SURFACE ONCOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The Companys financial statements have been prepared on the basis of continuity of
operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from private and public sales of its securities, proceeds from a
collaboration agreement with Novartis, a license agreement with GSK, and issuance of a debt facility with K2 Health Ventures. The Company has incurred losses and negative cash flows from operations since its inception, including net losses of
$63,586 and $78,485 for the years ended December 31, 2022 and 2021, respectively. The Company earned income of 59,337 for the year ended December 31, 2020, primarily related to revenue recognized under the GSK Agreement.
As further described in Note 18, on June 15, 2023, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) by and among Coherus BioSciences, Inc., a Delaware corporation (Parent), Crimson Merger Sub I, Inc., a Delaware corporation and wholly owned subsidiary of Parent (Merger Sub I) and Crimson Merger Sub II, LLC,
a Delaware limited liability company and wholly owned subsidiary of Parent (Merger Sub II and together with Merger Sub I, the Merger Subs).
Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Merger Sub I will merge with and into the Company
(the First Merger), with the Company surviving such First Merger as a wholly owned subsidiary of Parent, and, as part of the same overall transaction, promptly after the First Merger, the surviving entity of the First Merger will merge
with and into Merger Sub II (the Second Merger and together with the First Merger, the Mergers), with Merger Sub II surviving the Second Merger (the Surviving Entity).
In connection with the announcement of the Mergers, and on June 15, 2023, the Company was required under the terms of that certain Loan
and Security Agreement (the Loan Agreement), dated November 22, 2019, as amended on October 1, 2021 and September 21, 2022, by and among K2 HealthVentures, LLC and Ankura Trust Company, LLC (collectively, the Secured
Parties) and the Company, to pay in full all outstanding loan obligations due to the Secured Parties which is further described in Note 18. In addition, on June 15, 2023, the Company entered into a Lease Termination Agreement (the
Termination Agreement) with BMR-Hampshire LLC (the Landlord) pursuant to which the parties agreed to terminate that certain Lease (the Lease) relating to the
Companys corporate headquarters at 50 Hampshire Street in Cambridge, MA (the Premises). As consideration for the Company entering into the Termination Agreement, the Company agreed to pay $10,000 to the Landlord which is
further described in Note 18.
As of December 31, 2022 and 2021, the Company had an accumulated deficit of $204,329 and $140,743,
respectively. The Company expects that its operating losses and negative cash flows from operations will continue for the foreseeable future. In addition, the Companys repayment in full of the Loan Agreement and entering into the Lease
Termination Agreement, further described in Note 18, negatively impacted the Companys liquidity. In accordance with the requirements of ASC 205-40, management has concluded these factors raise
substantial doubt about the Companys ability to continue as a going concern for one year from the date these financial statements are issued.
There is no assurance that the planned merger with Coherus BioSciences, Inc. will be consummated, and if it is not, the Company will seek
additional funding through public financings, debt financings, collaboration agreements, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able
to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Companys stockholders. If the Company is unable to obtain funding, the Company could be required to delay,
reduce, or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect its business prospects.
Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding
on terms acceptable to the Company to fund continuing operations, if at all.
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