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F-STAR THERAPEUTICS, INC.

(FSTX)
  Report
Delayed Nasdaq  -  04:00 2022-09-30 pm EDT
5.120 USD   +1.39%
09/19F-star Therapeutics, Inc.(NasdaqCM:FSTX) added to S&P Global BMI Index
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08/11F Star Therapeutics : Reports Second Quarter 2022 Financial Results and Corporate Highlights - Form 8-K
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08/11F-STAR THERAPEUTICS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
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F-STAR THERAPEUTICS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/11/2022 | 09:03am EDT

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, 2021, 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 U.S. Securities and Exchange Commission (the "SEC") on March 15, 2022.

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 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, 2021 filed with the SEC on March 15, 2022, 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.

Proposed acquisition by invoX Pharma

On June 22, 2022, F-star, invoX Pharma Limited, a private limited company organized under the laws of England and Wales ("Parent" or "invoX"), Fennec Acquisition Incorporated, a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and Sino Biopharmaceutical Limited, a company organized under the laws of the Cayman Islands ("Guarantor"), entered into a definitive Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Parent, through Purchaser, commenced a tender offer (the "Offer") to acquire all of the outstanding shares of the Company's common stock, par value $0.0001 per share (the "Company Shares"), at a price of $7.12 per share in cash (the "Offer Price"), without interest, subject to any applicable withholding taxes. If successful, upon the terms and conditions set forth in the Merger Agreement, the Offer will be followed by a merger of Purchaser with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly-owned subsidiary of Parent (the "Merger") .

The Merger Agreement includes customary termination provisions for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by the Company under specified circumstances to accept and enter into a binding written definitive agreement providing for the consummation of a transaction constituting a superior offer, the Company will be required to pay to Parent a termination fee of $7.25 million.

Subject to the satisfaction of customary closing conditions, including regulatory approvals, the transaction is expected to close in the second half of 2022.


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                           FORWARD-LOOKING STATEMENTS

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

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

our ability to consummate the Merger and the timing of the closing of the Merger, including the satisfaction to conditions to closing of the Merger within the expected timeframe or at all;

the outcome of any legal proceedings that may be instituted against the parties and others related to the Merger Agreement;

the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement;

unanticipated difficulties or expenditures relating to the Merger,

the response of our collaborators or other parties to the announcement of the Merger;

the response of Company stockholders to the Merger Agreement;

the accuracy of our estimates regarding expenses, revenues, uses of cash, cash equivalents and investment securities, capital requirements and the need for additional financing;

our expectations regarding our research, development and commercialization of our product candidates, including FS118, FS222, FS120 and SB 11285;

the duration and severity of the COVID-19 pandemic and its impact on our business, including the impact of COVID-19 on the research, development and commercialization of our product candidates and our ability to adapt our approach as appropriate;

the supply and availability of and demand for our product candidates;

the initiation, cost, timing, progress and results of our development activities, non-clinical studies and clinical trials;

the timing of and our ability to obtain and maintain regulatory approval, or submit an application for regulatory approval, of our product candidates, including FS118, FS222, FS120 and SB 11285, and any product candidates that we may develop, and any related restrictions, limitations, and/or warnings in the label of any approved product candidates;

our plans to research, develop and commercialize our current and future product candidates, including FS118, FS222, FS120 and SB 11285;

the election by any collaborator to pursue research, development and commercialization activities;

our ability to obtain future reimbursement and/or milestone payments from our collaborators;

our ability to attract collaborators with development, regulatory and commercialization expertise;

our ability to obtain and maintain intellectual property protection for our product candidates;


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the size and growth of the markets for our product candidates, including FS118, FS222, FS120 and SB 11285, and our ability to serve those markets;

the rate and degree of market acceptance of any future products;

the success of competing drugs that are or become available;

regulatory developments in the United States, European Union and other countries and regulatory bodies;

the performance of our third-party suppliers and manufacturers and our ability to obtain alternative sources of raw materials;

our ability to obtain additional financing;

our use of the proceeds from our securities offerings;

any restrictions on our ability to use our net operating loss carryforwards;

our exposure to investment risk, interest rate risk and capital market risk; and

our ability to attract and retain key scientific, management or sales and marketing personnel, including any potential difficulties in employee retention as a result of the announcement and pendency of the Merger.

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 factors described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 15, 2022, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

Overview

F-star Therapeutics, Inc. ("we", "F-star" or the "Company") is a clinical-stage biopharmaceutical company pioneering bispecifics in immunotherapy so more people with cancer can live longer and improved lives. F-star is committed to working towards a future free from cancer and other serious diseases, through the use of tetravalent (2+2) bispecific antibodies to create a paradigm shift in cancer treatments. The Company has four second-generation immune-oncology therapeutics in the clinic, each directed against some of the most promising immune-oncology targets in drug development, including LAG-3 and CD137. F-star's proprietary antibody discovery platform is protected by an extensive IP estate. F-star has over 500 granted patents and pending patent applications relating to its platform technology and associated product pipeline. The Company has attracted multiple partnerships with biopharma targeting the significant unmet needs across several disease areas, including oncology, immunology, and CNS with over 20 programs being developed by our partners using our technology. F-star's goal is to offer patients better and more durable benefits than currently available immune-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, we believe our proprietary technology will overcome many of the challenges facing current immune-oncology


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therapies, including other bispecific formats, due to the strong pharmacology enabled by tetravalent bispecific binding.

Our Programs F-star's most advanced product candidate, FS118, is currently being evaluated in proof-of-concept Phase 2 trials in PD-1/PD-L1 acquired resistance head and neck cancer patients and in checkpoint inhibitor ("CPI") naïve non-small cell lung cancer ("NSCLC") and diffuse large B-cell lymphoma ("DLBCL") patients. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors, PD-L1 and LAG-3, both of which are validated targets in immune-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% (19 out of 39) was observed in patients receiving dose levels of FS118 of 1mg/kg or greater. In acquired resistance patients, the DCR was 55% (17 out of 31) in patients receiving 1 mg/kg or greater and long-term (more than six months) disease control was observed in six of these patients. In August 2022, we reported that the futility hurdle for the initial of the trial in acquired resistance head and neck cancer patients was cleared. We continue to enroll patients as part of this proof of concept trial. We expect to provide a further update in the first half of 2023. In parallel, we plan to further study head and neck cancer patients in order to assess FS118 in combination regimens with potential for registration.

Data reported during the first half of 2021, from a randomized Phase 3 trial conducted by another company 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 for the first time. With respect to the latter, we initiated a clinical trial of FS118 in CPI-naïve patients in biomarker enriched NSCLC and DLBCL populations in late 2021 and continue to enroll into these cohorts.

F-star's second product candidate, FS222, aims to improve outcomes particularly in patients with tumors that express low levels of PD-L1 and is a mAb2 bispecific antibody that is designed to target both the costimulatory CD137 receptor and the inhibitory PD-L1 ligand, which are co-expressed in many tumor types. The Phase 1 clinical trial evaluating FS222 in patients with advanced cancers is ongoing. We believe there is a strong rationale to combine FS222 with other anti-cancer agents, and this can be done within the Phase 1 study. The accelerated dose titration was completed in the second half of 2021 and in August 2022 we reported that we have seen emerging clinical anti-tumor activity with a tolerability profile typical of checkpoint inhibitors. Identification of optimal patient groups, dose and schedule is on-going. We expect to provide an update on the Phase 1 trial and report safety, biomarker and preliminary efficacy data at a scientific conference in the second half of 2022.

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

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 inhibitor outcomes as an immunotherapeutic compound for the treatment of selected cancers. SB 11285 appeared to be well tolerated both alone and in combination with atezolizumab across all dose levels tested to-date, including five dose levels as monotherapy and three dose levels as a combination. Initial analysis showed that pharmacokinetics were dose linear and in-line with the predicted profile for rapid cellular uptake, a characteristic of second generation STING agonists. F-star is continuing with further dose-escalation and in parallel pursuing strategic business development opportunities for SB 11285. We expect to report an update on this study in early 2023.


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Share Exchange Agreement

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

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

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

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

Immediately following the Reverse Stock Split and the Closing, there were approximately 4,449,559 shares of Spring Bank common stock outstanding. Following the Closing, the F-star Ltd stockholders beneficially owned approximately 53.7% of the combined company's common stock, and the existing stockholders of Spring Bank beneficially owned approximately 46.3% of the combined company's common stock. Concurrently with the execution of the Exchange Agreement, certain officers and directors of Spring Bank and F-star Ltd and certain stockholders of F-star Ltd entered into lock-up agreements, pursuant to which they agreed to certain restrictions on transfers of any shares of the Company's common stock for the 180-day period following the Closing, other than the shares of the Company's common stock received in exchange for ordinary shares of F-star Ltd subscribed for in the Pre-Closing Financing and pursuant to certain other limited exceptions.

In addition, at the Closing, Spring Bank, F-star Ltd, a representative of Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent, entered into a STING Agonist Contingent Value Rights Agreement (the "STING Agonist CVR Agreement"). Pursuant to the Exchange Agreement and the STING Agonist CVR Agreement, each pre-Reverse Stock Split share of Spring Bank common stock held by stockholders as of the record date on November 19, 2020, immediately prior to the Closing, received a dividend of one contingent value right ("CVR") ("STING Agonist CVR"), payable on a pre-Reverse Stock Split basis, entitling such holders to receive, in connection with certain transactions involving proprietary STING agonist compound designated as SB 11285 occurring on or prior to the STING Agonist CVR Expiration Date (as defined below) that resulted in aggregate Net Proceeds (as defined in the STING Agonist CVR Agreement) at least equal to the Target Payment Amount (as defined below), an aggregate amount equal to the greater of (i) 25% of the Net Proceeds received from all CVR Transactions (as defined in the STING Agonist CVR Agreement) and (ii) an aggregate


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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 final database lock of the STING clinical trial is still to be determined. 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 compounds 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.

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

For the exclusive rights granted, an initial upfront fee of $0.5 million was paid by AstraZeneca to the Company. The Company is entitled to receive additional contingent near-term preclinical milestones of $11.5 million, plus maximum contingent payments that relate to certain defined development and regulatory milestones of $96.5 million and commercial milestones of $221.3 million, as well as royalty payments based upon a single digit percentage on net sales of products developed. Pursuant to the STING Antagonist CVR Agreement, 80% of net proceeds received the Company under the License Agreement with AstraZeneca are payable, pursuant to the Exchange Agreement, to common stockholders of Spring Bank as of November 19, 2020.

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 7, 2021, the Company entered into a License Agreement with AstraZeneca under which AstraZeneca will receive global rights to research, develop and commercialize next generation STING inhibitor compounds. Under the terms of the agreement, AstraZeneca is granted exclusive access to and will be responsible for all future research, development and commercialization of the STING inhibitor compounds. F-star is eligible to receive upfront and near-term payments of up to $12 million upon meeting certain milestones. In addition, F-star will be eligible for development and sales milestone payments of over $300 million, as well as single digit percentage royalty payments. Payments received by F-star are subject to a contingent value rights agreement ("CVR 2"), under which 80% will be payable to stockholders of F-star that were previously stockholders of Spring Bank prior to the business combination between F-star and Spring Bank.


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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, 2021, and $3.5 million as of June 30, 2022, 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, 2022, the estimated fair value increased to $3.5 million which resulted in a $0.4 million charge on the Consolidated Statements of Operations and Comprehensive Loss.

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

Impact of COVID-19 on our Business

The continued spread of the COVID-19 pandemic has been 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 all aspects of the business, including how it will impact operations and the operations of customers, vendors and business partners. The extent to which COVID-19 impacts the future business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, such as new information that may emerge concerning the emergence or severity of other strains of COVID-19 or the effectiveness of actions to vaccinate against or contain COVID-19 or treat its impact, among others. If we or any of the third parties with whom 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 business, results of operations and financial condition. The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national, and international markets.

Management has not identified any triggering events which would result in any significant impairment losses in the carrying values of assets as a result of the 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.

Components of Operating Results

License revenue

To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales for the foreseeable future. Our revenue consists of collaboration revenue under our license and collaboration agreements with Ares, Denali, AstraZeneca, Janssen and others, 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 future, revenue may include new collaboration agreements, additional milestone payments, option exercise payments, and royalties on any net product sales under our collaborations. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services, and milestone and other payments.


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Operating Expenses

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing clinical trials, research and development activities, including salaries, share-based compensation expense 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 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 to 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 and consulting related expenses

We recognize external R&D costs based on an evaluation of the progress to completion of specific tasks using information provided to it by its internal program managers and service providers.

Research and development activities are central to the our 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 increased size and duration of later stage clinical trials. As a result, we expect that research and development expenses will increase over the next several years as we increase personnel costs, initiate and conduct additional clinical trials and prepare regulatory filings related to the various product candidates.

The successful development of our product candidates is highly uncertain. 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 these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of:

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

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

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

identifying new product candidates to add to our development pipeline;

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

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


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

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

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

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

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

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

continued acceptable safety profile of the drugs following approval; and

attracting, hiring, and retaining appropriately qualified personnel.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, the U.S. Food and Drug Administration, European Medicines Agency or another regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or we may experience significant trial delays due to patient enrolment or other reasons, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. In addition, we may obtain unexpected results from our clinical trials, and we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

General and administrative expenses

General and administrative expenses consist primarily of salaries, related benefits, travel, and share-based compensation expense for personnel in executive, finance, legal and administrative functions. General and administrative expenses also include facility-related costs, patent filing and prosecution costs, insurance and marketing costs and professional fees for legal, consulting, accounting, audit, tax services and costs associated with being a public company. Other expense also includes foreign currency transaction losses. The Company expects that general and administrative expenses will increase in the future as the Company expands its operating activities and continues to incur costs of being a US public company.

Other income and expenses, net

Other income and expenses, net, is primarily rent received from subletting an office in the United States and interest received on overdue trade receivable balances, bank interest received, and interest expense, which is primarily bank interest payable and similar charges, the interest liability on leased assets and convertible debt notes, and foreign exchange losses incurred. Foreign exchange gain (loss) is foreign exchange gains or losses due to the fluctuation of GBP, U.S. dollar and the Euro. Change in the fair value of convertible debt is the fair value adjustment of the convertible notes as measured using Level 3 inputs.

Income tax

The Company is subject to corporate taxation in the United States and the UK.


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Our UK established entities have generated losses and some profits in the UK since inception and have therefore not paid significant UK corporation tax. Our former Austrian subsidiary has historical losses in Austria with more recent profits, which has resulted in payment of Austrian corporation tax in the years ended December 31, 2021, and 2020. The corporation tax benefit (tax) presented in the Company's statements of comprehensive income (loss) represents the tax impact from its operating activities in the United States, UK and Austria, which have generated taxable income in certain periods. As we carry out extensive research and development activities in the UK, we seek to benefit from the UK research and development tax credit cash rebate regime known as the Small and Medium-sized Enterprises R&D Tax Credit Program (the "SME Program"). Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on the Company's behalf and certain internal overhead costs incurred as part of research projects.

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

Research and development tax credits received in the 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.

Income tax expense was not material for the three and six months ended June 30, 2022.

Accrued Research and Development Expenses

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

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

investigative sites or other providers in connection with clinical trials;

vendors in connection with preclinical and clinical development activities; and

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

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


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period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

Contingent value rights

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 STING product candidates. The fair value of the contingent value rights is based on the Company's probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. Changes in the fair value of the liability will be recognized in the consolidated statement of 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 equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company's consolidated statements of operations and comprehensive 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 non-employee consultants, the measurement date 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 fair value of stock options ("options") on the grant date is determined utilizing 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 an option's expected term and the price volatility of the underlying stock, to determine the fair value of the award.

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


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Results of Operations

Comparison of the three months ended June 30, 2022 and 2021


The table below summarizes our results of operations for the three months ended
June 30, 2022 and 2021:

                                                      Three Months Ended June 30,
                                                    2022          2021         Change
                                                             (in thousands)
Statements of Comprehensive Income
License revenue                                   $       -     $       -     $      -
Operating expenses:
Research and development                              8,724         8,291          433
General and administrative                            7,457         6,501          956
Total operating expenses                          $  16,181     $  14,792     $  1,389
Loss from operations                                (16,181 )     (14,792 )     (1,389 )
Other non-operating income (expense):
Interest expense                                       (334 )        (110 )       (224 )

Change in fair value of contingent value rights (127 ) (583 ) 456 Other (expense) income

                               (2,352 )          68       (2,420 )
Loss before income taxes                          $ (18,994 )   $ (15,417 )   $ (3,577 )
(Loss) benefit for income taxes                           -           (82 )         82
Net loss                                          $ (18,994 )   $ (15,499 )   $ (3,495 )


Research and development costs

Total research and development expenses were $8.7 million for the three months ended June 30, 2022, as compared to $8.3 million for the three months ended June 30, 2021. This $0.4 million increase is primarily due to an increase in clinical CRO costs of $2.9 million resulting from an increased number of patients on clinical trials in our four clinical-stage programs, increases in R&D consultancy of $0.4 million, R&D staff-related costs of 0.3 million and other costs of $0.2 million offset by a $3.4 million increase in the R&D tax credit, which is recorded as a reduction in R&D cost.

General and administrative expense

General and administrative expense for the three months ended June 30, 2022 increased by approximately $1.0 million compared to the three months ended June 30, 2021, primarily due to an increase totaling $1.5 million in legal and professional costs, including transaction costs of $2.5 million incurred in relation to the proposed acquisition of F-star by invoX. Other legal and professional costs decreased by $1.0 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 where costs were higher in the comparative period for work in relation to the share exchange transaction with Spring Bank, stock compensation expense and other costs decreased by $0.4 million and $0.1 million respectively.

Other income (expense)

Other expense for the three months ended June 30, 2022 of $2.3 million consisted primarily of foreign exchange expense of $2.5 million, offset by sublease income of $0.2 million.

For the three months ended June 30, 2021, other income of $0.1 million consisted of $0.1 million of foreign exchange expense offset by $0.2 million of sublease income.


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Comparison of the six months ended June 30, 2022 and 2021


The table below summarizes our results of operations for the six months ended
June 30, 2022 and 2021:

                                                       Six Months Ended June 30,
                                                    2022          2021         Change
                                                             (in thousands)
Statements of Comprehensive Income
License revenue                                   $   2,551     $   2,917     $   (366 )
Operating expenses:
Research and development                             16,761        15,423        1,338
General and administrative                           13,159        12,930          229
Total operating expenses                          $  29,920     $  28,353     $  1,567
Loss from operations                                (27,369 )     (25,436 )     (1,933 )
Other non-operating income (expense):
Interest expense                                       (642 )        (197 )       (445 )

Change in fair value of contingent value rights (185 ) (583 ) 398 Other (expense) income

                               (2,885 )       1,173       (4,058 )
Loss before income taxes                          $ (31,081 )   $ (25,043 )   $ (6,038 )
(Loss) benefit for income taxes                           -          (190 )        190
Net loss                                          $ (31,081 )   $ (25,233 )   $ (5,848 )


Licensing and Research & Development Services Revenue

Revenue for the six months ended June 30, 2022 was $2.6 million compared to $2.9 million for the six months ended June 30, 2021, a decrease of approximately $0.3 million. In both periods Ares exercised an option to acquire intellectual property rights, which generated $2.8 million and $2.6 million, respectively, of licensing revenue in the current and the comparative period. The remaining $0.3 million decrease is due to the recognition of $0.3 million in licensing and research and development services for the second molecule in the Company's License and Collaboration Agreement with Denali during the six months ended June 30, 2021. All performance obligations relating to the molecule were satisfied in February 2021 and as a result, no further revenue has been recognized since that date.

Research and development costs

Total research and development expenses were $16.7 million for the six months ended June 30, 2022, as compared to $15.4 million for the six months ended June 30, 2021. This $1.3 million increase is primarily due to increases in clinical CRO costs of $4.2 million resulting from an increased number of patients on clinical trials in our four clinical-stage programs, $1.4 million of staff costs, $0.6 million of consultancy costs, $0.3 million of travel and staff-related costs and $0.3 million of other costs, offset by a decrease in manufacturing costs of $0.4 million due to the timing of batch manufacturing activities. In addition , there has been an increase in the R&D tax credit of $5.1 million, which is recorded as a reduction of R&D cost.

General and administrative expense

General and administrative expense for the six months ended June 30, 2022 decreased by approximately $2.4 million compared to the six months ended June 30, 2021, primarily due to a decrease in stock compensation expense of $1.3 million and legal and professional costs of $1.3 million, due to costs incurred in the comparative period for work in relation to the share exchange transaction with Spring Bank. These decreases were offset by an increase in travel of $0.2 million.

Transaction costs of $2.7 million were incurred in the six months ended June 30, 2022 in relation to the proposed acquisition of F-star by invoX.

Other income (expense)

Other expense for the six months ended June 30, 2022 of $2.9 million consisted primarily of sublease income of $0.3 million, offset by foreign exchange expense of $3.2 million.


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For the six months ended June 30, 2021, other income of $1.2 million consisted of $0.9 million of foreign exchange gains plus $0.3 million of sublease income.

Liquidity and Capital Resources

Sources of liquidity

From our inception through June 30, 2022, 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, 2022, the Company had an accumulated deficit of $109.5 million, cash of $53.0 million and working capital of $49.5 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. If the Merger does not occur, management believes that our existing cash and cash equivalents at June 30, 2022 will fund our current operating plan into the first quarter of 2023. Should our potential mitigating plans, which include additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources, not materialize, then management would delay certain research projects and capital expenditures and eliminate certain future operating expenses to fund operations at reduced levels in order for the Company to continue as a going concern for a period of 12 months from the date the financial statements are issued.

Historically, we have financed our operations with proceeds from the sale and issuance of equity securities, proceeds from the issuance of notes payable and proceeds received in connection with our collaboration arrangements and for providing research and development services. If the Merger does not occur, we expect this historical financing trend to continue if and until we are able obtain regulatory approval for and successfully commercialize one or more of our drug candidates, although there can be no assurance that we will obtain regulatory approval or successfully commercialize any of our current or planned future product candidates.

Cash Flows

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


                        Summarized cash flow information
                                                  Six Months Ended June 30,
                                              2022          2021         Change
                                                       (in thousands)

Net cash used in operating activities $ (28,147 ) $ (23,347 ) $ (4,800 ) Net cash used in investing activities

            (356 )        (643 )         287

Net cash provided by financing activities 2,182 87,046 (84,864 ) Effect of exchange rate changes on cash

           735            52           683
Net increase in cash                        $ (25,586 )   $  63,108     $ (88,694 )


Operating activities

Net cash used of $28.1 million in operating activities for the six months ended June 30, 2022, consisted of the net loss of $31.1 million adjusted for changes in operating assets and liabilities of $2.8 million and offset by non-cash charges of $5.5 million, primarily for share-based compensation expense of $2.8 million, foreign exchange gains of $2.2 million, depreciation and amortization of $0.3 million, fair value adjustment of the CVR liability of $0.2 million and non-cash interest expense of $0.1 million.

Net cash used of $23.3 million in operating activities for the six months ended June 30, 2021, was primarily due to a net loss of $25.2 million adjusted for changes in operating assets and liabilities of $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


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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.

Investing activities

For the six months ended June 30, 2022 and 2021, net cash used in investing activities was $0.3 million and $0.6 million respectively. In both periods this related to the purchase of laboratory equipment, $0.2 million and $0.6 million respectively with an additional $0.1 million of intangible asset purchases during the three months ended June 30, 2022.

Financing activities

For the six months ended June 30, 2022, net cash provided by financing activities was $2.2 million. This included $2.9 million, raised net from the use of our "at the market" offering facility, offset by $0.1 million, of proceeds paid to tax authorities in connection with shares withheld from employees to cover their tax obligations upon RSU vesting.

For the six months ended June 30, 2021, net cash provided by financing activities was $87.0 million. This included $77.3 million raised on the issue of common stock, with $9.1 million of the total generated from the "at the market" offering and $68.2 million generated from the underwritten public offering, offset by $0.5 million legal fees in 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.

Future Funding Requirements

If the Merger does not occur, F-star expects to incur substantial losses in the foreseeable future as it conducts and expands its clinical trial and research and development activities. In that case, management believes that its existing cash and cash equivalents at June 30, 2022 will fund our current operating plan into the first quarter of 2023.

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

Our future capital requirements will depend on many factors, including:

our ability to complete the Merger and the timing thereof;

the cost, progress, results of the proof-of-concept Phase 2 clinical trials of FS118 and any later-stage clinical trials for this product candidate;

the cost, progress, and results of the Phase 1 clinical trials of FS222, FS120, and SB 11285 and any later-stage clinical trials for these product candidates;

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any future product candidate;

the number of potential new product candidates we identify and decide to develop;

the cost of manufacturing drug supply for the clinical trials of our product candidates;

the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse clinical trial results with respect to any of our product candidates;

the costs involved in growing our organization to the size and expertise needed to allow for the research, development and potential commercialization of our current or any future product candidates;


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fulfilling obligations under our existing collaboration agreements and the entry into new collaboration agreements;

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

the cost of commercialization activities and costs involved in the creation of an effective sales, marketing and healthcare compliance organization for any product candidates we develop, if approved;

the potential additional expenses attributable to adjusting our development plans (including any supply related matters) to the COVID-19 pandemic;

the potential additional expenses attributable to adjusting our development plans (including any supply related matters) to the Ukraine conflict;

the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; 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 accounting principles generally accepted in the United States of America. 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 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 Company's critical accounting policies and estimates as disclosed in the Company's Annual Report filed on SEC Form 10-K for the year ended December 31, 2021, filed with the SEC on March 15, 2022.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with 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 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, or whether 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.

The Merger Agreement includes customary termination provisions for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by the Company under specified circumstances to accept and enter into a binding written definitive agreement providing for the consummation of a transaction constituting a superior offer, the Company will be required to pay to Parent a termination fee of $7.25 million.

Assuming successful completion of the Merger, the Company will incur approximately $6.5 million of closing costs to third-party advisors in accordance with contractual obligations tied to the successful closing of the transaction, of which $1 million was payable upon signing of the Merger Agreement on June 22, 2022.

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.


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Smaller Reporting Company Status

We are a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We may take advantage of certain of the scaled disclosures available to smaller reporting companies. These include, but are not limited to, reduced disclosure obligations regarding executive compensation in our periodic and annual reports, exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures, and reduced financial statement disclosure in our registration statements, which must include two years of audited financial statements rather than the three years of audited financial statements that are required for other public reporting companies. Smaller reporting companies are also eligible to provide such reduced financial statement disclosure in annual reports on Form 10-K. We will be able to take advantage of these scaled disclosures and exemptions 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.

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