What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-30 compared with 2022-03-16 · 960 added, 289 removed, 525 unchanged (70% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of (Deficit) Equity

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Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Synthetic Biologics, Inc.

Shareholders and Board of Directors

Theriva Biologics, Inc.

Rockville, Maryland

Opinion on the Consolidated Financial Statements

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

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

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

as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

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

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of Liquidity

As described in Note 1 to the consolidated financial statements, the Company has a significant accumulated deficit and has experienced significant losses and incurred negative cash flows since inception.

The Company expects to continue incurring losses for the foreseeable future.

Further, the Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including planned product development efforts, clinical trials and research and discovery efforts.

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

We identified management’s evaluation of the Company’s liquidity as a critical audit matter due to the significant judgments and assumptions used by management in (i) preparing its forecast of cash expenditures to support the Company’s drug development and clinical trials, including anticipated expenditures related to the acquisition of VCN BioSciences, S.L (“VCN”) subsequent to year end as described in Note 9, and (ii) providing complete and accurate disclosures related to the Company’s liquidity.

Auditing these judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business combination – Fair value measurement of certain acquired intangible assets

As described in Note 3 to the consolidated financial statements, during 2022 the Company completed the acquisition of VCN Biosciences, S.L., now known as Theriva Biologics, S.L.

(“VCN”), for total consideration of $22.8 million.

The Company accounted for the transaction under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values on the acquisition date, including identifiable intangible assets related to in-progress research and development (“IPR&D”).

Additionally, the Company recorded an adjustment to the preliminary estimates of fair value of the IPR&D within the measurement period of up to one year from the date of acquisition.

related to forecasted development costs to bring the drug candidates to market, forecasted revenue to be derived from the drug candidates and associated cost of sales and selling, general and administrative expenses, and discount rates.

We identified the determination of the fair value of certain of the IPR&D as a critical audit matter because of the significant estimates and assumptions the Company makes to calculate its fair value for purposes of recording the acquisition and the measurement period adjustment.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s forecasts of future cash flows, specifically forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses, and discount rates used in the valuation of the IPR&D, including the need to involve our internal fair value specialists.

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

● Testing the completeness and accuracy of underlying data used in the forecasted cash expenditures by (i) inspecting contractual arrangements with third-party clinical research organizations and suppliers, and (ii) considering current and past expenditures in evaluating the forecasted fixed and variable costs.

● Assessing the reasonableness of management’s key assumptions in forecasting cash expenditures by (i) performing a retrospective review of historical forecasts, (ii) comparing information related to the Company’s ongoing and anticipated clinical trials and drug development pipeline to management’s assumptions, and (iii) assessing the anticipated cash flows required to fund the payment of the cash portion of the transaction price for the acquisition of VCN and the forecasted expenditures that will be required to fund the development of VCN’s various drug candidates.

● Evaluating the adequacy of management’s disclosure in the consolidated financial statements regarding the Company’s liquidity by comparing to other audit evidence obtained to determine whether such information is consistent with or contradictory to the Company’s liquidity disclosure.

● Testing the completeness and accuracy of the underlying data supporting the determination of the various inputs.

● Evaluating the reasonableness of the Company’s forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses by comparing these assumptions to those of those of comparable companies, as well as evaluated potentially contradictory information.

● Utilizing our valuation specialists, to evaluate the reasonableness of the valuation methodology and discount rates by:

o Evaluating the reasonableness of the Company's valuation methods and testing the mathematical accuracy of the calculations.

o Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by the Company.

IPR&D Impairment Assessment

As described in Notes 4 and 14 to the consolidated financial statements, the Company’s consolidated IPR&D intangible asset balances at September 30 and December 31, 2022 were $17.5 million and $19.2 million, respectively.

The Company performs an annual impairment test of IPR&D, and on a quarterly basis, monitors IPR&D for potential indicators of impairment.

During 2022, the Company concluded that triggering events occurred at both September 30 and December 31, 2022.

No impairment charges were recorded as a result of the Company's interim and annual impairment tests.

The Company estimated the fair value of certain of the IPR&D intangible assets using expected cash flows and industry standard valuation techniques, which required the Company to make significant estimates and assumptions related to future cash flows, including those related to forecasted development costs to bring the drug candidates to market, forecasted revenue to be derived from the drug candidates and associated cost of sales and selling, general and administrative expenses, and discount rates.

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

● Testing the completeness and accuracy of the underlying data supporting the determination of the various inputs.

● Utilizing our valuation specialists, to evaluate the reasonableness of the valuation methodology and discount rates by:

o Evaluating the reasonableness of the Company’s valuation methods and testing the mathematical accuracy of the calculations.

o Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by the Company.

/s/ BDO USA, LLP

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March 30, 2023

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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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:

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Accrued employee benefits

Lease liability

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

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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 December 31, 2021 and December 31, 2020, respectively

Stockholders’ Equity (Deficit):

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

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

Temporary Equity

Series C convertible preferred stock, $ 0.001 par value;

10,000,000 authorized;

275,000 issued and outstanding

Series D convertible preferred stock, $ 0.001 par value;

10,000,000 authorized;

100,000 issued and outstanding

Stockholders’ Equity:

Common stock, $ 0.001 par value;

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Additional paid-in capital

Treasury stock at cost, 720,000 shares, at December 31, 2022

Accumulated other comprehensive loss

Accumulated deficit

Total Synthetic Biologics, Inc.

and Subsidiaries Equity (Deficit)

Non-controlling interest

Total Stockholders’ Equity (Deficit)

Total Stockholders‘ Equity

Total Liabilities and Stockholders’ Equity

See accompanying notes to consolidated financial statements

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

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Other Income:

Exchange loss

Interest income

Total Other Income

Net Loss before income taxes

Income tax benefit

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Synthetic Biologics, Inc.

Net Loss Attributable to Theriva Biologics, Inc.

and Subsidiaries

Effect of Warrant exercise price adjustment

Series A Preferred Stock Dividends

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Effect of Series A Preferred Stock price adjustment

Effect of Warrant exercise price adjustment

Net Loss Attributable to Common Stockholders

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Weighted average number of shares outstanding during the period - basic and dilutive

Loss on foreign currency translation

Total comprehensive loss

Comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Theriva Biologics, Inc.

and Subsidiaries

See accompanying notes to consolidated financial statements

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Stock-based compensation

Stock issued under “at-the-market” offering

Series A Preferred Stock Dividends

Issuance of SYN Biomics Stock

Effect of Warrant exercise price adjustment

Conversion of Series B Preferred Stock to Common

Balance at December 31, 2020

Stock-based compensation

Stock issued under "at-the-market"

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Balance at December 31, 2021

Common Stock $0.001 Par Value

Comprehensive

Stockholders’

Treasury Stock

Balance at December 31, 2021

Stock-based compensation

Issuance of Common Stock for VCN Acquisition

Translation gains (losses)

Treasury Stock

Balance at December 31, 2022

See accompanying notes to consolidated financial statements

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Stock-based compensation

Subsidiary stock issuances to vendor

Income tax benefit

Change in fair value of contingent consideration

Right of use asset

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Right of use asset

Accounts payable

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Purchases 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 debt

Proceeds from sale of Series C Preferred Stock, net of issuance cost

Proceeds from sale of Series D Preferred Stock, net of issuance cost

Payment of contingent consideration

Purchase of treasury stock

Proceeds from “at-the-market” stock issuance

Proceeds from issuance of common stock for warrant exercises

Net Cash Provided By Financing Activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

NONCASH FINANCING ACTIVITIES:

Net Cash (used in) Provided By Financing Activities

Effects of FX on cash

Net (decrease) increase 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 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

In-process R&D measurement period adjustment

Deferred tax liability measurement period adjustment

Effect of Warrant exercise price adjustment

Conversion of Series A Preferred Stock

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In-kind dividends in preferred stock

Effect of Warrant exercise price adjustment

See accompanying notes to consolidated financial statements

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Description of Business

Synthetic Biologics, Inc.

(the “Company” or “Synthetic Biologics”) is a diversified clinical-stage company operating in one segment currently 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 was also developing SYN-010 to reduce the impact of methane-producing organisms in the gut microbiome to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C).

On September 30, 2020, Cedars Sinai Medical Center (CSMC) (the Company’s SYN-010 clinical development partner) informed the Company that it agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients.

Based on the results of a planned interim futility analysis, it was concluded that although SYN-010 was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment is completed.

Theriva Biologics, Inc.

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

As a result of the acquisition of VCN (the “Acquisition”), 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.

Prior to 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.

On October 12, 2022, the company changed its name to Theriva Biologics, Inc.

In connection with the name change, its Common Stock began trading on the NYSE American LLC under the new ticker symbol “TOVX” effective as of the opening of trading hours on October 13, 2022.

Effective November 15, 2022, our acquired subsidiary VCN Biosciences S.L.

rebranded to Theriva Biologis S.L.

without other changes to its corporate structure.

Corporate Structure and 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 and then increased to 350,000,000 at the 2022 annual meeting of stockholders.

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.

As of December 31, 2022, the Company had eight subsidiaries, Pipex Therapeutics, Inc.

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(“SYN Biomics”).

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

For financial reporting purposes, the outstanding common stock of the Company is that of Synthetic Biologics, Inc.

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

For financial reporting purposes, the outstanding common stock of the Company is that of Theriva Biologics, Inc.

All statements of operations, (deficit) equity and cash flows for each of the entities are presented as consolidated.

All subsidiaries were formed under the laws of the State of Delaware on January 8, 2001, except for EPI, which was incorporated in Delaware on December 12, 2000, Epitope which was incorporated in Delaware in January 2002, Putney which was incorporated in Delaware in November 2006, Healthmine which was incorporated in Delaware in December 2007 and SYN Biomics which was incorporated in Nevada in December 2013.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

As of December 31, 2022, the Company has a significant accumulated deficit, and with the exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, the Company has experienced significant losses and incurred negative cash flows since inception.

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The Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including planned product development efforts, clinical trials and research and discovery efforts.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Cash and cash equivalents totaled approximately $ 67.3 million as of December 31, 2021, which includes the net proceeds of approximately $ 66 million from sales of its Common Stock in “at-the-market” (ATM) equity offerings during 2021 and cash proceeds of approximately $ 8.0 million through the exercise of a portion of the October 2018 warrants.

Cash and cash equivalents totaled approximately $ 41.8 million as of December 31, 2022, which includes the net proceeds from sales of our Series C and D Convertible Preferred Stock issued during the three months ended September 30, 2022, the net proceeds of approximately $ 66 million from sales of its Common Stock in “at-the-market” (ATM) equity offerings during 2021 and cash proceeds of approximately $ 8.0 million through the exercise of a portion of the October 2018 warrants.

With these additional sources of liquidity, the Company believes it will be able to fund its operations through the next twelve months from the issuance date of these financial statements.

Management believes its plan, which includes the further development of SYN-020, additional testing of SYN-004 (ribaxamase) and the advancement of VCN-01 will allow the Company to meet its financial obligations, further advance key products, and maintain the Company’s planned operations for at least one year from the issuance date of these consolidated financial statements.

Management believes its plan, which includes the advancement of VCN-01, VCN-11, the further development of SYN-004 (ribaxamase) as well as other discovery initiatives, will allow the Company to meet its financial obligations, further advance key products, and maintain the Company’s planned operations for at least one year from the issuance date of these consolidated financial statements.

If necessary, the Company may attempt to utilize the ATM or seek to raise additional capital on the open market, neither of which is guaranteed.

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Such estimates and assumptions impact, among others, the following:

the estimated useful lives for property and equipment, fair value of warrants, preferred stock and stock options granted for services or compensation, respectively, and the valuation allowance for deferred tax assets due to continuing and expected future operating losses.

the estimated useful lives for property and equipment, research and development costs, business combinations, contingent consideration, fair value of long-lived assets, warrants, preferred stock and stock options granted for services or compensation, respectively, and the valuation allowance for deferred tax assets due to continuing and expected future operating losses.

Making estimates requires management to exercise significant judgment.

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Accordingly, actual results could differ from those estimates.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

Non-controlling Interest

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These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, its vendors and its ability to accurately forecast and plan future business activities.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid short-term investments with original maturities of three months or less.

All interest bearing and non-interest bearing accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250 thousand.

The majority of our cash balances are in excess of FDIC coverage.

We consider this to be a normal business risk.

Property and Equipment

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As a result of this review, there was no impairment recognized for the years ended December 31, 2022 and 2021.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

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.

As a result of the acquisition of VCN (see Note 3), the Company recorded 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 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.

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.

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.

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 December 31, 2022, the Company has determined that it has one reporting unit.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

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.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such an event or change in circumstances occurs and potential impairment is indicated because the carrying values exceed the estimated future undiscounted cash flows of the asset, the Company will measure the impairment loss as the amount by which the carrying value of the asset exceeds its fair value.

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.

No impairment charges were recorded during the year ended December 31, 2022 and 2021.

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 year ended December 31, 2022 includes the effect of the Series C and D preferred stock price adjustment of $ 0.3 million.

Net loss attributable to common stockholders for the year ended December 31, 2021 includes the effect of the Series A preferred stock price adjustment of $ 7.4 million, the accretion of the Series B preferred discount of $ 1.5 million on converted shares and Series A preferred stock accrued dividends of $ 0.1 million.

Net loss attributable to common stockholders for the year ended December 31, 2020 excludes net loss attributable to non-controlling interest of $ 0.1 million and includes the accretion of Series B preferred discount of $ 1.4 million on converted shares, the effect of warrant exercise adjustment of $ 1.0 million and Series A preferred stock accrued dividends of $ 0.3 million.

The number of shares of common stock underlying Series A Preferred shares convertible to common stock that were excluded from the computation of the net loss per common share for the year ended December 31, 2020 was 678,258 .

The number of shares of common stock underlying Series B Preferred shares convertible to common stock that was excluded from the computation of net loss per common share and for the year ended December 31, 2020 was 3,454,783 .

The number of shares of common stock underlying Series C and D Preferred shares convertible to common stock that were excluded from the computation of the net loss per common share for the year ended December 31, 2022 was 2,459,016 .

The number of options and warrants for the purchase of common stock that were excluded from the computations of net loss per common share for the year ended December 31, 2022 were 2,295,898 and 634,425 , respectively, and for the year ended December 31, 2021 were 625,565 and 634,497 , respectively, because their effect is anti-dilutive.

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Accrued CRO costs are subject to revisions as such studies progress to completion.

At December 31, 2021 and 2020, the Company has accrued CRO expenses of $ 0.7 million, that are included in accrued expenses.

The Company has prepaid CRO costs at December 31, 2021 and 2020 of $ 0.5 million that are included in prepaid expenses.

At December 31, 2022 and 2021, we have accrued CRO expenses of $ 0.8 million and $ 0.7 million, respectively, that are included in accrued expenses.

As of December 31, 2022, and 2021, we have prepaid CRO costs of $ 2.3 million and $ 0.5 million, respectively, that are included in prepaid expenses.

Fair Value of Financial Instruments

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

Cash and cash equivalents include money market accounts of $ 193,000 and $ 114,000 as of December 31, 2021 and 2020, respectively, that are measured using Level 1 inputs.

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

In using this model, the fair value is determined by applying Level 3 inputs for which there is little or no observable market data, requiring the Company to develop its own assumptions.

The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates;

however, these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different.

In 2021 and 2020, the Monte Carlo simulations were not used as the value of the warrants was deemed to be minimal based on the historical fair value of the warrants and the Company’s current stock price.

Synthetic Biologics, Inc.

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.

In September 2022 the Company received approval from the FDA to proceed with the Phase 2 clinical trial of VCN-01 in PDAC.

Due to this approval the company paid Grifols Innovation and New Technologies Limited (“Grifols”) $ 3.0 million in Q4 2022.

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 $ 11.1 million.

The fair value of the contingent consideration was $ 10.1 million as of December 31, 2022 and is reflected as current accrued contingent consideration of $ 3.0 million and non-current contingent consideration liability of $ 7.1 million in the consolidated balance sheet.

During the year ended December 31, 2022 the Company recognized in operating expense a $ 2.1 million fair value adjustment increase to contingent consideration.

Theriva Biologics, Inc.

and Subsidiaries

1 unchanged sentence

Summary of Significant Accounting Policies – (continued)

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 December 31, 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 year ended December 31, 2022 (in thousands):

Consideration

Balance at March 10, 2022

Payment of contingent consideration

Change in fair value

Balance at December 31, 2022

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

Discounted Cash Flows

Timing of Milestone Achievment

Discount rate

Weighted Average Discount rate

Probability of Occurrence (periodic for each Milestone)

Probability of occurrence (cumulative through each Milestone)

5.3 % to 48.8

As of December 31, 2022

Weighted Average

Unobservable Input

(range, if applicable)

Contingent Consideration

Discounted Cash Flows

Timing of Milestone Achievment

Discount rate

13.4 % to 14.1

Weighted Average Discount rate

Probability of Occurrence (periodic for each Milestone)

11.7 % to 95.0

Probability of occurrence (cumulative through each Milestone)

6.9 % to 95.0

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

Stock-Based Payment Arrangements

2 unchanged sentences

The expense resulting from stock-based payments is recorded in research and development expense or general and administrative expense in the Consolidated Statements of Operations, depending on the nature of the services provided.

Derivative Instruments

The warrants issued in conjunction with the public offering of the Company’s securities in November 2016 include a provision that if the Company were to enter into a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder for cash.

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

Accordingly, the Company is required to record the warrants as liabilities at their fair value upon issuance and re-measure the fair value at each period end with the change in fair value recorded in the Consolidated Statement of Operations.

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

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

In November 2020, all liability-classified warrants expired.

In 2019, the Monte Carlo simulations were not used as the value of the warrants was deemed to be minimal based on the historical fair value of the warrants and the Company’s current stock price.

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.

Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities.

A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

Management assesses the need to accrue or disclose uncertain tax positions for proposed potential adjustments from various federal and state authorities who regularly audit the Company in the normal course of business.

In making these assessments, management must often analyze complex tax laws of multiple jurisdictions.

The Company records the related interest expense and penalties, if any, as tax expense in the tax provision.

At December 31, 2021 and 2020, the Company did not record any liabilities for uncertain tax positions.

Segment information

The Company operates in one operating segment engaged in the research, development and commercialization of therapeutic drugs in which revenues are derived from product, license, and contract revenues.

Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker (CODM), the chief executive officer, in deciding how to allocate resources and assessing performance.

The Company’s CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level.

Foreign Currencies

The functional currency of the Company’s VCN subsidiary is the Euro.

VCN’s Assets and liabilities are translated to U.S.

dollars based on exchange rates at the end of each reporting period.

Income and expense items are translated at weighted average exchange rates prevailing during the reporting period.

Translation adjustments are accumulated in a separate component of stockholders’ equity in the accompanying consolidated balance sheets.

Transaction gains and losses are classified as other income (expense) net in the accompanying consolidated statements of operations.

The Company accounts for income taxes under the liability method;

under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

The Company utilizes a two-step approach to recognize and measure uncertain tax positions.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

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) :

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 .

1 unchanged sentence

The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020.

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

The Company has adopted ASU 2020-06 on January 1, 2022.

The ASU impacted the analysis of the accounting treatment for the issuance of Convertible Preferred Series C & D stock during the third quarter, specifically the cash conversion and beneficial conversion features.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies – (continued)

In October 2021, the FASB issued Accounting Standards Update 2021-08 that address the accounting for Contract Assets and Liabilities from Contracts with Customers in a business combination (“ASU 2021-08”), with an effective date for SYN of January 1, 2024 (earlier adoption permitted).

1 unchanged sentence

ASU 2021-08 should generally “result in an acquirer recognizing and measuring the acquired contract assets and liabilities consistent with how they were recognized and measured in the acquiree’s financial statements.” The Company is currently assessing the impact of ASU 2021-08 on its consolidated financial statements.

Synthetic Biologics, Inc.

Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements

In connection with the preparation of its consolidated financial statements for the twelve months ended December 31, 2022, the Company determined that its previously issued unaudited interim consolidated financial statements for the periods ended June 30, and September 30, 2022 contained errors in the application of U.S.

generally accepted accounting principles as summarized below.

Application of FASB ASC 740 Income taxes

During the preparation of its annual tax provision for the year ended December 31, 2022, the Company determined that a deferred tax asset related to VCN’s indefinite-lived net operating loss generated during the second and third quarters of 2022 should have been established.

Further, because of an existing deferred tax liability associated with an indefinite-lived intangible asset is considered a source of income for the deferred tax asset, the deferred tax asset was determined to be more likely than not recoverable.

Since the deferred tax asset was determined to be more likely than not recoverable it would have resulted in an income tax benefit during the interim periods thereby reducing the Company’s consolidated net loss and loss per share for the three- and six-months periods ended June 30, 2022 and the three- and nine-month periods ended September 30, 2022.

In accordance with Staff Accounting Bulletin ("SAB") No.

99, Materiality, the Company evaluated these misstatements and, based on an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its reporting periods ended June 30, 2022 and September 30, 2022.

Accordingly, the Company has restated its unaudited interim consolidated financial statements for the interim reporting periods as of June 30, 2022 and for the three- and six-months then ended and as of September 30, 2022 and for the three- and nine-months then ended, and has included those restated financial statements within this annual report.

Immaterial Adjustments

Because we are restating prior periods, we are also reflecting other immaterial adjustments related to the valuation of the contingent consideration liabilities and the in process research and development asset, which has a corresponding effect on the associated deferred tax liability and recorded goodwill.

It was determined that incorrect clinical trial success rates were used in the determination of the fair value of the contingent consideration liabilities and the in process research and development asset for the interim reporting periods as of June 30, 2022 and for the three and six-months then ended and as of September 30, 2022 and for the three and nine-months then ended.

See Note 14 - Restatement of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited) for restatement of the Company's previously reported unaudited interim consolidated financial statements that were impacted by these misstatements.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

BUSINESS COMBINATION

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 (which changed its name to Theriva Biologics, S.L.) is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer.

Theriva’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC) and brain tumors.

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.

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 exclusive rights to four patent families 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, 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 September 2022, the Company received approval from the FDA to proceed with the Phase 2 clinical trial of VCN-01 in PDAC.

Due to this approval, the company paid Grifols $ 3.0 million in the fourth quarter of 2022.

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 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, common shares and contingent consideration was valued at approximately $ 22.8 million, as follows (in thousands):

Cash paid at Closing

Receivable from VCN “effectively settled“

Fair value of common shares issued

Fair value of contingent consideration

As of March 31, 2022, the fair value of the contingent consideration was approximately $ 11.1 million.

During the year ended December 31, 2022 the Company recognized in operating expense a $ 2.1 million fair value adjustment increase to contingent consideration.

The Company acquired VCN due to its track record of being a research and development 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.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

BUSINESS COMBINATION – (continued)

The allocation of the fair value of the VCN acquisition updated for measurement period and other adjustments 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 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 $ 19.7 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 $ 5.7 million was established as a result of the Acquisition and is not tax deductible.

Theriva Biologics S.L.

operations recorded a net loss of $ 5.8 million from the date of acquisition through December 31, 2022.

During the year ended December 31, 2022 the Company recognized the following measurement period adjustments:

● estimate of acquired liabilities resulting in a $ 277,000 reduction in accrued expenses and goodwill,

● estimate in the receivable from the prior owner resulting in a $ 176,000 increase in other receivables and reduction in goodwill.

● estimated fair value of its in-process R&D resulting in a $ 810,000 increase in in-process R&D, an increase of $ 202,000 in deferred tax liabilities and a decrease of $ 607,000 in goodwill.

The cumulative impact of the re-measurements as of the year ended December 31, 2022 was a reduction in accrued liabilities of $ 277,000 , and increase in other receivables or $ 176,000 , an increase in in-process R&D of $ 810,000 ;

an increase in deferred tax liabilities of $ 202,000 and a decrease in goodwill of $ 1,061,000 .

See Note 14 - Restatement of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited) for restatement of the Company’s previously reported unaudited interim consolidated financial statements that were impacted by these misstatements.

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):

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

BUSINESS COMBINATION – (continued)

Year Ended December 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 statements of operations.

Goodwill and Intangibles

The following table provides the Company’s Goodwill as of December 31, 2022.

Goodwill (in thousands)

Balance at December 31, 2021

Goodwill from Acquisition of VCN

Goodwill impairment loss

Measurement Period Adjustments

Effects of exchange rates

Balance at December 31, 2022

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

R&D (in thousands)

Balance at December 31, 2021

Acquired IPR&D

Measurement Period Adjustments

Effects of exchange rates

Balance at December 31, 2022

During the quarter ending September 30, 2022 and the quarter ended December 31, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a trigger event for impairment.

The Company performed an impairment analysis and concluded that the Goodwill and IPR&D was not impaired as of September 30, 2022 and December 31,2022.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Selected Balance Sheet Information

PREPAID EXPENSES AND OTHER CURRENT ASSETS (in thousands):

Prepaid insurance

Prepaid clinical research organizations

Prepaid consulting, subscriptions and other expenses

Stock sales receivable

Prepaid manufacturing expenses

Prepaid insurance

Receivable from prior owner

Prepaid consulting, subscriptions and other expenses

VAT receivable

Prepaid CRO expense is classified as a current asset.

2 unchanged sentences

Computers and office equipment

Other Property, Plant and Equipment

Leasehold improvements

accumulated depreciation and amortization

During the years ended December 31, 2022 and 2021 the Company recognized depreciation exprense of $ 85,000 and 87,000 respectively.

ACCRUED EXPENSES (in thousands)

Accrued vendor payments

Accrued clinical consulting services

Accrued vendor payments

Accrued manufacturing costs

2 unchanged sentences

Accrued vacation expense

Synthetic Biologics, Inc.

Accrued compensation expense

Theriva Biologics, Inc.

and Subsidiaries

4 unchanged sentences

This plan was approved by the stockholders on November 2, 2007.

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

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 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.

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.

As of December 31, 2022, there were 515 options issued and outstanding under the 2007 Stock Plan.

There are no shares available to be issued under this plan.

On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 8,572 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.

From time to time the number of shares authorized for options was increased such that 400,000 were authorized as of September 5, 2019.

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.

3 unchanged sentences

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.

The number of shares authorized for options was increased such that 7,000,000 were authorized as of December 31, 2022.

As of December 31, 2022, there were 2,093,002 options issued and outstanding under the 2020 Stock Plan.

1 unchanged sentence

Stock forfeitures are recognized as incurred.

There is no deferred compensation recorded upon initial grant date.

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

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 since inception.

8 unchanged sentences

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.

Synthetic Biologics, Inc.

Expected volatility —Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period.

The expected volatility assumption is derived from the historical volatility of the Company’s common stock over a period approximately equal to the expected term.

Theriva Biologics, Inc.

and Subsidiaries

1 unchanged sentence

Stock-Based Compensation and Warrants – (continued)

The expected volatility assumption is derived from the historical volatility of the Company’s common stock over a period approximately equal to the expected term.

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

19 unchanged sentences

Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to consultants for the years ended December 31, 2022 and 2021 was $ 215,000 and $ 212,000 , respectively.

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

20 unchanged sentences

701.00 – $ 1000.00

As of December 31, 2021, total unrecognized stock-based compensation expense related to stock options was $ 771,000 , which is expected to be expensed through February 2024.

As of December 31, 2022, total unrecognized stock-based compensation expense related to stock options was $ 997,000 , which is expected to be expensed through April 2025.

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.

2 unchanged sentences

Cash received from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2022 and 2021 was zero .

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Stock-Based Compensation and Warrants – (continued)

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 common stock, and one five-year warrant to purchase one share of common stock at an initial exercise price of $ 1.38 per share, which subsequently was reduced to $ 0.69 per share (each a “Warrant” and collectively, the “Warrants”), with each Class A Unit to be offered to the public at a public offering price of $ 1.15 , and (ii) 15,723 Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public at a public offering price of $ 1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $ 1,000 and convertible into shares of common stock at the stated value divided by a conversion price of $ 1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of common stock, and issued with an aggregate of 13,672,173 Warrants.

On November 16, 2020, the exercise price of the Warrants was reduced from $ 1.38 per Warrant per full share of the Company’s common stock, $ 0.001 par value per share (the “Common Stock”), to $ 0.69 per Warrant per full share of common stock in accordance with the anti-dilution terms of the Warrant.

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 antidilution terms of the Warrant.

The reduction was the result of the issuance of shares of Common Stock by the Company through its “at the market offering” facility.

7 unchanged sentences

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

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

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 year ended December 31, 2022.

On November 18, 2016, the Company completed a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate of 1,428,571 shares of the common stock.

The stock and warrants were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock.

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

The shares of common stock were immediately separable from the warrants and were issued separately.

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

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 and expired November 16, 2020.

The Series B warrants expired December 31, 2017 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 were recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent period.

At December 31, 2019, the fair value of the warrant liability was $ 100 .

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

Synthetic Biologics, Inc.

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.

The effect of the change in the exercise price of the warrants as a result of the triggering of the down round protection clause in the Warrants was recorded as a deemed dividend of $ 340,000 during the year ended December 31, 2022, which reduces the income available to common stockholders.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Stock-Based Compensation and Warrants – (continued)

Stock Warrants – (continued)

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

2 unchanged sentences

Balance at December 31,2020

( 1,165,575 )

Balance at December 31,2021

On December 26, 2017, the Company entered into a consulting agreement for advisory services for a period of six months.

As compensation for such services, the consultant was paid an upfront payment, is paid a monthly fee and on January 24, 2018 was issued a warrant exercisable for 714 shares of the Company’s common stock on the date of issue.

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.

Balance at December 31,2022

A summary of all outstanding and exercisable warrants as of December 31, 2022 is as follows:

3 unchanged sentences

Stockholders’ Equity

Series C and D Preferred Stock

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., 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 (the "Series C Preferred Stock"), and 100,000 shares of the Company's Series D Convertible Preferred Stock, par value $ 0.001 per share (the "Series D Preferred Stock,"

and together with the Series C Preferred Stock, the "Preferred Stock"), 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 (the "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 (the "Common Stock"), 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.

The Company included certain proposals at its 2022 annual meeting of stockholders, including to consider (i) an amendment to the Company's Articles of Incorporation, as amended (the "Charter"), to change the name of the Company to "Theriva Biologics, Inc."

(the "Name Change"), (ii) an amendment to the Charter to increase the number of authorized shares of Common Stock from 20,000,000 to 350,000,000 (the "Authorized Common Stock Increase") and (iii) any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Authorized Common Stock Increase (collectively, the "Stockholder Items").

The Investor agreed in the Purchase Agreement to (i) not transfer, offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of the shares of the Preferred Stock until the earlier of the date that the Authorized Common Stock Increase is effected or October 26, 2022 (which may be extended to December 31, 2022 if certain conditions are met), (ii) vote the shares of the Series C Preferred Stock purchased in the Offering in favor of the Stockholder Items and (iii) vote the shares of the Series D Preferred Stock purchased in the Offering in the same proportion as shares of Common Stock and any other shares of capital stock of the Company that are entitled to vote thereon (excluding any shares of Common Stock that are not voted) on the Stockholder Items.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Stockholders’ Equity (continued)

Pursuant to the Purchase Agreement, the Company has filed certificates of designation (the "Certificates of Designation") with the Secretary of the State of Nevada designating the rights, preferences and limitations of the shares of Series C Preferred Stock and Series D Preferred Stock.

The Certificate of Designation for the Series C Preferred Stock provides, in particular, that the Series C Preferred Stock will have no voting rights other than the right to vote as a class on the Stockholder Items and the right to cast votes on an as converted to Common Stock basis on the Stockholder Items.

The Certificate of Designation for the Series D Preferred Stock provides, in particular, that the Series D Preferred Stock will have no voting rights other than the right to vote as a class on the Stockholder Items and the right to cast 20,000 votes per share of Series D Preferred Stock on the Stockholder Items.

The holders of Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of Common Stock.

The Conversion Price may be adjusted pursuant to the Certificates of Designation for stock dividends and stock splits, subsequent rights offering, pro rata distributions of dividends or the occurrence of a fundamental transaction (as defined in the applicable Certificate of Designation).

The Series C Preferred Stock and Series D Preferred Stock is classified as temporary equity as a result of the deemed liquidation provision.

Transaction expenses paid to third parties will be charged to temporary equity and will not be accreted as deemed dividends until redemption becomes probable.

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 Securities Purchase Agreement entered into between them on July 28, 2022 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.

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 $ 1.22 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 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 Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 180,783 shares of Common Stock.

Synthetic Biologics, Inc.

The conversion price of the Series B Preferred Stock and exercise price of the October 2018 Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations, or similar events affecting the Common Stock.

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

Theriva Biologics, Inc.

and Subsidiaries

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Stockholders’ Equity (continued)

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

On November 16, 2020, the exercise price of the Warrants was reduced from $ 13.80 per Warrant per full share of Common Stock to $ 6.90 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 .

If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of common stock to the holder, then the October 2018 warrants may only be exercised through a cashless exercise.

No fractional shares of common stock will be issued in connection with the exercise of any October 2018 warrants.

In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares.

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.

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.

Since the effective conversion price of the Series B Preferred Stock is less than the fair value of the underlying Common Stock at the date of issuance, there is a beneficial conversion feature (“BCF”) at the issuance date.

Because the Series B Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF is immediately charged to accumulated deficit as a “deemed dividend” and impacts earnings per share.

During the years ended December 31, 2021 and 2020, 3,973 and 3,665 shares, respectively, were converted resulting in the recognition of deemed dividends of $ 1.5 million and $ 1.4 million, respectively, for the amortization of the Series B Preferred Stock discount upon conversion.

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 year ended December 31, 2022 there were no shares remaining outstanding as all shares were converted in 2021 and 2020.

Stock Repurchase

On December 22, 2022, The Company repurchased an aggregate of 720,000 shares of its common stock, par value $ 0.001 from three founders of its subsidiary Theriva Biologics S.L.

(formerly known as VCN Biosciences S.L.) in a privately negotiated transaction pursuant to the terms of a Share Repurchase Agreement entered into on December 20, 2022 with each of the Selling Stockholders.

The price per share was $ 0.4001 , which was the closing price of the Common Stock on the day prior to the closing for an aggregate purchase price was $ 288,072 .

The closing was subject to fulfillment of certain conditions, including delivery of certain closing documents.

The Share Repurchase Agreement contains customary representations, warranties and covenants of the parties.

The repurchase was funded from the Company’s cash on hand and the shares to be repurchased will be held as treasury stock.

The Selling Stockholders acquired the shares of the Company’s Common Stock as consideration for the sale of their shares of the subsidiary to the Company in March 2022.

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 $ 5.40 per share which was increased to $ 189.0 after taking into account the 2018 reverse stock split, subject to certain customary anti-dilution adjustments and was decreased to $ 15.0 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 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.

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Stockholders’ Equity – (continued)

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”).

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").

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.

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During the years ended December 31, 2021 and 2020, the Company accrued dividends of $ 24,000 and $ 254,000 , respectively.

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.

The Amendment to the Certificate of Designation for the Series A Convertible Preferred Stock (the “Certificate of Amendment”) that was filed 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.

The holder of the Series A Preferred Stock converted all of its shares of Series A Preferred Stock and there are no remaining shares of the Series A Convertible Preferred stock outstanding.

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 year ended December 31, 2021.

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

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Stockholders’ Equity – (continued)

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 $ 189 per share to $ 15 per share and removed the redemption upon change of control.

During the three months ended March 31, 2021, all outstanding shares of Series A Convertible Preferred Stock were converted to approximately 0.9 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 899,677 shares of its common stock upon the conversion effected on such date by the holder of 12,000 shares of its Series A Convertible Preferred Stock.

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.

Riley Securities Sales Agreement

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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.

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

Riley Securities Sales Agreement an aggregate of 9.3 million shares of common stock and received net proceeds of approximately $ 3.4 million.

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

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During the year ended December 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.

Non-controlling Interest

During the year ended December 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.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

The Company is required to maintain a restricted cash collateral account of $ 99,000 relating to the RETOS 2015 loan, which is reflected as a non-current asset on the balance sheet.

December 31, 2022

RETOS 2015 Loan

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

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”).

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The services rendered are recorded to research and development expense in proportion with the progress of the study and are based overall on the fair value of the shares ($ 285,000 ) as determined at the date of IRB approval.

During the years ended December 31, 2021 and 2020, research and development expense recorded related to this transaction approximated $ 1,000 and $ 225,000 , respectively.

During the year ended December 31, 2022, there was no research and development expense recorded related to this transaction.

During the year ended December 31, 2021, $ 1,000 of research and development expense was recorded.

The Stock Purchase Agreement also provides 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 Common Stock, with the rate of exchange based upon the relative contribution of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange.

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

On September 30, 2020, CSMC Medically Associated Science and Technology Program (MAST) formally agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned interim futility analysis.

Although it was concluded that SYN-010 was well tolerated, SYN-010 was unlikely to meet its primary endpoint by the time enrollment is completed.

Synthetic Biologics, Inc.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Non-controlling Interest – (continued)

Non-controlling Interest and Related Party (continued)

Although it was concluded that SYN-010 was well tolerated, SYN-010 was unlikely to meet its primary endpoint by the time enrollment is completed.

On November 9, 2020, the Company and its subsidiary, Synthetic Biomics, Inc.

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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.

As of December 31, 2020, the accumulated net loss attributable to the non-controlling interest was $ 2.8 million and includes $ 73,000 of prior year losses attributable to minority stockholders including the reversal of Dr.

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

During 2021, the minority stockholder returned its shares of SYN Biomics to the Company for no consideration.

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

During 2021, the minority shareholders returned all remaining shares of SYN Biomics to the Company for no consideration.

License, Collaborative and Employment Agreements and Commitments

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Under the terms of the CTA, the Company will serve as the sponsor of the Study and supply SYN-004 (ribaxamase), as well as compensate Washington University for all research services to be provided in connection with the Study which is estimated to cost approximately $ 3,200,000 .

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments (continued)

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

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The Company has the right to terminate the CTA (i) effective immediately if Washington University fails to perform the study in accordance with the terms of the protocol, the CTA or applicable laws or regulations or if Washington University or the principal investigator become debarred or (ii) upon 14 days written notice and Washington University has the right to terminate the CTA upon 14 days notice if the principal investigator becomes unable to perform or complete the Study and the parties have not, prior to the expiration of such fourteen (14) day period, agreed to an alternative principal investigator.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments – (continued)

Cedars-Sinai Medical Center (“CSMC”) Agreement

On December 5, 2013, the Company, through its newly formed, majority owned subsidiary, SYN Biomics, entered into a worldwide exclusive License Agreement with CSMC for the development of new treatment approaches to target non-bacterial intestinal microorganism life forms known as archaea that are associated with intestinal methane production and chronic diseases such as irritable bowel syndrome (IBS), obesity and type 2 diabetes.

As part of the terms of the License Agreement, the Company issued 9,569 unregistered shares of the Company’s common stock to CSMC, paid $ 150,000 for the initial license fee and $ 220,000 for patent reimbursement fees.

The License Agreement also provides that, commencing on the second anniversary of the License Agreement, SYN Biomics will pay an annual maintenance fee, which payment shall be creditable against annual royalty payments owed under the License Agreement.

In addition to royalty payments which are a percentage of net sales of license and technology products, SYN Biomics is obligated to pay CSMC a percentage of any non-royalty sublicense revenues, as well as additional consideration upon the achievement of milestones (the first two of which are payable in cash or unregistered shares of Company stock at the Company’s option).

The License Agreement provided for termination:

(i) automatically if SYN Biomics enters into a liquidating bankruptcy or other specified bankruptcy event or if the performance of any term, covenant, condition or provision of the License Agreement will jeopardize the licensure of CSMC, its participation in certain reimbursement programs, its full accreditation by the Joint Commission of Accreditation of Healthcare Organizations or any similar state organizations, its tax exempt status or is deemed illegal;

(ii) upon 30 days notice from CSMC if SYN Biomics fails to make a payment or use commercially reasonable efforts to exploit the patent rights;

(iii) upon 60 days notice from CSMC if SYN Biomics fails to cure any breach or default of any material obligations under the License Agreement;

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

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

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

(i) if such termination occurs after an Investigational New Drug submission to the FDA but prior to completion of a Phase 2 clinical trial, (ii) reduced further if such termination occurs after completion of Phase 2 clinical trial but prior to completion of a Phase 3 clinical trial;

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

On September 5, 2018, the Company entered into an agreement with CSMC for an investigator-sponsored Phase 2 clinical study of SYN-010 to be co-funded by the Company and CSMC (the “Study”).

The Study was to provide further evaluation of the efficacy and safety of SYN-010, the Company’s modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC.

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).

University of Texas Austin Agreement

On December 19, 2012, the Company entered into a License Agreement with University of Texas Austin (“UT”) Austin for the exclusive license of the right to use, develop, manufacture, market and commercialize certain research and patents related to pertussis antibodies.

On December 19, 2012, the Company entered into a License Agreement with University of Texas Austin (“UT”) for the exclusive license of the right to use, develop, manufacture, market and commercialize certain research and patents related to pertussis antibodies.

The License Agreement provides that UT Austin is entitled to payment of past patent expenses, an annual payment of $ 50,000 per year commencing on the effective date through December 31, 2014, a $ 25,000 payment on December 31, 2015 and milestone payments of $ 50,000 upon commencement of Phase 1 clinical trials, $ 100,000 upon commencement of Phase 3 clinical trials, $ 250,000 upon NDA submission in the U.S., $ 100,000 upon European Medicines Agency approval and $ 100,000 upon regulatory approval in an Asian country.

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provided, however that the License Agreement is subject to early termination by the Company in its discretion and by UT Austin for a breach of the License Agreement by the Company.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments – (continued)

In connection with the License Agreement, the Company and UT Austin also entered into a Sponsored Research Agreement pursuant to which UT Austin will perform certain research work related to pertussis.

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The Sponsored Research Agreement was renewed for the second and third years for a fixed fee of $ 316,438 and $ 328,758 respectively, all payable in quarterly installments.

The Sponsored Research Agreement expires January 17, 2023;

The Sponsored Research Agreement expired January 17, 2023;

provided, however, the Sponsored Research Agreement is subject to early termination upon the written agreement of the parties, a default in the material obligations under the Research Agreement which remain uncured for 60 days after receipt of notice, automatically upon the Company’s bankruptcy or insolvency and by the Company in its sole discretion at any time after the one year anniversary of the date of execution thereof upon no less than 90 days’ notice.

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No milestones were achieved or such payments were made during the years ended December 31, 2022 and 2021.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments (continued)

Employment Agreements

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Shallcross (i) a cash bonus equal to 62 % of his prior base salary and (ii) an option to purchase 450,000 shares of the Company’s common stock.

On December 23, 2020, the Board of the Company awarded Steven A.

Shallcross (i) a cash bonus equal to 62.5 % of his prior base salary and (ii) an option to purchase 450,000 shares of the Company’s common stock.

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

On December 23, 2021, the Board of Directors of the Company awarded Steven A.

Shallcross (i) a cash bonus equal to approximately 62.5 % of his current base salary, and (ii) an option to purchase 650,000 shares of the Company’s common stock.

On December 15, 2022, the Board of Directors of the Company awarded Steven A.

(i) a cash bonus equal to $ 385,000 , and (ii) an option to purchase 475,000 shares of the Company's common stock.

In addition, on December 15, 2022, the Company entered into an Amendment to Mr.

Shallcross's Employment Agreement to increase his base salary to $ 614,250 .

On March 22, 2022, Synthetic Biologics, Inc.

(the "Company") entered into an employment agreement with Frank Tufaro (the "Employment Agreement") to serve as the Chief Operating Officer of the Company.

Pursuant to the Employment Agreement, Dr.

Tufaro will receive an annual base salary of $ 375,000 and is eligible to earn an annual performance bonus of up to forty percent ( 40 )% of his annual base salary.

The annual bonus will be based upon the assessment of the Company's Board of Directors (the "Board") of Dr.

Tufaro's performance and the Company's attainment of targeted goals set by the Board.

In addition, Dr.

Tufaro will also be eligible to receive annual equity awards pursuant to the Company's incentive equity plans, such awards (including the number and type of awards), if any, will be in the sole discretion of the Board.

The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr.

Tufaro and non-solicitation and non-competition provisions.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments (continued)

The Employment Agreement has a stated term of three (3) years but may be terminated earlier pursuant to its terms.

Tufaro's employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, any unpaid annual bonus earned with respect to any calendar year ending on or preceding the date of termination, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the "Accrued Obligations");

provided, however, that if his employment is terminated (i) by the Company without Cause or by Dr.

Tufaro for Good Reason (as each is defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination for a period of six (6) months and (b) all unvested stock options and other equity awards will immediately vest and he will be entitled to exercise any vested equity awards until the earlier of six (6) months after termination or the remaining term of the awards;

or (ii) by reason of his death or Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Dr.

Tufaro, or his estate as the case may be, would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards.

Tufaro commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.

On December 15, 2022, the Board awarded Frank Tufaro, the Company's Chief Operating Officer:

(i) a cash bonus equal to approximately 23 % of his current base salary, and (ii) an option to purchase 100,000 shares of the Company's Common Stock.

In addition, on December 15, 2022, the Company entered into an Amendment to Dr.

Tufaro's Employment Agreement to increase his base salary to $ 393,750 .

Operating Lease

The Company’s existing lease as of December 31, 2021 is classified as an operating lease.

As of December 31, 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 December 31, 2022 for its U.S.

location is classified as an operating lease.

As of December 31, 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.

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

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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.

Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the years ended December 31, 2021 and 2020 approximated $ 280,000 and $ 209,000 , respectively.

For the years ended December 31, 2021 and 2020, operating cash flows used for operating leases approximated $ 321,000 and $ 309,000 , 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 .

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 the Company to lease research and office facilities at a new location in Parets del Vallès (Barcelona) from the former majority 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 year ended December 31, 2022 and 2021 approximated $ 569,000 and $ 280,000 , respectively.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments (continued)

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

10 unchanged sentences

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.

The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values could impact our business in the future.

The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred;

supply chains have been disrupted;

facilities and production have been suspended;

and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services, such as travel, have fallen.

The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.

The Company may face difficulties recruiting or retaining patients in its ongoing and planned clinical trials if patients are affected by the virus or are fearful of traveling to our clinical trial sites because of the outbreak.

We and our third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies used in its clinical trials or preclinical studies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak.

Further, although the Company have not experienced any material adverse effects on its business due to increasing inflation, it has raised operating costs for many businesses and, in the future, could impact demand or pricing manufacturing of its drug candidates or services providers, foreign exchange rates or employee wages.

The Company is actively monitoring the effects these disruptions and increasing inflation could have on its operations.

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.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

License, Collaborative and Employment Agreements and Commitments – (continued)

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 global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company's business, financial condition, results of operations and growth prospects.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

There was no income tax expense for the years ended December 31, 2021 and 2020 due to the Company’s net losses.

There was an income tax benefit for the year ended December 31, 2022 of $ 1.4 million.

For the year ended December 31, 2021 there was no income tax expense due to the Company’s domestic net losses.

The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2022, and 2021.

For 2022, the “expected” tax expense is computed by applying the Federal corporate statutory tax rate of 21 % and a net, after Federal benefit state tax rate of 6.47 % (state blended rate was 8.19 %) to loss before taxes.

In addition, the tax benefit impact from foreign operations represents the impact of VCN’s statutory foreign tax rate on its operations adjusted for the difference and between US and Spanish tax rates.

For 2021, the “expected” tax expense is computed by applying the Federal corporate statutory tax rate of 21 % and a net, after Federal benefit state tax rate of 6.46 % (state blended rate was 8.18 %) to loss before taxes.

2 unchanged sentences

Computed “expected” tax-benefit - State

Adjustment of “expected” tax-benefit to actual

Meals, entertainment and other

Non-deductible stock-based compensation

State Tax Rate Adjustment

Federal and state NOL Adjustment

Foreign Tax Rate Adjustment

Forfeited NQSO Trueup

Transaction Costs

Fair Market Value Adjustment - Contingent Consideration

Other Permanent Differences

Change in valuation allowance

The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2021 and 2020 are as follows ( in thousands ):

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Income Taxes (continued)

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands):

Year Ended December 31,

Deferred Tax Assets:

Stock issued for services

Federal & State NOL Carryforward

Accrued Compensation

Stock Issued For Services

Stock Issued for Acquisition of Program

2 unchanged sentences

Amortizable License Fee

Net operating loss carry-forward

Total gross deferred tax assets

valuation allowance

Total net deferred tax assets

Synthetic Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Income Taxes – (continued)

At December 31, 2021, the Company has a gross Federal net operating loss carry-forward of approximately $ 58.3 million available to offset future taxable income.

Capitalized Research & Development costs

Total Gross DTA

Total Deferred Tax Assets

Deferred Tax Liabilities:

Total Gross DTL

Net Deferred Tax Assets

On March 10, 2022, the Company acquired VCN, a Spanish Company in a tax-free stock acquisition.

Due to this acquisition, VCN is a wholly owned subsidiary of the company.

As a result of the acquisition, a deferred tax liability was established with purchase accounting related to acquired In Process Research and Development.

A deferred tax asset was also established with purchase accounting related to VCN’s unlimited life net operating loss carryover.

At December 31, 2022, the Company has a gross Federal net operating loss carry-forward of approximately $ 65.8 million available to offset future United States taxable income.

The Company’s pre-2018 net operating losses expire on various dates through 2037 .

In addition, it was determined that the utilization of gross Federal net operating losses of approximately $ 198.8 million was limited by $ 155.6 million.

due to change of control ownership changes that occurred under Section 382 of the Internal Revenue Code.

In addition, it was determined that the utilization of gross Federal net operating losses of approximately $ 221.5 million was limited by $ 155.6 .

million as a result change of control ownership changes that occurred under Section 382 of the Internal Revenue Code.

State NOL’s are also limited by Section 382 of the Internal Revenue Code and were limited accordingly.

In 2020, the Company completed an Internal Revenue Code Section 382 analysis of its historical net operating loss carry-forward amount.

As a result, the prior year net operating loss carry-forward of $ 188.6 million was limited by $ 155.6 million.

The decrease in the prior year net operating loss is attributable to change of control ownership shifts which were determined for the years 2013 and 2018 which caused the reduction in the value of the historical net operating loss carry-forward amounts.

An updated section 382 analysis was performed in 2021 to identify if any additional ownership shifts occurred in the current year.

As a result, the prior year net operating loss carry-forward was limited by $ 155.6 million.

The decrease in the prior year net operating loss is attributable to control ownership changes which were determined for the years 2013 and 2018 which caused the reduction in the value of the historical net operating loss carry-forward amounts.

Updated section 382 analysis were performed in 2021 and 2022 to identify if any additional ownership shifts occurred in these years.

It was determined that an ownership shift occurred on January 20, 2021.

The result of the updated 2021 analysis produced an IRC 382 limit due to the 2021 ownership shift.

However, all previously limited net operating losses remain available for use in future periods.

The Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the 2018 year and later carry-forward indefinitely and are subject to additional limitations based on taxable income.

In December 2019, the FASB issued ASU 20109-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740.

This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted.

The Company adopted ASU 2019-12 in the current period.

The valuation allowance at December 31, 2021 was approximately $ 21.5 million.

The result of the updated Section 382 analysis produced an IRC 382 limit due to the 2021 ownership shift.

There was no ownership shift determined for 2022.

All previously limited net operating losses remain available for use in future periods.

The Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the 2018 year and later carryforward indefinitely and are subject to additional limitations based on taxable income.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Income Taxes (continued)

At December 31, 2022, the Company has a gross Foreign net operating loss carryforward of approximately $ 11.8 million related to its newly acquired Spanish subsidiary, VCN.

The net operating loss does not expire and is available to offset future Spanish taxable income.

The Company’s valuation allowance at December 31, 2022 was approximately $ 24.6 million.

The net change in valuation allowance during the year ended December 31, 2022, was an increase of approximately $ 3.1 million primarily due to increases in gross federal and state deferred tax assets in 2022.

2 unchanged sentences

Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2021.

As of December 31, 2022 and 2021, management has established a full valuation allowance against its net deferred tax assets in all US tax jurisdictions.

The Company has not established a valuation allowance in its Spanish tax jurisdictions since it is in a net deferred tax liability position in Spain."

Undistributed earnings of our foreign subsidiary, VCN, are considered to be permanently reinvested and, accordingly, no deferred U.S.

income taxes have been provided thereon.

Upon distribution of any earnings in the form of dividends or otherwise, those earnings would be subject to U.S.

At the present time, VCN does not have any earnings and thus it is not necessary to estimate the amount of U.S.

income taxes that might be payable if these earnings were repatriated.

We have incurred net operating losses since inception, and we do not have any significant unrecognized tax benefits.

Subsequent Events

On January 3, 2022, the Company entered into a three-year employment agreement with Steven A.

Shallcross (the “Employment Agreement”), who has served as the Company’s Chief Executive Officer since December 6, 2018 and as the Company’s Chief Financial Officer since June 1, 2015, to continue to serve as the Chief Executive Officer and Chief Financial Officer of the Company.

The Employment Agreement replaced the prior employment agreement with the Company that Mr.

Shallcross entered into on December 6, 2018, as amended December 5, 2019.

Pursuant to the Employment Agreement, Mr.

Shallcross is entitled to an annual base salary of $ 585,000 and an annual cash performance bonus of up to fifty percent ( 50 %) of his annual base salary as well as discretionary annual equity awards pursuant to the Company’s incentive plans.

The annual bonus will be based upon the assessment of the Board of Mr.

Shallcross’s performance.

The Employment Agreement also includes confidentiality obligations and inventions assignments by Mr.

Shallcross and non-solicitation and non-competition provisions.

Synthetic Biologics, Inc.

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.

On January 15, 2023, the company moved into the facilities and the lease commenced.

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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.

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), with a number of additional patents pending.

As consideration for the purchase of the VCN Shares, the Comany 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 the closing Shares, representing 19.99 % of the outstanding shares of the Company’s common stock on December 14, 2021, the date of the Purchase Agreement.

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 to Grifols upon the achievement of certain clinical and commercialization milestones, as described below.

In connection with the Acquisition, prior to the closing the Company loaned VCN $ 425,000 to help finance the costs of certain of VCN’s research and development activities and, at the Closing, VCN and Grifols entered into a sublease agreement for the sublease by VCN of the laboratory and office space currently occupied by it as well as a transitional services agreement.

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

Milestone Payments

US$ 3 MM upon VCN-01 US IND Safe to Proceed pancreatic ductal adenocarcinoma (“PDAC”, or other first indication)

US$ 2.75 MM upon VCN-01 US IND Safe to Proceed – retinoblastoma (“RB”, or other second indication)

US$ 3.25 MM upon VCN-01 US first patient dosed– PDAC (or other first indication) after receipt of VCN-01 US IND Safe to Proceed for PDAC being informed

US$ 3.25 MM upon VCN-01 US first patient dosed – RB (or other second indication) after receipt of VCN-01 US IND Safe to Proceed for RB being informed

US$ 6 MM upon VCN-01 US Phase 2 trial meets the primary endpoint or if a Phase 2 trial is not conducted and only a Phase 3 trial is conducted then upon a Phase 3 being initiated – PDAC (or other first indication)

US$ 8 MM upon VCN-01 Pivotal Trial meeting the primary endpoint or upon BLA Submission – RB (or other second indication)

US$ 12 MM upon VCN-01 US Phase 3 trial meeting the primary endpoint or upon BLA Submission – PDAC (or other first indication)

US$ 16 MM upon VCN-01 BLA Approval – PDAC (or other first indication)

US$ 16 MM upon VCN-01 BLA Approval – RB (or other second indication)

Restatement Of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited)

Subsequent to filing the Company’s unaudited interim consolidated financial statements for the periods ended June 30, 2022, and September 30, 2022, as reported in the Company’s Quarterly Reports on Form 10-Q filed on August 8, 2022, and November 10, 2022, respectively, the Company determined that certain of the amounts in the Company's previously reported unaudited interim consolidated financial statements and accompanying footnote disclosures contained misstatements.

See Note 2 – Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements for additional information.

In accordance with SAB No.

99, Materiality , the Company evaluated these misstatements, and based upon an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its unaudited interim consolidated financial statements as of and for the three and six-months ended June 30, 2022 and as of and for the three and nine-months ended September 30, 2022, and a restatement of the previously reported unaudited interim consolidated financial statements was required.

The Company has not filed, and does not intend to file, an amendment to the Company’s previously filed Quarterly Reports on Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022, but instead is restating its unaudited interim financial statements in this Annual Report on Form 10-K

The effects of the restatement and immaterial out of period adjustments of the previously reported Consolidated Balance Sheets are presented below:

As of June 30, 2022

As Previously

Other Immaterial

(amounts in thousands, except per share data)

Current Assets

Cash and cash equivalents

Prepaid expenses and other current assets

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

Current Liabilities:

Accounts payable

Accrued expenses

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

Total Liabilities

Commitments and Contingencies

Stockholders’ Equity (Deficit):

Common stock, $ 0.001 par value;

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

Accumulated other comprehensive loss

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

As of September 30, 2022

As Previously

Other Immaterial

(amounts in thousands, except per share data)

Current Assets

Cash and cash equivalents

Prepaid expenses and other current assets

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

Current Liabilities:

Accounts payable

Accrued expenses

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

Total Liabilities

Commitments and Contingencies

Series C convertible preferred stock, $ 0.001 par value;

275,000 issued and outstanding

Series D convertible preferred stock, $ 0.001 par value;

100,000 issued and outstanding

Stockholders’ Equity (Deficit):

Common stock, $ 0.001 par value;

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

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The effect of the restatement and immaterial out of period adjustments of the previously reported Consolidated Statements of Income (Loss) is presented below:

Three-months ended June 30, 2022

As Previously

Other Immaterial

(amounts in thousands, except per share data)

Operating Costs and Expenses:

General and administrative

Research and development

Total Operating Costs and Expenses

Loss from Operations

Other Expense:

Exchange loss

Interest income

Total Other Income(Expense)

Net Loss before income taxes

Income tax benefit

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Synthetic Biologics, Inc.

and Subsidiaries

Series A Preferred Stock Dividends

Effect of Series A Preferred Stock price adjustment

Series B Preferred Stock Dividends

Net Loss Attributable to Common Stockholders

Net Loss Per Share - Basic and Dilutive

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

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Six-months ended June 30, 2022

As Previously

Other Immaterial

(amounts in thousands, except per share data)

Operating Costs and Expenses:

General and administrative

Research and development

Total Operating Costs and Expenses

Loss from Operations

Other Expense:

Exchange loss

Interest income

Total Other Income(Expense)

Net Loss before income taxes

Income tax benefit

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Synthetic Biologics, Inc.

and Subsidiaries

Series A Preferred Stock Dividends

Effect of Series A Preferred Stock price adjustment

Series B Preferred Stock Dividends

Net Loss Attributable to Common Stockholders

Net Loss Per Share - Basic and Dilutive

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

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Three-months ended September 30, 2022

Other Immaterial

(amounts in thousands, except per share data)

As Previously Reported

Operating Costs and Expenses:

General and administrative

Research and development

Total Operating Costs and Expenses

Loss from Operations

Other Expense:

Exchange loss

Interest income

Total Other Income(Expense)

Net Loss before income taxes

Income tax benefit

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Synthetic Biologics, Inc.

and Subsidiaries

Effect of Warrant exercise price adjustment

Effect of Series A Preferred Stock price adjustment

Series B Preferred Stock Dividends

Net Loss Attributable to Common Stockholders

Net Loss Per Share - Basic and Dilutive

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

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Nine-months ended September 30, 2022

As Previously

Other Immaterial

(amounts in thousands, except per share data)

Operating Costs and Expenses:

General and administrative

Research and development

Total Operating Costs and Expenses

Loss from Operations

Other Expense:

Exchange loss

Interest income

Total Other Income(Expense)

Net Loss before income taxes

Income tax benefit

Net Loss Attributable to Non-controlling Interest

Net Loss Attributable to Synthetic Biologics, Inc.

and Subsidiaries

Effect of Warrant exercise price adjustment

Effect of Series A Preferred Stock price adjustment

Series B Preferred Stock Dividends

Net Loss Attributable to Common Stockholders

Net Loss Per Share - Basic and Dilutive

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

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The effect of the restatement and immaterial out of period adjustments of the previously reported Consolidated Statements of Changes in Shareholders’ Equity is presented in the tables below:

As Previously Reported

Common Stock $0.001 Par Value

Series B Preferred

Comprehensive

Stockholders’

(amounts in thousands, except per share data)

Balance at December 31, 2021

Stock-based compensation

Issuance of Common Stock for VCN Acquisition

Translation gains (losses)

Balance at March 31, 2022

Stock-based compensation

Translation gains (losses)

Balance at June 30, 2022

Stock-based compensation

Translation gains (losses)

Balance at September 30, 2022

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Restatement Adjustments

Common Stock $0.001 Par Value

Series B Preferred

Comprehensive

Stockholders’

(amounts in thousands, except per share data)

Balance at December 31, 2021

Stock-based compensation

Issuance of Common Stock for VCN Acquisition

Translation gains (losses)

Balance at March 31, 2022

Stock-based compensation

Translation gains (losses)

Net loss-other immaterial adjustments

Balance at June 30, 2022

Stock-based compensation

Translation gains (losses)

Net loss-other immaterial adjustments

Balance at September 30, 2022

Common Stock $0.001 Par Value

Series B Preferred

Comprehensive

Stockholders’

(amounts in thousands, except per share data)

Balance at December 31, 2021

Stock-based compensation

Issuance of Common Stock for VCN Acquisition

Translation gains (losses)

Balance at March 31, 2022

Stock-based compensation

Translation gains (losses)

Balance at June 30, 2022

Stock-based compensation

Translation gains (losses)

Balance at September 30, 2022

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The effect of the restatement of the previously reported Consolidated Statements of Cash Flows is presented below:

Six-months ended June 30, 2022

Other Immaterial

(amounts in thousands, except per share data)

As Previously Reported

Cash Flows From Operating Activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Income tax benefit

Change in fair value of contingent consideration

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Right of use asset

Accounts payable

Accrued expenses

Accrued employee benefits

Lease liability

Net Cash Used In Operating Activities

Cash Flows from Investing Activities

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"

stock issuance

Proceeds from issuance of common stock for warrant exercises

Net Cash Provided (used in) by 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 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

Theriva Biologics, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Nine-months ended September 30, 2022

Other Immaterial

(amounts in thousands, except per share data)

As Previously Reported

Cash Flows From Operating Activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Income tax benefit

Change in fair value of contingent consideration

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Right of use asset

Accounts payable

Accrued expenses

Accrued employee benefits

Lease liability

Net Cash Used In Operating Activities

Cash Flows from Investing Activities

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 sale of Series C Preferred Stock, net of issuance cost

Proceeds from sale of Series D Preferred Stock, net of issuance cost

Proceeds from "at the market"

stock issuance

Proceeds from issuance of common stock for warrant exercises

Net Cash Provided (used in) by 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 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

In-process R&D measurement period adjustment

Deferred tax liability measurement period adjustment

Effect of Warrant exercise price adjustment

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data