What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-04 compared with 2020-02-20 · 1007 added, 1132 removed, 682 unchanged (76% of the section changed)

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have audited the accompanying consolidated balance sheets of Synthetic Biologics, Inc.

(the “Company”) and subsidiaries

as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’

(deficit) equity, and

cash flows of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the

Company and subsidiaries at December 31, 2019 and 2018, and the results of their operations and their cash flows for the years

then ended , in conformity with accounting principles generally accepted in the United States of America.

Concern Uncertainty

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and

losses are expected to continue for the foreseeable future, and the Company has a net capital deficiency.

These circumstances

raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to

these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that might result

from the outcome of this uncertainty.

(the “Company”) as of December

31, 2020 and 2019, the related consolidated statements of operations, stockholders’

deficit, and cash flows for the years

then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December

31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended , in conformity with accounting

principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

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conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether

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We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements

that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that

are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,

taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical

audit matter or on the accounts or disclosures to which it relates.

described in Note 1 to the consolidated financial statements, the Company has a significant accumulated deficit and, with the

exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, the Company has experienced significant

losses and incurred negative cash flows since inception.

The Company expects to continue incurring losses for the foreseeable

Further, the Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing

its business strategy, including planned product development efforts, clinical trials and research and discovery efforts.

Company is dependent on its ability to raise additional funding from the capital markets in order to continue to fund its operations.

identified management’s evaluation of the Company’s liquidity as a critical audit matter due to the significant judgments

and assumptions used by management in (i) preparing its forecast of cash expenditures to support the Company’s drug development

and clinical trials, and (ii) providing complete and accurate disclosures related to the Company’s liquidity.

Auditing these

judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit effort required

to address these matters.

primary procedures we performed to address this critical audit matter included:

the completeness and accuracy of underlying data used in the forecasted cash expenditures

by (i) inspecting contractual arrangements with third-party clinical research organizations

and suppliers, and (ii) considering current and past expenditures in evaluating the forecasted

fixed and variable costs.

the reasonableness of management’s key assumptions in forecasting cash expenditures

by (i) performing a retrospective review of historical forecasts, (ii) comparing information

related to the Company’s ongoing and anticipated clinical trials and drug development

pipeline to management’s assumptions, and (iii) assessing the impact of proceeds

received from equity financing activities subsequent to year-end on the Company’s

planned expenditures.

the adequacy of management’s disclosure in the consolidated financial statements

regarding the Company’s liquidity by comparing to other audit evidence obtained

to determine whether such information is consistent with or contradictory to the Company’s

liquidity disclosure.

We have served

as the Company's auditor since 2012.

Synthetic Biologics,

Synthetic Biologics, Inc.

and Subsidiaries

Consolidated Balance Sheets

(In thousands except share and par

value amounts)

(In thousands except share and par value

Current Assets

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Deposits and other assets

Liabilities and Stockholders' Equity

Liabilities and Stockholders' Deficit

Current Liabilities:

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Accrued employee benefits

Deferred rent

Lease liability

Total Current Liabilities

Deferred rent - Long term

Lease liability - Long term

Total Liabilities

Commitments and Contingencies

Series A convertible preferred stock, $0.001 par value;

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120,000 issued and outstanding

Stockholders' Equity:

Stockholders' Deficit:

Series B convertible preferred stock, $0.0001 par value;

10,000,000 shares authorized, 7,638 issued and outstanding and 9,161 issued and outstanding

10,000,000 shares authorized, 3,973 issued and outstanding at December 31, 2020 and 7,638 issued and outstanding at December 31, 2019

Common stock, $0.001 par value;

200,000,000 shares authorized, 16,808,758 issued and 16,806,430 outstanding and 15,484,411 issued and 15,482,083 outstanding

200,000,000 shares authorized, 29,252,253 issued and 29,249,925 outstanding at December 31, 2020 and 16,808,758 issued and 16,806,430 outstanding at December 31, 2019

Additional paid-in capital

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Total Synthetic Biologics, Inc.

and Subsidiaries Equity

and Subsidiaries (Deficit) Equity

Non-controlling interest

Total Stockholders' Deficit

Total Liabilities and Stockholders' Equity

Total Liabilities and Stockholders' Deficit

See accompanying notes to consolidated financial

Synthetic Biologics,

Synthetic Biologics, Inc.

and Subsidiaries

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Other Income:

Change in fair value of warrant liability

Interest income

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Series B Preferred Stock Dividends

Effect of Warrant exercise price adjustment

Net Loss Attributable to Common Stockholders

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Weighted average number of shares outstanding during the period - Basic and Dilutive

See accompanying notes to consolidated financial

See accompanying notes to consolidated

financial statements

Synthetic Biologics, Inc.

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Consolidated Statements

of (Deficit) Equity

(In thousands, except share and par value amounts)

of Stockholders Deficit

(In thousands, except share and par value

Non-Controlling

Stockholders'

(Deficit)Equity

Balance at December 31,

Stock-based compensation

Stock issued under "at-the-market" offering

Common stock and warrants issued to vendors

Series A Preferred Stock Dividends

Series B preferred stock beneficial conversion

feature discount

Issuance of Common Stock, preferred Stock and Warrants

in Units Offering, net of issuance costs

Issuance of SYN Biomics Stock

Conversion of Series B Preferred Stock to Common

Conversion of Series B Preferred Stock to

Non-controlling interest

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Stock-based compensation

Stock issued under "at-the-market"

Series A Preferred Stock Dividends

Issuance of SYN Biomics Stock

Conversion of Series B Preferred Stock to Common

Effect of Warrant exercise price adjustment

Conversion of Series B Preferred Stock to

Non-controlling interest

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Stock-based compensation

Common stock issued to vendor

Subsidiary stock issues to vendor

Warrant issued to vendor

Change in fair value of warrant liabilities

Subsidiary stock issuances to vendor

Changes in operating assets and liabilities:

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Lease liability

Deferred rent

Net Cash Used In Operating Activities

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Cash Flows From Financing Activities:

Proceeds from Units offering, net of issuance cost

Proceeds from "at the market" stock issuance

Proceeds from "at-the-market"

stock issuance

Net Cash Provided By Financing Activities

Net increase (decrease) increase in cash

Net decrease in cash

Cash and cash equivalents at beginning of year

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Conversion of Series B Preferred Stock

Right of use asset from operating lease

Deemed dividends for accretion of Series B Preferred Stock discount

Effect of Warrant exercise price adjustment

In-kind dividends in preferred stock

Right of use assets from operating lease

See accompanying notes to consolidated financial

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Synthetic Biologics, Inc.

(the “Company”

or “Synthetic Biologics”) is a diversified clinical-stage company leveraging the microbiome to develop therapeutics

designed to prevent and treat gastrointestinal (GI) diseases in areas of high unmet need.

The Company’s lead candidates are:

(1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the

gastrointestinal (GI) tract to prevent (a) microbiome damage, (b) Clostridioides difficile infection (CDI), (c) overgrowth

of pathogenic organisms, (d) the emergence of antimicrobial resistance (AMR) and (e) acute graft-versus-host-disease (aGVHD) in

allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-010 which is intended to reduce the impact of methane-producing

organisms in the gut microbiome to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C).

is also advancing SYN-020, an oral formulation of the enzyme intestinal alkaline phosphatase (IAP) to treat both local GI

and systemic diseases.

(the “Company”

or “Synthetic Biologics”) is a diversified clinical-stage company developing therapeutics designed to prevent and treat

gastrointestinal (GI) diseases in areas of high unmet need.

The Company’s lead clinical development candidates are:

(ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the gastrointestinal

(GI) tract to prevent (a) microbiome damage, (b) Clostridioides difficile infection (CDI), (c) overgrowth

of pathogenic organisms, (d) the emergence of antimicrobial resistance (AMR) and (e) acute graft-versus-host-disease

(aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the

enzyme intestinal alkaline phosphatase (IAP) produced under Current Good Manufacturing Practice (cGMP) conditions and intended

to treat both local GI and systemic diseases.

The Company was also developing SYN-010

to reduce the impact of methane-producing organisms in the gut microbiome to treat an underlying cause of irritable bowel syndrome

with constipation (IBS-C).

On September 30, 2020, Cedars Sinai Medical Center’s (CSMC) (the Company’s SYN-010

clinical development partner) informed the Company that it agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical

study of SYN-010 IBS-C patients.

Based on the results of a planned interim futility analysis, it was concluded that although SYN-010

was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment is completed.

Corporate Structure and Basis of

As of December 31, 2019, the Company had

eight subsidiaries, Pipex Therapeutics, Inc.

(“Pipex Therapeutics”), Effective Pharmaceuticals, Inc.

Solovax, Inc.

(“Solovax”), CD4 Biosciences, Inc.

(“CD4”), Epitope Pharmaceuticals, Inc.

Healthmine, Inc.

(“Healthmine”), Putney Drug Corp.

(“Putney”) and Synthetic Biomics, Inc.

(“SYN Biomics”).

Pipex Therapeutics, EPI, Healthmine and Putney are wholly owned, and Solovax, CD4, Epitope and SYN Biomics are majority-owned.

As of December 31, 2020, the Company

had eight subsidiaries, Pipex Therapeutics, Inc.

(“Pipex Therapeutics”), Effective Pharmaceuticals, Inc.

(“EPI”), Solovax, Inc.

(“Solovax”), CD4 Biosciences, Inc.

(“CD4”), Epitope Pharmaceuticals, Inc.

(“Epitope”), Healthmine, Inc.

(“Healthmine”), Putney Drug Corp.

(“Putney”) and Synthetic

Biomics, Inc.

(“SYN Biomics”).

Pipex Therapeutics, EPI, Healthmine and Putney are wholly owned, and Solovax, CD4,

Epitope and SYN Biomics are majority-owned.

For financial reporting purposes, the outstanding

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All subsidiaries were formed under the laws of the State of Delaware on

January 8, 2001, except for EPI, which was incorporated in Delaware on December 12, 2000, Epitope which was incorporated in Delaware

in January of 2002, Putney which was incorporated in Delaware in November of 2006, Healthmine which was incorporated in Delaware

in December of 2007 and SYN Biomics which was incorporated in Nevada in December of 2013.

Reverse Stock Split

On August 10, 2018, we effected a one for

thirty five reverse stock split (the “Reverse Stock Split”) of our authorized, issued and outstanding common stock.

Unless otherwise noted, all references to share amounts in these financial statements reflect the Reverse Stock Split.

Every thirty five shares of issued and

outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change

in the par value per share of common stock.

All share and per share amounts in the financial

statements have been retroactively adjusted for all periods presented to give effect to the reverse split including reclassifying

an amount equal to the reduction in par value to additional paid-in capital.

The Reverse Split affected all issued and

outstanding shares of common stock, as well as common stock underlying stock options, warrants and convertible instruments outstanding

immediately prior to the effectiveness of the Reverse Split.

The Reverse Split reduced the total number of shares of common stock

outstanding from approximately 128.5 million to approximately 3.7 million.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Going Concern

The accompanying consolidated financial

statements have been prepared assuming the Company will continue as a going concern.

The Company continues to incur losses and,

as of December 31, 2019, the Company had an accumulated deficit of approximately $235.5 million.

Since inception, the Company has

financed its activities principally from the proceeds from the issuance of equity securities.

The Company’s ability to continue

as a going concern is dependent upon the Company’s ability to raise additional debt and equity capital.

There can be no assurance

that such capital will be available in sufficient amounts or on terms acceptable to the Company.

These factors raise substantial

doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements do not

include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be

necessary should the Company be unable to continue as a going concern.

The Company does not have sufficient capital

to fund our operations beyond the next twelve months.

In order to address our capital needs, including our planned clinical

trials, the Company is actively pursuing additional equity or debt financing in the form of either a private placement or a public

The Company has been in ongoing discussions with strategic institutional investors and investment banks with respect

to such possible offerings.

Such additional financing opportunities might not be available to the Company when and if needed, on

acceptable terms or at all.

If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms

under such circumstances, the Company’s operating results and prospects will be adversely affected.

January 8, 2001, except for EPI, which was incorporated in Delaware on December 12, 2000, Epitope which was incorporated

in Delaware in January of 2002, Putney which was incorporated in Delaware in November of 2006, Healthmine which was incorporated

in Delaware in December of 2007 and SYN Biomics which was incorporated in Nevada in December of 2013.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Going Concern – (continued)

At December 31, 2019 the Company had cash

and cash equivalents of approximately $15.0 million.

Based upon the Company’s current business plans, management believes that the Company’s current cash on hand will be sufficient to fully execute its plans through December 31, 2020.

Commencement of planned future clinical trials is subject to the Company’s successful pursuit of opportunities that will

allow it to establish the clinical infrastructure and financial resources necessary to successfully initiate and complete its

The Company anticipates its current cash will allow it to cover overhead costs, manufacturing costs for clinical supply,

commercial scale up costs and limited research efforts, including completing its funding requirements for its ongoing Phase 2b

investigator-sponsored clinical study of SYN-010, the planned Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic

HCT recipients, as well as preclinical activities in support of an IND filing for its SYN-020 program.

The Company will be required

to obtain additional funding in order to continue the development of its current product candidates within the anticipated time

periods (including initiation of its planned future clinical trials), if at all, and to continue to fund operations at the current

cash expenditure levels.

Currently, the Company does not have commitments from any third parties to provide it with capital.

sources of financing include strategic relationships, public or private sales of equity (including through the “at-the-market”

Issuance Sales Agreement (the “FBR Sales Agreement”) that the Company entered into with FBR Capital Markets &

in August 2016) or debt and other sources.

The Company cannot assure that it will meet the requirements for use of the FBR

Sales Agreement or that additional funding will be available on favorable terms, or at all.

Current cash is expected to cover

overhead costs, manufacturing costs for clinical supply, commercial scale up costs and limited research efforts.

If the Company

fails to obtain additional funding for its clinical trials, whether through the sale of securities or a partner or collaborator,

and otherwise when needed, it will not be able to execute its business plan as planned and will be forced to cease certain development

activities (including initiation of planned clinical trials) until funding is received and its business will suffer, which would

have a material adverse effect on its financial position, results of operations and cash flows.

The actual amount of funds we will need

to operate is subject to many factors, some of which are beyond our control.

These factors include the following:

the progress of our research activities;

the number and scope of our research programs;

the ability to recruit patients for clinical studies in a timely manner;

the progress of our preclinical and clinical development activities;

the progress of the development efforts of parties with whom we have entered into research and development agreements and amount of funding received from partners and collaborators;

our ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;

our ability to achieve our milestones under licensing arrangements;

the costs associated with manufacturing-related services to produce material for use in our clinical trials;

the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;

the costs and timing of regulatory approvals.

Organization and Nature of Operations

and Basis of Presentation –

As of December 31, 2020, the

Company has a significant accumulated deficit, and with the exception of the three months ended June 30, 2010 and the

three months ended December 31, 2017, the Company has experienced significant losses and incurred negative cash flows

since inception.

The Company expects to continue incurring losses for the foreseeable future, with the recognition of revenue

being contingent on successful phase 3 clinical trials and requisite approvals by the FDA.

Historically, the Company has

financed its operations primarily through public and private sales of its common stock and a private placement of its

preferred stock, and it expects to continue to seek to obtain required capital in a similar manner.

The Company has spent,

and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy,

including planned product development efforts, clinical trials and research and discovery efforts.

Cash and cash equivalents totaled approximately

$6.2 million as of December 31, 2020, which includes the net proceeds of approximately $3.4 million from sales of its Common Stock

in “at-the-market”

(ATM) equity offerings during 2020.

Subsequent to year end through March 3, 2021, the Company received

cash proceeds of approximately $8.0 million through the exercise of a portion of the October 2018 warrants and approximately $63.8

million from sales of its Common Stock in “at-the-market”

(ATM) equity offerings, see Note 10.

With these additional

sources of liquidity , the Company believes it will be able to fund

its operations through the next twelve months from the issuance date of these financial statements.

Management believes its plan,

which includes the further development of SYN-020 and additional testing of SYN-004 (ribaxamase), will allow the Company to meet

its financial obligations, further advance key products, and maintain the Company’s planned operations for at least one year

from the issuance date of these consolidated financial statements.

If necessary, the Company may attempt to utilize the ATM or

seek to raise additional capital on the open market, neither of which is guaranteed.

Use of the ATM is limited by certain restrictions

and management’s plan does not rely on additional capital from either of these sources.

If the Company is not able to obtain

additional capital (which is not assured at this time), our long-term business plan may not be accomplished and we may be forced

to cease certain development activities.

More specifically, the completion of any later stage clinical trial will require significant

financing or a significant partnership.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Going Concern – (continued)

The Company has based its estimates of

funding requirements on assumptions that may prove to be wrong.

The Company may need to obtain additional funds sooner or in greater

amounts than it currently anticipates.

If the Company raises funds by selling

additional shares of common stock or other securities convertible into common stock, the ownership interest of the existing stockholders

will be diluted.

If the Company is not able to obtain financing when needed, it may be unable to carry out its business plan.

a result, the Company may have to significantly limit its operations and its business, financial condition and results of operations

would be materially harmed.

Summary of Significant Accounting

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have been eliminated in consolidation.

Immaterial Revision

In 2020, the Company completed an Internal Revenue Code Section

382 analysis of its historical net operating loss carry-forward amount.

As a result, the prior year net operating loss carry-forward

was determined to be limited.

See Note 8 for further details.

Use of Estimates

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Non-controlling Interest

The Company’s non-controlling interest

represents the minority shareholder’s ownership interest related to the Company’s subsidiary, SYN Biomics.

reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets and

reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common stockholders

The Company’s non-controlling interest

represents the minority stockholder’s ownership interest related to the Company’s subsidiary, SYN Biomics.

reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets and reports

both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common stockholders

on the face of the Consolidated Statements of Operations.

On September 5, 2018, the Company entered into an agreement with the

minority shareholder for an investigator-sponsored Phase 2 clinical study of SYN-010.

On September 5, 2018, the Company entered into an agreement with

the minority stockholder for an investigator-sponsored Phase 2 clinical study of SYN-010.

Prior to this agreement and IRB approval

in December 2018, the Company’s equity interest in SYN Biomics was 88.5% and the non-controlling stockholder’s interest

In consideration of the support, the Company issued additional shares of stock to the minority shareholder.

The Company’s

equity interest in SYN Biomics is now 83.0% and the non-controlling stockholder’s interest is 17.0%.

This is reflected in

the Consolidated Statements of (Deficit) Equity.

in December 2018, the Company’s equity interest in SYN Biomics was 88.5% and the non-controlling stockholder’s

interest was 11.5%.

In consideration of the support, the Company issued additional shares of stock to the minority stockholder.

The Company’s equity interest in SYN Biomics is now 83.0% and the non-controlling stockholder’s interest is 17.0%.

This is reflected in the Consolidated Statements of Equity (Deficit).

Risks and Uncertainties

The Company’s operations could be

subject to significant risks and uncertainties including financial, operational and regulatory risks and the potential risk of

business failure.

These conditions may not only limit the Company’s access to capital, but also make it difficult for its

customers, its vendors and its ability to accurately forecast and plan future business activities.

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approximately $201,000 and $240,000 for the years ended December 31, 2020 and 2019, respectively.

When assets are disposed of,

the cost and accumulated depreciation are removed from the accounts with any gain or loss reported in the consolidated statement

When assets are disposed

of, the cost and accumulated depreciation are removed from the accounts with any gain or loss reported in the consolidated statement

of operations.

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Loss per Share

Basic net loss per share is computed

by dividing net loss by the weighted average number of common shares outstanding.

Diluted net loss per share is computed by

dividing net loss by the weighted average number of common shares outstanding including the effect of common share

Diluted net loss per share assumes the issuance of potential dilutive common shares outstanding for the period

and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance,

unless such effect is anti-dilutive.

Net loss attributable to common stockholders for the year ended December 31, 2019

excludes net loss attributable to non-controlling interest of $0.1 million and includes the accretion of Series B preferred

discount of $0.5 million on converted shares and Series A preferred stock accrued dividends of $0.2 million.

attributable to common stockholders for the year ended December 31, 2018 excludes net loss attributable to non-controlling

interest of $0.1 million and includes the accretion of the Series B preferred stock deemed dividend of $9.2 million,

accretion of Series B preferred discount of $2.5 million on converted shares and $0.2 million of Series A accrued dividends.

The number of common stock underlying Series B Preferred shares convertible to common stock that were excluded from the

computations of net loss per common share and for the year ended December 31, 2019 and 2018 were 6,641,736 and 7,966,057,

Basic net loss per share is computed by

dividing net loss by the weighted average number of common shares outstanding.

Diluted net loss per share is computed by dividing

net loss by the weighted average number of common shares outstanding including the effect of common share equivalents.

net loss per share assumes the issuance of potential dilutive common shares outstanding for the period and adjusts for any changes

in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive.

Net loss attributable to common stockholders for the year ended December 31, 2020 excludes net loss attributable to non-controlling

interest of $0.1 million and includes the accretion of Series B preferred discount of $1.4 million on converted shares and

Series A preferred stock accrued dividends of $0.3 million.

Net loss attributable to common stockholders for the year ended

December 31, 2019 excludes net loss attributable to non-controlling interest of $0.1 million and includes the accretion of

Series B preferred discount of $0.5 million on converted shares and Series A preferred stock accrued dividends of $0.2

The number of shares of common stock underlying Series A Preferred shares convertible to common stock that were excluded

from the computations of net loss per common share for the years ended December 31, 2020 and 2019 were 678,258 and 664,798,

respectively.

The number of options and warrants for the purchase of common stock that were excluded from the computations of

net loss per common share and for the year ended December 31, 2019 were 2,502,012 and 18,714,999, respectively, for the year

ended December 31, 2018 were 938,982 and 18,915,850, respectively because their effect is anti-dilutive.

The number of shares of common stock underlying Series B Preferred shares convertible to common stock that were

excluded from the computations of net loss per common share and for the years ended December 31, 2020 and 2019 were 3,454,783

and 6,641,736, respectively.

The number of options and warrants for the purchase of common stock that were excluded from the computations

of net loss per common share for the year ended December 31, 2020 were 3,997,418 and 18,000,713, respectively, and for the

year ended December 31, 2019 were 2,502,012 and 18,714,999, respectively, because their effect is anti-dilutive.

Synthetic Biologics, Inc.

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Research and development expenses include external contract research organization

(“CRO”) services.

The Company makes payments to the CROs based on agreed upon terms and may include payments in advance

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progress to completion.

At December 31, 2019 and 2018, the Company has accrued CRO expenses of $0.7 million and $0.7 million, respectively,

that are included in accrued expenses.

The Company has prepaid CRO costs at December 31, 2019 of $48,000 and zero prepaid costs

as of December 31, 2018.

At December 31, 2020 and 2019, the Company has accrued CRO expenses of “$0.7 million and $0.7

million”, that are included in accrued expenses.

The Company has prepaid CRO costs at December 31, 2020 and 2019 of

$470,000 and $48,000, respectively.

Fair Value of Financial Instruments

Accounting Standards Codification (ASC)

820, Fair Value Measurement , defines fair values as the amount that would be received to sell an asset or paid to transfer

Accounting Standards Codification (“ASC”)

820, Fair Value Measurement , defines fair value as the amount that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants.

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Level 2 inputs:

Inputs, other than quoted prices, included in Level 1 that are observable either directly or indirectly;

Inputs, other than quoted prices, that are observable either directly or indirectly;

Level 3 inputs:

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input determines the placement of the entire fair value measurement in the hierarchy.

The carrying amounts of the Company’s

short-term financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities

approximate fair value due to the relatively short period to maturity for these instruments.

The carrying amounts of the Company’s

short-term financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair

value due to the relatively short period to maturity for these instruments.

Cash and cash equivalents include money

market accounts of $98,000 as of December 31, 2019 and 2018, that are measured using Level 1 inputs.

market accounts of $114,000 and $98,000 as of December 31, 2020 and 2019, respectively, that are measured using Level 1 inputs.

The Company uses Monte Carlo simulations

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The assumptions used in calculating

the estimated fair value of the warrants represent the Company’s best estimates;

however, these estimates involve inherent

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warrant liability and the change in estimated fair value could be materially different.

In 2019, the Monte Carlo simulations were not used as the value

of the warrants were deemed to be minimal based on the historical fair value of the warrants and the Company’s current stock

In 2020 and 2019, the Monte Carlo simulations

were not used as the value of the warrants were deemed to be minimal based on the historical fair value of the warrants and the

Company’s current stock price.

Stock-Based Payment Arrangements

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including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value

on the awards’ grant date typically using the Black-Scholes option pricing model, based on the estimated number of awards

on the awards’

grant date typically using the Black-Scholes option pricing model, based on the estimated number of awards

that are ultimately expected to vest.

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Summary of Significant Accounting

Policies – (continued)

compensation awards issued to non-employees

for services rendered are recorded at either the fair value of the services rendered or the fair value of the stock-based payment,

whichever is more readily determinable and are remeasured over the corresponding vesting period.

The expense resulting from stock-based

payments is recorded in research and development expense or general and administrative expense in the Consolidated Statement of

Operations, depending on the nature of the services provided.

Policies –

Stock based compensation awards issued

to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the

stock-based payment, whichever is more readily determinable.

resulting from stock-based payments is recorded in research and development expense or general and administrative expense in the

Consolidated Statements of Operations, depending on the nature of the services provided.

Derivative Instruments

The warrants issued in conjunction with

the public offering of the Company’s securities in November 2016 include a provision that if the Company were to enter into

a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder for cash.

The provisions

of these warrants preclude equity accounting treatment under ASC 815, Derivatives and Hedging, Accordingly, the Company

is required to record the warrants as liabilities at their fair value upon issuance and re-measure the fair value at each period

end with the change in fair value recorded in the Consolidated Statement of Operations.

When the warrants are exercised or cancelled,

they are reclassified to equity.

The Company uses Monte Carlo simulations to estimate the fair value of the warrants.

In 2019, the Monte Carlo simulations were not used as the value

of the warrants were deemed to be minimal based on the historical fair value of the warrants and the Company’s current stock

The Company recognizes deferred tax liabilities

and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities,

The warrants issued in conjunction

with the public offering of the Company’s securities in November 2016 include a provision that if the Company were

to enter into a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder for

The provisions of these warrants preclude equity accounting treatment under ASC 815, Derivatives and Hedging,

Accordingly, the Company is required to record the warrants as liabilities at their fair value upon issuance and re-measure

the fair value at each period end with the change in fair value recorded in the Consolidated Statement of Operations.

the warrants are exercised or cancelled, they are reclassified to equity.

The Company uses Monte Carlo simulations to

estimate the fair value of the warrants.

In November 2020, all liability-classified warrants expired.

In 2019, the Monte

Carlo simulations were not used as the value of the warrants was deemed to be minimal based on the historical fair value of

the warrants and the Company’s current stock price.

The Company recognizes deferred tax assets

and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities,

using enacted tax rates in effect in the years the differences are expected to reverse.

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and Developments

In February 2016,

the FASB issued Accounting Standards Codification (“ASC”) 842, Leases .

The guidance requires lessees to

recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding

leasing arrangements.

The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted.

The guidance is required to be adopted using the modified retrospective method with the use of the alternative transition method being an option

that was provided for by ASU 2018-11 and provides for certain practical expedients.

The Company adopted this guidance effective

January 1, 2019 using the modified retrospective alternative transition method wherein the Company

applied the guidance to each lease that had commenced as of January 1, 2019 (the beginning of effective date) with a cumulative

effect adjustment as of that date.

The prior comparative period was not adjusted under this method and the Company has provided

the required disclosures under ASC 840, Leases for the comparative period to which ASC 840 is applied.

has also elected to adopt the following package of practical expedients:

the Company did not reassess if any expired or existing contracts are or contain leases.

the Company did not reassess the initial direct costs for existing leases.

the Company did not reassess the classification of any expired or existing leases.

Additionally, the Company made

ongoing accounting policy elections whereby it (i) did not recognize right of use (“ROU”) assets or lease

liabilities for short-term leases (those with original terms of 12-months or less) and (ii) does not combine lease and

non-lease elements of its operating leases.

The determination of whether an arrangement contains a lease and the

classification of a lease, if applicable, is made at lease commencement.

Upon adoption

of the new guidance on January 1, 2019, the Company recorded a ROU asset of approximately $537,000 (net existing deferred

rent liability) and recognized a lease liability of approximately $939,000.

In August 2020, the FASB issued Accounting

Standards Update (ASU) 2020-06 Debt –

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

Contracts in Entity’s Own Equity (subtopic 815-40) :

Accounting for Convertible Instruments and Contracts in

an Entity’s Own Equity .

This ASU amends the guidance on convertible instruments and the derivatives scope exception for

contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics.

The ASU will be

effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption

is permitted in annual reporting periods ending after December 15, 2020.

The Company is currently assessing the impact of

ASU 2020-06 on its consolidated financial statements.

On January 30, 2020, the World Health

Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan,

China (the COVID-19 outbreak or “COVID-19”) and the risks to the international community as the virus spreads globally

beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase

in exposure globally.

On March 27, 2020, the Coronavirus

Aid, Relief and Economic Security Act (“CARES Act”) was enacted.

The CARES Act is an emergency economic stimulus package

that includes spending and tax breaks to strengthen the United States’

economy and fund a nationwide effort to curtail the

effect of COVID-19.

While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant

provisions include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period

for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions

of the previously enacted Tax Cuts and Jobs Act.

The Company has assessed the impact of the CARES Act and, based upon our initial

assessment, the Company does not believe that it will have a significant effect on our financial position, results of operations

or cash flows.

The Company continues to evaluate its impact as new information becomes available.

Synthetic Biologics, Inc.

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (in thousands):

Prepaid manufacturing expenses

Prepaid insurance

Prepaid consulting, subscriptions and other expenses

Prepaid insurances

Prepaid clinical research organizations

Prepaid conferences, travel

Other receivable

Stock sales receivable

Prepaid consulting, subscriptions and other expenses

Prepaid manufacturing expenses

Prepaid conferences and travel

Prepaid CRO expense is classified as a

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Accrued clinical consulting services

Accrued manufacturing costs

Accrued vendor payments

Other accrued expenses

Accrued manufacturing costs

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Selected Balance Sheet Information – (continued)

Selected Balance Sheet Information –

ACCRUED EMPLOYEE BENEFITS (in thousands)

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Accrued vacation expense

Accrued severance

Stock-Based Compensation and Warrants

Stock Incentive Plan

On March 20, 2007, the Company’s

Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 71,429

On March 20, 2007, the Company’s

Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 71,429

shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend

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price of stock options under the 2007 Stock Plan was determined by the compensation committee of the Board of Directors and may

be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted.

number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee

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over various periods from the date of grant, and generally expire ten years after the grant date.

As of December 31, 2019, there

were 7,052 options issued and outstanding under the 2007 Stock Plan.

On November 2, 2010, the Board of Directors

and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 85,714 shares

of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend

As of December 31, 2020,

there were 5,145 options issued and outstanding under the 2007 Stock Plan.

On November 2, 2010, the Board of

Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 85,714

shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend

equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors

and consultants of the Company and its subsidiaries.

On October 22, 2013, the stockholders approved and adopted an amendment to

the Company’s 2010 Incentive Stock Plan to increase the number of shares of Company’s common stock reserved for issuance

under the Plan from 85,714 to 171,429.

On May 15, 2015, the stockholders approved and adopted an amendment to the Company’s

2010 Incentive Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the

Plan from 171,429 to 228,572.

On August 25, 2016, the stockholders approved and adopted an amendment to the 2010 Stock Plan to

increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 228,572

On September 7, 2017, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number

of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 400,000 to 500,000.

24, 2018, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s

common stock reserved for issuance under the 2010 Stock Plan from 500,000 to 1,000,000.

On October 22, 2013, the stockholders approved and adopted an amendment

to the Company’s 2010 Incentive Stock Plan to increase the number of shares of Company’s common stock reserved for

issuance under the Plan from 85,714 to 171,429;

on May 15, 2015, increased the number of shares from 171,429 to 228,572;

August 25, 2016, increased the number of shares from 228,572 to 400,000;

on September 7, 2017, increased the number of

shares from 400,000 to 500,000;

on September 24, 2018 increased the number of shares from 500,000 to 1,000,000;

and on September 5,

2019, increased the number of shares from 1,000,000 to 4,000,000.

The exercise price of stock options under the 2010 Stock Plan

is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value

of the Company’s common stock on the date the option is granted.

Options become exercisable over various period from the

date of grant, and expire between five and ten years after the grant date.

As of December 31, 2020, there were 2,452,273 options

issued and outstanding under the 2010 Stock Plan.

On September 17, 2020, the stockholders

approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Common Stock reserved for issuance

under the 2010 Stock Plan from 1,000,000 to 4,000,000.

The exercise price of stock options under the 2010 Stock Plan is determined

by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s

common stock on the date the option is granted.

Options become exercisable over various period from the date of grant, and expire

between five and ten years after the grant date.

As of December 31, 2019, there were 2,494,960 options issued and outstanding under

the 2010 Stock Plan.

approved and adopted the 2020 Stock Incentive Plan (“2020 Stock Plan”) for the issuance of up to 4,000,000 shares

of Common Stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend

equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors

and consultants of the Company and its subsidiaries.

As of December 31, 2020, there were 1,540,000 options issued and outstanding

under the 2010 Stock Plan.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stock-Based Compensation and

Warrants – (continued)

In the event of an employee’s termination,

Stock-Based Compensation and Warrants –

In the event of an employee’s termination,

the Company will cease to recognize compensation expense for that employee.

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grant using the Black-Scholes option pricing model.

The assumptions used for the years ended December 31, 2019 and 2018 are as

The assumptions used for the years ended December 31, 2020 and 2019 are

Year ended December 31,

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Expected life of option (years)

Expected dividends

— The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.

Expected volatility —Volatility

is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected

to fluctuate (expected volatility) during a period.

Risk-free interest

rate —The assumed risk free rate used is a zero coupon U.S.

Treasury security with a maturity that approximates the expected

term of the option.

Expected life of

the option —The period of time that the options granted are expected to remain unexercised.

Options granted during the

year have a maximum term of seven years.

The Company estimates the expected life of the option term based on the weighted average

life between the dates that options become fully vested and the maximum life of options granted.

dividends —

The Company has never declared or paid dividends on its common stock and has no plans to do so in the

foreseeable future.

Expected volatility —Volatility is a measure of

the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate

(expected volatility) during a period.

The expected volatility assumption is derived from the historical volatility of the Company’s

common stock over a period approximately equal to the expected term.

interest rate —The assumed risk free rate used is a zero coupon U.S.

Treasury security with a maturity that approximates

the expected term of the option.

life of the option —The period of time that the options granted are expected to remain unexercised.

Options granted

during the year have a maximum term of seven years.

The Company estimates the expected life of the option term based on the weighted

average life between the dates that options become fully vested and the maximum life of options granted.

Synthetic Biologics, Inc.

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Stock-Based Compensation and Warrants

– (continued)

The Company records stock-based compensation

based upon the stated vested provisions in the related agreements.

based upon the stated vesting provisions in the related agreements.

The vesting provisions for these agreements have various terms

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one-quarter immediate vesting and remaining over 33 months,

monthly over one year, and

monthly over three years.

During the years ended December 31,

and 2018, the Company granted 1,725,000 and 671,500 options to employees and directors having an approximate fair value of $0.5

million and $0.3 million based upon the Black-Scholes option pricing model, respectively.

2020 and 2019, the Company granted 1,540,000 and 1,725,000 options to employees and directors having an approximate fair value

of $0.4 million and $0.5 million based upon the Black-Scholes option pricing model, respectively.

Stock-based compensation expense included

in general and administrative expenses and research and development expenses relating to stock options issued to employees for

the years ended December 31, 2019 and 2018 was $0.3 million and $1.8 million, respectively.

the years ended December 31, 2020 and 2019 was $213,000 and $295,000, respectively.

Stock-based compensation expense included

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Notes to Consolidated Financial Statements

Stock-Based Compensation and Warrants – (continued)

Stock-Based Compensation and Warrants –

Average Exercise

Weighted Average

Contractual Life

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Notes to Consolidated Financial Statements

Stock-Based Compensation and Warrants – (continued)

Stock-Based Compensation and Warrants –

The options outstanding and exercisable

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Exercise Price

$ 0.00 – $40.00

41.00 – $70.00

$ 71.00 – $102.00

41.00 –

71.00 –

As of December 31, 2020, total unrecognized

stock-based compensation expense related to stock options was $681,000, which is expected to be expensed through June 2022.

The FASB’s guidance for stock-based

stock-based compensation expense related to stock options was $686,000, which is expected to be expensed through February 2023.

The FASB’s guidance for stock-based

payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities.

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Cash received

from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2019 and 2018

from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2020 and 2019

Also, during the years ended December 31, 2020 and 2019, the Company did not issue any shares of common stock in connection with the exercise

of stock options.

Stock Warrants

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its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting

discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units

(the “Class A Units”), with each Class A Unit consisting of one share of the Common Stock, and one five-year warrant

to purchase one share of Common Stock at an exercise price of $1.38 per share (each a “Warrant” and collectively, the

“Warrants”), with each Class A Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723

Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class

B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s

Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible

into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred

Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 Warrants.

In addition, pursuant to the underwriting agreement that the Company had entered into with A.G.P./Alliance Global Partners (the

“Underwriters”), as representative of the underwriters, the Company granted the Underwriters a 45 day option (the “Over-allotment

Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional Warrants to purchase an additional

2,428,825 shares of Common Stock.

The Underwriters partially exercised the Over-allotment Option by electing to purchase from the

Company additional Warrants to purchase 1,807,826 shares of Common Stock.

The Warrants are immediately

exercisable at a price of $1.38 per share of Common Stock (which is 120% of the public offering price of the Class A Units)

and expire on October 15, 2023.

If, at the time of exercise, there is no effective registration statement registering, or no

current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be

exercised through a cashless exercise.

No fractional shares of Common Stock will be issued in connection with the exercise of

In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied

by the fair market value of any such fractional shares.

The Company has concluded that the Warrants are required to be equity

discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A

Units (the “Class A Units”), with each Class A Unit consisting of one share of the Common Stock, and one

five-year warrant to purchase one share of Common Stock at an initial exercise price of $1.38 per share, which subsequently was

reduced to $0.69 per share (each a “Warrant”

and collectively, the “Warrants”), with each Class A

Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B

Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public

at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible

Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of

Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock

convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 Warrants.

On November 16,

2020, the exercise price of the Warrants was reduced from $1.38 per Warrant per full share of the Company’s common stock,

$0.001 par value per share (the “Common Stock”), to $0.69 per Warrant per full share of Common Stock in accordance

with the anti-dilution terms of the Warrant.

The reduction was the result of the issuance of shares of Common Stock by the Company

through its “at the market offering”

The effect of the change in the exercise price of the warrants as a

result of the triggering of the down round protection clause in the Warrants was recorded as a deemed dividend of $880,000, which

reduces the income available to common stockholders.

In addition, pursuant to the underwriting agreement that the Company had entered

into with A.G.P./Alliance Global Partners (the “Underwriters”), as representative of the underwriters, the Company

granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares

of Common Stock and/or additional Warrants to purchase an additional 2,428,825 shares of Common Stock.

The Underwriters partially

exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of

Common Stock.

The Warrants are immediately exercisable

at a price of $1.38 ($0.69 effective November 16, 2020) per share of Common Stock (which was 120% of the public offering

price of the Class A Units) and expire on October 15, 2023.

If, at the time of exercise, there is no effective registration

statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then

the Warrants may only be exercised through a cashless exercise.

No fractional shares of Common Stock will be issued in connection

with the exercise of a Warrant.

In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional

amount multiplied by the fair market value of any such fractional shares.

The Company has concluded that the Warrants are required

to be equity classified.

The Warrants were valued on the date of grant using Monte Carlo simulations.

In 2019, the Monte Carlo simulations were not used as the value of the warrants were deemed to be minimal based on the historical

fair value of the warrants and the Company’s current stock price.

During January and February

2021, 11,655,747 warrants were exercised for cash proceeds of $8.0 million, see note 10.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stock-Based Compensation and

Warrants – (continued)

The assumptions used by the Company are

summarized in the following table:

Closing stock price

Expected dividends

Expected volatility

Risk free interest rate

Expected life of warrant (years)

On November 18, 2016, the Company completed

a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate of 1,428,571

shares of the common stock.

The stock and warrants were sold in combination, with two warrants for each share of common stock sold,

a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock.

The purchase price

for each share of common stock and accompanying warrants was $35.00.

The shares of common stock were immediately separable from

the warrants and were issued separately.

The initial per share exercise price of the Series A warrants is $50.05 and the per share

exercise price of the Series B warrants is $60.20, each subject to adjustment as specified in the warrant agreements.

A and Series B warrants may be exercised at any time on or after the date of issuance.

The Series A warrants are exercisable until

the four-year anniversary of the issuance date.

The Series B warrants expired December 31, 2017 and none were exercised prior to

The warrants include a provision, that if the Company were to enter into a certain transaction, as defined in the agreement,

the warrants would be purchased from the holder for cash.

Accordingly, the Company recorded the warrants as a liability at their

estimated fair value on the issuance date of $15.7 million and changes in estimated fair value will be recorded as non-cash income

or expense in the Company’s Statement of Operations at each subsequent period.

At December 31, 2019, the fair value of the

warrant liability was $100.

At December 31, 2018, the fair value of the warrant liability was $100, which resulted in non-cash

income of $3.7 million in 2018.

The warrants were valued on the date of grant and on each remeasurement period.

Stock-Based Compensation and Warrants –

On November 18, 2016, the Company

completed a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate

of 1,428,571 shares of the common stock.

The stock and warrants were sold in combination, with two warrants for each share of common

stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock.

The purchase price for each share of common stock and accompanying warrants was $35.00.

The shares of common stock were immediately

separable from the warrants and were issued separately.

The initial per share exercise price of the Series A warrants is $50.05

and the per share exercise price of the Series B warrants is $60.20, each subject to adjustment as specified in the warrant

The Series A and Series B warrants may be exercised at any time on or after the date of issuance.

warrants are exercisable until the four-year anniversary of the issuance date.

The Series B warrants expired December 31,

2017 and none were exercised prior to expiration.

The warrants include a provision, that if the Company were to enter into a certain

transaction, as defined in the agreement, the warrants would be purchased from the holder for cash.

Accordingly, the Company recorded

the warrants as a liability at their estimated fair value on the issuance date of $15.7 million and changes in estimated fair value

will be recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent period.

At December 31,

2019, the fair value of the warrant liability was $100.

The warrants were valued on the date of grant and on each remeasurement

The Series A warrants expired November 18, 2020 and none were exercised prior to expiration.

Synthetic Biologics, Inc.

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Stock-Based Compensation and Warrants

– (continued)

The assumptions used by the Company are

summarized in the following table:

Closing stock price

Expected dividends

Expected volatility

Risk free interest rate

Expected life of warrant (years)

On October 10, 2014, the Company raised

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in a registered direct offering.

Each unit consisted of one share of the Company’s common stock and a warrant to purchase

0.50 shares of common stock.

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The warrants vested immediately and expired on October 10, 2019.

The warrants issued in conjunction with

the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction,

as defined in the agreement, the warrants would be purchased from the holder at a premium.

Accordingly, the Company recorded the

warrants as a liability at their estimated fair value on the issuance date, which was $7.4 million, and changes in estimated fair

value being recorded as non-cash income or expense in the Company’s Consolidated Statements of Operations at each subsequent

At December 31, 2019, the fair value of the warrant liability was zero.

At December 31, 2018, the fair value of the warrant

liability was zero, which resulted in non-cash income of $416,000 in 2018.

The warrants were valued on the date of grant using

the Black-Scholes valuation model which approximates the value derived using Monte Carlo simulations.

In 2019, the Monte Carlo simulations were not used as the value of the warrants were deemed to be minimal based on the historical

fair value of the warrants and the Company’s current stock price.

The assumptions used by the

Company are summarized in the following table:

Closing stock price

Expected dividends

Expected volatility

Risk free interest rate

Expected life of warrant (years)

The following table summarizes the estimated

fair value of the warrant liability (in thousands) :

Balance at December 31, 2017

Change in fair value of warrant liability

Balance at December 31, 2018

Change in fair value of warrant liability

Balance at December 31, 2019

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stock-Based Compensation and Warrants – (continued)

Stock-Based Compensation and Warrants –

A summary of all warrant activity for the Company for the years

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Balance at December 31, 2020

There was no stock-based compensation expense

included in general and administrative and research and development expenses relating to warrants issued to consultants for the

years ended December 31, 2019 and 2018.

On December 26, 2017, the Company entered

into a consulting agreement for advisory services for a period of six months.

On December 26, 2017, the Company

entered into a consulting agreement for advisory services for a period of six months.

As compensation for such services, the consultant

was paid an upfront payment, is paid a monthly fee and on January 24, 2018, was issued a warrant exercisable for 714 shares of

the Company’s common stock on the date of issue.

was paid an upfront payment, is paid a monthly fee and on January 24, 2018 was issued a warrant exercisable for 714 shares

of the Company’s common stock on the date of issue.

The warrant is equity classified and the fair value of the warrant approximated

$9,000 and was measured using the Black-Scholes option pricing model.

This entire expense was recorded in the quarter ended March

The assumptions used by the Company are summarized in the following table:

Closing stock price

Expected dividends

Expected volatility

Risk free interest rate

Expected life of warrant (years)

A summary of all outstanding and exercisable

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Notes to Consolidated Financial Statements

Stockholders’ Equity

Stockholders’

Series B Preferred Stock

1 unchanged sentence

its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting

discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units,

with each Class A Unit offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units, with each Class

B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s

Series B Preferred Stock, with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided

by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173

shares of Common Stock, and issued with an aggregate of 13,672,173 October 2018 Warrants.

Since the above units are equity instruments,

the proceeds were allocated on a relative fair value basis which created the Series B Preferred Stock discount.

discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A

Units, with each Class A Unit offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B

Units, with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting

of one share of the Company’s Series B Preferred Stock, with a stated value of $1,000 and convertible into shares of

Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock

convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 October 2018

Since the above units are equity instruments, the proceeds were allocated on a relative fair value basis which created

the Series B Preferred Stock discount.

In addition, pursuant to the Underwriting

Agreement that the Company entered into with the Underwriters on October 10, 2018, the Company granted the Underwriters a 45 day

option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional

warrants to purchase an additional 2,428,825 shares of Common Stock.

Each Warrant is exercisable for one share of common stock.

The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to

purchase 1,807,826 shares of Common Stock.

Agreement that the Company entered into with the Underwriters on October 10, 2018, the Company granted the Underwriters a

45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or

additional warrants to purchase an additional 2,428,825 shares of Common Stock.

Each Warrant is exercisable for one share of common

The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants

to purchase 1,807,826 shares of Common Stock.

The Units were offered by the Company pursuant

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by the SEC on October 10, 2018.

The conversion price of the Series B

Preferred Stock and exercise price of the October 2018 Warrants is subject to appropriate adjustment in the event of recapitalization

events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Common

The conversion price of the Series B Preferred

Stock and exercise price of the October 2018 Warrants is subject to appropriate adjustment in the event of recapitalization events,

stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Common Stock.

The exercise price of the Warrants is subject to adjustment in the event of certain dilutive issuances.

During the years

ended December 31, 2019 and 2018, 1,523 and 6,562, respectively, shares have been converted resulting in the recognition $525,000

and $2.5 million, respectively, of unamortized discount from the conversion.

This is recorded as a deemed dividend in accumulated

On November 16, 2020, the

exercise price of the Warrants was reduced from $1.38 per Warrant per full share of common stock to $0.69 per Warrant per full

share of common stock.

The reduction was the result of the issuance of shares of Common Stock by the Company through its “at

the market offering”

The effect of the change in the exercise price of the warrants as a result of the triggering

of the down round protection clause in the Warrants was recorded as a deemed dividend of $880,000, which reduces the income available

to common stockholders.

During the years ended December 31, 2020 and 2019, 3,665 and 1,523, respectively, shares were converted

resulting in the recognition of deemed dividends of $1.4 million and $525,000, respectively, for the amortization of the Series

B Preferred Stock discount upon conversion.

This is recorded as a deemed dividend in accumulated deficit.

The October 2018 Warrants are immediately

exercisable at a price of $1.38 per share of common stock (which is 120% of the public offering price of the Class A Units) and

will expire on October 15, 2023.

If, at the time of exercise, there is no effective registration statement registering, or no current

prospectus available for, the issuance of the shares of common stock to the holder, then the October 2018 warrants may only be

exercised through a cashless exercise.

No fractional shares of common stock will be issued in connection with the exercise of any

October 2018 warrants.

In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied

by the fair market value of any such fractional shares.

exercisable at a price of $1.38 ($0.69 effective November 16, 2020) per share of common stock (which was 120% of the public

offering price of the Class A Units) and will expire on October 15, 2023.

If, at the time of exercise, there is no effective

registration statement registering, or no current prospectus available for, the issuance of the shares of common stock to the holder,

then the October 2018 warrants may only be exercised through a cashless exercise.

No fractional shares of common stock will

be issued in connection with the exercise of any October 2018 warrants.

In lieu of fractional shares, the holder will receive

an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stockholders’ Equity – (continued)

The Company may not effect, and

holder will not be entitled to, exercise any Warrants or conversion of the Series B Preferred Stock, which, upon giving

effect to such exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the holder

(together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common

stock outstanding immediately after giving effect to the exercise, or (ii) the combined voting power of the Company’s

securities beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, at the election of the

holder, 9.99%) of the combined voting power of all of the Company’s securities then outstanding immediately after

giving effect to the exercise or conversion, as such percentage ownership is determined in accordance with the terms of the

October 2018 Warrants or Series B Preferred Stock.

However, any holder may increase or decrease such percentage to any other

percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to the Company.

The holders of

the Series B Preferred will participate, on an as-if-converted-to-common stock basis, in any dividends to the holders of

common stock.

Upon a defined Fundamental Transaction, the holders of the Series B Preferred Stock are entitled to the same

consideration as are holders of common stock.

The Series B Preferred Stock ranks junior to existing Series A preferred stock

but on parity with common stock.

Liquidation preference is equal to an amount pari passu with the common stock on an as

converted basis (i.e., there is no preference to common stock)

Since the effective conversion price

of the Series B Preferred Stock is less than the fair value of the underlying common stock at the date of issuance, there is a

beneficial conversion feature (“BCF”) at the issuance date.

Because the Series B Preferred Stock has no stated maturity

or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF is immediately

charged to accumulated deficit as a “deemed dividend” and impacts earnings per share.

During the year ended December

31, 2018, the Company recorded a discount of $9.2 million and immediately amortized the discount to record the deemed dividend.

Stockholders’

Equity –

The Company may not effect, and holder

will not be entitled to, exercise any Warrants or conversion of the Series B Preferred Stock, which, upon giving effect to

such exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the holder (together with

its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding

immediately after giving effect to the exercise, or (ii) the combined voting power of the Company’s securities beneficially

owned by the holder (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the combined voting

power of all of the Company’s securities then outstanding immediately after giving effect to the exercise or conversion,

as such percentage ownership is determined in accordance with the terms of the October 2018 Warrants or Series B Preferred

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least

61 days’

prior notice from the holder to the Company.

The holders of the Series B Preferred will participate, on an

as-if-converted-to-common stock basis, in any dividends to the holders of common stock.

Upon a defined Fundamental Transaction,

the holders of the Series B Preferred Stock are entitled to the same consideration as are holders of common stock.

Preferred Stock ranks junior to existing Series A preferred stock but on parity with common stock.

Liquidation preference

is equal to an amount pari passu with the common stock on an as converted basis (i.e., there is no preference to common stock).

Since the effective conversion price of

the Series B Preferred Stock is less than the fair value of the underlying common stock at the date of issuance, there is

a beneficial conversion feature (“BCF”) at the issuance date.

Because the Series B Preferred Stock has no stated

maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF is immediately

charged to accumulated deficit as a “deemed dividend”

and impacts earnings per share.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stockholders’ Equity – (continued)

Stockholders’

Equity –

Series A Preferred Stock

On September 11, 2017, the Company entered

into a share purchase agreement (the “Purchase Agreement”) with an investor (the “Investor”), pursuant

to which the Company offered and sold in a private placement 120,000 shares of its Series A Convertible Preferred Stock, par value

$0.001 per share (the “Series A Preferred Stock”) for an aggregate purchase price of $12 million, or $100 per share.

The Series A Preferred Stock ranks senior

to the shares of the Company’s common stock, and any other class or series of stock issued by the Company with respect to

dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution

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into shares of common stock at an initial conversion price of $0.54 per share which was increased to $18.90 after taking into account

the Reverse Stock Split, subject to certain customary anti-dilution adjustments.

the Reverse Stock Split, subject to certain customary anti-dilution adjustments On January 27, 2021, the Company filed a Certificate

of Amendment to the Certificate of Designation for its Series A Convertible Preferred Stock (the “Certificate of Amendment”)

with the Secretary of State of the State of Nevada that adjusted the conversion price from $18.90 per share to $1.50 per share

and removed the redemption upon change of control see Note 10.

Any conversion of Series A Preferred Stock

may be settled by the Company in shares of common stock only.

The holder’s ability to convert the

Series A Preferred Stock into common stock is subject to (i) a 19.99% blocker provision to comply with NYSE American Listing

Rules, (ii) if so elected by the Investor, a 4.99% blocker provision that will prohibit beneficial ownership of more than

4.99% of the outstanding shares of the Company’s common stock or voting power at any time, and (iii) applicable regulatory

restrictions.

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greater of (i) an amount per share equal to the stated value plus any accrued and unpaid dividends on such share of Series A Preferred

Stock (the “Accreted Value”), and (ii) the amount such holders would receive in such liquidation if they converted

their shares of Series A Preferred Stock (based on the Accreted Value and without regard to any conversion limitation) into shares

of the common stock immediately prior to any such liquidation, dissolution or winding-up (the greater of (i) and (ii), is referred

to as the “Liquidation Value”).

Except as otherwise required by law, the

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Notes to Consolidated Financial Statements

Stockholders’ Equity – (continued)

Stockholders’

Equity –

The Series A Preferred Stock is classified

as temporary equity due to the shares being redeemable based on contingent events outside of the Company’s control.

Since the effective conversion price of the Series A Preferred Stock is less

than the fair value of the underlying common stock at the date of issuance, there is a beneficial conversion feature (“BCF”)

at the issuance date.

Because the Series A Preferred Stock has no stated maturity or redemption date and is immediately convertible

at the option of the holder, the discount created by the BCF is immediately charged to accumulated deficit as a “deemed dividend”

as temporary equity due to the shares being redeemable based on contingent events outside of the Company’s control.

the effective conversion price of the Series A Preferred Stock is less than the fair value of the underlying common stock

at the date of issuance, there is a beneficial conversion feature (“BCF”) at the issuance date.

Because the Series A

Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount

created by the BCF is immediately charged to accumulated deficit as a “deemed dividend”

and impacts earnings per share.

During the year ended December 31, 2017, the Company recorded a discount of $6.9 million.

the Series A Preferred Stock is not currently redeemable, the discount arising from issuance costs was allocated to temporary equity

and will not be accreted until such time that redemption becomes probable.

The stated dividend rate of 2% per annum is cumulative

and the Company accrues the dividend on a quarterly basis (in effect accreting the dividend regardless of declaration because the

dividend is cumulative).

During the year ended December 31, 2019 and 2018, the Company accrued dividends of $248,000 and $243,000,

respectively.

Once the dividend is declared, the Company will reclassify the declared amount from temporary equity to a dividends

payable liability.

When the redemption of the Series A Preferred Stock becomes probable, the temporary equity will be accreted

to redemption value as a deemed dividend.

Because the Series A Preferred

Stock is not currently redeemable, the discount arising from issuance costs was allocated to temporary equity and will not be accreted

until such time that redemption becomes probable.

The stated dividend rate of 2% per annum is cumulative and the Company accrues

the dividend on a quarterly basis (in effect accreting the dividend regardless of declaration because the dividend is cumulative).

During the years ended December 31, 2020 and 2019, the Company accrued dividends of $254,000 and $248,000, respectively.

the dividend is declared, the Company will reclassify the declared amount from temporary equity to a dividends payable liability.

When the redemption of the Series A Preferred Stock becomes probable, the temporary equity will be accreted to redemption

value as a deemed dividend.

Synthetic Biologics, Inc.

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Notes to Consolidated Financial Statements

Stockholders’ Equity – (continued)

FBR Sales Agreement

Stockholders’

Equity –

Riley Securities Sales Agreement

On August 5, 2016, the Company entered

1 unchanged sentence

(now known as B.

Riley FBR, Inc.), which enables the Company

to offer and sell shares of the Common Stock with an aggregate sales price of up to $40.0 million from time to time through B.

Riley FBR, Inc.

as the Company’s sales agent.

Riley Securities), which enables

the Company to offer and sell shares of the Common Stock from time to time through B.

Riley Securities, Inc.

as the Company’s

Sales of common stock under the B.

Riley FBR Sales Agreement are made in sales

deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act.

is entitled to receive a commission rate of up to 3.0% of gross sales in connection with the sale of the Common Stock

sold on the Company’s behalf.

Riley Securities Sales Agreement are made in sales deemed to be “at-the-market”

equity offerings as defined in Rule 415 promulgated under the Securities Act.

Riley Securities, Inc.

is entitled to

receive a commission rate of up to 3.0% of gross sales in connection with the sale of the Common Stock sold on the Company’s

For the year ended December 31, 2020, the Company sold through the B.

Riley FBR Sales Agreement

an aggregate of 3.5 million shares of the Common Stock and received net proceeds of approximately $12.2 million.

The Company has

not sold any shares of common stock during 2019 through the B.

Riley FBR Sales Agreement.

Also, during the years ended December 31,

2019 and 2018, the Company did not issue any shares of common stock in connection with the exercise of stock options.

Riley Securities Sales Agreement an aggregate

of 9.3 million shares of Common Stock and received net proceeds of approximately $ 3.4 million.

The Company did not sell any shares

of common stock during 2019 through the B.

Riley Securities Sales Agreement.

Subsequent to year end through March 3, 2021, the

Company sold approximately 76.3 million shares of the Company’s common stock and received net proceeds of approximately $63.8

Synthetic Biologics, Inc.

2 unchanged sentences

Non-controlling Interest

On September 5, 2018, the Company entered

into an agreement (the ‘Stock Purchase Agreement”) with Cedars-Sinai Medical Center (CSMC) for an investigator-sponsored

Phase 2b clinical study of SYN-010 to be co-funded by the Company and CSMC (the “Study”).

On September 5, 2018, the Company

entered into an agreement (the ‘Stock Purchase Agreement”) with Cedars-Sinai Medical Center (CSMC) for an investigator-sponsored

Phase 2b clinical study of SYN-010 to be co-funded by the Company and CSMC (the “Study”).

The Study will provide further

evaluation of the efficacy and safety of SYN-010, the Company’s modified-release reformulation of lovastatin lactone, which

is exclusively licensed to the Company by CSMC.

2 unchanged sentences

In consideration of the support provided

by CSMC for the Study, the Company will pay $441,000 to support the Study and the Company entered into a Stock Purchase Agreement

with CSMC pursuant to which the Company, upon the approval of the Study protocol by the Institutional Review Board (IRB) :

issued to CSMC 50,000 shares of Common Stock of the Company;

and (ii) transferred to CSMC an additional 2,420,000 shares of common

stock of its subsidiary SYN Biomics, Inc.

(“Synbiomics”) owned by the Company, such that after such issuance CSMC owns

an aggregate of 7,480,000 shares of common stock of SYN Biomics, representing 17% of the issued and outstanding shares of SYN Biomics’

by CSMC for the Study, the Company paid $328,000 to support the Study and the Company entered into a Stock Purchase Agreement

with CSMC pursuant to which the Company, upon the approval of the Study protocol by the Institutional Review Board (“IRB”)

(i) issued to CSMC 50,000 shares of Common Stock of the Company;

and (ii) transferred to CSMC an additional 2,420,000

shares of common stock of its subsidiary SYN Biomics, Inc.

(“SYN Biomics”) owned by the Company, such that after

such issuance CSMC owns an aggregate of 7,480,000 shares of common stock of SYN Biomics, representing 17% of the issued and outstanding

shares of SYN Biomics’

common stock.

The services rendered are recorded to research and development expense in proportion with the progress of the

study and are based overall on the fair value of the shares ($285,000) as determined at the date of IRB approval.

During the years

ended December 31, 2019 and 2018, research and development expense recorded related to this transaction approxima ted

$198,000 and $102,000, respectively.

The services rendered are recorded to research and development expense in

proportion with the progress of the study and are based overall on the fair value of the shares ($285,000) as determined at the

date of IRB approval.

During the years ended December 31, 2020 and 2019, research and development expense recorded related

to this transaction approxima ted $225,000 and $198,000 ,

respectively.

The Stock Purchase Agreement also provides

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the shares of stock of SYN Biomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its SYN

Biomics shares for unregistered shares of the Common Stock, with the rate of exchange based upon the relative contribution of the

valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange.

The Stock Purchase Agreement

also provides for tag-along rights in the event of the sale by the Company of its shares of SYN Biomics.

On August 29, 2015, the Company, SYN Biomics

and Mark Pimentel, M.D.

entered into an amendment to the Pimentel Stock Purchase Agreement dated December 3, 2013, which accelerated

the date upon which Dr.

Pimentel could exchange his shares of common stock in SYN Biomics for shares of the Company’s common

Biomics shares for unregistered shares of Common Stock, with the rate of exchange based upon the relative contribution of the valuation

of SYN Biomics to the public market valuation of the Company at the time of each exchange.

The Stock Purchase Agreement also provides

for tag-along rights in the event of the sale by the Company of its shares of SYN Biomics.

On September 30, 2020, CSMC MAST formally

agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned

interim futility analysis.

Although it was concluded that SYN-010 was well tolerated, SYN-010 was unlikely to meet its primary

endpoint by the time enrollment is completed.

On November 9, 2020, the Company and

its subsidiary, Synthetic Biomics, Inc.

and CSMC mutually agreed to terminate the exclusive license agreement dated December 5,

2013 and all amendments thereto and the clinical trial agreement relating to SYN-010.

The determination to terminate the SYN-010

license agreement was agreed following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored

clinical trial of SYN-010.

On September 30, 2020, CSMC (the Company’s SYN-010 clinical development partner) informed

the Company that it discontinued the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients.

On August 29, 2015, the Company, SYN

Biomics and Mark Pimentel, M.D.

entered into an amendment to the Pimentel Stock Purchase Agreement dated December 3, 2013,

which accelerated the date upon which Dr.

Pimentel could exchange his shares of common stock in SYN Biomics for shares of

the Company’s common stock.

On August 29, 2015, Dr.

Pimentel notified the Company of his intent to exchange all of the shares of common stock in SYN

Biomics, 8.5%, owned by him for 38,572 shares of the Company’s common stock in accordance with the terms of the Stock Purchase

Agreement, as amended.

On August 31, 2015, the Company issued 38,572 shares of the Company’s common stock to Dr.

in exchange for all of the shares of common stock of SYN Biomics held by Dr.

In December 2013, through the Company’s

subsidiary, Synthetic Biomics, Inc., the Company entered into a worldwide exclusive license agreement with CSMC and acquired the

rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including the development

Pimentel notified the Company of his intent to exchange all

of the shares of common stock in SYN Biomics, 8.5%, owned by him for 38,572 shares of the Company’s common stock in accordance

with the terms of the Stock Purchase Agreement, as amended.

On August 31, 2015, the Company issued 38,572 shares of the Company’s

common stock to Dr.

Pimentel in exchange for all of the shares of common stock of SYN Biomics held by Dr.

In December 2013, through the Company’s

subsidiary, Synthetic Biomics, Inc., the Company entered into a worldwide exclusive license agreement with CSMC and acquired

the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including the development

of SYN-010 to target IBS-C.

The Company licensed from CSMC a portfolio of intellectual property comprised of several U.S.

foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes.

During the years

ended December 31, 2019 and 2018, the Company did not owe and did not pay CSMC for milestone payments related this license agreement.

patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes.

During the years ended

December 31, 2020 and 2019, the Company did not owe and did not pay CSMC for milestone payments related this license agreement.

Synthetic Biologics, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Non-controlling Interest – (continued)

Company’s non-controlling interest is accounted for under ASC 810, Consolidation (“ASC 810”) and

represents the minority shareholder’s ownership interest related to the Company’s subsidiary, SYN Biomics.

accordance with ASC 810, the Company reports its non-controlling interest in subsidiaries as a separate component of equity

in the Consolidated Balance Sheets and reports both net loss attributable to the non-controlling interest and net loss

attributable to the Company’s common stockholders on the face of the Consolidated Statements of Operations.

2018 transaction with CSMC, the Company’s equity interest in SYN Biomics is 83% and the non-controlling

stockholder’s interest is 17%.

As of December 31, 2019, the accumulated net loss attributable to the non-controlling

interest is $2.9 million.

As of December 31, 2018, the accumulated net loss attributable to the non-controlling interest is

$2.9 million and includes $54,000 of prior year losses attributable to minority stockholders including the reversal of Dr.

Pimentel’s 2015 losses of $505,000 associated with the exchange of his shares of common stock in SYN Biomics for shares

of the Company’s common stock.

Non-controlling Interest –

The Company’s

non-controlling interest is accounted for under ASC 810, Consolidation (“ASC 810”) and represents the minority

stockholder’s ownership interest related to the Company’s subsidiary, SYN Biomics.

In accordance with ASC 810, the

Company reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets

and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common

stockholders on the face of the Consolidated Statements of Operations.

After the 2018 transaction with CSMC, the Company’s

equity interest in SYN Biomics is 83% and the non-controlling stockholder’s interest is 17%.

As of December 31, 2020,

the accumulated net loss attributable to the non-controlling interest was $2.8 million.

As of December 31, 2019, the accumulated

net loss attributable to the non-controlling interest was $2.9 million and includes $77,000 of prior year losses attributable to

minority stockholders including the reversal of Dr.

Pimentel’s 2015 losses of $505,000 associated with the exchange

of his shares of common stock in SYN Biomics for shares of the Company’s common stock.

Collaborative and Employment Agreements and Commitments

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Louis Clinical Trial Agreement

In August 7, 2019, the Company entered into a clinical trial agreement (“CTA”) with Washington University School

of Medicine in St.

Louis (“Washington University”) to conduct a Phase 1b/2a single-center, randomized, double-blinded,

placebo-controlled clinical trial designed to evaluate the safety, tolerability and pharmacokinetics of oral SYN-004 (ribaxamase)

in up to 36 adult allogeneic hematopoietic cell transplant (HCT) recipients (the “Study”).

Under the terms of

the CTA, the Company will serve as the sponsor of the Study and supply SYN-004 (ribaxamase), as well as compensate Washington

University for all research services to be provided in connection with the Study which is estimated to cost approximately

The CTA continues in effect until completion of all obligations under the CTA.

Either party may terminate the CTA prior to

completion of its obligations (i) if authorization of the study is withdrawn by the FDA;

(ii) if the emergence of any adverse

reaction or side effect with SYN-004 (ribaxamase) administered in the Study is of such magnitude or incidence in the opinion

of either party to support termination;

or (iii) upon a breach of the terms of the CTA if the breaching party fails to cure

the breach within 30 days after receipt of notice.

The Company has the right to terminate the CTA (i) effective immediately

if Washington University fails to perform the study in accordance with the terms of the protocol, the CTA or applicable laws

or regulations or if Washington University or the principal investigator become debarred or (ii) upon 14 days written notice

and Washington University has the right to terminate the CTA upon 14 days notice if the principal investigator becomes unable

to perform or complete the Study and the parties have not, prior to the expiration of such fourteen (14) day period, agreed

to an alternative principal investigator.

Cedars-Sinai Medical Center (“CSMC”)

On December 5, 2013, the Company, through

its newly formed, majority owned subsidiary, SYN Biomics, entered into a worldwide exclusive License Agreement with CSMC for the

development of new treatment approaches to target non-bacterial intestinal microorganism life forms known as archaea that are associated

with intestinal methane production and chronic diseases such as irritable bowel syndrome (IBS), obesity and type 2 diabetes.

part of the terms of the License Agreement the Company issued 9,569 unregistered shares of the Company’s common stock to

CSMC, paid $150,000 for the initial license fee and $220,000 for patent reimbursement fees.

The License Agreement also provides

that, commencing on the second anniversary of the License Agreement, SYN Biomics will pay an annual maintenance fee, which payment

shall be creditable against annual royalty payments owed under the License Agreement.

In addition to royalty payments which are

a percentage of net sales of licensed and technology products, SYN Biomics is obligated to pay CSMC a percentage of any non-royalty

In August 7, 2019, the Company entered

into a clinical trial agreement (“CTA”) with Washington University School of Medicine in St.

Louis (“Washington

University”) to conduct a Phase 1b/2a single-center, randomized, double-blinded, placebo-controlled clinical trial designed

to evaluate the safety, tolerability and pharmacokinetics of oral SYN-004 (ribaxamase) in up to 36 adult allogeneic hematopoietic

cell transplant (HCT) recipients (the “Study”).

Under the terms of the CTA, the Company will serve as the sponsor of

the Study and supply SYN-004 (ribaxamase), as well as compensate Washington University for all research services to be provided

in connection with the Study which is estimated to cost approximately $3,200,000.

The CTA continues in effect until completion

of all obligations under the CTA.

Either party may terminate the CTA prior to completion of its obligations (i) if authorization

of the study is withdrawn by the FDA;

(ii) if the emergence of any adverse reaction or side effect with SYN-004 (ribaxamase)

administered in the Study is of such magnitude or incidence in the opinion of either party to support termination;

or (iii) upon

a breach of the terms of the CTA if the breaching party fails to cure the breach within 30 days after receipt of notice.

has the right to terminate the CTA (i) effective immediately if Washington University fails to perform the study in accordance

with the terms of the protocol, the CTA or applicable laws or regulations or if Washington University or the principal investigator

become debarred or (ii) upon 14 days written notice and Washington University has the right to terminate the CTA upon 14 days

notice if the principal investigator becomes unable to perform or complete the Study and the parties have not, prior to the expiration

of such fourteen (14) day period, agreed to an alternative principal investigator.

Cedars-Sinai Medical Center (“CSMC”)

On December 5, 2013, the Company,

through its newly formed, majority owned subsidiary, SYN Biomics, entered into a worldwide exclusive License Agreement with CSMC

for the development of new treatment approaches to target non-bacterial intestinal microorganism life forms known as archaea that

are associated with intestinal methane production and chronic diseases such as irritable bowel syndrome (IBS), obesity and type

As part of the terms of the License Agreement the Company issued 9,569 unregistered shares of the Company’s common

stock to CSMC, paid $150,000 for the initial license fee and $220,000 for patent reimbursement fees.

The License Agreement also

provides that, commencing on the second anniversary of the License Agreement, SYN Biomics will pay an annual maintenance fee, which

payment shall be creditable against annual royalty payments owed under the License Agreement.

In addition to royalty payments which

are a percentage of net sales of licensed and technology products, SYN Biomics is obligated to pay CSMC a percentage of any non-royalty

sublicense revenues, as well as additional consideration upon the achievement of milestones (the first two of which are payable

in cash or unregistered shares of Company stock at the Company’s option).

On December 5, 2013, the Company also entered into

an option agreement with CSMC, which expired unexercised on December 31, 2014.

in cash or unregistered shares of Company stock at the Company’s option).

On December 5, 2013, the Company also entered

into an option agreement with CSMC, which expired unexercised on December 31, 2014.

Synthetic Biologics, Inc.

2 unchanged sentences

License, Collaborative and Employment

Agreements and Commitments – (continued)

The License Agreement terminates:

(i) automatically

if SYN Biomics enters into a liquidating bankruptcy or other specified bankruptcy event or if the performance of any term, covenant,

condition or provision of the License Agreement will jeopardize the licensure of CSMC, its participation in certain reimbursement

programs, its full accreditation by the Joint Commission of Accreditation of Healthcare Organizations or any similar state organizations,

its tax exempt status or is deemed illegal;

(ii) upon 30 days notice from CSMC if SYN Biomics fails to make a payment or use commercially

reasonable efforts to exploit the patent rights;

(iii) upon 60 days notice from CSMC if SYN Biomics fails to cure any breach or

default of any material obligations under the License Agreement;

or (iv) upon 90 days notice from SYN Biomics if CSMC fails to

cure any breach or default of any material obligations under the License Agreement.

SYN Biomics also has the right to terminate

the License Agreement without cause upon six months notice to CSMC;

however, upon such termination, SYN Biomics is obligated to

pay a termination fee with the amount of such fee reduced:

(i) if such termination occurs after an Investigational New Drug submission

to the FDA but prior to completion of a Phase 2 clinical trial, (ii) reduced further if such termination occurs after completion

of Phase 2 clinical trial but prior to completion of a Phase 3 clinical trial;

and (iii) reduced to zero if such termination occurs

after completion of a Phase 3 clinical trial.

Agreements and Commitments –

The License Agreement provided for termination:

(i) automatically if SYN Biomics enters into a liquidating bankruptcy or other specified bankruptcy event or if the performance

of any term, covenant, condition or provision of the License Agreement will jeopardize the licensure of CSMC, its participation

in certain reimbursement programs, its full accreditation by the Joint Commission of Accreditation of Healthcare Organizations

or any similar state organizations, its tax exempt status or is deemed illegal;

(ii) upon 30 days notice from CSMC if SYN

Biomics fails to make a payment or use commercially reasonable efforts to exploit the patent rights;

(iii) upon 60 days notice

from CSMC if SYN Biomics fails to cure any breach or default of any material obligations under the License Agreement;

90 days notice from SYN Biomics if CSMC fails to cure any breach or default of any material obligations under the License Agreement.

SYN Biomics also has the right to terminate the License Agreement without cause upon six months notice to CSMC;

however, upon such

termination, SYN Biomics is obligated to pay a termination fee with the amount of such fee reduced:

(i) if such termination

occurs after an Investigational New Drug submission to the FDA but prior to completion of a Phase 2 clinical trial, (ii) reduced

further if such termination occurs after completion of Phase 2 clinical trial but prior to completion of a Phase 3 clinical trial;

and (iii) reduced to zero if such termination occurs after completion of a Phase 3 clinical trial.

Prior to the execution of the CSMC License

1 unchanged sentence

(the primary inventor

of the intellectual property), representing 11.5% and 8.5%, respectively, of the outstanding shares of SYN Biomics (the “SYN

Biomics Shares”).

of the intellectual property), representing 11.5% and 8.5%, respectively, of the outstanding shares of SYN Biomics (the “SYN

Biomics Shares”).

The Stock Purchase Agreements for the SYN Biomics shares provide for certain anti-dilution protection until

2 unchanged sentences

as of the 18 and 36 month anniversary date of the effective date of the Stock Purchase Agreements, for each of CSMC and the Dr.

Pimentel to exchange up to 50% of their SYN Biomics shares for unregistered shares of the Company’s common stock, with the

rate of exchange based upon the relative contribution of the valuation of SYN Biomics to the public market valuation of the Company

at the time of each exchange.

to exchange up to 50% of their SYN Biomics shares for unregistered shares of the Company’s common stock, with the rate of

exchange based upon the relative contribution of the valuation of SYN Biomics to the public market valuation of the Company at

the time of each exchange.

The Stock Purchase Agreements also provide for tag-along rights in the event of the sale by the Company

of its shares of SYN Biomics.

On August 29, 2015, the Company, SYN Biomics

and Mark Pimentel, M.D.

entered into an amendment to the Pimentel Stock Purchase Agreement, which accelerated the date upon which

Pimentel can exchange his shares of common stock in SYN Biomics for shares of the Company’s common stock.

On August 29,

Pimentel notified the Company of his intent to exchange all of the shares of common stock in SYN Biomics owned by him

for 38,572 shares of the Company’s common stock in accordance with the terms of the Pimentel Stock Purchase Agreement, as

On August 31, 2015, the Company issued 38,572 shares of the Company’s common stock to Dr.

Pimentel in exchange for

all of the shares of common stock of SYN Biomics held by Dr.

During the year ended December 31, 2019

On August 29, 2015, the Company, SYN

Biomics and Mark Pimentel, M.D.

entered into an amendment to the Pimentel Stock Purchase Agreement, which accelerated the date

upon which Dr.

Pimentel can exchange his shares of common stock in SYN Biomics for shares of the Company’s common stock.

On August 29, 2015, Dr.

Pimentel notified the Company of his intent to exchange all of the shares of common stock in

SYN Biomics owned by him for 38,572 shares of the Company’s common stock in accordance with the terms of the Pimentel Stock

Purchase Agreement, as amended.

On August 31, 2015, the Company issued 38,572 shares of the Company’s common stock to

Pimentel in exchange for all of the shares of common stock of SYN Biomics held by Dr.

As of and during the years ended December 31,

2020 and 2019, the Company did not owe and did not pay CSMC for milestone payments related to this license agreement.

On September 5, 2018, the Company entered

into an agreement with CSMC for an investigator-sponsored Phase 2 clinical study of SYN-010 to be co-funded by the Company and

CSMC (the “Study”).

The Study will provide further evaluation of the efficacy and safety of SYN-010, the Company’s

On September 5, 2018, the Company

entered into an agreement with CSMC for an investigator-sponsored Phase 2 clinical study of SYN-010 to be co-funded by the Company

and CSMC (the “Study”).

The Study was to provide further evaluation of the efficacy and safety of SYN-010, the Company’s

modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC.

7 unchanged sentences

License, Collaborative and Employment

Agreements and Commitments – (continued)

In consideration of the support

provided by CSMC for the Study, the Company will pay $441,000 and the Company entered into a Stock Purchase Agreement with

CSMC pursuant to which the Company has agreed, upon the approval of the Study protocol by the Institutional Review Board,

(i) issue to CSMC fifty thousand (50,000) shares of common stock of the Company;

and (ii) transfer to CSMC an

additional two million four hundred twenty thousand (2,420,000) shares of common stock of its subsidiary SYN Biomics, Inc.

(“Synbiomics”) owned by the Company, such that after such issuance CSMC will own an aggregate of seven million

four hundred eighty thousand (7,480,000) shares of common stock of SYN Biomics, representing seventeen percent (17%) of the

issued and outstanding shares of SYN Biomics’ common stock.

The services rendered are recorded to research

and development expense in proportion with the progress of the study and based overall on the fair value of the shares

($285,000) as determined at the date of IRB approval.

During the years ended December 31, 2019 and 2018, research and

development expense related to this transaction approxima ted $198,000 and $102,000,

respectively.

Agreements and Commitments –

In consideration of the support provided

by CSMC for the Study, the Company paid $441,000 and the Company entered into a Stock Purchase Agreement with CSMC pursuant to

which the Company, upon the approval of the Study protocol by the Institutional Review Board, (IRB) to:

(i) issued to CSMC

fifty thousand (50,000) shares of common stock of the Company;

and (ii) transferred to CSMC an additional two million four

hundred twenty thousand (2,420,000) shares of common stock of its subsidiary SYN Biomics, Inc.

(“Synbiomics”)

owned by the Company, such that after such issuance CSMC owned an aggregate of seven million four hundred eighty thousand (7,480,000)

shares of common stock of SYN Biomics, representing seventeen percent (17%) of the issued and outstanding shares of SYN Biomics’

common stock.

The services rendered are recorded to research and development expense in proportion with the progress of the

study and based overall on the fair value of the shares ($285,000) as determined at the date of IRB approval.

During the years

ended December 31, 2020 and 2019, research and development expense related to this transaction approxima ted

$ 225,000 and $198,000 , respectively.

The Agreement also provides CSMC with a

1 unchanged sentence

of stock of Synbiomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its Synbiomics shares

for unregistered shares of the Company’s common stock, with the rate of exchange based upon the relative contribution of

the valuation of Synbiomics to the public market valuation of the Company at the time of each exchange.

1 unchanged sentence

also provides for tag-along rights in the event of the sale by the Company of its shares of Synbiomics.

On September 30, 2020, CSMC MAST formally

agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned

interim futility analysis.

Although it was concluded that SYN-010 was well tolerated, SYN-010 is unlikely to meet its primary endpoint

by the time enrollment is completed.

On November 9, 2020, the Company and

its subsidiary, SYN Biomics, Inc.

and CSMC mutually agreed to terminate the exclusive license agreement dated December 5,

2013 and all amendments thereto and the clinical trial agreement relating to SYN-010.

The determination to terminate the SYN-010

license agreement was agreed following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored

clinical trial of SYN-010.

On September 30, 2020, CSMC (the Company’s SYN-010 clinical development partner) informed

the Company that it discontinued the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients.

rights previously licensed to the Company covering the use of SYN-010 will remain the property of CSMC.

University of Texas Austin Agreement

On December 19, 2012, the Company entered

into a License Agreement with The University of Texas at Austin (the “University”) for the exclusive license of the

right to use, develop, manufacture, market and commercialize certain research and patents related to pertussis antibodies.

License Agreement provides that the University is entitled to payment of past patent expenses, an annual payment of $50,000 per

year commencing on the effective date through December 31, 2014, a $25,000 payment on December 31, 2015 and milestone payments

of $50,000 upon commencement of Phase 1 clinical trials, $100,000 upon commencement of Phase 3 clinical trials, $250,000 upon NDA

submission in the U.S., $100,000 upon European Medicines Agency approval and $100,000 upon regulatory approval in an Asian country.

In addition, the University is entitled to a running royalty upon net sales.

The License Agreement terminates upon the expiration

of the patent rights;

provided, however that the License Agreement is subject to early termination by the Company in its discretion

and by the University for a breach of the License Agreement by the Company.

On December 19, 2012, the Company

entered into a License Agreement with UT Austin for the exclusive license of the right to use, develop,

manufacture, market and commercialize certain research and patents related to pertussis antibodies.

The License Agreement provides

that UT Austin is entitled to payment of past patent expenses, an annual payment of $50,000 per year commencing on the effective

date through December 31, 2014, a $25,000 payment on December 31, 2015 and milestone payments of $50,000 upon commencement

of Phase 1 clinical trials, $100,000 upon commencement of Phase 3 clinical trials, $250,000 upon NDA submission in the U.S., $100,000

upon European Medicines Agency approval and $100,000 upon regulatory approval in an Asian country.

In addition, UT Austin

is entitled to a running royalty upon net sales.

The License Agreement terminates upon the expiration of the patent rights;

however that the License Agreement is subject to early termination by the Company in its discretion and by UT Austin for a

breach of the License Agreement by the Company.

In connection with the License Agreement,

the Company and the University also entered into a Sponsored Research Agreement pursuant to which the University will perform certain

the Company and UT Austin also entered into a Sponsored Research Agreement pursuant to which UT Austin will perform certain

research work related to pertussis.

4 unchanged sentences

installments.

The Sponsored Research Agreement was to expire on December 31, 2015;

The Sponsored Research Agreement expires January 17, 2023;

provided, however, the Sponsored Research Agreement

is subject to early termination upon the written agreement of the parties, a default in the material obligations under the Research

Agreement which remain uncured for 60 days after receipt of notice, automatically upon the Company’s bankruptcy or insolvency

and by the Company in its sole discretion at any time after the one year anniversary of the date of execution thereof upon no less

than 90 days’ notice.

than 90 days’

Synthetic Biologics, Inc.

2 unchanged sentences

License, Collaborative and Employment

Agreements and Commitments – (continued)

On October 22, 2015, the Company and the

University amended the Sponsored Research Agreement to extend the termination date to January 15, 2017, on September 2, 2016 to

extend the agreement until January 15, 2018, on August 22, 2017 to extend the agreement until January 17, 2019 and again on August

24, 2018 until January 17, 2021.

All other terms and conditions of the Sponsored Research Agreement remain unchanged.

or additional payments will be made to the University as a result of this amendment.

Prev ABR LLC (“Prev”) Agreement

On November 28, 2012, the Company entered

into an agreement (“Prev Agreement”) to acquire the C.

diff program assets of Prev, including pre-Investigational New

Drug (IND) package, Phase 1 and Phase 2 clinical data, manufacturing process data and all issued and pending U.S.

Agreements and Commitments –

On October 22, 2015, the Company and

UT Austin amended the Sponsored Research Agreement to extend the termination date from the initial termination date of December 31,

2015 to January 15, 2017, on September 2, 2016 to extend the agreement until January 15, 2018, on August 22,

2017 to extend the agreement until January 17, 2019, on August 24, 2018 to extend the agreement until January 17,

2021 and again on August 8, 2020 until January 17, 2023.

All other terms and conditions of the Sponsored Research Agreement

remain unchanged.

No further or additional payments will be made to UT Austin as a result of this amendment.

Prev ABR LLC (“Prev”) Agreement

On November 28, 2012, the Company

entered into an agreement (“Prev Agreement”) to acquire the C.

diff program assets of Prev, including pre-Investigational

New Drug (IND) package, Phase 1 and Phase 2 clinical data, manufacturing process data and all issued and pending U.S.

and international

4 unchanged sentences

(i) commencement of an IND;

(ii) commencement of a Phase 1 clinical trial;

(ii) commencement of a Phase 1 clinical

(iii) commencement of a Phase 2 clinical trial;

(iv) commencement of a Phase 3 clinical trial;

(v) filing a Biologic License Application

(BLA) in the U.S.

a Biologic License Application (BLA) in the U.S.

and for territories outside of the U.S.

(as defined in the Prev Agreement);

and (vi) approval of a BLA in the

(vi) approval of a BLA in the U.S.

and for territories outside the U.S.

With exception of the first milestone payment, the remaining milestones are payable 50%

in cash and 50% in our stock, however, at Prev’s option the entire milestone may be payable in shares of the Company’s

As of December 31, 2015, the first three milestones have been met, and at Prev’s option, Prev elected to receive 18,724

shares of the Company’s common stock.

No milestones were achieved or such payments were made during the years ended December

31, 2019 and 2018.

With exception of the first milestone payment, the

remaining milestones are payable 50% in cash and 50% in our stock, however, at Prev’s option the entire milestone may be

payable in shares of the Company’s stock.

As of December 31, 2015, the first three milestones have been met, and at

Prev’s option, Prev elected to receive 18,724 shares of the Company’s common stock.

No milestones were achieved or

such payments were made during the years ended December 31, 2020 and 2019.

Intrexon Exclusive Channel Collaboration

On August 6, 2012, the Company entered

into an Exclusive Channel Collaboration (“Infectious Disease ECC”) with Intrexon that governs an

“exclusive channel collaboration” arrangement in which the Company will use Intrexon’s technology relating to

the identification, design and production of human antibodies and DNA vectors for the development and commercialization of a series

of monoclonal antibody therapies for the treatment of certain serious infectious diseases.

Pursuant to the terms of the Second

Stock Issuance Agreement with Intrexon, which was approved by the Company’s stockholders on October 5, 2012, the Company

issued 101,492 shares of its common stock, $0.001 par value, which issuance is also deemed paid in consideration for the execution

and delivery of the Infectious Disease ECC, dated August 6, 2012, between the Company and Intrexon.

In connection with the transactions contemplated by the Second Stock Issuance Agreement, and

pursuant to the First Amendment to Registration Rights Agreement (the “First Amendment to Registration Rights Agreement”)

executed and delivered by the parties at the closing, which was declared effective on May 5, 2013.

The Company filed a “resale”

registration statement registering the resale of the shares issued under the Second Stock Issuance Agreement.

into an Exclusive Channel Collaboration (“Infectious Disease ECC”) with Intrexon that governs an “exclusive channel

collaboration”

arrangement in which the Company will use Intrexon’s technology relating to the identification, design

and production of human antibodies and DNA vectors for the development and commercialization of a series of monoclonal antibody

therapies for the treatment of certain serious infectious diseases.

Pursuant to the terms of the Second Stock Issuance Agreement

with Intrexon, which was approved by the Company’s stockholders on October 5, 2012, the Company issued 101,492 shares

of its common stock, $0.001 par value, which issuance is also deemed paid in consideration for the execution and delivery of the

Infectious Disease ECC, dated August 6, 2012, between the Company and Intrexon.

In connection with the transactions contemplated

by the Second Stock Issuance Agreement, and pursuant to the First Amendment to Registration Rights Agreement (the “First

Amendment to Registration Rights Agreement”) executed and delivered by the parties at the closing, which was declared effective

on May 5, 2013.

The Company filed a “resale”

registration statement registering the resale of the shares issued

under the Second Stock Issuance Agreement.

Subject to certain expense allocations

9 unchanged sentences

License, Collaborative and Employment

Agreements and Commitments – (continued)

The Company also agreed upon the

filing of an IND application with the FDA for a Synthetic Product, or alternatively the filing of the first equivalent

regulatory filing with a foreign regulatory agency (both as applicable, the “IND Milestone Event”), to pay

Intrexon either (i) $2.0 million in cash, or (ii) that number of shares of common stock (the “IND Milestone

Shares”) having a fair market value equaling $2.0 million where such fair market value is determined using published

market data of the share price for common stock at the close of market on the business day immediately preceding the date of

public announcement of attainment of the IND Milestone Event.

Agreements and Commitments –

The Company also agreed upon the filing

of an IND application with the FDA for a Synthetic Product, or alternatively the filing of the first equivalent regulatory filing

with a foreign regulatory agency (both as applicable, the “IND Milestone Event”), to pay Intrexon either (i) $2.0

million in cash, or (ii) that number of shares of common stock (the “IND Milestone Shares”) having a fair market

value equaling $2.0 million where such fair market value is determined using published market data of the share price for common

stock at the close of market on the business day immediately preceding the date of public announcement of attainment of the IND

Milestone Event.

Upon the first to occur of either first

commercial sale of a Synthetic Product in a country or the granting of the regulatory approval of that Synthetic Product (both

as applicable, the “Approval Milestone Event”), the Company agreed to pay to Intrexon either (i) $3.0 million in cash,

or (ii) that number of shares of common stock (the “Approval Milestone Shares”) having a fair market value equaling

$3.0 million where such fair market value is determined using published market data of the share price for common stock at the

close of market on the business day immediately preceding the date of public announcement of attainment of the Approval Milestone

as applicable, the “Approval Milestone Event”), the Company agreed to pay to Intrexon either (i) $3.0 million

in cash, or (ii) that number of shares of common stock (the “Approval Milestone Shares”) having a fair market

value equaling $3.0 million where such fair market value is determined using published market data of the share price for common

stock at the close of market on the business day immediately preceding the date of public announcement of attainment of the Approval

Milestone Event.

Synthetic Biologics, Inc.

2 unchanged sentences

License, Collaborative and Employment

Agreements and Commitments – (continued)

Agreements and Commitments –

On August 10, 2015, the Company entered

into an Exclusive Channel Collaboration Agreement (the “PKU ECC”) with Intrexon that governs a “channel

collaboration” arrangement in which the Company was granted a worldwide exclusive license to use the patents and other intellectual property of Intrexon in connection with

the research, development, use, importing, manufacture, sale, and offer for sale of biotherapeutic products for the treatment

of PKU in humans by direct administration of a viral construct containing a gene to alter genetic expression of phenyalanine

hydroxylase and/or administration of genetically modified bacteria that express an effector directed to the metabolic conversion

of phenyalanine.

into an Exclusive Channel Collaboration Agreement (the “PKU ECC”) with Intrexon that governs a “channel collaboration”

arrangement in which the Company was granted a worldwide exclusive license to use the patents and other intellectual property of

Intrexon in connection with the research, development, use, importing, manufacture, sale, and offer for sale of biotherapeutic

products for the treatment of PKU in humans by direct administration of a viral construct containing a gene to alter genetic expression

of phenyalanine hydroxylase and/or administration of genetically modified bacteria that express an effector directed to the metabolic

conversion of phenyalanine.

The license was exclusive to both parties within the Field.

On September 2, 2015,

in accordance with the terms of the Intrexon Stock Issuance Agreement that the Company entered into in connection with the PKU ECC, the Company paid Intrexon a technology access fee by the issuance of 26,786 shares of common stock, having a value equal

to $3.0 million as of August 7, 2015.

Pursuant to the Second Amendment to Registration Rights Agreement, the Company filed a “resale”

On September 2, 2015, in accordance

with the terms of the Intrexon Stock Issuance Agreement that the Company entered into in connection with the PKU ECC, the Company

paid Intrexon a technology access fee by the issuance of 26,786 shares of common stock, having a value equal to $3.0 million as

of August 7, 2015.

Pursuant to the Second Amendment to Registration Rights Agreement, the Company filed a “resale”

registration statement to register the shares issued under the Intrexon Stock Issuance Agreement, which was declared effective

1 unchanged sentence

On November 30, 2018, the Company

received written notice from Intrexon stating that Intrexon and the Company had terminated by mutual agreement the PKU

Exclusive Channel Collaboration Agreement.

As a result of the mutually agreed upon

November 30, 2018 termination, each party retains its own respective confidential information and intellectual property and

all licenses between the parties granted under the ECC are terminated.

The Company had also entered into the Exclusive

Channel Collaboration Agreement, dated August 6, 2012 with Intrexon that governs a “channel collaboration”

arrangement in which the Company intends to use Intrexon’s technology relating to the identification, design and

production of human antibodies and DNA vectors for the development and commercialization of a series of monoclonal antibody

therapies for the treatment of Pertussis, remains in effect.

Biologics, Inc.

received written notice from Intrexon stating that Intrexon and the Company had terminated by mutual agreement the PKU Exclusive

Channel Collaboration Agreement.

As a result of the mutually agreed upon November 30, 2018 termination, each party retains

its own respective confidential information and intellectual property and all licenses between the parties granted under the ECC

are terminated.

The Company had also entered into the Exclusive Channel Collaboration Agreement, dated August 6, 2012 with

Intrexon that governs a “channel collaboration”

arrangement in which the Company intends to use Intrexon’s technology

relating to the identification, design and production of human antibodies and DNA vectors for the development and commercialization

of a series of monoclonal antibody therapies for the treatment of Pertussis, remains in effect.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments – (continued)

License, Collaborative and Employment

Agreements and Commitments –

Employment Agreements

1 unchanged sentence

entered into a three-year employment agreement with Steven A.

Shallcross, (the “Employment Agreement”), to serve

as the Chief Executive Officer and to continue to serve as the Chief Financial Officer of the Company.

The Employment

Agreement replaced the prior employment agreement with the Company that Mr.

Shallcross entered into on April 28, 2015 when he was appointed as the Company’s Chief Financial Officer, which prior employment agreement, as amended, provided

for an annual base salary of $381,150 and for the period that Mr.

Shallcross served as Interim Chief Executive Officer (December

20, 2017 through December 6, 2018), it provided that he receive a cash payment of $8,000 per calendar month;

pro-rated for

any partial months that Mr.

Shallcross serves as Interim Chief Executive Officer.

addition, Mr.

Shallcross was appointed as a director of the Company.

Shallcross will not receive additional compensation

for service as a Director of the Company and will not serve on any committees of the Board of Directors (the

The material terms of the Employment Agreement are set forth below.

Pursuant to the Employment Agreement, Mr.

Shallcross was initially entitled to an annual base salary of $550,000 (which was increased to $565,000 on December 4, 2019) and

an annual performance bonus of up to seventy five percent (75%) of his annual base salary.

The annual bonus will be based upon

the assessment of the Board of Mr.

Shallcross’s performance.

The Employment Agreement also includes confidentiality obligations

and inventions assignments by Mr.

Shallcross and non-solicitation and non-competition provisions.

Shallcross, (the “Employment Agreement”), to serve as

the Chief Executive Officer and to continue to serve as the Chief Financial Officer of the Company.

The Employment Agreement has a stated term

of three years but may be terminated earlier pursuant to its terms.

Shallcross’ employment is terminated for any

reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement

and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);

Shallcross’

employment is terminated for

any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement

and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);

however, that if his employment is terminated (i) by the Company without Cause or by Mr.

Shallcross for Good Reason (as each is

defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue to pay his

then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination

for a period of twelve (12) months and (b) he shall have the right to exercise any vested equity awards until the earlier of six

(6) months after termination or the remaining term of the awards;

or (ii) by reason of his death or Disability (as defined in the

Employment Agreement), then in addition to paying the Accrued Obligations, Mr.

Shallcross would have the right to exercise any

vested options until the earlier of six (6) months after termination or the remaining term of the awards.

Shallcross for Good Reason (as

each is defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue

to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of

termination for a period of twelve (12) months and (b) he shall have the right to exercise any vested equity awards until

the earlier of six (6) months after termination or the remaining term of the awards;

or (ii) by reason of his death or

Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Mr.

Shallcross would

have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term

of the awards.

In such event, if Mr.

Shallcross commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another

employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment

Agreements and Commitments – (continued)

The Employment Agreement provides

that upon the closing of a “Change in Control” (as defined in the Shallcross Employment Agreement), all unvested

options shall immediately vest and the time period that Mr.

Shallcross will have to exercise all vested stock options and

other awards that Mr.

Shallcross may have will be equal to the shorter of:

(i) six (6) months after termination, or (ii) the

remaining term of the award(s).

If within one (1) year after the occurrence of a Change in Control, Mr.

Shallcross terminates

his employment for “Good Reason” or the Company terminates Mr.

Shallcross’s employment for any reason other

than death, disability or Cause, Mr.

Shallcross will be entitled to receive:

(i) the portion of his base salary for periods

prior to the effective date of termination accrued but unpaid (if any);

(ii) all unreimbursed expenses (if any);

aggregate amount (the “Change in Control Severance Amount”) equal to two (2) times the sum of his base salary

plus an amount equal to the bonus that would be payable if the “target” level performance were achieved under the

Company’s annual bonus plan (if any) in respect of the fiscal year during which the termination occurs (or the prior

fiscal year if bonus levels have not yet been established for the year of termination);

and (iv) the payment or provision of

any other benefits.

If within two (2) years after the occurrence of a Change in Control, Mr.

Shallcross terminates his

employment for “Good Reason” or the Company terminates Mr.

Shallcross’s employment for any reason other

than death, disability or Cause, Mr.

Shallcross will be entitled to also receive for the period of two (2) consecutive years

commencing on the date of such termination of his employment, medical, dental, life and disability insurance coverage for him

and the members of his family that are not less favorable to him than the group medical, dental, life and disability

insurance coverage carried by the Company for him.

The Change in Control Severance Amount is to be paid in a lump sum if the

Change in Control event constitutes a “change in the ownership” or a “change in the effective

control” of the Company or a “change in the ownership of a substantial portion of a corporation’s

assets” (each within the meaning of Section 409A of the Internal Revenue Code (“Rule 409A”)), or in 48

substantially equal payments, if the Change in Control event does not so comply with Section 409A.

On December 4, 2019, the Board of the Company

awarded Steven A.

Shallcross, (i) a cash bonus equal to his full target bonus of 75% of his prior base salary and (ii) an option

to purchase 450,000 shares of the Company’s common stock.

The stock option granted to Mr.

Shallcross has an exercise price

of $0.418 per share, which is the closing price of the common stock on the date of the grant (December 4, 2019), vests pro rata,

on a monthly basis, over 36 consecutive months and expires in seven (7) years from the date of the grant, unless terminated earlier.

The stock option was granted pursuant to the Company’s 2010 Stock Incentive Plan, as amended, and the Company’s effective

registration statement on Form S-8 for the 2010 Stock Incentive Plan.

In addition, Mr.

Shallcross’ current employment agreement

with the Company, dated December 6, 2018, was amended (the “Amended Employment Agreement”) on December 5, 2019 to reflect

a 3% cost of living adjustment to Mr.

Shallcross’ base salary, increasing his annual base salary to $565,000.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment

Agreements and Commitments – (continued)

On January 17, 2017, the Company entered

into a two-year employment agreement with Dr.

Joseph Sliman (the “Sliman Employment Agreement”), who was promoted at

the Company from the position of Senior Vice President–Clinical & Regulatory Affairs to the position of Chief Medical

Officer, which agreement expired in January 2019 and was not renewed.

On October 9, 2018, we received

a letter from Dr.

Sliman, purporting to provide notice of a right to terminate the Sliman Employment Agreement for “good

reason”, alleging a material reduction in his duties, authorities, and responsibilities as an executive of the Company.

Company is reviewing with legal counsel its rights and remedies and dispute certain aspects regarding Mr.

Sliman’s attempt

to terminate the Sliman Employment Agreement.

The terms of the Employment Agreement are

set forth below.

Pursuant to the terms of the Employment Agreement, Dr.

Sliman was entitled to an annual base salary of $385,000

and an annual performance bonus of up to seventy five percent (75%) of his annual base salary.

The annual bonus was to be based

upon the assessment of the Board of Dr.

Sliman’s performance.

Sliman was also granted a seven (7) year incentive stock

option to purchase at an exercise price equal to the per share market price on the date of issue, 5,397 shares of the Company’s

common stock, vesting pro rata on a monthly basis over a three year period.

The Employment Agreement also includes confidentiality

obligations and inventions assignments by Dr.

Sliman and non-solicitation and non-competition provisions.

The Sliman Employment Agreement provided

for a stated term of two years but could be terminated earlier pursuant to their terms and provided that if Dr.

employment was terminated for any reason, he or his estate as the case may be, was entitled to receive the accrued base salary,

vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued

Obligations”);

provided , however, that if his employment was terminated (1) by the Company without Cause or by the Executive

for Good Reason (as each is defined below) then in addition to paying the Accrued Obligations, (x) the Company will continue to

pay his then current base salary and continue to provide benefits at least equal to those which were provided at the time of termination

for a period of twelve (12) months and (y) he shall have the right to exercise any vested equity awards until the earlier of six

(6) months after termination or the remaining term of the awards, or (2) by reason of his death or Disability (as defined in the

Sliman Employment Agreement), then in addition to paying the Accrued Obligations, he would have the right to exercise any vested

options until the earlier of six (6) months after termination or the remaining term of the awards.

In such event, if Dr.

commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided

plan, the medical and other welfare benefits to be provided by the Company as described herein will terminate.

Shallcross commenced employment with another employer and becomes eligible to receive

medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by

the Company as described herein would terminate.

Synthetic Biologics, Inc.

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License, Collaborative and Employment

Agreements and Commitments – (continued)

For the purposes of the Shallcross Employment

Agreement and the Sliman Employment Agreement “Change in Control” is defined as:

(i) any person or entity becoming

the beneficial owner, directly or indirectly, of the Company’s securities representing fifty (50%) percent of the total voting

power of all its then outstanding voting securities;

(ii) a merger or consolidation of the Company in which its voting securities

immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority

of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation;

sale of substantially all of the Company’s assets or its liquidation or dissolution.

For purpose of the Shallcross Employment

Agreement and the Sliman Employment Agreement, “Good Reason” is defined as the occurrence of any of the following events

without the respective Executive’s consent:

(i) a material reduction in the Executive’s base salary (other than an

across-the-board decrease in base salary applicable to all executive officers of the Company);

(ii) a material breach of the employment

agreement by the Company;

(iii) a material reduction in the Executive’s duties, authority and responsibilities relative to

the Executive’s duties, authority, and responsibilities in effect immediately prior to such reduction;

or (iv) the relocation

of the Executive’s principal place of employment, without the Executive’s consent, in a manner that lengthens his one-way

commute distance by fifty (50) or more miles from his then-current principal place of employment immediately prior to such relocation.

For purposes of the Shallcross Employment

Agreement and the Sliman Employment Agreement, “Cause” is defined as that the Executive shall have engaged in any of

the following acts or that any of the following events shall have occurred, all as determined by the Board in its sole and absolute

(i) gross insubordination, acts of embezzlement or misappropriation of funds, fraud, dereliction of fiduciary obligations;

(ii) conviction of a felony or other crime involving moral turpitude, dishonesty or theft (including entry of a nolo contendere

(iii) willful unauthorized disclosure of confidential information belonging to the Company or entrusted to the Company by

(iv) material violation of any provision of the Executive’s employment agreement, of any Company policy, and/or

of a confidentiality agreement, which, to the extent it is curable by the Executive, is not cured by the Executive within 30 days

of receiving written notice of such violation by the Company;

(v) being under the influence of drugs (other than prescription medicine

or other medically related drugs to the extent that they are taken in accordance with their directions) during the performance

of the Executive’s duties;

(vi) engaging in behavior that would constitute grounds for liability for harassment (as proscribed

Equal Employment Opportunity Commission Guidelines or any other applicable state or local regulatory body) or other

egregious conduct that violates laws governing the workplace;

or (vii) willful failure to perform his written assigned tasks, where

such failure is attributable to the fault of the Executive which, to the extent it is curable by the Executive, is not cured by

the Executive within 30 days of receiving written notice of such violation by the Company.

Effective February 3, 2012, Jeffrey

Riley was appointed to serve as the Company’s Chief Executive Officer and President and entered into an agreements with

Riley to serve in such capacity.

Effective February 2, 2017, the Company entered into a new two-year employment agreement

Riley (the “2017 Riley Employment Agreement”), pursuant to which Mr.

Riley’s annual base salary

remained at $550,000 and he was eligible for an annual performance bonus of up to seventy-five percent (75%) of his base

The 2017 Employment Agreement also included employment termination provisions similar to those in the Shallcross

Employment Agreement and the Sliman Employment Agreement as well as confidentiality obligations, inventions assignments by

Riley as well as change in control, non-solicitation and non-competition provisions.

Agreements and Commitments –

On December 30, 2020, the Board of

the Company awarded Steven A.

Shallcross (i) a cash bonus equal to 62% of his prior base salary and (ii) an option to

purchase 450,000 shares of the Company’s common stock.

Synthetic Biologics, Inc.

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License, Collaborative and Employment

Agreements and Commitments – (continued)

Effective December 4, 2017, Mr.

Riley resigned

his position as President and Chief Executive Officer of the Company.

Pursuant to his resignation, the Company entered into a Separation

Agreement effective December 4, 2017 (the “Separation Agreement”) with Mr.

The Separation Agreement provides

that in addition to receiving all accrued obligations, including salary and earned and unused vacation days, Mr.

Riley will receive

the following separation benefits:

(i) twelve months’ payment of Mr.

Riley’s current base salary, subject to payroll

withholdings and deductions, paid on the Company’s regular payroll dates;

(ii) a cash bonus for 2017 of $200,000;

the right to exercise vested stock options for one year following December 5, 2017.

Riley is also entitled to COBRA continuation

coverage and the Company shall pay the COBRA premium for Mr.

Riley for a maximum period of twelve months after his separation from

The Separation Agreement also contains additional provisions that are customary for agreements of this type.

include confidentiality and non-solicitation provisions.

All costs associated with the Separation Agreement were recorded during

the year ended December 31, 2017.

Agreements and Commitments –

Operating Lease

All of the Company’s existing

leases as of December 31, 2019 are classified as operating leases.

As of December 31, 2019, the Company has one material

operating lease for facilities with a remaining term expiring in 2022.

The existing lease has fair value renewal options,

none of which are considered certain of being exercised or included in the minimum lease term.

The discount rate used in the

calculation of the lease liability was 9.9 percent.

The rates implicit within the Company's leases are generally not

determinable, therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

Because the Company currently has no

outstanding debt, the incremental borrowing rate for each lease is primarily based on publicly-available information for

companies within the same industry and with similar credit profiles.

The rate is then adjusted for the impact of

collateralization, the lease term and other specific terms included in the Company’s lease arrangements.

incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating leases in existence

upon adoption of ASC 842.

The incremental borrowing rate is subsequently reassessed upon a modification to the lease

ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for

long-lived assets.

Operating lease costs are presented as part of the general and administrative expenses in the condensed

consolidated statements of operations, and for the years ended December 31, 2019 and 2018 approximated $201,000 each year.

During the same period, operating cash flows used for operating leases approximated $300,000.

During 2019, there were no ROU

assets exchanged for operating lease obligations.

The initial non-cash addition of ROU assets due to adoption of ASC 842 was

All of the Company’s existing leases

as of December 31, 2020 are classified as operating leases.

As of December 31, 2020, the Company has one material operating

lease for facilities with a remaining term expiring in 2022.

The existing lease has fair value renewal options, none of which are

considered certain of being exercised or included in the minimum lease term.

The discount rate used in the calculation of the lease

liability was 9.9%.

The rates implicit within the Company's leases are generally not determinable, therefore, the Company's incremental

borrowing rate is used to determine the present value of lease payments.

The determination of the Company’s incremental borrowing

rate requires judgment.

Because the Company currently has no outstanding debt, the incremental borrowing rate for each lease is

primarily based on publicly-available information for companies within the same industry and with similar credit profiles.

rate is then adjusted for the impact of collateralization, the lease term and other specific terms included in the Company’s

lease arrangements.

The incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating

leases in existence upon adoption of ASC 842, Leases (“ASC

The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement.

are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.

lease costs are presented as part of general and administrative expenses in the consolidated statements of operations, and for

the years ended December 31, 2020 and 2019 approximated $209,000 and 201,000, respectively.

For the years ended December 31,

2020 and 2019, operating cash flows used for operating leases approximated $309,000 and $300,000, respectively.

A maturity analysis of our operating leases

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Amount due within 12 months

Non-current lease liability

Lease liability –

Consulting Fees

In November 2017, the Company engaged a

regulatory consultant to assist in the Company’s efforts to prepare, file and obtain FDA approval for ribaxamase.

In November 2017, the Company engaged

a regulatory consultant to assist in the Company’s efforts to prepare, file and obtain FDA approval for ribaxamase.

term of the engagement is on a monthly basis, provided that either party may terminate the agreement at any time by providing the

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is not probable at this time.

Risks and Uncertainties

On January 30, 2020, the World Health

Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan,

China (the “COVID-19”

outbreak) and the risks to the international community as the virus spreads globally beyond its

point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure

As COVID-19 continued to spread around

the globe, the Company experienced disruptions that impacted its business and clinical trials, including halting the postponement

of clinical site initiation of the Phase 1b/2a clinical trial of SYN-004.

The extent to which the COVID-19 pandemic impacts

the Company’s business, the clinical development of SYN-004 (ribaxamase) and SYN-020, the business of the Company’s

suppliers and other commercial partners, the Company’s corporate development objectives and the value of and market for the

Company’s common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence

at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure

requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties

associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results

of operations and growth prospects.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s

business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which

the Company faces.

Synthetic Biologics, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Restructuring Charge

On November 26, 2018, the Board of Directors

of the Company approved a corporate restructuring plan to reduce its cost structure as part of its commitment to shareholders to

reduce operating costs.

As part of the Company’s commitment

to reduce operating expenses and preserve cash, the Company eliminated positions effective December 7, 2018.

The reduction included

8 employees, which represented approximately 33% of its workforce as of November 29, 2018, the date affected employees were notified.

The affected employees received certain severance benefits as provided in the Plan.

As a result, the Company realized

annualized cost savings beginning with the first quarter of 2019.

The Company has incurred a one-time severance-related charge

totaling approximately $409,000 which was recorded in the fourth quarter of 2018.

There was no income tax expense for the

years ended December 31, 2019 and 2018 due to the Company’s net losses.

The Company’s tax expense differs from the

“expected” tax expense for the years ended December 31, 2019 and 2018 (computed by applying the Federal corporate tax

rate of 21% to loss before taxes and 4.74% for blended state income tax rate, the blended rate used was 25.74%), as follows (in

years ended December 31, 2020 and 2019 due to the Company’s net losses.

The Company’s tax expense differs from

the “expected”

tax expense for the years ended December 31, 2020 and 2019.

For 2020, the “expected”

tax expense is computed by applying the Federal corporate statutory tax rate of 21% and a net, after Federal benefit state tax

rate of 6.45% (state blended rate was 27.45%) to loss before taxes.

For 2019, the “expected”

tax expense is computed

by applying the Federal corporate statutory tax rate of 21% and a net, after Federal benefit state tax rate of 4.74% (state blended

rate was 24.74.%) to loss before taxes.

These results are as follows (in thousands):

Computed “expected”

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Non-deductible stock-based compensation

Fair Market Value Adjustment –

State tax rate adjustment

Change in valuation allowance

12 unchanged sentences

Total net deferred tax assets

At December 31, 2019, the Company has

a net operating loss carry-forward of approximately $188.6 million available to offset future taxable income.

Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss

carry-forward originating in the 2018 year and later carry-forward indefinitely and are subject to additional limitations based on taxable income.

However, utilization of these net

operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code.

At December 31, 2020, the Company has a

gross Federal net operating loss carry-forward of approximately $43.3 million available to offset future taxable income.

The Company’s

pre-2018 net operating losses expire on various dates through 2037.

In 2020, the Company completed an Internal Revenue Code Section

382 analysis of its historical net operating loss carry-forward amount.

As a result, the prior year net operating loss carry-forward

of $188.6 million was determined to be limited by $155.6 million.

The decrease in the prior year net operating loss carry-forward

is attributable to change of control ownership shifts which were determined for the years 2013 and 2018 which caused the reduction

in the value of the historical net operating loss carry-forward amounts.

Since the limitation affected the prior period, the Company

has determined that its 2019 tax footnote presentation was incorrect by overstating the gross net operating loss deferred tax asset

and corresponding valuation allowance.

However, there was no net impact to the net deferred tax asset and tax expense as the decrease

in the net operating loss carry-forward was offset completely by a corresponding adjustment to the Company’s overall valuation

For comparative purposes, the Company’s prior year tax footnote has been revised to reflect the adjustment to

the net operating losses and valuation allowance.

After the change noted above to the Company’s

net operating loss carry-forward amounts, at December 31, 2020 the Company has a net operating loss carry-forward of approximately

$43.3 million available to offset future taxable income.

The December 31, 2020 net operating loss carry-forward consists of $33.0

million of pre-2020 net operating loss carry-forward and $10.3 million of current year net operating loss carry-forward.

The Company’s

pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the

2018 year and later carry-forward indefinitely and are subject to additional limitations based on taxable income.

The Coronavirus Aid, Relief, and Economic

Security Act (the “CARES Act”) was enacted in March 2020.

The CARES Act includes several U.S.

income tax provisions

related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest

deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed

in service after December 31, 2017.

The CARES Act is not expected to have a material impact on the Company’s financial

In December 2019, the FASB issued ASU 2019-12,

“Income Taxes Topic 740-Simplifying the Accounting for Income Taxes”

(“ASU 2019-12”), which is intended

to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles

in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740.

This guidance is effective

for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted.

the Company’s preliminary analysis, adoption of Topic 740 in 2021 is not expected to have a material effect on the Company’s

consolidated financial statements.

The valuation allowance at December 31,

1 unchanged sentence

The net change in valuation allowance during the year ended December 31, 2020 was an increase

of approximately $3.1 million.

In assessing the realizability of deferred tax assets, management considers whether it is more likely

than not that some portion or all of the deferred income tax assets will not be realized.

of approximately $3.9 million primarily due to increases in gross federal and state deferred tax assets in 2020 and state tax rate

change from the previous period.

In assessing the realizability of deferred tax assets, management considers whether it is more

likely than not that some portion or all of the deferred income tax assets will not be realized.

The ultimate realization of deferred

1 unchanged sentence

become deductible.

Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income,and

tax planning strategies in making this assessment.

Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income,

and tax planning strategies in making this assessment.

Based on consideration of these items, management has determined that enough

1 unchanged sentence

allowance as of December 31, 2020.

The Company assesses uncertain tax positions

in accordance with the guidance for accounting for uncertain tax positions.

This pronouncement prescribes a recognition threshold

and measurement methodology for recording within the financial statements uncertain tax positions taken, or expected to be taken,

in the Company’s income tax returns.

To the extent the uncertain tax positions do not meet the “more likely than

threshold, the Company has derecognized such positions.

To the extent the uncertain tax positions meet the “more

likely than not”

threshold, the Company has measured and recorded the highest probable benefit, and have established appropriate

reserves for benefits that exceed the amount likely to be sustained upon examination.

The Company currently has not recorded

any uncertain tax positions and does not anticipate that the unrecognized tax benefits will significantly increase or decrease

within the next twelve months.

Synthetic Biologics, Inc.

2 unchanged sentences

Related Party Transactions

On September 5, 2018, the Company entered

into an agreement with CSMC for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company and

CSMC (the “Study”).

The Study will provide further evaluation of the efficacy and safety of SYN-010, the Company’s

modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC.

On September 5, 2018, the Company

entered into an agreement with CSMC for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company

and CSMC (the “Study”).

The Study was to provide further evaluation of the efficacy and safety of SYN-010, the Company’s

modified-release reformulation of lovastatin lactone, which was exclusively licensed to the Company by CSMC.

SYN-010 is designed

3 unchanged sentences

In consideration of the support provided

by CSMC for the Study, the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company has agreed,

upon the approval of the Study protocol by the Institutional Review Board, (IRB) to:

(i) issue to CSMC fifty thousand (50,000)

shares of common stock of the Company;

and (ii) transfer to CSMC an additional two million four hundred twenty thousand (2,420,000)

shares of common stock of its subsidiary Synthetic Biomics, Inc.

(“SYN Biomics”) owned by the Company, such that after

by CSMC for the Study, the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company, upon the approval

of the Study protocol by the Institutional Review Board, (IRB):

(i) issued to CSMC fifty thousand (50,000) shares of common

stock of the Company;

and (ii) transferred to CSMC an additional two million four hundred twenty thousand (2,420,000) shares

of common stock of its subsidiary Synthetic Biomics, Inc.

(“SYN Biomics”) owned by the Company, such that after

such issuance CSMC will own an aggregate of seven million four hundred eighty thousand (7,480,000) shares of common stock of Synbiomics,

representing seventeen percent (17%) of the issued and outstanding shares of SynBiomics’ common stock.

representing seventeen percent (17%) of the issued and outstanding shares of SynBiomics’

common stock.

The Agreement also provides CSMC with a

1 unchanged sentence

of stock of SYN Biomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its SYN Biomics

shares for unregistered shares of the Company’s common stock, with the rate of exchange based upon the relative contribution

of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange.

1 unchanged sentence

Agreement also provides for tag-along rights in the event of the sale by the Company of its shares of SYN Biomics.

In December 2013, through the

Company’s subsidiary, SYN Biomics, Inc.

the Company entered into a worldwide exclusive license agreement with CSMC and

acquired the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including

the development of SYN-010 to target IBS-C.

The Company licensed from CSMC a portfolio of intellectual property comprised of

and foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and

During the year ended December 31, 2016, the Company paid CSMC $350,000 for milestone payments related this license

There were no milestone payments made during the years ended December 31, 2019 and 2018.

On November 18, 2016, a member of the board

of directors, Scott Tarriff, acquired 8,572 shares of the Company’s common stock together with a Series A warrant to purchase

8,572 shares of the Company’s common stock at an exercise price of $50.05 and a Series B warrant to purchase 8,572 shares

of the Company’s common stock at an exercise price of $60.20 for an aggregate purchase price of $8,572.

The shares of stock

and warrants were acquired in the Company’s public offering that was consummated on November 18, 2016.

The Series A warrant

may be exercised until the four year anniversary of the date of its issuance and the Series B warrant expired on December 31, 2017.

Subsequent Event

On November 25, 2019 the Company received notification (the “Deficiency Letter”) from the NYSE American LLC (the

“NYSE American”) that it was not in compliance with certain NYSE American continued listing standards relating

to stockholders’

equity as of September 30, 2019.

Specifically, the Deficiency Letter stated that the Company is not

in compliance with Section 1003(a)(i) (requiring stockholders’

equity of $2.0 million or more if it has reported losses

from continuing operations and/or net losses in two of its three most recent fiscal years), Section 1003(a)(ii) (requiring

stockholders’

equity of $4.0 million or more if it has reported losses from continuing operations and/or net losses

in three of its four most recent fiscal years), and Section 1003(a)(iii) (requiring stockholders’

equity of $6.0 million

or more if it has reported losses from continuing operations and/or net losses in its five most recent fiscal years).

Deficiency Letter noted that the Company had a stockholders’

equity of $4,930,000 as of September 30, 2019, and has

reported net losses in its five most recent fiscal years.

The Company was required to submit a plan to the NYSE American by

December 26, 2019 advising of actions it has taken or will take to regain compliance with the continued listing standards

by November 25, 2020.

On February 7, 2020, the Company received

notice from the NYSE American that it had accepted the Company’s plan and granted a plan period through November 25, 2020.

During the plan period the Company will be subject to periodic review to determine if it is making progress consistent with the

If the Company does not regain compliance with the NYSE American listing standards by November 25, 2020, or if the Company

does not make sufficient progress consistent with its plan, then the NYSE American may initiate delisting proceedings.

On September 30, 2020, CSMC MAST formally

agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned

interim futility analysis.

Although it was concluded that SYN-010 was well tolerated, SYN-010 is unlikely to meet its primary endpoint

by the time enrollment is completed.

In December 2013, through the Company’s

subsidiary, SYN Biomics, Inc.

the Company entered into a worldwide exclusive license agreement with CSMC and acquired the

rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including the development

of SYN-010 to target IBS-C.

The Company licensed from CSMC a portfolio of intellectual property comprised of several U.S.

patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes.

During the year ended

December 31, 2016, the Company paid CSMC $350,000 for milestone payments related this license agreement.

There were no milestone

payments made during the years ended December 31, 2020 and 2019.

On November 9, 2020, the Company and

its subsidiary, Synthetic Biomics, Inc.

and CSMC mutually agreed to terminate the exclusive license agreement dated December 5,

2013 and all amendments thereto and the clinical trial agreement relating to SYN-010.

The determination to terminate the SYN-010

license agreement was agreed following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored

clinical trial of SYN-010.

The patent rights previously licensed to the Company covering the use of SYN-010 will remain the property

Subsequent Events

December 31, 2020 there were 17,999,999 October 2018 Warrants outstanding.

On November 16, 2020, the exercise price

of the October 2018 Warrants was reduced from $1.38 per October 2018 Warrant per full share of the Company’s common stock,

$0.001 par value per share (the “Common Stock”), to $0.69 per Warrant per full share of Common Stock in accordance

with the anti-dilution terms of the October 2018 Warrant.

The reduction was the result of the automatic price adjustment provision

of the October 2018 Warrant triggered by the issuance of shares of Common Stock by the Company through its “at the market

offering”

During January and February 2021, 11,655,747 October 2018 Warrants were exercised for cash proceeds of

$8.0 million.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Subsequent Events –

On January 27, 2021, the Company filed

a Certificate of Amendment to the Certificate of Designation for its Series A Convertible Preferred Stock (the “Certificate

of Amendment”) with the Secretary of State of the State of Nevada that adjusted the conversion price from $18.90 per share

to $1.50 per share and removed the redemption upon change of control.

The Company received notice from the holder of the Series

A Preferred Stock that it was increasing the Maximum Percentage as defined in the “Certificate of Designation”

4.99% to 9.99%, such increase to be effective 61 days from the date hereof.

During January and February 2021, all outstanding shares

of Series A Convertible Preferred Stock were converted to approximately 9.0 million shares of the Company’s common stock.

There are no remaining shares of the Series A Convertible Preferred stock outstanding after these conversions.

During January and

February 2021, the Company issued 8,996,768 shares of its common stock upon the conversion effected on such date by a holder of

120,000 shares of its Series A Convertible Preferred Stock.

On February 9, 2021, the Company entered

into an amended and restated the sales agreement with B.

Riley Securities, Inc.

Riley”) and A.G.P./Alliance

Global Partners (“AGP”) in order to include AGP as an additional sales agent for the Company’s “at the

market offering”

program (the “Amended and Restated Sales Agreement”).

The Sales Agreement amended and restated

the At Market Issuance Sales Agreement, dated August 5, 2016, with B.

Riley Securities, Inc.

(formerly known as B.

FBR, Inc.), as amended by amendment no.

1, dated May 7, 2018, to the At Market Issuance Sales Agreement.

Subsequent to year end through March 3,

2021, the Company sold through the At Market Issuance Sales Agreement and the Amended and Restated Sales Agreement approximately

76.3 million shares of the Company’s common stock and received net proceeds of approximately $63.8 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data