What changed in this filing

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Item 1. Financial Statements

2022-08-11 compared with 2022-05-16 · 168 added, 124 removed, 532 unchanged (35% of the section changed)

4 unchanged sentences

(In thousands except share and par value amounts)

March 31, 2022

June 30, 2022

December 31, 2021

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Common stock, $ 0.001 par value;

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

20,000,000 shares authorized, 15,844,294 issued and 15,844,061 outstanding at June 30, 2022 and 13,204,487 issued and 13,204,254 outstanding at December 31, 2021

Additional paid-in capital

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(In thousands, except share and per share amounts)

For the three months ended March 31,

For the three months ended June 30,

For the six months ended June 30,

Operating Costs and Expenses:

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Interest income

Total Other Expense

Total Other Income(Expense)

Net Loss Attributable to Non-controlling Interest

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Balance at March 31, 2022

Stock-based compensation

Translation gains (losses)

Balance at June 30, 2022

Common Stock $0.001 Par Value

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Balance at March 31, 2021

Stock-based compensation

Balance at June 30, 2021

See accompanying notes to unaudited condensed consolidated financial statements.

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(In thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash Flows From Operating Activities:

1 unchanged sentence

Stock-based compensation

Change in fair value of contingent consideration

Changes in operating assets and liabilities:

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Proceeds from issuance of common stock for warrant exercises

Net Cash Provided by Financing Activities

Net Cash Provided (used in) by Financing Activities

Effects of FX on cash

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Supplemental non-cash investing and financing activities:

Fair value of contingent consideration in a business combination

Fair value of contingent consideration issued in a business combination

Fair value of equity issued as consideration in a business combination

Effective settlement of pre-closing VCN financing

Goodwill measurement period adjustment

Effect of Series A Preferred Stock price adjustment

Right of use asset from operating lease

Conversion of Series B Preferred Stock

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(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:

Prior to the acquisition of VCN (the “Acquisition”), 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.

Upon consummation of the Acquisition of VCN, described in more detail below, the Company began 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

On July 11, 2022, the Board of Directors of the Company approved a reverse stock split of the Company's authorized, issued and outstanding shares of common stock, par value $ 0.001 per share, at a ratio of one (1) share of common stock for every ten (10) shares of common stock (the “Reverse Stock Split”).

The Reverse Stock Split was effective on July 25, 2022 (the “Effective Time).

As a result of the Reverse Stock Split, each ten (10) pre-split shares of common stock outstanding automatically combined into one (1) new share of common stock without any action on the part of the holders, and the number of outstanding shares of common stock was reduced from 158,437,840 shares to 15,844,061 shares (subject to rounding of fractional shares) and the number of authorized shares of common stock was reduced from 200,000,000 share to 20,000,000 shares.

Stockholders who otherwise were entitled to receive fractional shares because they held a number of pre-reverse stock split shares of the Company's common stock not evenly divisible by 10, received, in lieu of a fractional share, that number of shares rounded up to the nearest whole share.

The Reverse Stock Split did not alter the par value of the Company's common stock or modify any voting rights or other terms of the common stock.

In addition, pursuant to their terms, a proportionate adjustment was made to the per share conversion exercise price and number of shares issuable under all of the Company's outstanding shares of convertible preferred stock and stock options and warrants to purchase shares of common stock, and the number of shares authorized and reserved for issuance pursuant to the Company's equity incentive plans was reduced proportionately.

All share amounts and exercise/conversion prices in the condensed consolidated financial statements and footnotes below have been adjusted retrospectively for the Reverse Stock Split.

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.

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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 interim results for the three and six months ended June 30, 2022 are not necessarily indicative of results for the full year.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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

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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.

As of June 30, 2022 the Company has one operating segment (which includes the legacy Company business and the VCN business) and therefore one reporting segment.

Business Combination

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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 represent the fair value assigned to technologies that the Company acquired, 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.

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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.

No impairment of the IPR&D asset was identified during the three and six months ended June 30, 2022.

The Company tests the carrying amounts of goodwill for recoverability on an annual basis on October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired.

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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.

As of June 30, 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 and six months ended June 30, 2022.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

Contingent Consideration

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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)

Impairment of Long-Lived Assets

Long-lived assets include property, equipment and right-of-use assets.

Management reviews the Company’s long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable.

The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as whether there is reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount.

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.

As a result, no impairment charges were recorded during the three and six months ended June 30, 2022 and 2021.

Recent Accounting Pronouncements and Developments

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

Impairment of Long-Lived Assets

Long-lived assets include property, equipment and right-of-use assets.

In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), management reviews the Company’s long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

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

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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.

On March 10, 2022, the Company completed the acquisition of all the outstanding shares of VCN (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.

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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.

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 VCN employees and consultants of VCN an aggregate of 2,639,530 shares of its common stock In addition to the consideration described above, under the terms of the Purchase Agreement, the Company assumed up to $ 2,390,000 of existing liabilities of VCN and has agreed to make cash payments of up to $ 70.2 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:

As a post-Closing covenant, the Company has agreed to commit to fund VCN’s research and development programs, including but not limited to VCN-01 in a pancreatic ductal adenocarcinoma PDAC phase 2 trial, VCN-01 in a retinoblastoma (RB) phase 2/3 trial and necessary G&A within a budgetary plan of approximately $ 27.8 million.

Total purchase consideration including cash, restricted shares and contingent consideration was valued at approximately $ 23.9 million, as follows (in thousands):

Cash paid at Closing

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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.

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

During the three months ended June 30, 2022 the Company recognized a non-cash gain of $ 483,000 related to the decrease in the fair value of the contingent consideration.

This gain was recorded as a reduction of general and administrative expense in the accompanying condensed consolidated statement of operations.

The Company acquired VCN due to its track record of being a research and development growth engine capable of fueling sustainable growth, to expand the Company’s research and development pipeline, and to diversify the Company’s potential future revenue opportunities.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Business Combination - (continued)

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

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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.

During the three months ended June 30, 2022 the Company recognized a measurement period adjustment related to the estimate of acquired liabilities resulting in a $ 277,000 reduction in accrued liabilities and Goodwill.

The net assets were recorded at their estimated fair value.

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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.

Goodwill of $ 5.8 million was established as a result of the Acquisition and is not tax deductible.

VCN operations recorded a net loss of $ 2.1 million from the date of acquisition through June 30, 2022.

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 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Synthetic Biologics, Inc.

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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.

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 statements 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.

The Company performs an impairment test for IPR&D and for goodwill on an annual basis on October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired.

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.

The Company did not identify any impairments to IPR&D and goodwill during the quarter ended June 30, 2022

The following table provides the Company’s goodwill as of June 30, 2022.

Goodwill (in thousands)

Balance at December 31, 2021

1 unchanged sentence

Goodwill impairment loss

Measurement Period Adjustment

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 June 30, 2022

The following table provides the Company’s in-process R&D as of June 30, 2022.

There was no change in in-process R&D during the quarter ended June 30, 2022.

R&D (in thousands)

Balance at December 31, 2021

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Effects of exchange rates

Balance at March 31, 2022

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Balance at June 30, 2022

Fair Value of Financial Instruments

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Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Fair Value of Financial Instruments – (continued)

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above.

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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.

In connection with the Acquisition of VCN, the Company will be required pay up to $ 70.2 million in additional consideration upon 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:

The fair value of the contingent consideration was $ 11.7 million as of June 30, 2022 and is reflected as current accrued contingent consideration of $ 9.3 million and non-current contingent consideration liability of $ 2.4 million in the consolidated balance sheet.

During the three months ended June 30, 2022 the Company recognized in operating expense a $ 483,000 fair value adjustment decrease to contingent consideration.

The fair value of financial instruments measured on a recurring basis is as follows (in thousands):

As of March 10, 2022

Contingent consideration

As of March 31, 2022

As of June 30, 2022

Contingent consideration

The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the six months ended June 30, 2022 (in thousands):

Consideration

Balance at March 10, 2022

Change in fair value

Balance at June 30, 2022

Synthetic Biologics, Inc.

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5.1 % to 62.8 %

As of March 31, 2022

As of June 30, 2022

Weighted Average

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Prepaid expenses and other current assets (in thousands)

Receivable from prior owner

Prepaid insurances

Prepaid clinical research organizations

Prepaid consulting, subscriptions and other expenses

VAT receivable

Prepaid manufacturing expenses

Prepaid insurances

VAT receivable

Prepaid consulting, subscriptions and other expenses

Prepaid clinical research organizations (CROs) expense is classified as a current asset.

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.

4 unchanged sentences

Computers and office equipment

Other Property, Plant and Equipment

Leasehold improvements

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Accrued clinical consulting services

Accrued vendor payments

Accrued manufacturing costs

Other accrued expenses

Accrued vendor payments

Accrued employee benefits (in thousands)

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The exercise price of stock options under the 2007 Stock Plan was determined by the compensation committee of the Board of Directors and could be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted.

The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 stock plan shall not exceed 7,143 .

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

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

As of June 30, 2022, there were 515 options issued and outstanding under the 2007 Stock Plan.

Synthetic Biologics, Inc.

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on September 24, 2018 increased the number of shares from 50,000 to 100,000 ;

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.

and on September 5, 2019, increased the number of shares from 100,000 to 400,000 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 March 31, 2022, there were 2,434,237 options issued and outstanding under the 2010 Stock Plan.

As of June 30, 2022, there were 238,820 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 400,000 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 March 31, 2022, there were 3,668,333 options issued and outstanding under the 2010 Stock Plan.

As of June 30, 2022, there were 368,000 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.

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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 months ended March 31, 2022 and 2021.

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

There were no options granted during the three and six months June 30, ended 2021.

The assumptions used for the three and six months ended June 30, 2022 are as follows:

Exercise price

Expected dividends

Expected volatility

Risk free interest rate

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.

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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.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

The Company records stock-based compensation based upon the stated vesting provisions in the related agreements.

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● 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,

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● monthly over three years

During the three and six months ended June 30, 2022, the Company granted 3,000 options to employees having an approximate fair value of $ 5,000 based upon the Black-Scholes option pricing model, respectively.

There were no options granted during the three and six months ended June 30, 2021

Synthetic Biologics, Inc.

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Stock-Based Compensation – (continued)

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

A summary of stock option activity for the six months ended June 30, 2022 and the year ended December 31, 2021 is as follows:

Weighted Average

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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

Balance - June 30, 2022 - outstanding

Balance - June 30, 2022 - exercisable

Grant date fair value of options granted – three months ended June 30, 2022

Weighted average grant date fair value – three months ended June 30, 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 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.

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to employees for the three and six months ended June 30, 2022 was $ 39,000 and $ 78,000 , respectively, and $ 34,000 and $ 67,000 for the three and six months ended June 30, 2021, respectively.

Stock-based compensation expense included in research and development expenses relating to stock options issued to employees for the three and six months ended June 30, 2022 was $ 21,000 and $ 41,000 , respectively, and $ 16,000 and $ 31,000 for the three and six months ended June 30, 2021, respectively.

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to consultants for the three and six months ended June 30, 2022 was $ 46,000 and $ 93,000 , respectively, and $ 49,000 and $ 98,000 for the three and six months ended June 30, 2021, respectively.

Stock-based compensation expense included in research and development expenses relating to stock options issued to consultants for the three and six months ended June 30, 2022 was $ 7,000 and $ 14,000 , respectively, and $ 3,000 and $ 7,000 for the three and six months ended June 30, 2020.

As of June 30, 2022, total unrecognized stock-based compensation expense related to stock options was $ 516,000 , which is expected to be expensed through April 2024.

Synthetic Biologics, Inc.

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Notes to Condensed Consolidated Financial Statements

Stock-Based Compensation – (continued)

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 six months ended June 30, 2022 and 2021.

Stock Warrants

On October 15, 2018, the Company closed 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 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 October 15, 2018, the Company closed 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 (i)Class A Units (the “Class A Units”), consisting of an aggregate of 252,000 shares of the Common Stock, and five-year warrant to purchase an aggregate of 252,000 shares of Common Stock at an exercise price of $ 13.80 per share, which subsequently was reduced to $ 6.90 per share (each a “Warrant” and collectively, the “Warrants”) and (ii) Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), consisting of an aggregate of 15,723 shares 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 $ 11.50 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 1,367,218 shares of Common Stock, and issued with a warrant to purchase an aggregate of 1,367,218 shares of Common Stock.

On November 16, 2020, the exercise price of the Warrants was reduced from $ 13.80 per Warrant per full share of the Company’s common stock, $ 0.001 par value per share (the “Common Stock”), to $ 6.90 per Warrant per full share of Common Stock in accordance with the anti-dilution terms of the Warrant.

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During the three months ended March 31, 2021, 1,165,575 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:

There were no warrants exercised during the three and six months ended June 30, 2022.

A summary of all warrant activity for the Company for the quarter ended June 30, 2022 and the year ended December 31, 2021 is as follows:

Weighted Average

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Balance at December 31, 2021

Balance at March 31, 2022

Balance at June 30, 2022

Synthetic Biologics, Inc.

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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:

A summary of all outstanding and exercisable common stock warrants as of June 30, 2022 is as follows:

Weighted Average

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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 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.

Net loss attributable to common stockholders for the three and six months ended June 30, 2022 was approximately $ 5.0 million and $ 9.2 million, respectively.

Net loss attributable to common stockholders for the three and six months ended June 30, 2021 was approximately $ 3.2 million and $ 14.7 million, respectively 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 for the six months ended June 30, 2021 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 and six months ended June 30, 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 and six months ended June 30, 2022 were 607,334 and 634,497 , respectively and for the three and six months ended June 30, 2021 were 399,742 and 634,497 , respectively, because their effect is anti-dilutive.

Non-controlling Interest and Related Party

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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):

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

(i) issued to CSMC five thousand ( 5,000 ) 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.

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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.

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

There was no expense recorded related to this transaction during the three and six months ended June 30, 2022 and 2021.

Synthetic Biologics, Inc.

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Series B Preferred Stock

On October 15, 2018, the Company closed 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 (i) Class A Units (the “Class A Units”) consisting of an aggregate of 252,000 shares of the Common Stock, and five-year warrant to purchase an aggregate of 252,000 shares of Common Stock at an exercise price of $ 13.80 per share, which subsequently was reduced to $ 6.90 per share (each a “Warrant” and collectively, the “Warrants”), and (ii) Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), consisting of an aggregate of 15,723 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 $ 11.50 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 1,367,218 shares of Common Stock, and issued with a warrant to purchase an aggregate of 1,367,218 shares of Common Stock..

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.

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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.

The October 2018 Warrants are immediately exercisable at a price of $ 6.90 (effective November 16, 2020) per share of common stock 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.

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During the three months ended March 31, 2021, 398 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.

During the three and six months ended June 30, 2022 there were no shares converted as all shares were converted in 2021 and 2020.

Series A Preferred Stock

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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.

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 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.

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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 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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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 7.9 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

During the three and six months ended June 30, 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 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 $ 96,000 relating to the RETOS 2015 loan, which is reflected as a non-current asset on the balance sheet.

June 30, 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) :

A maturity analysis of the debt as of June 30, 2022 is as follows (amounts in thousands of dollars) :

Synthetic Biologics, Inc.

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Commitments and Contingencies

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

The Company’s existing lease as of June 30, 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.

As of June 30, 2022, the Company has two operating leases 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.

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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.

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

The Company also leases research and office facilities in Barcelona Spain.

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.

On the closing date of the VCN Acquisition, a sublease was executed for the Company 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.

Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the three and six months ended June 30, 2022 approximated $ 138,000 and $ 245,000 , respectively and for the three and six months ended June 30, 2021 approximated $ 68,000 and $ 118,000 , respectively.

For the three and six months ended June 30, 2022, operating cash flows used for operating leases approximated $ 144,000 and $ 257,000 , respectively, For the three and six months ended June 30, 2021, operating cash flows used for operating leases approximated $ 80,000 and $ 160,000 , 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 March 31, 2022 is as follows (amounts in thousands of dollars) :

A maturity analysis of our operating leases as of June 30, 2022 is as follows (amounts in thousands of dollars) :

Future undiscounted cash flow for the years ending March 31,

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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.

The extent to which the COVID-19 pandemic impacts the Company’s business, the clinical development of VCN-01, 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.

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.

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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.

Subsequent Events

On July 29, 2022, the Company closed a private placement offering pursuant to the terms of a Securities Purchase Agreement dated as of July 28, 2022 entered into with MSD Credit Opportunity Master Fund, L.P.

(the “SPA”), pursuant to which the Company agreed to issue and sell 275,000 shares of the Company’s Series C Convertible Preferred Stock, par value $ 0.001 per share, and 100,000 shares of the Company’s Series D Convertible Preferred Stock, par value $ 0.001 per share, at an offering price of $ 8.00 per share, for gross proceeds of approximately $ 3.0 million in the aggregate, before the deduction of discounts, fees and offering expenses.

The shares of Preferred Stock will be convertible, at a conversion price of $ 1.22 per share (subject in certain circumstances to adjustments), into an aggregate of 2,459,016 shares of the Company’s common stock, par value $ 0.001 per share, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company.

The Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing.

In order to comply with Section 122 of the NYSE American Company Guide, on August 9, 2022 the Company and the holder of the Company’s Series C preferred stock and Series D preferred stock amended the SPA to provide that the holder may only submit 1,549,295 of the votes relating to the Series C Preferred Stock that it would otherwise be entitled to vote.

On August 3, 2022 the Company announced the exercise price of warrants issued by the Company in October 2018 was reduced from $ 6.90 per Warrant per full share of the Company’s common stock, $ 0.001 par value per share to $ 1.22 per Warrant per full share of Common Stock.

The reduction was the result of the issuance of shares of Preferred Stock by the Company in a private placement.

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