1 million as of June 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 ~~renamed~~ recognized in the consolidated statement of operations and comprehensive loss until settlement. For the three months ended June 30, 2021, the estimated fair value increased to $3.1 million which resulted in a $0.6 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 ~~Inc.~~Limited 2019 Equity Incentive Plan were replaced by options and awards on the same terms (including vesting), ~~and~~of the combined company’s common stock, based on the Exchange Ratio.

The Company’s common stock, which is ~~expected to trade~~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 CUSIP number, 30315R 107.

The ~~Exchange is intended~~Transaction was accounted for as a business combination using the acquisition method of 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 ~~create a company focused~~be the accounting acquirer based on ~~transforming~~an analysis of the ~~lives of patients with cancer through~~criteria outlined in ASC 805 and the ~~development of innovative tetravalent bispecific (mAb2™) antibodies. The combined company will advance its immuno-oncology pipeline of multiple tetravalent bispecific antibody programs,~~facts and circumstances specific to the Transaction, including the ~~Company’s STING (STimulator of INterferon Gene) agonist, SB 11285, currently in a Phase 1/2 clinical trial.~~

~~Since~~fact that immediately following the ~~signing~~Transaction:

(1) F-star

Ltd shareholders owned the majority of the ~~Exchange Agreement~~ 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 ~~July 29,~~our Business

In March 2020, ~~we have primarily~~the World Health Organization declared the novel strain of coronavirus

(“COVID-19”)

a pandemic and recommended containment and mitigation measures worldwide. The

COVID-19

pandemic has been ~~focused~~evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures.

Management continues to closely monitor the impact of the

COVID-19

pandemic on conducting activities with respect to SB 11285, our intravenously (IV)-administered STING agonist product candidate, which is currently being administered as a monotherapy and in combination in a Phase 1 trial.

~~Spring Bank Programs~~

~~The paragraphs that follow reflect Spring Bank’s programs as a stand-alone entity. For a discussion~~all aspects of the business, including how it will impact operations and the operations of customers, vendors, and business partners. Management took action in April 2020 to temporarily furlough some of its workforce and took advantage of the ~~combined company, assuming~~UK Government Coronavirus Job Retention Scheme that provided funding to businesses with furloughed staff. The grant funding available covered 80% of furloughed employees’ wages plus employer National Insurance and pension contributions up to a maximum of £2,500 per month per furloughed employee. From December 2020 to April 2021, the ~~completion~~UK government imposed a third national “lockdown”, severely impacting on

day-to-day

activities. The onset of the ~~Exchange, see Spring Bank’s~~ ~~Final Prospectus~~global pandemic and ~~Proxy Statement, as filed with~~consequent government-imposed restrictions resulted in a three to

six-month

delay in the ~~Securities~~operationalization of our clinical trials for FS118, FS120, FS222 and ~~Exchange Commission on October 20, 2020.~~

SB 11285. 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 our employees, patients, communities and business operations. The full extent to which ~~the~~

COVID-19 ~~pandemic will directly or indirectly impact~~

impacts our future business, results of ~~operations~~operation and financial condition will depend on future developments, ~~that~~which are highly uncertain and cannot be ~~accurately~~ predicted ~~including~~with confidence at this time, such as the continued duration of the outbreak, new information that may emerge concerning the severity or other strains of

COVID-19

or the effectiveness of actions to contain

COVID-19

or treat its impact, among others. If the Company or any of the third parties with which we engage, however, were to experience shutdowns or other business disruptions, the ability to conduct business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operation and financial condition. The estimates of the impact on the Company’s business may change based on new information that may emerge concerning

COVID-19

and the actions ~~taken~~ 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 the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. In the paragraphs~~has not identified any triggering events 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 monotherapywould result 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, we entered into a clinical collaboration with Roche for the use of Roche’s PD-L1 checkpoint inhibitor atezolizumab (Tecentriq®)any significant impairment losses in the ~~combination cohorts~~carrying values 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 due to the COVID-19 pandemic, we have been able 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 patientsassets as a result of the ~~impact~~pandemic and are not aware of any specific related event or circumstance that would require management to revise estimates reflected in our consolidated financial statements.

Recent Developments

Loan and Security Agreement

On April 1, 2021, 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,Company, as ~~well as autoimmune and inflammatory diseases. Furthermore, in August 2019, we~~borrower, entered into a ~~research~~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 four 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 term note matures on the

48-month

anniversary following the funding date. The principal balance the Term Loan bears a floating interest. The interest rate is calculated initially and, thereafter, each calendar month as the sum of (a) the per annum rate of interest from time to time published in The Wall Street Journal as contemplated by the Loan and Security Agreement, or any successor publication thereto, as the “prime rate” then in effect, plus (b) 6.25%; provided that, in the event such rate of interest is less than 3.25%, such rate shall be deemed to be 3.25% for purposes of calculating the interest rate. Interest is payable on a monthly basis based on each Term Loan principal amount outstanding the preceding month.

The Company may, at its option upon at least five business days’ written notice to Horizon, prepay all or any portion of the outstanding Term Loan by simultaneously paying to Horizon an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Term Loan so prepaid; plus (ii) an amount equal to (A) if such Term Loan is prepaid on or before the Loan Amortization Date (as defined in the Loan and Security Agreement) applicable to such Term Loan, three percent of the then outstanding principal balance of such Term Loan, (B) if such Term Loan is prepaid after the Loan Amortization Date applicable to such Term Loan, but on or before the date that is 12 months after such Loan Amortization Date, two percent of the then outstanding principal balance of such Term Loan, or (C) if such Term Loan is prepaid more than 12 months after the Loan Amortization Date applicable to such Term Loan, one percent of the then outstanding principal balance of such Term Loan; plus (iii) the outstanding principal balance of such Term Loan; plus (iv) all other sums, if any, that had become due and payable under the Loan and Security Agreement.

In connection with the entry into the Loan and Security Agreement, the Company issued to Horizon warrants (each, individually, a “Warrant” and, collectively, the “Warrants”) to purchase an aggregate number of shares of the Company’s common stock in an amount equal to $100,000 divided by the 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 agreed to include such number of shares underlying the Warrants in that registration statement as requested by the holder.

The Warrants, which are exercisable for an aggregate of 42,236 shares, will be exercisable for a period of seven years at a

per-share

exercise price of $9.47, which is equal to the

10-day

average closing price prior to January 15, 2021, the date on which the term sheet relating to the Loan and Security Agreement was entered into, subject to certain adjustments as specified in the Warrant.

Sales Agreement and Underwriting Agreement

On March 30, 2021, the Company entered into a Sales Agreement (the “2021 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 (the “Placement Shares”) through SVB Leerink as its sales agent.

Upon delivery of a placement notice in April 2021, and subject to the terms and conditions of the 2021 Sales Agreement, SVB Leerink began to sell the Placement Shares. The Company agreed to pay SVB Leerink a commission equal to three percent of the gross sales proceeds of any Placement Shares sold through SVB Leerink under the 2021 Sales Agreement, and also provided SVB Leerink with customary indemnification and contribution rights. 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 2021 Sales Agreement.

On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the ~~University~~underwriters, relating to an underwritten public offering 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~~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 ~~collaborations to study our portfolio~~$0.5 million 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~~professional fees associated with the ~~National Institute~~underwritten public offering, resulting in net proceeds to the Company 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.

$68.2 million.

Financial Operations Overview

License revenue

To date, we have devoted substantially all of our resources to research and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and providing general 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~~sales, 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~~we do not expect to ~~continue to incur significant expenses and net operating losses~~generate any revenue from product sales for the foreseeable future. Our ~~net losses~~revenue consists of collaboration revenue under our license and collaboration agreements with Ares Trading S.A. (“Ares”) and Denali Therapeutics, Inc. (“Denali”), 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 ~~three and nine months ended~~ ~~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~~future, revenue may include ~~liquidation or other preferences that adversely affect common stockholder rights. If we raise~~new collaboration agreements, additional ~~funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to~~milestone payments, option exercise payments, and royalties on any net product sales under 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.~~collaborations. We expect that ~~our cash, cash equivalents~~any revenue we generate will fluctuate from period to period as a result of the timing and ~~marketable securities as~~amount 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.~~

~~Financial Operations Overview~~

~~Operating expenses~~

~~Our operating expenses since inception have consisted primarily of~~license, research and development ~~expense~~services, and ~~general~~milestone and ~~administrative costs.~~

other payments.

Operating Expenses

Research and development

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:~~

•

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;

•

~~salaries, benefits and other related costs, including stock-based compensation expense, for personnel in our 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.~~

~~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:

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;

manufacturing

scale-up

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

expenses incurred for outsourced professional scientific development services;

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:~~

•

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

uncertainty of:

•

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

•

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

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

•

~~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~~

progressing the clinical development of FS118, FS120, FS222 and SB 11285;

•

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

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;

Table of Contents

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.

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.

We 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 ~~research~~clinical trials, and ~~development expenses will trend below comparable prior period levels in~~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 uncertain process that takes years to complete, and we may never generate the ~~near future as a result of reduced research~~necessary data or results required to obtain marketing approval and ~~development activities and a reduced headcount of research and development personnel.~~

achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

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.~~

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

~~Our consolidated financial statements are prepared in accordance~~the transaction with ~~generally accepted accounting principles~~Spring Bank.

Income tax

The Company is subject to corporate taxation in the United States, United Kingdom and Austria.

Our UKestablished entities have generated losses and some profits in the United Kingdom since inception and have therefore not paid significant U.K. corporation tax.

F-star

Biotechnologische

Forschungs-und

Entwicklungsges.m.b.H 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. No research and development activities are carried out in Austria, so the Company is not able to utilize the research and development premium available under the Austrian corporation tax regime.

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.

The UK government has released draft legislation to introduce a cap on the ~~reported~~ amount of ~~assets,~~the payable credit that a qualifying loss-making small and

medium-sized

enterprise business can receive through research and development relief in any one year. The cap would be applied to restrict payable credit claims in excess of £20,000 with effect for accounting periods beginning on or after April 2021 by reference to, broadly, three times the total employee payroll tax and social security liabilities ~~revenue, costs~~of the company. The draft legislation also contains an exemption which prevents the cap from applying. That exemption requires the company to be creating, or taking steps to create, intellectual property as well as having research and ~~expenses and related disclosures. We believe that~~development expenditure in respect of connected parties which does not exceed 15% of the ~~estimates and assumptions underlying the accounting policies described therein may~~total claimed. The Company does not expect this legislation, if adopted, to have ~~the greatest potential~~a material impact on ~~our consolidated financial statements~~its payable credit claims based on amounts currently claimed.

Research and ~~therefore, consider these~~development tax credits received in the UK 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 the income tax provision. If, in the future, any U.K. research and development tax credits generated are utilized to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision, and any refundable portion not dependent on taxable income would continue to be ~~our critical accounting policies. We evaluate our estimates~~recorded as a reduction to research and ~~assumptions~~development expenses.

During the three-month period ended June 30, 2021 the Company received $3.6 million in research and development tax credits related to the year ended December 31, 2020.

Income tax expense was relatively immaterial amounts for the three and six months ended June 30, 2021 and 2020.

In the event the Company generates revenues in the future, the Company may benefit from the United Kingdom “patent box” regime that allows profits attributable to revenues from patents or patented products to be taxed at an effective rate of 10%. Value Added Tax (“VAT”) is broadly charged on all taxable supplies of goods and services by

VAT-registered

businesses. In the United Kingdom, under current rates, an ~~ongoing basis. Our actual results may differ~~amount of 20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to the United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (“HMRC”). Similarly, VAT paid on purchase invoices is generally reclaimable from ~~these~~HMRC. In Austria, under current ~~estimates based~~rates, an amount of 20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to the Austrian tax authority. Similarly, VAT paid on ~~different assumptions and under different conditions.~~

purchase invoices is generally reclaimable from the Austrian tax authority.

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~~

CROs in connection with performing research services on our behalf and clinical trials;

•

~~vendors related to product manufacturing, development and distribution of preclinical and clinical supplies.~~

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~~

Table 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 theContents

Contingent 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.~~

~~We measure stock options and other stock-based~~loss.

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~~

The fair value of stock options ~~and performance based restricted stock units with service-based vesting conditions and record~~(“options”) on the ~~expense for these awards~~grant date is estimated using the ~~straight-line method. Each quarter we update our assessment~~Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including an option’s expected term and the price volatility of the ~~probability that the specified performance criteria will be achieved and adjust our estimate of~~underlying stock, to determine the fair value of the ~~performance-based restricted stock units (“performance-based RSUs”) if necessary.~~

~~We estimate~~award.

Historically given the absence of an active market for the ordinary shares of

F-star

Ltd, the board of directors determined the estimated fair value of ~~each stock option grant using~~ the ~~Black-Scholes option-pricing model. Use~~Company’s equity instruments based on input from management, which utilized the most recently available independent third-party valuation, and considering a number of ~~this model requires~~objective and subjective factors, including external market conditions affecting the biotechnology industry sector. Each valuation methodology includes estimates and assumptions that ~~we make~~require judgment. These estimates and assumptions ~~as to~~include a number of objective and subjective factors in determining the ~~fair~~ value of ~~our common stock, the~~

F-star

Ltd ordinary shares at each grant date. The expected volatility ~~of our common stock, the expected term of our stock options, the risk-free interest rate~~for F star Ltd was calculated based on reported volatility data 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 arepresentative group of publicly traded ~~peer companies.~~companies for which historical information was available. The historical volatility is calculated based on a period of time commensurate with the assumption used for the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

F-star

Ltd used the simplified method, under which the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term.

F-star

Ltd utilized this method due to the lack of historical exercise data and the plain nature of its share-based awards. The Company uses the remaining contractual term for the expected life of

non-employee

awards. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends. 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~~

The Company classifies share-based 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 to management during the nine months ended September 30, 2020 is based on the market price of the award on the grant date, which was a weighted average fair value for the nine months ended September 30, 2020 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~~ ~~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 in our~~its consolidated statements of operations 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

~~JOBS Act~~

~~In April 2012,~~Income in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, 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 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.

Subject to certain conditions, as an EGC, we intend to rely on certain exemptions afforded by the JOBS Act, including the exemption from certain requirements related to the disclosure of executive compensation in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation 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 yearsame manner in which ~~we have total annual gross revenues~~the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Table 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.

Contents

Results of Operations

Comparison of the Three ~~and Nine~~ Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~

2020

The following table summarizes our results of operations for the three ended June 30, 2021 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
)


	Three Months Ended June 30,
	2021			2020			Change
	(in thousands)
Statements of Comprehensive Income
License revenue	$	—		$	543		$	(543	)
Operating expenses:
Research and development		8,437			2,093			6,344
General and administrative		6,501			3,236			3,265

Total operating expenses	$	14,938		$	5,329		$	9,609

Loss from operations		(14,938	)		(4,786	)		(10,152	)
Other non-operating income (expense):
Other income (expense)		(46	)		(143	)		97
Change in fair value of convertible notes		—			(1,498	)		1,498
Change in fair value of liability		(583	)		—			(583	)

Loss before income taxes		(15,567	)		(6,427	)		(9,140	)
(Loss) benefit for income taxes		(82	)		(35	)		(47	)

Net loss	$	(15,649	)	$	(6,462	)	$	(9,187	)

Licensing and Research ~~and development expenses~~.

~~Research and development expenses during~~& Development Services Revenue

Revenue for the three months ended ~~September~~June 30, ~~2020 and 2019 were $2.5~~2021 was zero compared to $0.5 million ~~and $5.2 million, respectively. The decrease of $2.7 million during~~for the three months ended ~~September~~June 30, 2020, a decrease of approximately $0.5 million, due to a reduction of R&D services revenue from Ares of $0.4 million and Denali of $0.1 million. All performance obligations relating to the second Fcab was satisfied in February 2021.

Research and development costs

Costs related to research and development for the three months ended June 30, 2021, increased by approximately $6.3 million compared to the three months ended June 30, 2020. This $6.3 million increase for the three-month June 30, 2021, was primarily due to a ~~decrease~~$2.0 million increase in ~~spending on preclinical~~manufacturing costs, mainly due to an FS118 manufacturing batch in the second quarter of 2021, an increase in clinical CRO and clinical ~~trial-related activities~~assay costs of $1.2 million, due to a full quarter of Phase 1 clinical trial costs for ~~inarigivir~~FS120 and ~~manufacturing~~FS222, and an increase in other costs~~for inarigivir and~~

~~SB 11285~~ of ~~$2.1~~$0.5 million ~~as well as~~ due to the timing of other ~~research and development related expenses~~project-related activities. The remaining increase of ~~$0.6~~$2.6 million ~~including~~ ~~laboratory supplies,~~ ~~salaries and benefits costs and~~ ~~non-cash charges for stock-based compensation.~~

Research and development expenses during the nine months ended September 30, 2020 and 2019 were $11.0 million and $18.1 million, respectively. The decrease of $7.1 million during the nine months ended September 30, 2020 was is primarily due to a $1.4 million decrease in ~~spending on preclinical studies~~the UK R&D tax incentive credit year over year, which is allocated across all programs, a $0.7 million increase in R&D staff costs, $0.3 million increase laboratory consumables and ~~clinical trial-related activities for inarigivir and manufacturing costsfor inarigivir and~~ ~~SB 11285 of $5.9~~$0.2 million ~~as well as~~ increase in 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.~~

allocated costs.

General and administrative ~~expenses~~.

expense

General and administrative ~~expenses during~~expense for the three months ended ~~September~~June 30, ~~2020 and 2019 were $2.8~~2021, increased by approximately $3.3 million ~~and $2.2 million, respectively. The increase of $0.6 million during the three months ended September 30, 2020 was primarily~~ due to an increase of $1.0 million in ~~legal-related~~share-based compensation, an increase of $1.5 million in legal and professional fees, $0.5 million in insurance and other costs ~~of $0.8~~associated with being a public company and $0.4 million ~~offset by a net decrease~~ in other ~~general and administrative~~ costs ~~of $0.2 million.~~

General and administrative expenses during 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,~~additional rent for the leased buildings acquired with Spring Bank transaction, offset by a decrease of $0.1 million in ~~non-cash charges for stock-based compensation of $0.7 million.~~

staff costs.

Other income ~~(expense)~~. (expenses)

Other income (expense) ~~during~~for the ~~three months~~three-month period ended ~~September~~June 30, ~~2020 is comprised~~2021, consisting primarily of ~~interest income.Interest~~rental income ~~during the three months ended September 30, 2020 was approximately $8,000~~of $0.2 million offset by foreign exchange losses of $0.1 million 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~~term debt 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~~million. In addition, there was a ~~loss~~charge of ~~approximately $18,000 and~~$0.6 million for the change in fair value of ~~warrant liabilities during~~ the ~~nine~~CVR liability.

For the three months ended ~~September~~June 30, 2020, the total expense of $0.1 million consisted of 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, offset buy foreign currency losses of $0.3 million and interest expense related to the convertible debt of $0.3 million.

Table of Contents

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six ended June 30, 2021 and 2020 (in thousands):


	Six Months Ended June 30,
	2021			2020			Change
	(in thousands)
Statements of Comprehensive Income
License revenue	$	2,917		$	1,898		$	1,019
Operating expenses:
Research and development		15,704			5,493			10,211
General and administrative		12,930			6,425			6,505

Total operating expenses	$	28,634		$	11,918		$	16,716

Loss from operations		(25,717	)		(10,020	)		(15,697	)
Other non-operating income (expense):
Other income (expense)		972			(1,670	)		2,642
Change in fair value of convertible notes		—			(1,884	)		1,884
Change in fair value of liability		(583	)		—			(583	)

Loss before income taxes		(25,328	)		(13,574	)		(11,754	)
(Loss) benefit for income taxes		(190	)		(47	)		(143	)

Net loss	$	(25,518	)	$	(13,621	)	$	(11,897	)

Licensing and Research & Development Services Revenue

Revenue for the six months ended June 30, 2021, was $2.9 million compared with $1.9 million for the six months ended June 30, 2020, an increase of approximately $1.0 million. Revenue from contracts with Ares increased by $1.5 million due to the exercise and payment of an option fee of $2.7 million to acquire intellectual property rights, which was offset by a reduction in R&D service revenues of $1.2 million. In addition, there was a ~~gain~~decrease in overall revenue of $0.5 million relating to licensing and R&D services for the second molecule in the License and Collaboration Agreement with Denali. All performance obligations relating to this molecule were satisfied in February 2021.

Research and development costs

Costs related to research and development for the six months ended June 30, 2021 increased by approximately ~~$243,000.~~$10.2 million, compared to the six months ended June 30, 2020.

This $10.2 million increase for the six months ended June 30, 2021, was primarily due to a $3.2 million increase in manufacturing costs, mainly due to FS118 manufacturing batches in the first half of 2021, an increase in clinical CRO and clinical assay costs of $3.3 million, due to a full six months of Phase 1 clinical trial costs for FS120 and FS222, and a decrease in other costs of $0.1 million due to the timing of other project-related activities. The remaining increase of $3.8 million is primarily due to a $2.8 million decrease in the UK R&D tax incentive credit year over year, which is allocated across all programs, a $0.5 million increase in R&D staff costs, $0.3 million increase laboratory consumables and $0.2 million increase in other allocated costs.

General and administrative expense

General and administrative expense for the six months ended June 30, 2021 increased by approximately $6.5 million due to an increase of $2.6 million in share-based compensation, offset by a decrease of $0.3 million in staff costs, $2.8 million in legal and professional fees, $0.9 million in insurance and other costs associated with being a public company and $0.5 million in other costs, primarily due to additional rent for the leased buildings acquired with Spring Bank transaction.

Table of Contents

Other income (expenses)

Other income (expense), for the

six-month

period ended June 30, 2021 of $1.0 million of other income consisted of $1.0 million income due to foreign exchange gains of $0.9 million, rental income of $0.3 million offset by interest payable of $0.2 million.

In addition, there was a charge of $0.6 million for the change in fair value of ~~warrant liabilities during~~ the ~~three and nine~~CVR.

For six months ended ~~September~~June 30, ~~2019 was a gain~~2020, other expense of ~~$0.4~~$1.7 million ~~and $8.1~~consisted of foreign currency losses of $1.7 million, ~~respectively. The change~~interest expense of $0.5 million in ~~value each period was solely due~~relation to the ~~change~~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 ~~fair value~~first half of ~~the November 2016 Warrants, primarily as a result of the change in our stock price and stock price volatility.~~

2020.

Liquidity and Capital Resources

Sources of ~~Liquidity~~

liquidity

From our inception through ~~September~~June 30, ~~2020,~~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 June 30, 2021, the Company had an accumulated deficit of $72.7 million and cash of $81.6 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.

Historically, we have financed our operations ~~through~~primarily with proceeds from the issuance of common shares and convertible preferred shares, proceeds from tern debt and a convertible note facility, proceeds received from ~~private placements~~in connection with our collaboration arrangements, and payments received for 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 ~~convertible notes, common stock and/~~our drug candidates, although there can be no assurance that we will obtain regulatory approval or ~~warrants,~~successfully commercialize any of our current or planned future product candidates.

On March 30, 2021, 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~~Company entered into a ~~Controlled Equity Offering~~^SM ~~Sales Agreement, or~~2021 Sales Agreement with ~~Cantor Fitzgerald & Co., or Cantor, pursuant~~SVB Leerink with respect to an

at-the-market

offering program under which ~~we may~~the Company could offer and sell, from time to time ~~through Cantor,~~in its sole discretion, shares of ~~our~~its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 ~~million. We pay Cantor a commission rate equal to 3.0%~~million 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 2021 Sales Agreement.

On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the ~~aggregate~~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 underwritten public offering resulted in gross proceeds ~~from each sale. Shares sold under the Sales Agreement were offered~~of $73.1 million. The Company incurred $4.4 million in issuance costs 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$0.5 million of professional fees associated 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 millionunderwritten public offering, resulting in net proceeds to the ~~Company. There were no shares sold during~~Company of $68.2 million.

On April 1, 2021, the ~~three months ended September 30, 2020~~Company, as borrower, entered into the Loan and ~~we do not intend~~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 ~~issue any shares under~~ the ~~Sales Agreement between September 30, 2020 and the closing~~funding 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~~Loans, each Term Loan ~~provided for interest-only payments for twenty-four months~~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 ~~repayment~~(iv) Loan D was delivered by Horizon to the Company by June 30, 2021. The Company may only use the proceeds of the ~~aggregate outstanding principal balance of~~Term Loans for working capital or general corporate purposes as contemplated by the ~~loan in quarterly installments starting upon expiration of the interest only period~~Loan 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.

Security Agreement. On April ~~8, 2020, we entered into a prepayment notice and pay-off letter with~~1, 2021, the ~~Lenders, which provided for~~Company drew down $5 million. On June 22, 2021, the ~~full repayment in cash on April 8, 2020~~Company drew down another $5 million under this facility.

Table 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.

Contents

Cash Flows

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

presented:

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


Summarized cash flow information
	Six Months Ended June 30,
	2021			2020			Change
	(in thousands)
Net cash used in operating activities	$	(23,333	)		(2,482	)	$	(20,851	)
Net cash used in investing activities		(643	)		(62	)		(581	)
Net cash provided by financing activities		87,046			500			86,546
Effect of exchange rate changes on cash		52			(201	)		253

Net increase in cash	$	63,122		$	(2,245	)	$	65,367

Operating activities

Net cash used of $23.3 million in operating activities~~. The use~~ for the six months ended June 30, 2021, consisted of ~~cash in both periods resulted primarily from our~~the net ~~losses~~loss of $25.5 million adjusted for ~~non-cash charges and~~ changes in ~~components~~operating assets and liabilities of ~~working capital.~~ $2.3 million and offset by

non-cash

charges of $4.4 million, primarily for share-based compensation expense of $4.0 million,

non-cash

interest expense of $0.1 million, depreciation of $0.3 million, fair value adjustment of the CVR liability of $0.6 million and the deduction of foreign exchange gains of $0.6 million.

Net cash used of $2.5 million in operating activities ~~during~~for the ~~nine~~six months ended ~~September~~June 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~~net loss of $13.6 million offset by $5.2 million of

non-cash

items which included share-based compensation of $1.0 million, foreign exchange losses of $1.5 million, depreciation of $0.3 million,

non-cash

interest expense of $0.5 million and changes in ~~the non-cash change in the~~ fair value of ~~the warrant liability~~convertible notes of ~~$7.8 million, non-cash change~~$1.9 million. There was also an adjustment for changes in ~~stock-based compensation~~operating assets and liabilities of ~~$1.1 million~~$5.9 million.

Investing activities

For the

six-month

periods ended June 30, 2021, 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~~June 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. Thenet cash used in investing activities ~~during the nine months ended September 30, 2019~~ was ~~primarily the result of $26.8~~$0.6 million ~~in proceeds from the sale of marketable securities, which was offset by $6.0~~and $0.1 million, ~~for~~respectively. In both periods this related to the purchase of ~~marketable securities and $0.2 million for~~capital equipment.

Financing activities

For the ~~purchase of property and equipment.~~

~~Net cash (used in) provided by financing activities. Net cash used in financing activities during the nine~~six months ended ~~September~~June 30, ~~2020 was $19.5 million and~~2021, net cash provided by financing activities ~~during~~was $87.0 million. This included $77.3 million raised on the ~~nine~~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 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 $0.1 million were paid.

For the six months ended ~~September 30, 2019 was approximately $19.6 million. Net cash used in financing activities during the nine months ended September~~June 30, 2020, ~~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~~was $0.5 million, which was due to the

~~nine months ended September 30, 2019 was the result~~ issuance of ~~$20.0 million of proceeds from the Convertible Term Loan and Pontifax Warrants, offset by $0.4 million of issuance costs in connection with the Convertible Term Loan and Pontifax Warrants.~~

convertible notes.

Funding Requirements

The Company has incurred significant losses and has an accumulated deficit of $72.7 million as of June 30, 2021.

F-star

expects to incur substantial losses in the foreseeable future as it conducts and expands its clinical trial and research and development activities. As of ~~September 30, 2020, we had $20.0 million in~~August 13, 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~~ 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~~

The Company may continue to seek additional funding ~~from new~~through public equity, private equity, debt financing, collaboration ~~agreements~~partnerships, or ~~equity financings.~~

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 capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.

Table of Contents

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:~~

•

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

including:

•

~~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~~our ability to raise ~~any additional funds prior to the completion~~capital in light of the ~~Exchange. However, if~~impacts of the ~~Exchange is not completed, we may require significant additional funds earlier than we currently expect in order to conduct~~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 ~~preclinical and discovery activities. Because~~to quickly resolve any delays or clinical holds that may be imposed on our development programs, particularly in light of the ~~numerous risks and uncertainties~~global

COVID-19

pandemic;

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

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

the costs of preparing and 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 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 consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. The preparation of our 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 discussed in the ~~United States capital markets relating to~~Company’s Annual Report on 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

In ~~August 2020,~~June 2016, the FASB issued ASU No.

2016-13,

Measurement of Credit Losses on Financial ~~Accounting Standards Boards~~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

2019-10,

Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging ~~- Contracts in Entity’s Own Equity (Subtopic 815-40)~~.~~The amendments in~~(Topic 815), and Leases (Topic 842): Effective Dates

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. ~~We are currently evaluating~~The Company has not elected to early adopt ASU

No. 2016-13.

The Company continues to evaluate the potential impact that the adoption of ~~this standard may~~ASU

2016-13

will have on ~~our consolidated~~the Company’s 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~~.~~This ASU removes, modifies~~position 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.~~

We are exposed 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 in 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.

~~Item 4.~~

~~Controls and Procedures.~~

~~Evaluation of Disclosure Controls~~

Emerging Growth Company and ~~Procedures~~

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as 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 dateSmaller Reporting Company Status

We are ~~effective at the reasonable assurance level. The term “disclosure controls and procedures,”~~an emerging growth company, (“EGC”) as defined in ~~Rules 13a-15(e) and 15d-15(e)~~ the 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 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, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. In addition, we intend to rely on the other exemptions and reduced reporting requirements 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 compensation disclosure that 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 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 offering (December 31, 2021) or until we no longer meet the requirements of being an EGC, whichever is earlier.

We are also a smaller reporting company as defined under the Exchange 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 (i) our voting and

non-voting

common stock held by

non-affiliates

is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and

non-voting

common stock held by

non-affiliates

is less than $700.0 million measured on the last business day of our second fiscal quarter.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company, as defined in

Rule 12b-2 under

the Exchange Act ~~means~~for this reporting period and are not required to provide the information required under this item.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of June 30, 2021, our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and ~~other~~ procedures ~~of a company that are designed~~as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act 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 fully effective as of ~~achieving their objectives and~~June 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 fully effective as of June 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 and ~~procedures.~~

spreadsheets.

~~Inherent Limitations~~

A material weakness is a deficiency, or a combination of ~~Internal Controls~~

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 June 30, 2021. We have commenced measures to remediate these material weaknesses and have hired additional finance and accounting personnel during the fourth quarter of 2020 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~~June 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~As a result~~

PART II—OTHER INFORMATION

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 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 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.

~~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, 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.

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 have been no material changes ~~in or additions~~ to the risk factors ~~referred to~~described in our Annual Report on Form

10-K

filed with the ~~previous sentence~~.

SEC on March 30, 2021, as updated by “Part II, Item 1A, Risk Factors” of our Quarterly Report on Form

10-Q

for the quarter ended March 31, 2021, filed with the SEC on May 17, 2021.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures.

Note Applicable.

Item 5.

Other Information.

None.

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.

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, Inc.~~
				F-star Therapeutics, Inc.
~~Date: November 3, 2020~~	~~By:~~		~~/s/ Lori Firmani~~
Date: August 13, 2021		~~Lori Firmani~~		By:	/s/ Eliot R. Forster
		~~Vice President of Finance~~			Eliot R. Forster, Ph.D.
		~~(Principal Financial~~			President and ~~Accounting Officer)~~ Chief Executive Officer

	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

	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

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

	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

	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

	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

	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


Exhibit Number		Description

~~2.1~~ 10.1*±		~~Share Exchange~~Side Letter, dated June 30, 2021, to (a) the License and Collaboration Agreement, dated ~~as of July 29, 2020,~~August 24, 2016, by and among ~~Spring Bank Pharmaceuticals,~~BBB Holding Ltd (f/k/a F-star Gamma Limited, DBH ), F-star Biotechnologische Forschungs- und Entwicklungsges.m.b.h. ( F-star GmbH ), F-star Biotechnology Limited ( F-star Ltd ) and Denali Therapeutics Inc.~~, F-star Therapeutics Limited~~ ( Denali ), as amended by the letter agreement dated February 23, 2018, the letter agreement dated May 21, 2018 and the ~~persons listed therein (incorporated~~amendment dated June 1, 2018; (b) the Amended and Restated Gamma IP License Agreement, dated August 24, 2016, between F-star Ltd and DBH, as amended by ~~reference to Exhibit 2.1 to~~ the ~~Registrant’s Current Report on Form 8-K filed July~~Patent Side Letter and Buy-Out Side Letter; (c) the Gamma Support Services Agreement, dated August 24, 2016, between F-star Ltd. and DBH, as amended by Amendment No. 1 dated April 11, 2019; and (d) the Share Purchase Agreement, dated May 30, ~~2020 (Commission File No. 001-37718).~~

~~10.1~~		~~Form of STING Agonist CVR Agreement~~2018, by and among ~~Spring Bank, F-star, a representative of~~ the ~~Spring Bank stockholders prior to the Closing,~~Sellers party thereto, Shareholder Representative Services LLC 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).~~Denali.

~~10.2~~ 31.1*		Form 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).

~~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).~~

~~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.

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.

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.

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