What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-03 · 356 added, 204 removed, 300 unchanged (65% of the section changed)

4 unchanged sentences

(In thousands except share and par value amounts)

September 30, 2021

March 31, 2022

December 31, 2021

3 unchanged sentences

Total Current Assets

Non-Current Assets

Property and equipment, net

Restricted cash

Right of use asset

In-process research and development

Deposits and other assets

Liabilities and Stockholders' Equity (Deficit)

Liabilities and Stockholders' Equity

Current Liabilities:

2 unchanged sentences

Accrued employee benefits

Contingent consideration, current portion

Loans Payable-current

Operating lease liability

Total Current Liabilities

Non-current Liabilities

Non-current contingent consideration

Loan Payable - Long term

Deferred tax liabilities, net

Lease liability - Long term

1 unchanged sentence

Commitments and Contingencies

Series A Preferred Stock, $ 0.001 par value;

10,000,000 shares authorized;

0 and 120,000 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Stockholders' Equity (Deficit):

Series B Preferred Stock, $ 1,000 par value;

10,000,000 shares authorized, 0 issued and outstanding and 3,973 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Common stock, $ 0.001 par value;

200,000,000 shares authorized, 132,044,866 issued and 132,042,538 outstanding at September 30, 2021 and 29,252,253 issued and 29,249,925 outstanding at December 31, 2020

200,000,000 shares authorized, 158,440,168 issued and 158,437,840 outstanding at March 31, 2022 and 132,044,866 issued and 132,042,538 outstanding at December 31, 2021

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Synthetic Biologics, Inc.

and Subsidiaries Equity (Deficit)

Non-controlling interest

Total Stockholders' Equity (Deficit)

Total Liabilities and Stockholders' Equity (Deficit)

Total Stockholders' Equity

Total Liabilities and Stockholders' Equity

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

For the three months ended September 30,

For the nine months ended September 30,

For the three months ended March 31,

Operating Costs and Expenses:

3 unchanged sentences

Loss from Operations

Other Income:

Other Expense:

Exchange loss

Interest income

Total Other Income

Total Other Expense

Net Loss Attributable to Non-controlling Interest

7 unchanged sentences

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

Loss on foreign currency translation

Total comprehensive loss

Comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Synthetic Biologics, Inc.

and Subsidiaries

See accompanying notes to unaudited condensed consolidated financial statements.

5 unchanged sentences

Series B Preferred

Non-Controlling

Total Stockholders’

Comprehensive

Stockholders'

Balance at December 31, 2021

Stock-based compensation

Issuance of Common Stock for VCN Acquisition

Translation gains (losses)

Balance at March 31, 2022

Common Stock $0.001 Par Value

Series B Preferred

Stockholders'

Balance at December 31, 2020

Stock-based compensation

Stock issued under "at-the-market"

6 unchanged sentences

Balance at March 31, 2021

Stock-based compensation

Balance at June 30, 2021

Stock-based compensation

Balance at September 30, 2021

Common Stock $0.001 Par Value

Series B Preferred

Non-Controlling

Total Stockholders’

Balance at December 31, 2019

Stock-based compensation

Series A Preferred Stock Dividends ($ 0.01 per share)

Issuance of SYN Biomics Stock

Conversion of Series B Preferred Stock to Common ($ 0.03 per share)

Non-controlling interest

Balance at March 31, 2020

Stock-based compensation

Series A Preferred Stock Dividends ($ 0.01 per share)

Issuance of SYN Biomics Stock

Conversion of Series B Preferred Stock to Common ($ 0.03 per share)

Non-controlling interest

Balance at June 30, 2020

Stock-based compensation

Series A Preferred Stock Dividends ($ 0.01 per share)

Issuance of SYN Biomics Stock

Conversion of Series B Preferred Stock to Common ($ 0.03 per share)

Non-controlling interest

Balance at September 30, 2020

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash Flows From Operating Activities:

1 unchanged sentence

Stock-based compensation

Subsidiary stock issued to vendor

Changes in operating assets and liabilities:

4 unchanged sentences

Accrued employee benefits

Operating lease liability

Lease liability

Net Cash Used In Operating Activities

1 unchanged sentence

Purchase of property and equipment

Cash paid for business combination, net of cash acquired

Pre-acquisition loan to VCN

Net Cash Used in Investing Activities

Cash Flows from Financing Activities

Payment of VCN's CDTI loan

Proceeds from "at the market"

2 unchanged sentences

Net Cash Provided by Financing Activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

Cash and cash equivalents at the end of the period

Noncash Financing Activities:

Effects of FX on cash

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

Cash and cash equivalents and restricted at the beginning of this period

Cash and cash equivalents and restricted cash at the end of this period

Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position

Cash and cash equivalents

Restricted cash included in other long-term assets

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

Supplemental non-cash investing and financing activities:

Fair value of contingent consideration in a business combination

Fair value of equity issued as consideration in a business combination

Effective settlement of pre-closing VCN financing

Effect of Series A Preferred Stock price adjustment

Right of use asset from operating lease

Conversion of Series B Preferred Stock

8 unchanged sentences

Synthetic Biologics, Inc.

(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:

(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-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” or “Synthetic Biologics”) is a diversified clinical-stage company developing therapeutics in areas of high unmet need.

Prior to the Acquisition of VCN, the Company’s focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases in areas which included our lead clinical development candidates:

(1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, Clostridioides difficile infection (CDI), overgrowth of pathogenic organisms, the emergence of antimicrobial resistance (AMR), and 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 cGMP conditions and intended to treat both local GI and systemic diseases.

Upon consummation of the Acquisition of VCN, described in more detail below, the Company is transitioning its strategic focus to oncology through the development of VCN’s new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune system.

Basis of Presentation

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Form 10-K.

The interim results for the three months ended March 31, 2022 are not necessarily indicative of results for the full year.

The condensed consolidated financial statements are prepared in conformity with U.S.

2 unchanged sentences

however, due to the inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods.

As of March 31, 2022 the Company has one operating segment (which includes the legacy Company business and the VCN business) and therefore one reporting segment.

Business Combination

The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions.

Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Organization, Nature of Operations and Basis of Presentation – (continued)

As a result of the acquisition of VCN (see Note 2), the Company has two intangible assets, in-process research and development (“IPR&D”) and goodwill.

The IPR&D and goodwill are deemed to have indefinite lives and therefore not amortized.

IPR&D assets represent the fair value assigned to technologies that the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use.

IPR&D assets are considered to have indefinite-lives until the completion or abandonment of the associated research and development projects.

If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed to have definite lives and are amortized based on their estimated useful lives at that point in time.

If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.

During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis on October 1, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that could indicate an impairment.

The impairment test consists of a comparison of the estimated fair value of the IPR&D with its carrying amount.

If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.

No impairment of the IPR&D asset was identified during the March 2022 period after the acquisition.

The Company tests the carrying amounts of goodwill for recoverability on an annual basis on October 31 or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The Company performs a one-step test in its evaluation of the carrying value of goodwill if qualitative factors determine it is necessary to complete a goodwill impairment test.

In the evaluation, the fair value of the relevant reporting unit is determined and compared to its carrying value.

If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required.

If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations.

As of March 31, 2022, the Company has determined that it has one reporting unit.

The Company has not identified any events or changes in circumstances that indicate the existence of potential impairment of goodwill during the three months ended March 31, 2022.

Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”).

Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations.

The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones.

The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income.

Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date.

Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations.

Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Organization, Nature of Operations and Basis of Presentation – (continued)

Recent Accounting Pronouncements and Developments

In August 2020, the Financial Accounting Standards Board (“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 (“ASU 2020-06”).

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 earnings per share guidance for both Subtopics.

1 unchanged sentence

The Company is currently assessing the impact of ASU 2020-06 on its consolidated financial statements.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Organization, Nature of Operations and Basis of Presentation – (continued)

Impairment of Long-Lived Assets

3 unchanged sentences

If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset.

During the three months ended March 31, 2020, the Company identified a new strain of coronavirus originating in Wuhan, China (the “COVID-19” outbreak) as a triggering event and performed a qualitative assessment of the fair value of its long-lived assets.

The results from this analysis determined that it is still more likely than not that the fair value of its long-lived assets remain higher than the carrying value of these assets.

As a result, no impairment charges were recorded during the three and nine months ended September 30, 2021 and 2020.

As a result, no impairment charges were recorded during the three months ended March 31, 2022 and 2021.

BUSINESS COMBINATION

On March 10, 2022, the Company completed the acquisition of all the outstanding shares of VCN Biosciences S.L.

(the “VCN Shares”) from the shareholders of VCN.

VCN is a private, clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer.

VCN’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma.

VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications.

VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment.

Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies.

Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response.

VCN has the rights to four exclusive patents for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending.

As consideration for the purchase of the VCN Shares, the Company paid $ 4,700,000 to Grifols Innovation and New Technologies Limited the owner of approximately 86 % of the equity of VCN, and issued to the remaining sellers and certain key employees and consultants of VCN 26,395,303 shares of its common stock In addition to the consideration described above, under the terms of the Purchase Agreement, the Company assumed up to $ 2,400,000 of existing liabilities of VCN and has agreed to make cash payments of up to $ 70.25 million to Grifols upon the achievement of certain clinical and commercialization milestones.

In anticipation of the Acquisition, prior to the Closing, the Company loaned VCN $ 417,000 to help finance the costs of certain of VCN’s research and development activities.

At the Closing, VCN and Grifols entered into a sublease agreement for the sublease by VCN of laboratory and office space as well as a transitional services agreement.

As a Purchase post-Closing covenant, Synthetic has agreed to commit to fund VCN’s research and development programs, including but not limited to VCN01 in a pancreatic ductal adenocarcinoma PDAC phase 2 trial, VCN01 in a retinoblastoma (RB) phase 2/3 trial and necessary G&A within a budgetary plan of approximately $27.8 million.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

BUSINESS COMBINATION - (continued)

As of March 31, 2022, the fair value of the contingent consideration was $ 12.2 million.

Total consideration including cash, restricted shares and contingent consideration was valued at $ 23.9 million.

Purchase consideration consisted of the following:

Cash paid at Closing

Receivable from VCN "effectively settled"

FV of common shares issued

FV of contingent consideration

We acquired VCN due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline, and to diversify our potential future revenue opportunities.

The preliminary allocation of the fair value of the VCN acquisition is shown in the table below.

Estimated fair value

($in thousands)

Cash and cash equivalents

Property and equipment

In-process research and development intangible asset

Deferred tax assets (liabilities), net

Accounts payable

Accrued expenses

Accrued employee benefits

Loan Payable-current

Other long-term liabilities

Total purchase consideration

The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this filing.

Any changes in the estimated fair values of the purchase consideration and of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction may change the amount and allocation of the purchase price.

As such, the purchase price amount and allocations for this transaction are preliminary estimates including in-process research and development, goodwill and contingent consideration, which may be subject to change within the measurement period.

The net assets were recorded at their estimated fair value.

In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates.

In connection with the acquisition, we recognized $ 21.7 million of indefinite-lived in-process research and development intangible assets.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities.

Goodwill of $ 5.8 million was established as a result of the Acquisition.

VCN operations recorded a net loss of $ 197,000 from the date of acquisition through March 31, 2022.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

BUSINESS COMBINATION - (continued)

Pro Forma Consolidated Financial Information (unaudited)

The following unaudited pro forma consolidated financial information summarizes the results of operations for the periods indicated as if the VCN acquisition had been completed as of January 1, 2021.

Quarter Ended March 31,

(in thousands)

Transaction Costs

In conjunction with the Acquisition, the Company incurred approximately $ 1.2 million and 0.2 million in 2021 and 2022, respectively, in transaction costs, which were expensed as general, and administrative expense in the consolidated statement of operations.

Goodwill and Intangibles

Goodwill of $ 5.8 million and in-process R&D of $ 21.7 million were recorded in connection with the acquisition of VCN, as described in Note 2.

The Company will perform an annual impairment test unless condition exist where an interim impairment analysis is necessary.

This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.

The following table provides the Company’s goodwill as of March 31, 2022.

There was no goodwill impairment during the quarter ended March 31, 2022.

Balance at December 31, 2021

Goodwill from Acquisition of VCN

Goodwill impairment loss

Effects of exchange rates

Balance at March 31, 2022

The following table provides the Company’s in-process R&D as of March 31, 2022.

There was no change in in-process R&D during the quarter ended March 31, 2022.

Balance at December 31, 2021

Acquired IPR&D -

In-process R&D impairment loss

Effects of exchange rates

Balance at March 31, 2022

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Fair Value of Financial Instruments

11 unchanged sentences

The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments.

In connection with the acquisition of VCN, we may pay up to $ 70.2 million in additional consideration related to the achievement of certain milestones, including regulatory filings completed noted in Note 3.

The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs.

As of the March 10, 2022 acquisition date, the contingent consideration had a fair value of $ 12.2 million.

The fair value of the contingent consideration was $ 12.2 million as of March 31, 2022 and is reflected as current accrued contingent consideration of $ 7.5 million and non-current contingent consideration liability of $ 4.7 million in the consolidated balance sheet.

The fair value of financial instruments measured on a recurring basis is as follows:

As of March 10, 2022

Contingent consideration

As of March 31, 2022

Contingent consideration

Synthetic Biologics, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Fair Value of Financial Instruments – (continued)

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

As of March 10, 2022

Weighted Average

Unobservable Input

(range, if applicable)

Contingent Consideration

Probability weighted

Milestone dates

income approach

Discount rate

7.3 % to 8.6 %

Weighted Average Discount rate

Probability of Occurrence (periodic for each Milestone)

9.9 % to 82.4 %

Probability of occurrence (cumulative through each Milestone)

5.1 % to 62.8 %

As of March 31, 2022

Weighted Average

Unobservable Input

(range, if applicable)

Contingent Consideration

Probability weighted

Milestone dates

income approach

Discount rate

7.1 % to 8.7 %

Weighted Average Discount rate

Probability of Occurrence (periodic for each Milestone)

9.9 % to 82.4 %

Probability of occurrence (cumulative through each Milestone)

5.1 % to 62.8 %

Selected Balance Sheet Information

Prepaid expenses and other current assets (in thousands)

September 30,

Receivable from prior owner

Prepaid insurances

Prepaid clinical research organizations

Prepaid consulting, subscriptions and other expenses

Prepaid insurances

Stock sales receivable

VAT receivable

Prepaid manufacturing expenses

1 unchanged sentence

The Company makes payments to the CROs based on agreed upon terms that include payments in advance of study services.

Receivable from prior VCN owner includes amounts due related to research and development tax rebates, VAT and corporate taxes.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Selected Balance Sheet Information – (continued)

Property and equipment, net (in thousands)

September 30,

Computers and office equipment

2 unchanged sentences

Accrued expenses (in thousands)

September 30,

Accrued clinical consulting services

Accrued vendor payments

Accrued manufacturing costs

Other accrued expenses

Accrued employee benefits (in thousands)

September 30,

Accrued bonus expense

Accrued vacation expense

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Accrued compensation expense

Stock-Based Compensation

5 unchanged sentences

Options become exercisable over various periods from the date of grant and generally expire ten years after the grant date.

As of September 30, 2021, there were 5,145 options issued and outstanding under the 2007 Stock Plan.

As of March 31, 2022, there were 5,145 options issued and outstanding under the 2007 Stock Plan.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

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.

From time to time the number of shares authorized for options was increased such that 4,000,000 million were authorized as of September 30, 2021.

On October 22, 2013, the stockholders approved and adopted an amendment to the Company’s 2010 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 ;

on 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 periods from the date of grant and expire between five and ten years after the grant date.

As of September 30, 2021, there were 2,452,273 options issued and outstanding under the 2010 Stock Plan.

As of March 31, 2022, there were 2,434,237 options issued and outstanding under the 2010 Stock Plan.

On September 17, 2020, the stockholders 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 September 30, 2021, there were 1,540,000 options issued and outstanding under the 2010 Stock Plan.

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee’s options.

As of March 31, 2022, there were 3,668,333 options issued and outstanding under the 2010 Stock Plan.

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee.

Stock forfeitures are recognized as incurred.

1 unchanged sentence

Instead, the fair value of the stock-based payment is recognized over the stated vesting period.

The Company has applied fair value accounting for all stock-based payment awards at the grant date.

The Company has applied fair value accounting for all stock-based payment awards since inception.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model.

There were no options granted during the three and nine months ended September 30, 2021 and 2020.

There were no options granted during the three months ended March 31, 2022 and 2021.

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.

3 unchanged sentences

Treasury security with a maturity that approximates the expected term of the option.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

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

6 unchanged sentences

● half vesting immediately and the remaining over three years,

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

● quarterly over three years,

10 unchanged sentences

Stock-Based Compensation – (continued)

A summary of stock option activity for the nine months ended September 30, 2021 is as follows:

A summary of stock option activity for the three months ended March 31, 2022 and the year ended December 31, 2021 is as follows:

Weighted Average

2 unchanged sentences

Balance - December 31, 2020

Balance - September 30, 2021 - outstanding

Balance - September 30, 2021 - exercisable

Grant date fair value of options granted – nine months ended September 30, 2021

Weighted average grant date fair value –nine months ended September 30, 2021

Balance - December 31, 2021

Balance - March 31, 2022 - outstanding

Balance - March 31, 2022 - exercisable

Grant date fair value of options granted – three months ended March 31, 2022

Weighted average grant date fair value – three months ended March 31, 2022

Grant date fair value of options granted – year ended December 31, 2021

Weighted average grant date fair value – year ended December 31, 2021

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to employees for the three and nine months ended September 30, 2021 was $ 34,000 and $ 101,000 , respectively, and $ 41,000 and $ 120,000 for the three and nine months ended September 30, 2020, respectively.

Stock-based compensation expense included in research and development expenses relating to stock options issued to employees for the three and nine months ended September 30, 2021 was $ 16,000 and $ 47,000 , respectively, and $ 14,000 and $ 45,000 for the three and nine months ended September 30, 2020, respectively.

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to consultants for the three and nine months ended September 30, 2021 was $ 49,000 and $ 147,000 , respectively, and $ 26,000 and $ 79,000 for the three and nine months ended September 30, 2020, respectively.

Stock-based compensation expense included in research and development expenses relating to stock options issued to consultants for the three and nine months ended September 30, 2021 was $ 3,000 and $ 10,000 , respectively, and $ 1,000 and $ 7,000 for the three and nine months ended September 30, 2020.

Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to employees for the three months ended March 31, 2022 and 2021 was $ 59,000 and $ 49,000 , respectively.

Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to consultants for the three months ended March 31, 2022 and 2021 were $ 53,000 and $ 52,000 , respectively.

As of March 31, 2022, total unrecognized stock-based compensation expense related to stock options was $ 624,000 , which is expected to be expensed through February 2024.

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.

Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options.

The Company did not record any excess tax benefits during the three months ended March 31, 2022 and 2021.

Synthetic Biologics, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

As of September 30, 2021, total unrecognized stock-based compensation expense related to stock options was $ 380,000 , which is expected to be expensed through May 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.

Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options.

The Company did not record any excess tax benefits during the three and nine months ended September 30, 2021 and 2020.

Stock Warrants

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

During the nine months ended September 30, 2021, 11,655,747 warrants were exercised for cash proceeds of $ 8.0 million.

There were no warrants exercised during the three months ended September 30, 2021.

During the three months ended March 31, 2021, 11,655,747 warrants were exercised for cash proceeds of $ 8.0 million.

There were no warrants exercised during the three months ended March 31, 2022.

A summary of all warrant activity for the Company for the quarter ended March 31, 2022 and the year ended December 31, 2021 is as follows:

Weighted Average

Exercise Price

Balance at December 31, 2020

( 11,655,747 )

Balance at December 31, 2021

Balance at March 31, 2022

Synthetic Biologics, Inc.

2 unchanged sentences

Stock Warrants – (continued)

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 was $ 50.05 and the per share exercise price of the Series B warrants was $ 60.20 , each subject to adjustment as specified in the warrant agreements.

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

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

The warrants included 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 November 18, 2020, the fair value of the warrant liability was $ 100 .

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

A summary of all warrant activity for the Company for the nine months ended September 30, 2021 is as follows:

Weighted Average

Exercise Price

Balance at December 31, 2020

Balance at September 30, 2021

A summary of all outstanding and exercisable common stock warrants as of September 30, 2021 is as follows:

Weighted Average

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, 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.

A summary of all outstanding and exercisable common stock warrants as of March 31, 2022 is as follows:

Weighted Average

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Contractual Life

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Net Loss per Share

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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 nine months ended September 30, 2021 excludes net loss attributable to non-controlling interest of $ 0.1 million and includes the accretion of the Series B preferred discount of $ 1.5 million as a result of converted shares and Series A preferred stock accrued dividends of $ 0.1 million and the deemed dividend of $ 7.4 million resulting from the effect of the Series A preferred stock price adjustment during the first quarter of 2021.

Net loss attributable to common stockholders for the three and nine months ended September 30, 2020 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 and $ 1.3 million, respectively, on converted shares and Series A preferred stock accrued dividends of $ 0.1 million and $ 0.2 million, respectively.

There were no 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 for the three and nine months ended September 30, 2021 since all remaining Series B preferred stock were converted to common stock.

A total of 3,605,217 shares of common stock underlying Series B preferred shares convertible to common stock were excluded from the computations of net loss per common share for the three and nine months ended September 30, 2020.

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 three and nine months ended September 30, 2021 were 3,997,418 and 6,344,966 , respectively, and for the nine months ended September 30, 2020 were 2,460,325 and 18,714,999 , respectively, because their effect is anti-dilutive.

Non-controlling Interest

The 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, Synthetic Biomics, Inc.

(“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.

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.

Net loss attributable to common stockholders for the three months ended March 31, 2022 was $ 4.3 million.

Net loss attributable to common stockholders for the three months ended March 31, 2021 was $ 11.5 million and excludes net loss attributable to non-controlling interest of $ 0.1 million and includes the accretion of the Series B preferred discount of $ 1.5 million as a result of converted shares and Series A preferred stock accrued dividends of $ 0.1 million and the deemed dividend of $ 7.4 million resulting from the effect of the Series A preferred stock price adjustment during the first quarter of 2021.

There were no 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 for the three months ended March 31, 2021 since all remaining Series B preferred stock were converted to common stock in 2021.

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 three months ended March 31, 2022 were 6,107,715 and 6,344,966 , respectively and for the three months ended March 31, 2021 were 3,997,418 and 6,344,966 , respectively, because their effect is anti-dilutive.

Non-controlling Interest and Related Party

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.

SYN-010 is designed to reduce methane production by certain microorganisms (M.

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

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 September 30, 2021 and 2020, the accumulated net loss attributable to the non-controlling interest is $ 2.8 million and $ 2.8 million, respectively.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Non-controlling Interest – (continued)

In consideration of the support provided 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):

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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.

(“SYN Biomics”) owned by the Company, such that after such issuance CSMC owns 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.

(“Synbiomics”) owned by the Company, such that after such issuance CSMC owns 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 three and nine months ended September 30, 2020, research and development expense recorded related to this transaction approximated $ 134,000 and $ 225,000 , respectively.

There was no expense recorded related to this transaction during the three and nine months ended September 30, 2021.

There was no expense recorded related to this transaction during the three months ended March 31,2022 and 2021.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Non-controlling Interest and Related Party – (continued)

The Agreement also provided CSMC with a right, commencing on the six month anniversary of issuance of the stock under certain circumstances in the event that 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 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.

2 unchanged sentences

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, SYN Biomics 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.

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

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.

During 2021, CSMC returned its shares of SYN Biomics to the Company.

The Company’s interest in SYN Biomics is now 100 %.

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

The Company’s non-controlling interest was accounted for under ASC 810, Consolidation 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 in the face of the Consolidated Statements of Operations.

Common and Preferred Stock

2 unchanged sentences

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.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Common and Preferred Stock – (continued)

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.

3 unchanged sentences

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

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Common and Preferred Stock – (continued)

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” facility.

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 in accumulated deficit of $ 0.9 million, which reduces the income available to common stockholders for the year ended December 31, 2020.

The October 2018 Warrants are immediately exercisable at a price of $ 0.69 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.

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 in accumulated deficit of $ 880,000 , which reduces the income available to common stockholders for the year ended December 31, 2020.

The October 2018 Warrants are immediately exercisable at a price of $ 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.

3 unchanged sentences

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 nine months ended September 30, 2021 and 2020, 3,973 and 3,492 shares, respectively, were converted resulting in the recognition of deemed dividends of $ 1.5 million and $ 1.3 million, respectively, for the amortization of the Series B Preferred Stock discount upon conversion.

During the three months ended September 30, 2020, 1,379 shares were converted resulting in the recognition of a deemed dividend of $ 0.5 million for the amortization of the Series B Preferred Stock discount upon conversion.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Common and Preferred Stock – (continued)

During the three months ended March 31, 2021, 3,973 shares were converted resulting in the recognition of a deemed dividends of $ 1.5 million for the amortization of the Series B Preferred Stock discount upon conversion.

During the three months ended March 31, 2022 there were no shares converted as all shares were converted in 2021 and 2020.

Series A Preferred Stock

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Holders of Series A Preferred Stock are entitled to a cumulative dividend at the rate of 2.0 % per annum, payable quarterly in arrears, as set forth in the Certificate of Designation of Series A Preferred Stock classifying the Series A Preferred Stock.

The Series A Preferred Stock is convertible at the option of the holders at any time 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 2018 reverse stock split, subject to certain customary anti-dilution adjustments, and was decreased to $ 1.50 on January 27, 2021, as described below.

The Series A Preferred Stock is convertible at the option of the holders at any time 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 2018 reverse stock split, subject to certain customary anti-dilution adjustments and was decreased to $ 1.50 on January 27, 2021, see below.

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 was 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 would 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.

In the event of any liquidation, dissolution or winding-up of the Company, holders of the Series A Preferred Stock were entitled to a preference on liquidation equal to the 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 have received 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 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 holders of Series A Preferred Stock have no voting rights, other than customary protections against adverse amendments and issuance of pari passu or senior preferred stock.

Upon certain change of control events involving the Company, prior to the filing of the amendment to the Certificate of Designation for the Series A Preferred Stock described below, the Company will be required to repurchase all of the Series A Preferred Stock at a redemption price equal to the greater of (i) the Accreted Value and (ii) the amount that would be payable upon a change of control (as defined in the Certificate of Designation) in respect of common stock issuable upon conversion of such share of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into common stock immediately prior to the change of control.

On or at any time after (i) the VWAP (as defined in the Certificate of Designation) for at least 20 trading days in any 30 trading day period is greater than $ 70.00 , subject to adjustment in the case of stock split, stock dividends or the like, the Company has the right, after providing notice not less than 6 months prior to the redemption date, to redeem, in whole or in part, on a pro rata basis from all holders thereof based on the number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price per share of Series A Preferred Stock of $ 7,875.00 , subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Convertible Preferred Stock or (ii) the five year anniversary of the issue date, the Company shall have the right to redeem, in whole or in part, on a pro rata basis from all holders thereof based on the number of shares of Series A Convertible Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price per share equal to the Liquidation Value.

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.

In the event of any liquidation, dissolution or winding-up of the Company, holders of the Series A Preferred Stock are entitled to a preference on liquidation equal to the 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”).

Synthetic Biologics, Inc.

2 unchanged sentences

Common and Preferred Stock – (continued)

The Series A Preferred Stock was 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 was less than the fair value of the underlying common stock at the date of issuance, there was a beneficial conversion feature (“BCF”) at the issuance date.

On or at any time after (i) the VWAP (as defined in the Certificate of Designation) for at least 20 trading days in any 30 trading day period is greater than $ 70.00 , subject to adjustment in the case of stock split, stock dividends or the like the Company has the right, after providing notice not less than 6 months prior to the redemption date, to redeem, in whole or in part, on a pro rata basis from all holders thereof based on the number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price per share of Series A Preferred Stock of $ 7,875.00 , subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Convertible Preferred Stock or (ii) the five year anniversary of the issue date, the Company shall have the right to redeem, in whole or in part, on a pro rata basis from all holders thereof based on the number of shares of Series A Convertible Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price per share equal to the Liquidation Value.

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” and impacts earnings per share.

2 unchanged sentences

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 three months ended September 30, 2021, the Company did not record any Series A Preferred Stock dividends since all shares were converted to shares of common stock during the three months ended March 31, 2021.

During the nine months ended September 30, 2021, the Company accrued dividends of $ 24,000 .

During the three and nine months ended September 30, 2020, the Company accrued dividends of $ 64,000 and $ 189,000 , respectively.

During the three months ended March 31,2021 and 2020, the Company accrued dividends of $ 24,000 and $ 62,000 , 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.

On January 27, 2021, the Company filed an amendment to the Certificate of Designation for the Series A Preferred Stock to (i) lower the stated Conversion Price through September 30, 2021 and (ii) remove their change in control put, as an inducement for the holder to fully convert its Series A Preferred Stock.

The 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 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” from 4.99 % to 9.99 %, such increase to be effective 61 days from the date thereof.

During the three months ended March 31, 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 the holder of 120,000 shares of its Series A Convertible Preferred Stock.

The fair value of the consideration issued to the holder to induce conversion was accounted for as a deemed dividend and increased net loss available to common shareholders for purposes of calculating loss per share.

The Company estimated the fair value of the inducement consideration of $ 7.4 million and as a result recorded a corresponding deemed dividend of $ 7.4 million during the nine months ended September 30, 2021.

The fair value of the consideration issued to the holder to induce conversion is accounted for as a deemed dividend and increased net loss available to common shareholders for purposes of calculating loss per share.

The Company estimated fair value of the inducement consideration of $ 7.4 million and as a result has recorded a corresponding deemed dividend of $ 7.4 million during the three months ended March 31, 2021.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Common and Preferred Stock – (continued)

Riley Securities Sales Agreement

9 unchanged sentences

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.

The Company did not sell any shares of common stock during the three and nine months ended September 30, 2020 through the Riley Securities Sales Agreement.

The Company did not sell any shares of common stock during the three months ended March 31, 2022 through the Riley Securities Sales Agreement.

On February 9, 2021, the Company entered into an amended and restated sales agreement with B.

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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”).

During the nine months ended September 30, 2021, the Company sold through the At Market Issuance Sales Agreement and the Amended and Restated Sales Agreement approximately 78.7 million shares of the Company’s common stock and received net proceeds of approximately $ 66.0 million.

The Company did not sell any shares of common stock during the three months ended September 30, 2021 through the Amended and Restated Sales Agreement.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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”).

SYN-010 is designed to reduce methane production by certain microorganisms ( M.

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

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:

(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 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 Stock Purchase Agreement also provided 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 was completed.

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.

Riley FBR, Inc.), as amended by amendment no.

1, dated May 7, 2018, to the At Market Issuance Sales Agreement.

During the three months ended March 31, 2021, the Company sold through the At Market Issuance Sales Agreement and the Amended and Restated Sales Agreement approximately 78.7 million shares of the Company’s common stock and received net proceeds of approximately $ 66.0 million.

During the three months ended March 31, 2022, there were no sales of the Company’s common stock through the At Market Issuance Sales Agreement and the Amended and Restated Sales Agreement.

As a result of the acquisition of VCN the company acquired interest-free or below-market interest rates loans ( 0 %- 1 %) extended by Spanish governmental institutions of Ministerio de Ciencia , Innovacion y Universidades and ACC10 Generalitat de Catalunya (CDIT loans) The maturities of these loans are between 2027 and 2028.

As a result of the VCN acquisition, the company maintains a restricted cash collateral account of $ 103,000 relating to the RETOS loan, which is reflected a non-current assets on the balance sheet.

March 31, 2022

The difference between the fair value of these liabilities (when relevant conditions associated with the grants are met) and the amount received is recognized as a government grant and classified as other operating income in the statement of profit and loss.

A maturity analysis of the debt as of March 31, 2022 is as follows (amounts in thousands of dollars) :

Synthetic Biologics, Inc.

2 unchanged sentences

Commitments and Contingencies

All of the Company’s existing leases as of September 30, 2021 are classified as operating leases.

As of September 30, 2021, the Company has one operating lease for facilities with a remaining term expiring in 2027.

During the quarter ended June 30, 2021, the Company renewed its facility lease by entering into a Second Lease Amendment which extends the lease term for 63 months beginning on September 1, 2022 and ending on December 31, 2027 at stated rental rates and including a 3 month rent abatement.

The Company’s existing lease as of March 31, 2022 for its U.S.

location is classified as an operating lease.

As of March 31, 2022, the Company has two operating lease for facilities.

During the quarter ended June 30, 2021, the Company renewed its Rockville MD facility lease by entering into a Second Lease Amendment which extends the lease term for 63 months beginning on September 1, 2022 and ending on December 31, 2027 at stated rental rates and including a 3-month rent abatement.

The Second Amendment also has options for a Tenant Improvement Allowance and a Second Extension Term.

The Second Amendment also gives the Company the right to expand their space by giving notice to the landlord before December 31, 2021.

The Company did not give notice to expand the space during 2021.

The Second Extension Term is offered at market rates and there is no economic incentive for the lessee, therefore the Company has determined that it is not part of the original lease term.

There is an option in this Second Amendment to Lease for the Company to borrow funds for tenant improvements subject to an 8.5 % interest rate.

Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the three and nine months ended September 30, 2021 approximated $ 77,000 and $ 195,000 , respectively, and for the three and nine months ended September 30, 2020 approximated $ 50,000 and $ 151,000 , respectively.

For the three and nine months ended September 30, 2021, operating cash flows used for operating leases approximated $ 80,000 and $ 240,000 , respectively, and for three and nine months ended September 30, 2020 approximated $ 77,000 and $ 231,000 , respectively, and the right of use assets exchanged for operating the lease obligation was $ 1.3 million.

The Company also leases research and office facilities in Barcelona Spain for its 100 percent owned VCN subsidiary.

The current lease is short term agreement with a 90-day termination notice provision that can be exercised by either party.

On the closing date of the VCN acquisition, a sublease was executed for SYN to lease research and office facilities at a new location in Parets del Valles (Barcelona) from the former owner of VCN.

This lease was executed for an initial term estimated to begin in January 2023 until October 2026, with an option to renew for an additional five years .

Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the quarter ended March 31, 2022 and 2021 approximated $ 107,000 and $ 51,000 , respectively.

For the quarter ended March 31, 2022 and 2021, operating cash flows used for operating leases approximated $ 112,000 and $ 79,000 , respectively, and the right of use assets exchanged for operating the lease obligation was $ 1.3 million.

The day one non-cash addition of right of use assets due to adoption of ASC 842 was $ 538,000 .

A maturity analysis of our operating leases as of September 30, 2021 is as follows (amounts in thousands of dollars) :

Future undiscounted cash flow for the years ending September 30:

A maturity analysis of our operating leases as of March 31, 2022 is as follows (amounts in thousands of dollars) :

Future undiscounted cash flow for the years ending March 31,

Discount factor

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Lease liability – long term

Risks and Uncertainties

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of 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.

Synthetic Biologics, Inc.

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Commitments and Contingencies – (continued)

Risks and Uncertainties

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

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.

As COVID-19 continued to spread around the globe, the Company experienced disruptions that impacted its business and clinical trials, including 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, especially in light of the new variants, 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 disease.

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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.

Through the VCN Acquisition, the Company has operations in Spain and may conduct research and development, manufacturing, and clinical trials in Western European countries.

The invasion of Ukraine by Russia and the retaliatory measures that have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could disrupt our supply chain, and despite the fact that we currently do not plan any clinical trials in Eastern Europe, may adversely impact the cost and conduct of R&D, manufacturing, and international clinical trials of our product candidates.

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-Q

Item 1. Financial Statements