See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
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 late-stage clinical company developing therapeutics designed to preserve the microbiome
to protect and restore the health of patients. The Company’s lead candidates poised for Phase 3 development are: (1) SYN-004
(ribaxamase) which is designed to protect the gut microbiome (gastrointestinal (GI) microflora) from the effects of certain commonly
used intravenous (IV) antibiotics for the prevention of
C. difficile
infection (CDI), overgrowth of pathogenic organisms
and the emergence of antimicrobial resistance (AMR), and (2) SYN-010 which is intended to reduce the impact of methane-producing
organisms in the gut microbiome to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C). Our preclinical
pursuits include an oral formulation of the enzyme intestinal alkaline phosphatase (IAP) to treat both local GI and systemic diseases
as well as monoclonal antibody therapies for the prevention and treatment of pertussis, and novel discovery stage biotherapeutics
for the treatment of phenylketonuria (PKU).
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 2017 Form 10-K. The interim results for the three and six months ended June 30,
2018 are not necessarily indicative of results for the full year.
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 February 2016, the Financial Accounting
Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842
),
which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities
arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The
amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with
early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial
statements.
In June 2018, FASB issued ASU 2018-07,
Improvements
to Nonemployee Share-Based Payment Accounting
, which expands the scope of Topic 718 to include share-based payments issued
to nonemployees, and generally aligns the accounting for nonemployee awards with the accounting for employee awards. The
ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early
adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated
financial statements.
The Tax Cuts and Jobs Act (the Tax Act) was
signed into law on December 22, 2017. The Tax Act changed many aspects of U.S. corporate income taxation and included reduction
of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed
repatriated earnings of foreign subsidiaries. The Company recognized the tax effects of the Tax Act in the year ended December
31, 2017 and recorded $21.6 million in tax expense which relates almost entirely to the remeasurement of deferred tax assets to
the 21% tax rate. The Company will continue to assess its provision for income taxes as future guidance is issued but does not
currently anticipate significant revisions will be necessary. Accounting Standards Codification (“ASC”) No. 740,
Income
taxes,
requires the Company to record the effects of a tax law change in the period of enactment. However, shortly after the
enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which allows the Company to record
a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete
its accounting for the change in the tax law. The measurement period ends when the Company has obtained, prepared and analyzed
the information necessary to finalize its accounting, but cannot extend beyond one year.
2. Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming the Company will continue as a going concern. The Company has recurring losses and, as of
June 30, 2018, the Company has an accumulated deficit of approximately $200.8 million. Since inception, the Company has financed
its activities principally with proceeds from the issuance of equity securities.
The Company’s ability to continue as
a going concern is dependent upon the Company’s ability to raise additional debt or equity capital. There can be no assurance
that such capital will be available in sufficient amounts or on terms acceptable to the Company. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements
do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that
may be necessary should the Company be unable to continue as a going concern.
The Company does not have
sufficient capital to fund its plan of operations over the next twelve months. In order to address its capital needs,
including its planned Phase 2b/3 and phase 3 clinical trials, the Company is actively pursuing additional equity or debt
financing, in the form of either a private placement or a public offering. The Company has been in ongoing discussions with
strategic institutional investors and investment banks with respect to such possible offerings. Such additional financing
opportunities might not be available to the Company when and if needed, on acceptable terms or at all. If the Company is
unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, the
Company’s operating results and prospects will be adversely affected.
With the exception of the quarter ended June
30, 2010, the Company has incurred negative cash flow from operations since its inception. The Company has spent, and expects to
continue to spend, substantial amounts in connection with implementing its business strategy, including its planned product development
efforts, clinical trials, and research and discovery efforts.
At June 30, 2018, the Company had cash and
cash equivalents of approximately $7.1 million. Based upon the Company’s current business plans, management does not believe
that the Company’s current cash on hand will be sufficient to execute its near term plans. Commencement of planned clinical
trials is subject to the Company’s successful pursuit of opportunities that will allow it to establish the clinical infrastructure
and financial resources necessary to successfully initiate and make significant progress towards completion of its plan. The Company
will be required to obtain additional funding in order to continue the development of its current product candidates within the
anticipated time periods (including initiation of its planned clinical trials), if at all, and to continue to fund operations at
the current cash expenditure levels. Currently, the Company does not have commitments from any third parties to provide it with
capital. Potential sources of financing include strategic relationships, public or private sales of equity (including through the
“at-the-market” Issuance Sales Agreement (the “B. Riley FBR Sales Agreement”) that the Company entered
into with FBR Capital Markets & Co. (now known as B. Riley FBR, Inc.) in August 2016 or debt and other sources. The Company
cannot assure that it will meet the requirements for use of the B. Riley FBR Sales Agreement or that additional funding will be
available on favorable terms, or at all. Current cash is expected to cover overhead costs, manufacturing costs for clinical supply,
clinical start-up costs, business development activities and limited research efforts. If the Company fails to obtain additional
funding for its clinical trials in the next few months, whether through the sale of securities or a partner or collaborator, and
otherwise when needed, it will not be able to execute its business plan as planned and will be forced to cease certain development
activities (including initiation of planned clinical trials) until funding is received and its business will suffer, which would
have a material adverse effect on its financial position, results of operations and cash flows. Clinical development will resume
once sufficient funding is available.
The actual amount of funds the Company will
need to operate is subject to many factors, some of which are beyond the Company’s control. These factors include the following:
|
·
|
the progress of research activities;
|
|
·
|
the number and scope of research programs;
|
|
·
|
the progress of preclinical and clinical development activities;
|
|
·
|
the progress of the development efforts of parties with whom the Company has entered into research and development agreements and amount of funding received from partners and collaborators;
|
|
·
|
the Company’s ability to maintain current research and development licensing arrangements and to establish new research and development, and licensing arrangements;
|
|
·
|
the ability to achieve milestones under licensing arrangements;
|
|
·
|
the costs associated with manufacturing-related services to produce material for use in its clinical trials;
|
|
·
|
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
|
|
·
|
the costs and timing of regulatory approvals.
|
The Company has based its estimates on assumptions
that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates.
If the Company raises funds by selling additional
shares of common stock or other securities convertible into common stock, the ownership interest of the existing stockholders will
be diluted. If the Company is not able to obtain financing when needed, it may be unable to carry out its business plan. As a result,
the Company may have to significantly limit its operations and its business, financial condition and results of operations would
be materially harmed.
3. Fair Value of Financial Instruments
Fair Value of Financial Instruments
ASC 820,
Fair Value Measurement
, defines
fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. 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.
Cash and cash equivalents include money market
accounts of $98,000 as of June 30, 2018 and December 31, 2017 that are measured using Level 1 inputs.
The Company uses Monte Carlo simulations to
estimate the fair value of the stock 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.
4. Selected Balance Sheet Information
Prepaid expenses and other current assets
(in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Prepaid consulting, subscriptions and other expenses
|
|
$
|
230
|
|
|
$
|
290
|
|
Prepaid insurances
|
|
|
170
|
|
|
|
351
|
|
Prepaid conferences and travel
|
|
|
130
|
|
|
|
94
|
|
At the market subscription receivable
|
|
|
5
|
|
|
|
-
|
|
Clinical consulting services refund receivable
|
|
|
-
|
|
|
|
46
|
|
Prepaid clinical research organizations
|
|
|
-
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
535
|
|
|
$
|
827
|
|
Prepaid clinical research organizations expense
is classified as a current asset. The Company makes payments to the clinical research organizations based on agreed upon terms
that include payments in advance of study services.
Property and equipment, net (in thousands)
|
|
June 30,
2018
|
|
|
December 31
2017
|
|
Computers and office equipment
|
|
$
|
851
|
|
|
$
|
851
|
|
Leasehold improvements
|
|
|
439
|
|
|
|
439
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,301
|
|
|
|
1,301
|
|
Less: accumulated depreciation and amortization
|
|
|
(570
|
)
|
|
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
731
|
|
|
$
|
872
|
|
Accrued expenses (in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Accrued clinical consulting services
|
|
$
|
625
|
|
|
$
|
658
|
|
Accrued vendor payments
|
|
|
221
|
|
|
|
193
|
|
Accrued manufacturing costs
|
|
|
143
|
|
|
|
661
|
|
Other accrued expenses
|
|
|
11
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,000
|
|
|
$
|
1,526
|
|
Accrued employee benefits (in thousands)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Accrued bonus expense
|
|
$
|
672
|
|
|
$
|
1,283
|
|
Accrued severance
|
|
|
395
|
|
|
|
590
|
|
Accrued vacation expense
|
|
|
295
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,362
|
|
|
$
|
2,074
|
|
5. 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 2,500,000 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. This plan was approved by the stockholders on November 2, 2007. The exercise
price of stock options under the 2007 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. 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 250,000. Options become exercisable
over various periods from the date of grant, and generally expire ten years after the grant date. As of June 30, 2018, there were
712,258 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
3,000,000 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. On October 22, 2013, the
stockholders approved and adopted an amendment to the Company’s 2010 Incentive Stock Plan to increase the number of
shares of the Company’s common stock reserved for issuance under the Plan from 3,000,000 to 6,000,000. On May 15, 2015,
the stockholders approved and adopted an amendment to the Company’s 2010 Incentive Stock Plan to increase the number of
shares of the Company’s common stock reserved for issuance under the Plan from 6,000,000 to 8,000,000. On August 25,
2016, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the
Company’s common stock reserved for issuance under the 2010 Stock Plan from 8,000,000 to 14,000,000. On September 7,
2017, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the
Company’s common stock reserved for issuance under the 2010 Stock Plan from 8,000,000 to 17,500,000. The exercise price
of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors and may be
equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options
become exercisable over various periods from the date of grant and expire between five and ten years after the grant date. As
of June 30, 2018, there were 11,456,257 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. 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 since inception. The fair value of each option 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,
2018. The assumptions used for the six months ended June 30, 2017 are as follows:
Exercise price
|
|
|
$0.83-$0.87
|
Expected dividends
|
|
|
0%
|
Expected volatility
|
|
|
90%-92%
|
Risk free interest rate
|
|
|
1.67%-1.75%
|
Expected life of option
|
|
|
4.2-4.3 years
|
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;
|
|
·
|
half vesting immediately and remaining over three years;
|
|
·
|
in full on one-year anniversary date of grant date;
|
|
·
|
quarterly over three years;
|
|
·
|
annually over three years;
|
|
·
|
one-third immediate vesting and remaining annually over two years;
|
|
·
|
one half immediate vesting and remaining over nine months;
|
|
·
|
one quarter immediate vesting and remaining over three years;
|
|
·
|
one quarter immediate vesting and remaining over 33 months; and
|
|
·
|
monthly over three years.
|
During the six months ended June 30, 2018,
the Company did not grant options to employees. During the same period in 2017, the Company granted 543,927 options to employees
having an approximate fair value of $308,000 based upon the Black-Scholes option pricing model.
A summary of stock option activities for the
six months ended June 30, 2018 is as follows:
|
|
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2017
|
|
|
12,564,098
|
|
|
$
|
1.55
|
|
|
4.60 years
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
-
|
|
Expired
|
|
|
(284,119
|
)
|
|
|
1.52
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(111,464
|
)
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2018 - outstanding
|
|
|
12,168,515
|
|
|
$
|
1.55
|
|
|
4.15 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2018 - exercisable
|
|
|
8,589,284
|
|
|
$
|
1.89
|
|
|
3.35 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - June 30, 2018
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - June 30, 2018
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - December 31, 2017
|
|
|
|
|
|
$
|
1,164,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - December 31, 2017
|
|
|
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
Stock-based compensation expense included in
operating expenses related to stock options issued to employees and consultants for the three months ended June 30, 2018 and 2017
was $557,000 and $870,000 respectively, and $1.2 million and $2.0 million for the six month ended June 30, 2018 and 2017, respectively.
As of June 30, 2018, total unrecognized stock-based
compensation expense related to stock options was $1.6 million, which is expected to be expensed through November 2019.
6. Stock Purchase Warrants
On November 18, 2016, the Company completed
a public offering of 25 million shares of common stock with accompanying warrants to purchase an aggregate of 50 million shares
of 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 $1.00. 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 $1.43 and the per share exercise
price of the Series B warrants was $1.72, each subject to adjustment as specified in the warrant agreements. The Series A
and Series B warrants may be exercised at any time on or after the date of issuance. The Series A warrants are exercisable until
the four year anniversary of the issuance date. The Series B warrants expired on December 31, 2017 and none were exercised prior
to expiration. The warrants include a provision that if the Company were to enter into a certain transaction, as defined in the
agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company recorded the warrants as a liability
at their estimated fair value on the issuance date, which was $15.7 million, and changes in estimated fair value will be recorded
as non-cash income or expense in the Company’s condensed consolidated statements of operations at each subsequent period.
At June 30, 2018, the fair value of the warrant liability was $624,000, which resulted in non-cash income of $714,000 and $3.0
million for the three and six months ended June 30, 2018, respectively. At June 30, 2017, the fair value of the warrant liability
was $6.6 million, which resulted in non-cash income of $2.0 million and $6.1 million for the three and six months ended June 30,
2017, respectively. In accordance with U.S. GAAP, the warrants were valued on the date of grant using a Monte Carlo simulation.
The assumptions used by the Company are summarized
in the following table:
|
|
Series A
|
|
|
|
June 30, 2018
|
|
|
December 31,
2017
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.24
|
|
|
$
|
0.51
|
|
|
$
|
0.89
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
85
|
%
|
Risk free interest rate
|
|
|
2.56
|
%
|
|
|
1.97
|
%
|
|
|
1.58
|
%
|
Expected life of warrant (years)
|
|
|
2.
4
|
|
|
|
2.9
|
|
|
|
4.0
|
|
On October 10, 2014, the Company raised net
proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors
in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase
0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price
of $1.75 per share and a life of five years. The warrants vested immediately and expire on October 10, 2019.
The warrants issued in conjunction with the
registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction, as
defined in the agreement, the warrants would be purchased from the holder at a premium. Accordingly, the Company recorded the warrants
as a liability at their estimated fair value on the issuance date, which was $7.4 million, and changes in estimated fair value
are being recorded as non-cash income or expense in the Company’s condensed consolidated statement of operations at each
subsequent period. At June 30, 2018, the fair value of the warrant liability was $21,000, which resulted in non-cash income of
$69,000 and $395,000 for the three and six months ended June 30, 2018, respectively. At June 30, 2017, the fair value of the warrant
liability was $1.0 million, which resulted in non-cash income of $0.2 million and $1.1 million for the three and six months ended
June 30, 2017, respectively. In accordance with U.S. GAAP, the warrants were valued on the date of grant using the Black-Scholes
valuation model which approximates the value derived using a Monte Carlo simulation.
The assumptions used by the Company are summarized
in the following table:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.24
|
|
|
$
|
0.51
|
|
|
$
|
1.75
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
95
|
%
|
Risk free interest rate
|
|
|
2.39
|
%
|
|
|
1.86
|
%
|
|
|
1.39
|
%
|
Expected life of warrant (years)
|
|
|
1.30
|
|
|
|
1.79
|
|
|
|
5.00
|
|
The following
table summarizes the estimated fair value of the warrant liability
(in thousands)
:
Balance at December 31, 2017
|
|
$
|
4,083
|
|
Change in fair value of warrant liability
|
|
|
(3,438
|
)
|
Balance at June 30, 2018
|
|
$
|
645
|
|
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 25,000 shares of the
Company’s common stock on the date of issue. The fair value of the warrant approximated $9,000 and was measured using the Black-Scholes
option pricing model. This entire expense was recorded in the quarter ended March 31, 2018. The assumptions used by the Company
are summarized in the following table:
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.53
|
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
85
|
%
|
Risk free interest rate
|
|
|
2.42
|
%
|
Expected life of warrant (years)
|
|
|
4.92
|
|
A summary of warrant activity for the Company
for the six months ended June 30, 2018 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
32,029,809
|
|
|
$
|
1.50
|
|
Granted
|
|
|
25,000
|
|
|
|
0.52
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at June 30, 2018
|
|
|
32,054,809
|
|
|
$
|
1.50
|
|
A summary of all outstanding and exercisable
warrants as of June 30, 2018 is as follows:
Exercise Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life (years)
|
|
$
|
0.52
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
4.49
|
|
$
|
1.43
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
2.39
|
|
$
|
1.75
|
|
|
|
7,029,809
|
|
|
|
7,029,809
|
|
|
|
1.28
|
|
$
|
1.60
|
|
|
|
32,054,809
|
|
|
|
32,054,809
|
|
|
|
2.15
|
|
7. Net Loss per Share
Basic net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding. Included in net loss is the deemed dividend from preferred
shares issuance of $61,000 and $120,000 for the three and six months ended June 30, 2018, respectively. The deemed dividend relates
to the discount provided to preferred stockholders upon conversion of their preferred stock to common shares and is subtracted
from net loss (see Note 9). Diluted net loss per share is computed by dividing net loss by the weighted average number of common
shares outstanding including the effect of common share equivalents. Diluted net loss per share assumes the issuance of potentially
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. The number of options and warrants for the
purchase of common stock that were excluded from the computations of net loss per common share for the three and six months ended
June 30, 2018 were 12,168,515 and 32,054,809, respectively, and for the three and six months and ended June 30, 2017 were 11,398,111
and 57,341,642, respectively.
The following tables set forth the computation
of diluted net loss per weighted average number of shares outstanding attributable to Synthetic Biologics, Inc. and Subsidiaries
for the three and six months ended June 30, 2018 and 2017
(in thousands except share and per share amounts)
:
|
|
Three months ended June 30, 2018
|
|
|
Six months ended June 30, 2018
|
|
|
|
Net loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Net Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
Net loss - Basic
|
|
$
|
(4,214
|
)
|
|
|
128,918,408
|
|
|
$
|
(0.03
|
)
|
|
$
|
(6,540
|
)
|
|
|
128,743,616
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares related to warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - Dilutive
|
|
$
|
(4,214
|
)
|
|
|
128,918,408
|
|
|
$
|
(0.03
|
)
|
|
$
|
(6,540
|
)
|
|
|
128,743,616
|
|
|
$
|
(0.05
|
)
|
|
|
Three months ended June 30, 2017
|
|
|
Six months ended June 30, 2017
|
|
|
|
Net loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Net Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
Net loss - Basic
|
|
$
|
(4,255
|
)
|
|
|
123,005,220
|
|
|
$
|
(0.03
|
)
|
|
$
|
(7,101
|
)
|
|
|
120,241,593
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares related to warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - Dilutive
|
|
$
|
(4,255
|
)
|
|
|
123,005,220
|
|
|
$
|
(0.03
|
)
|
|
$
|
(7,101
|
)
|
|
|
120,241,593
|
|
|
$
|
(0.06
|
)
|
8. Non-controlling Interest
The Company’s non-controlling interest
is accounted for under ASC 810,
Consolidation
, and represents the minority shareholder’s ownership interest related
to the Company’s subsidiary, Synthetic Biomics, Inc. (“SYN Biomics”). In accordance with ASC 810, the Company
reports its non-controlling interest in subsidiaries as a separate component of equity in the condensed consolidated balance sheets
and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company and its subsidiaries
on the face of the condensed consolidated statements of operations. The Company’s equity interest in SYN Biomics is 88.5%
and the non-controlling stockholder’s interest is 11.5%. For the three and six months ended June 30, 2018, the accumulated
net loss attributable to the non-controlling interest was $17,000 and $26,000, respectively.
9. Common and Preferred Stock
Series A Preferred Stock
On September 11, 2017, the Company entered
into a share purchase agreement (the “Purchase Agreement”) with an investor (the “Investor”), pursuant
to which the Company offered and sold in a private placement 120,000 shares of its Series A Convertible Preferred Stock, par value
$0.001 per share (the “Series A Preferred Stock”) for an aggregate purchase price of $12 million, or $100 per share.
The Series A Preferred Stock ranks senior to
the shares of the Company’s common stock, and any other class or series of stock issued by the Company with respect to dividend
rights, redemption rights and rights on the distribution of assets upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company. 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.
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, subject to certain customary anti-dilution adjustments.
On or at any time after (i) the VWAP (as defined
in the Certificate of Designation) for at least 20 trading days in any 30 trading day period is greater than $2.00, subject to
adjustment in the case of stock split, stock dividends or the like the Company has the right, after providing notice not less than
6 months prior to the redemption date, to redeem, in whole or in part, on a pro rata basis from all holders thereof based on the
number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption price
per share of Series A Preferred Stock of $225.00, subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to the Series A Convertible Preferred Stock, or (ii) the five
year anniversary of the issue date, the Company has the right to redeem, in whole or in part, on a pro rata basis from all holders
thereof based on the number of shares of Series A Convertible Preferred Stock then held, the outstanding Series A Preferred Stock,
for cash, at a redemption price per share equal to the Liquidation Value (as defined in the Certificate of Designations).
The Series A Preferred Stock is classified
as temporary equity due to the shares being (i) redeemable based on contingent events outside of the Company’s control, and
(ii) convertible immediately and from time to time. Since the effective conversion price of the Series A Preferred Stock is less
than the fair value of the underlying common stock at the date of issuance, there is a beneficial conversion feature (“BCF”)
at the issuance date. Because the Series A Preferred Stock has no stated maturity or redemption date and is immediately convertible
at the option of the holder, the discount created by the BCF is immediately charged to retained earnings as a “deemed dividend”
and impacts earnings per share. During the year ended December 31, 2017, the Company recorded a discount of $6.9 million. Because
the Series A Preferred Stock is not currently redeemable, the discount arising from issuance costs was allocated to temporary equity
and will not be accreted until such time that redemption becomes probable. The stated dividend rate of 2% per annum is cumulative
and the Company accrues the dividend on a quarterly basis (in effect accreting the dividend regardless of declaration because the
dividend is cumulative). During the year ended December 31, 2017 and the quarters ended March 31, 2018 and June 30, 2018, the Company
accrued dividends of $73,000, $59,000 and $61,000, respectively. Once the dividend is declared, the Company will reclassify the
declared amount from temporary equity to a dividends payable liability. When the redemption of the Series A Preferred Stock becomes
probable, the temporary equity will be accreted to redemption value as a deemed dividend.
B. Riley FBR Sales Agreement
On August 5, 2016, the Company entered
into the B. Riley FBR Sales Agreement with FBR Capital Markets & Co. (now known as B. Riley FBR, Inc.), which enables the
Company to offer and sell shares of the Company’s common stock with an aggregate sales price of up to $40.0 million from
time to time through B. Riley FBR Capital Markets & Co. as the Company’s sales agent. Sales of common stock under the
B. Riley FBR Sales Agreement are made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415
promulgated under the Securities Act, as amended. B. Riley FBR Capital Markets & Co. is entitled to receive a commission rate
of up to 3.0% of gross sales in connection with the sale of the Company’s common stock sold on the Company’s behalf.
For the three and six months ending June 30, 2018, the Company sold through the B. Riley FBR Sales Agreement an aggregate of 0
and 1.7 million shares of the Company’s common stock, and received net proceeds of approximately $400,000. For the three
and six months ending June 30, 2017, the Company sold through the B. Riley FBR Sales Agreement an aggregate of 9.8 million and
10.1 million shares of the Company’s common stock, and received net proceeds of approximately $5.6 million and $5.9 million,
respectively. Subsequent to June 30, 2018, the Company has sold approximately 2.7 million shares of the Company’s common
stock, and received net proceeds of approximately $605,000.
10. Related Party Transactions
In December 2013, through the Company’s
subsidiary, Synthetic Biomics, Inc., the Company entered into a worldwide exclusive license agreement with Cedars-Sinai Medical
Center (“CSMC”) and acquired the rights to develop products for therapeutic and prophylactic treatments of acute and
chronic diseases, including the development of SYN-010 to target IBS-C. The Company licensed from CSMC a portfolio of intellectual
property comprised of several U.S. and foreign patents and pending patent applications for various fields of use, including IBS-C,
obesity and diabetes. An investigational team led by Mark Pimentel, M.D. at CSMC discovered that these products may reduce the
production of methane gas by certain GI microorganisms. During the six months ended June 30, 2018 and 2017, the Company did not
pay Cedars-Sinai Medical Center for milestone payments related this license agreement.
11. Subsequent Events
On July 31, 2018, the Board of Directors approved a 1-for-35 reverse stock split of the Company’s
issued and outstanding shares of common stock. No other subsequent events occurred through August 8, 2018.