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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from   ____________ to  ____________

Commission File Number: 001-12584

SYNTHETIC BIOLOGICS, INC.

(Exact name of Registrant as Specified in Its Charter)

Nevada

13-3808303

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

9605 Medical Center Drive, Suite 270

Rockville, MD

20850

(Address of Principal Executive Offices)

(Zip Code)

(301) 417-4364

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SYN

NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨       No

As of August 3, 2021, the registrant had 132,042,538 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

SYNTHETIC BIOLOGICS, INC.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the timing of our clinical trials, the development and commercialization of our pipeline products, the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities and the timing of any such financing, our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future research, development or operations, are forward-looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “Synthetic Biologics,” the “Company,” “we,” “us” and “our” refer to Synthetic Biologics, Inc.

NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Table of Contents

SYNTHETIC BIOLOGICS, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2021 and 2020

4

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six Months ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Cash Flows for the Six  Months ended June 30, 2021 and 2020

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

PART II. OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

40

 

SIGNATURES

41

2

Table of Contents

PART I–FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Synthetic Biologics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands except share and par value amounts)

    

June 30, 2021

    

December 31, 2020

Assets

 

  

 

  

Current Assets

 

  

 

  

Cash and cash equivalents

$

74,291

$

6,227

Prepaid expenses and other current assets

 

1,341

 

1,707

Total Current Assets

 

75,632

 

7,934

Property and equipment, net

 

132

 

174

Right of use asset

 

1,468

 

279

Deposits and other assets

 

23

 

23

Total Assets

$

77,255

$

8,410

Liabilities and Stockholders' Deficit

 

 

  

Current Liabilities:

 

 

  

Accounts payable

$

568

$

886

Accrued expenses

 

794

 

925

Accrued employee benefits

 

540

 

868

Operating lease liability

 

196

 

287

Total Current Liabilities

 

2,098

 

2,966

Lease liability - Long term

 

1,426

 

186

Total Liabilities

 

3,524

 

3,152

Commitments and Contingencies

 

 

  

Series A convertible preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 and 120,000 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

-

 

12,798

Stockholders' Equity (Deficit):

 

 

  

Series B convertible preferred stock, $1,000 par value; 10,000,000 shares authorized, 0 issued and outstanding and 3,973 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

-

 

2,477

Common stock, $0.001 par value; 200,000,000 shares authorized, 132,044,866 issued and 132,042,538 outstanding at June 30, 2021 and 29,252,253 issued and 29,249,925 outstanding at December 31, 2020

 

132

 

29

Additional paid-in capital

 

339,121

 

240,821

Accumulated deficit

 

(262,748)

 

(248,094)

Total Synthetic Biologics, Inc. and Subsidiaries Equity (Deficit)

 

76,505

 

(4,767)

Non-controlling interest

 

(2,774)

 

(2,773)

Total Stockholders' Equity (Deficit)

 

73,731

 

(7,540)

Total Liabilities and Stockholders' Equity (Deficit)

$

77,255

$

8,410

See accompanying notes to unaudited condensed consolidated financial statements.

3

Table of Contents

Synthetic Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

    

For the three months ended June 30, 

    

For the six months ended June 30, 

2021

2020

2021

2020

Operating Costs and Expenses:

 

  

 

  

 

  

 

  

General and administrative

$

1,265

$

1,286

$

2,685

$

2,679

Research and development

 

1,932

 

1,603

 

3,049

 

3,238

Total Operating Costs and Expenses

 

3,197

 

2,889

 

5,734

 

5,917

Loss from Operations

 

(3,197)

 

(2,889)

 

(5,734)

 

(5,917)

Other Income:

Interest income

 

2

 

6

 

2

 

44

Total Other Income

 

2

 

6

 

2

 

44

Net Loss

 

(3,195)

 

(2,883)

 

(5,732)

 

(5,873)

Net Loss Attributable to Non-controlling Interest

 

-

 

(16)

 

(1)

 

(42)

Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries

$

(3,195)

$

(2,867)

$

(5,731)

$

(5,831)

Series A Preferred Stock Dividends

-

(63)

(24)

(125)

Effect of Series A Preferred Stock price adjustment

-

-

(7,402)

-

Series B Preferred Stock Dividends

 

-

 

(392)

 

(1,497)

 

(796)

Net Loss Attributable to Common Stockholders

$

(3,195)

$

(3,322)

$

(14,654)

$

(6,752)

Net Loss Per Share - Basic and Dilutive

$

(0.02)

$

(0.18)

$

(0.13)

$

(0.38)

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

 

132,042,538

 

18,405,884

 

111,539,024

 

17,748,688

See accompanying notes to unaudited condensed consolidated financial statements.

4

Table of Contents

Synthetic Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity (Deficit)

(In thousands, except share and par value amounts)

Common Stock $0.001 Par Value

Series B Preferred

Accumulated

Non-Controlling

Total Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

APIC

    

Deficit

    

Interest

    

Deficit

Balance at December 31, 2020

 

29,249,925

$

29

 

3,973

$

2,477

$

240,821

$

(248,094)

$

(2,773)

$

(7,540)

Stock-based compensation

 

-

 

-

 

-

 

-

 

101

 

-

 

-

 

101

Stock issued under "at-the-market" offering

 

78,685,315

 

79

 

-

 

-

 

65,881

 

-

 

-

 

65,960

Warrants Exercised

 

11,655,747

 

12

 

-

 

-

 

8,030

 

-

 

-

 

8,042

Series A Preferred Stock Dividends

 

-

 

-

 

-

 

-

 

-

 

(24)

 

-

 

(24)

Effect of Series A Preferred Stock price adjustment

 

-

 

-

 

-

 

-

 

7,402

 

(7,402)

 

-

 

-

Conversion of Series A Preferred Stock to Common

 

8,996,768

 

9

 

-

 

-

 

12,813

 

-

 

-

 

12,822

Conversion of Series B Preferred Stock to Common

3,454,783

3

(3,973)

(2,477)

3,971

(1,497)

-

-

Net loss

-

-

-

-

-

(2,536)

-

(2,536)

Non-controlling interest

-

-

-

-

-

-

(1)

(1)

Balance at March 31, 2021

132,042,538

$

132

 

-

$

-

$

339,019

$

(259,553)

$

(2,774)

$

76,824

Stock-based compensation

-

-

-

-

102

-

-

102

Net loss

-

-

-

-

-

(3,195)

-

(3,195)

Balance at June 30, 2021

132,042,538

$

132

-

$

-

$

339,121

$

(262,748)

$

(2,774)

$

73,731

Common Stock $0.001 Par Value

Series B Preferred

Accumulated

Non-Controlling

Total Stockholders’

Shares

    

Amount

Shares

    

Amount

APIC

Equity

Interest

Deficit

Balance at December 31, 2019

16,806,430

$

17

7,638

$

4,761

$

232,580

$

(235,537)

$

(2,878)

$

(1,057)

Stock-based compensation

-

-

-

-

83

-

-

83

Series A Preferred Stock Dividends ($0.01 per share)

-

-

-

-

-

(62)

-

(62)

Issuance of SYN Biomics Stock

-

-

-

-

-

-

26

26

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

933,045

1

(1,073)

(669)

1,072

(404)

-

-

Net loss

-

-

-

-

-

(2,964)

-

(2,964)

Non-controlling interest

-

-

-

-

-

-

(26)

(26)

Balance at March 31, 2020

17,739,475

 

$

18

 

6,565

 

$

4,092

 

$

233,735

 

$

(238,967)

 

$

(2,878)

 

$

(4,000)

Stock-based compensation

-

-

-

-

86

-

-

86

Series A Preferred Stock Dividends ($0.01 per share)

-

-

-

-

-

(63)

-

(63)

Issuance of SYN Biomics Stock

-

-

-

-

-

-

10

10

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

904,349

1

(1,040)

(648)

1,039

(392)

-

-

Net loss

-

-

-

-

-

(2,867)

-

(2,867)

Non-controlling interest

-

-

-

-

-

-

(16)

(16)

Balance at June 30, 2020

 

18,643,824

 

$

19

 

5,525

 

$

3,444

 

$

234,860

 

$

(242,289)

 

$

(2,884)

 

$

(6,850)

See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

Synthetic Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

For the Six Months Ended June 30,

    

2021

    

2020

Cash Flows From Operating Activities:

 

  

 

  

Net loss

$

(5,732)

$

(5,873)

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

 

 

  

Stock-based compensation

 

203

 

169

Subsidiary stock issued to vendor

-

 

36

Depreciation

 

56

 

116

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

366

 

484

Right of use asset

 

81

 

67

Accounts payable

 

(318)

 

(1,290)

Accrued expenses

 

(131)

 

(567)

Accrued employee benefits

 

(328)

 

(8)

Operating Lease liability

 

(121)

 

(120)

Net Cash Used in Operating Activities

 

(5,924)

 

(6,986)

Cash Flows from Investing Activities

 

 

Purchase of property and equipment

(14)

-

Net Cash Used in Investing Activities

(14)

-

Cash Flows from Financing Activities

 

 

Proceeds from "at the market" stock issuance

 

65,960

 

-

Proceeds from issuance of common stock for warrant exercises

8,042

-

Net Cash Provided by Financing Activities

74,002

-

Net increase (decrease) in cash and cash equivalents

 

68,064

 

(6,986)

Cash and cash equivalents at the beginning of this period

 

6,227

 

15,045

Cash and cash equivalents at the end of this period

$

74,291

$

8,059

Noncash Financing Activities:

 

 

Effect of Series A Preferred Stock price adjustment

$

7,402

$

-

Right of use asset from operating lease

$

1,270

$

-

Conversion of Series B Preferred Stock

$

2,477

$

1,317

Deemed dividends for accretion of Series B Preferred Stock discount

$

1,497

$

796

In-kind dividends paid in preferred stock

$

23

$

125

See accompanying notes to unaudited condensed consolidated financial statements.

6

Table of Contents

Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization, Nature of Operations and Basis of Presentation

Description of Business

Synthetic Biologics, Inc. (the “Company” or “Synthetic Biologics”) is a diversified clinical-stage company developing therapeutics designed to prevent and treat gastrointestinal (GI) diseases in areas of high unmet need. The Company’s lead clinical development candidates are: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the gastrointestinal (GI) tract to prevent (a) microbiome damage, (b) Clostridioides difficile infection (CDI), (c) overgrowth of pathogenic organisms, (d) the emergence of antimicrobial resistance (AMR) and (e) acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under Current Good Manufacturing Practice (cGMP) conditions and intended to treat both local GI and systemic diseases.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, comprised of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2020 Form 10-K.

The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. The Company believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods.

Recent Accounting Pronouncements and Developments

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update  (“ASU”)2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. 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.

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Table of Contents

Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

Impairment of Long-Lived Assets

Long-lived assets include property, equipment and right-of-use assets. In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), management reviews the Company’s long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. 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. During the three months ended March 31, 2020, the Company identified COVID-19 as a triggering event and performed a qualitative assessment of the fair value of its long-lived assets. The results from this analysis determined that it is still more likely than not that the fair value of its long-lived assets remain higher than the carrying value of these assets. As a result, no impairment charges were recorded during the three and six months ended June 30, 2021 and 2020.

2. Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 inputs: Inputs, other than quoted prices, included in Level 1 that are observable either directly or indirectly; and
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

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

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

3. Selected Balance Sheet Information

Prepaid expenses and other current assets (in thousands)

June 30, 

December 31, 

    

2021

    

2020

Prepaid clinical research organizations

$

880

$

470

Prepaid insurances

280

639

Prepaid consulting, subscriptions and other expenses

181

90

Stock sales receivable

 

-

 

469

Prepaid manufacturing expenses

 

-

 

39

Total

$

1,341

$

1,707

Prepaid clinical research organizations (CROs) expense is classified as a current asset. The Company makes payments to the CROs based on agreed upon terms that include payments in advance of study services.

Property and equipment, net (in thousands)

    

June 30, 

December 31, 

2021

    

2020

Computers and office equipment

$

827

$

813

Leasehold improvements

 

94

 

439

Software

 

11

 

11

 

932

 

1,263

Less: accumulated depreciation and amortization

 

(800)

 

(1,089)

Total

$

132

$

174

Accrued expenses (in thousands)

    

June 30, 

December 31, 

2021

    

2020

Accrued clinical consulting services

$

700

$

700

Accrued vendor payments

 

92

 

225

Other accrued expenses

 

2

 

-

Total

$

794

$

925

Accrued employee benefits (in thousands)

    

June 30, 

December 31, 

2021

    

2020

Accrued bonus expense

$

361

$

724

Accrued vacation expense

 

179

 

144

Total

$

540

$

868

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

4. Stock-Based Compensation

Stock Incentive Plans

On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 71,429 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend 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. 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 could be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 stock plan shall not exceed 7,143. Options become exercisable over various periods from the date of grant and generally expire ten years after the grant date. As of June 30, 2021, there were 5,145 options issued and outstanding under the 2007 Stock Plan.

On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 85,714 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various periods from the date of grant and expire between five and ten years after the grant date. As of June 30, 2021, there were 2,452,273 options issued and outstanding under the 2010 Stock Plan.

On September 17, 2020, the stockholders approved and adopted the 2020 Stock Incentive Plan (“2020 Stock Plan”) for the issuance of up to 4,000,000 shares of Common Stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. As of June 30, 2021, there were 1,540,000 options issued and outstanding under the 2010 Stock Plan.

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee’s options. 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 Company has applied fair value accounting for all stock-based payment awards at grant date. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. There were no options granted during the three and six months ended June 30, 2021 and 2020.

4. Stock-Based Compensation – (continued)

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

Expected volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. 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. Treasury security with a maturity that approximates the expected term of the option.

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Expected life of the option—The period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of seven years. The Company estimates the expected life of the option term based on the weighted average life between the dates that options become fully vested and the maximum life of options granted.

The Company records stock-based compensation based upon the stated vesting provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:

immediate vesting,
in full on the one-year anniversary date of the grant date,
half vesting immediately and the remaining over three years,
quarterly over three years,
annually over three years,
one-third immediate vesting and the remaining annually over two years,
one-half immediate vesting and the remaining over nine months,
one-quarter immediate vesting and the remaining over three years,
one-quarter immediate vesting and the remaining over 33 months,
monthly over one year, and
monthly over three years.

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

4. Stock-Based Compensation – (continued)

A summary of stock option activity for the six months ended June 30, 2021 and the year ended December 31, 2020 is as follows:

    

    

Weighted

    

Weighted Average

    

Aggregate

Average Exercise

Remaining

Intrinsic

Options

Price

Contractual Life

Value

Balance - December 31, 2019

 

2,502,012

$

3.62

 

6.51 years

$

153,353

Granted

 

1,540,000

0.42

 

 

Exercised

-

-

Expired

 

(14,944)

17.57

 

 

Forfeited

 

(29,650)

0.55

 

 

Balance - December 31, 2020

 

3,997,418

2.35

 

6.09 years

-

Granted

 

-

-

 

 

Exercised

 

-

-

Expired

 

-

-

 

 

Forfeited

 

-

-

 

 

Balance - June 30, 2021 - outstanding

 

3,997,418

$

2.35

 

5.28 years

$

598,074

Balance - June 30, 2021 - exercisable

 

1,970,911

$

4.33

 

4.55 years

$

239,357

Grant date fair value of options granted – three months ended June 30, 2021

$

-

 

  

 

  

Weighted average grant date fair value – three months ended June 30, 2021

$

-

 

  

 

  

Grant date fair value of options granted – year ended December 31, 2020

$

412,000

 

  

 

  

Weighted average grant date fair value – year ended December 31, 2020

$

0.27

 

  

 

  

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to employees for the three and six months ended June 30, 2021 was $34,000 and $67,000, respectively, and $40,000 and $79,000 for the three and six months ended June 30, 2020, respectively. Stock-based compensation expense included in research and  development expenses relating to stock options issued to employees for the three and six months ended June 30, 2021 was $16,000 and $31,000,respectively, and $15,000 and $31,000 for the three and six months ended June 30, 2020, respectively.

Stock-based compensation expense included in general and administrative expenses relating to stock options issued to consultants for the three and six months ended June 30, 2021 was $49,000 and $98,000, respectively, and $27,000 and $53,000 for the three and six months ended June 30, 2020, respectively. Stock-based compensation expense included in research and development expenses relating to stock options issued to consultants for the three and six months ended June 30, 2021 was $3,000 and $7,000, respectively, and $4,000 and $6,000 for the three and six months ended June 30, 2020.

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

4. Stock-Based Compensation – (continued)

As of June 30, 2021, total unrecognized stock-based compensation expense related to stock options was $483,000, which is expected to be expensed through April 2023.

The FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company did not record any excess tax benefits during the three and six months ended June 30, 2021 and 2020.

5. Stock Warrants

On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units (the “Class A Units”), with each Class A Unit consisting of one share of the Common Stock, and one five-year warrant to purchase one share of Common Stock at an initial exercise price of $1.38 per share, which subsequently was reduced to $0.69 per share (each a “Warrant” and collectively, the “Warrants”), with each Class A Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 Warrants. On November 16, 2020, the exercise price of the Warrants was reduced from $1.38 per Warrant per full share of the Company’s common stock, $0.001 par value per share (the “Common Stock”), to $0.69 per Warrant per full share of Common Stock in accordance with the anti-dilution terms of the Warrant. The reduction was the result of the issuance of shares of Common Stock by the Company through its “at the market offering” 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 of $880,000 during the year ended December 31, 2020, which reduces the income available to common stockholders. In addition, pursuant to the underwriting agreement that the Company had entered into with A.G.P./Alliance Global Partners (the “Underwriters”), as representative of the underwriters, the Company granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional Warrants to purchase an additional 2,428,825 shares of Common Stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of Common Stock.

If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be exercised through a cashless exercise. No fractional shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares. The Company has concluded that the Warrants are required to be equity classified. The Warrants were valued on the date of grant using Monte Carlo simulations. During the six months ended June 30, 2021, 11,655,747 warrants were exercised for cash proceeds of $8.0 million. There were no warrants exercised during the 3 months ended June 30, 2021.

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Synthetic Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

5. Stock Warrants – (continued)

On November 18, 2016, the Company completed a public offering of 714,286 shares of common stock in combination with accompanying warrants to purchase an aggregate of 1,428,571 shares of the common stock. The stock and warrants were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock. The purchase price for each share of common stock and accompanying warrants was $35.00. The shares of common stock were immediately separable from the warrants and were issued separately. The initial per share exercise price of the Series A warrants was $50.05 and the per share exercise price of the Series B warrants was $60.20, each subject to adjustment as specified in the warrant agreements. The Series A and Series B warrants could be exercised at any time on or after the date of issuance. The Series A warrants were exercisable until the four-year anniversary of the issuance date. The Series B warrants expired December 31, 2017 and none were exercised prior to expiration. The Series A warrants expired November 18, 2020 and none were exercised prior to expiration. The warrants included a provision, that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance date of $15.7 million and changes in estimated fair value will be recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent period. At November 18, 2020, the fair value of the warrant liability was $100. The warrants were valued on the date of grant and on each remeasurement period.

A summary of all warrant activity for the Company for the six months ended June 30, 2021 and the year ended December 31, 2020 is as follows: