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.
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 diversified clinical-stage company leveraging the microbiome to develop therapeutics
designed to prevent and treat gastrointestinal (GI) diseases in areas of high unmet need. The Company’s lead 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-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). The Company
is also advancing SYN-020, an oral formulation of the enzyme intestinal alkaline phosphatase (IAP) 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 2019 Form 10-K. The interim results for the three months ended March 31, 2020
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
On March 27, 2020, the Coronavirus Aid, Relief and Economic
Security Act (CARES Act) was enacted. The Cares Act is an emergency economic stimulus package that includes spending and tax breaks
to strengthen the United States’ economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES
Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions include removal
of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five
years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted
Tax Cuts and Jobs Act. The Company has assessed the impact of the CARES Act and based upon our initial assessment, we do not believe
that it will have a significant effect on our financial position, results of operations or cash flows. The Company continues to
evaluate its impact as new information becomes available.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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 recorded 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 fair value and the carrying
value of the asset. 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 months ended March 31, 2020.
2. Going Concern
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern. The Company continues to incur losses and,
as of March 31, 2020, the Company had an accumulated deficit of approximately $239.0 million. Since inception, the Company has
financed its activities principally from the 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 and 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 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 operations beyond the twelve months following the issuance date of its current form 10-Q. In order to address its capital
needs, including its planned 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.
In January 2020, the World Health Organization
declared a global pandemic for the novel strain of coronavirus, COVID-19. Since then, the COVID-19 coronavirus has spread to multiple
countries, including throughout the United States. As the COVID-19 coronavirus continues to spread around the globe, the Company
has experienced disruptions that impact our business and clinical trials, including temporarily halting the enrollment of new patients
in its SYN-010 Phase 2b clinical study and the postponement of clinical site initiation for its SYN-004 Phase 1b/2a clinical study.
While the Company is experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption
of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business,
financial condition, results of operations and growth prospects could be materially adversely affected.
At March 31, 2020, the Company had cash
and cash equivalents of approximately $10.1 million. As a result of the global COVID-19 pandemic, management has the ability to
further extend its cash runway since its clinical development partners (Cedars-Sinai Medical Center (CSMC) and Washington University)
have reduced their operating capacity to include only essential activities, which excludes all planned and ongoing clinical trials
for the time being. The Company anticipates its current cash will allow it to cover overhead costs, manufacturing costs for clinical
supply, commercial scale up costs and limited research efforts, including completing its funding requirements for its ongoing Phase
2b investigator-sponsored clinical study of SYN-010, as well as preclinical activities in support of an IND filing for its SYN-020
program. Due to the unique challenges posed by the global COVID-19 pandemic, Washington University, has determined that postponing
the commencement of the planned Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients until the first
quarter of 2021 is the appropriate response to the novel coronavirus pandemic. The Company does not anticipate any additional expense
related to the Phase 1b/2a SYN-004 (ribaxamase) clinical trial until the trial is cleared for commencement by Washington University.
Commencement of planned future Phase 3 clinical trials of SYN-004 and SYN-010 are 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 complete its plan. The Company will be required to obtain additional funding in order to continue the development
of its current product candidates beyond its Phase 2b investigator-sponsored clinical study of SYN-010 and its planned Phase 1b/2a
clinical study of SYN-004 in allogeneic HCT recipient within the anticipated time periods, 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. If the Company fails to obtain additional funding for its clinical trials, whether through the sale of securities or a
partner or collaborator, and otherwise when needed, it will not be able to fully execute its business plan as planned and will
be forced to cease certain development activities 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. Potential sources of financing include strategic
relationships, public or private sales of equity (including through the “at-the-market” Issuance Sales Agreement (the
“FBR Sales Agreement”) that the Company entered into with FBR Capital Markets & Co. in August 2016) or debt and
other sources. The Company cannot assure that it will meet the requirements for use of the 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, commercial scale up costs and limited research efforts.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Going Concern – (continued)
The actual amount of funds the Company
will need to operate is subject to many factors, some of which are beyond its control. These factors include the following:
|
·
|
the progress of its research activities;
|
|
·
|
the number and scope of its research
programs;
|
|
|
|
|
·
|
the ability to recruit patients for clinical studies in a timely manner;
|
|
·
|
the progress of its 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;
|
|
·
|
its ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
|
|
·
|
its ability to achieve our milestones under licensing arrangements;
|
|
·
|
the costs associated with manufacturing-related services to produce material for use in our clinical trials;
|
|
·
|
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;
|
|
·
|
the costs and timing of regulatory approvals; and
|
|
·
|
the ability to commence
or complete clinical trials due to the ongoing impact of the COVID-19 global pandemic.
|
The Company has based its estimates of
funding requirements 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
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.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 $114,000 as of March 31, 2020 and $98,000 as of December 31, 2019 that are measured using Level 1 inputs.
The Company uses Monte Carlo simulations
to estimate the fair value of its 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)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Prepaid clinical research organizations
|
|
$
|
477
|
|
|
$
|
48
|
|
Prepaid insurances
|
|
|
378
|
|
|
|
549
|
|
Prepaid consulting, subscriptions and other expenses
|
|
|
135
|
|
|
|
134
|
|
Prepaid manufacturing expenses
|
|
|
94
|
|
|
|
622
|
|
Prepaid conferences, travel
|
|
|
-
|
|
|
|
25
|
|
Other receivables
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,084
|
|
|
$
|
1,381
|
|
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)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Computers and office equipment
|
|
$
|
804
|
|
|
$
|
804
|
|
Leasehold improvements
|
|
|
439
|
|
|
|
439
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
|
|
|
1,254
|
|
|
|
1,254
|
|
Less: accumulated depreciation and amortization
|
|
|
(945
|
)
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
309
|
|
|
$
|
367
|
|
Accrued expenses (in thousands)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accrued clinical consulting services
|
|
$
|
672
|
|
|
$
|
684
|
|
Accrued vendor payments
|
|
|
285
|
|
|
|
456
|
|
Accrued manufacturing costs
|
|
|
105
|
|
|
|
635
|
|
Other accrued expenses
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,062
|
|
|
$
|
1,776
|
|
Accrued employee benefits (in thousands)
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Accrued bonus expense
|
|
$
|
203
|
|
|
$
|
858
|
|
Accrued vacation expense
|
|
|
106
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
309
|
|
|
$
|
935
|
|
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 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 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 7,143. Options become exercisable
over various periods from the date of grant, and generally expire ten years after the grant date. As of March 31, 2020, there were
7,052 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. On October 22, 2013, the stockholders approved and adopted an amendment to
the Company’s 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance
under the Plan from 85,714 to 171,429. On May 15, 2015, the stockholders approved and adopted an amendment to the Company’s
2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the Plan from
171,429 to 228,572. 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 228,572 to 400,000. 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 400,000 to 500,000. On September 24, 2018,
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 500,000 to 1,000,000. On September 5, 2019, the stockholders
approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Common Stock reserved for issuance
under the 2010 Stock Plan from 1,000,000 to 4,000,000. The exercise price of stock options under the 2010 Stock Plan is determined
by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s
common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and expire
between five and ten years after the grant date. As of March 31, 2020, there were 2,494,960 options issued and outstanding under
the 2010 Stock Plan.
In the event of an employee’s termination,
the Company will cease to recognize compensation expense for that employee. Stock forfeitures are recognized as incurred. There
is no deferred compensation recorded upon initial grant date. Instead, the fair value of the stock-based payment is recognized
as compensation expense 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 months ended March 31, 2020 and 2019. The assumptions used
for the awards during the year ended December 31, 2019 were as follows:
Exercise price
|
|
$
|
0.42
|
|
Expected dividends
|
|
|
0
|
%
|
Expected volatility
|
|
|
84
|
%
|
Risk free interest rate
|
|
|
1.61
|
%
|
Expected life of option
|
|
|
4.5 years
|
|
Expected dividends
—The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.
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.
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.
Expected life of
the option—The period of time that the options granted are expected to remain unexercised. Options granted during 2019
have a maximum term of seven years. The Company estimates the expected life of the option based on the weighted average life between
the dates that options become fully vested and the maximum life of options granted.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Stock-Based Compensation – (continued)
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:
|
·
|
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.
|
A summary of stock option activity
for the three months ended March 31, 2020 and the year ended December 31, 2019 is as follows:
|
|
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018
|
|
|
938,932
|
|
|
$
|
15.18
|
|
|
|
6.19 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,725,000
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(94,738
|
)
|
|
|
58.25
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,232
|
)
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2019
|
|
|
2,502,012
|
|
|
$
|
3.62
|
|
|
|
6.51 years
|
|
|
$
|
153,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2020 - outstanding
|
|
|
2,502,012
|
|
|
$
|
3.62
|
|
|
|
6.26 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2020 - exercisable
|
|
|
493,696
|
|
|
$
|
16.17
|
|
|
|
5.29 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted – three months
ended March 31, 2020
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value – three months ended March 31, 2020
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted – year ended
December 31, 2019
|
|
|
|
|
|
$
|
470,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value – year ended December 31, 2019
|
|
|
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included
in general and administrative expenses and research and development expenses relating to stock options issued to employees for
the three months ended March 31, 2020 and 2019 was $55,000 and $54,000, respectively. Stock-based compensation expense included
in general and administrative expenses and research and development expenses relating to stock options issued to consultants for
the three months ended March 31, 2020 and 2019 were $28,000 and $10,000, respectively.
As of March 31, 2020, total unrecognized
stock-based compensation expense related to stock options was $577,000, which is expected to be expensed through July 2022.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Stock-Based Compensation – (continued)
The FASB’s guidance for stock-based
payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess
tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable
to stock compensation costs for such options. The Company did not record any excess tax benefits during the three months ended
March 31, 2020 and 2019.
6. 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 exercise price of $1.38 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.
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.
The Warrants are immediately exercisable
at a price of $1.38 per share of Common Stock (which is 120% of the public offering price of the Class A Units) and 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 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.
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 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 of $15.7 million and changes in estimated fair value are being
recorded as non-cash income or expense in the Company’s Condensed Consolidated Statements of Operations at each subsequent
period. At March 31, 2020 and March 31, 2019, the fair value of the warrant liability was $100. The warrants were valued on the
date of grant. In 2020 and 2019, the Monte Carlo simulations were not used as the value of the warrants were deemed to be minimal
based on the historical fair value of the warrants and the Company’s current stock price.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Stock Warrants – (continued)
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
0.50 shares of common stock. The warrants, exercisable for an aggregate of 200,852 shares of common stock, have an exercise price
of $61.25 per share and a life of five years. The warrants vested immediately and expired on October 10, 2019.
The warrants issued in conjunction with
the registered direct offering in October 2014 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 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 Consolidated Statements of Operations at each subsequent
period. At March 31, 2020 and 2019, the fair value of the warrant liability was zero. The warrants were valued on the date of grant
using the Black-Scholes valuation model which approximates the value derived using Monte Carlo simulations. In 2020 and 2019, the
Monte Carlo simulations were not used as the value of the warrants were deemed to be minimal based on the historical fair value
of the warrants and the Company’s current stock price.
A summary of all warrant activity for
the Company for the quarter ended March 31, 2020 and the year ended December 31, 2019 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
18,915,851
|
|
|
$
|
3.85
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(200,852
|
)
|
|
|
61.25
|
|
Balance at December 31, 2019
|
|
|
18,714,999
|
|
|
|
3.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
18,714,999
|
|
|
$
|
3.24
|
|
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Stock Warrants – (continued)
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, was 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 issuance. The warrant is equity classified and the fair value of the warrant approximated
$9,000 on the date of grant and was measured using the Black-Scholes option pricing model. This entire expense was recorded in
the quarter ended March 31, 2018.
A summary of all outstanding and exercisable
warrants as of March 31, 2020 is as follows:
Exercise Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
$
|
1.38
|
|
|
|
17,999,999
|
|
|
|
17,999,999
|
|
|
|
3.53 years
|
|
|
18.20
|
|
|
|
714
|
|
|
|
714
|
|
|
|
2.74 years
|
|
|
50.05
|
|
|
|
714,286
|
|
|
|
714,286
|
|
|
|
0.64 years
|
|
$
|
3.24
|
|
|
|
18,714,999
|
|
|
|
18,714,999
|
|
|
|
3.42 years
|
|
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. 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 potential dilutive common shares outstanding for the period and adjusts for any changes
in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive.
Net loss attributable to common stockholders for the three months ended March 31, 2020 excludes net loss attributable to non-controlling
interest of $0.1 million and includes the accretion of Series B preferred discount of $0.4 million on converted shares and Series
A preferred stock accrued dividends of $0.1 million. Net loss attributable to common stockholders for the three months ended March
31, 2019 excludes net loss attributable to non-controlling interest of $0.1 million and includes the accretion of Series B preferred
discount of $0.4 million on converted shares and $0.1 million of Series A accrued dividends. The number of shares of common stock
underlying Series B Preferred shares convertible to common stock that were excluded from the computations of net loss per common
share for the three months ended March 31, 2020 and 2019 were 5,708,696 and 7,065,217, respectively. The number of options and
warrants for the purchase of common stock that were excluded from the computations of net loss per common share and for the three
months ended March 31, 2020 were 2,502,012 and 18,714,999, respectively and for the three months ended March 31, 2019 were 893,367
and 18,915,851, respectively, because their effect is anti-dilutive.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Non-controlling Interest
The Company’s non-controlling interest
is accounted for under ASC 810, Consolidation (“ASC 810”), and represents the minority shareholder’s ownership
interest related to the Company’s subsidiary, Synthetic Biomics, Inc. (“SYN Biomics”). In accordance with ASC
810, the Company reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance
Sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s
common stockholders on the face of the Consolidated Statements of Operations. On September 5, 2018, the Company entered into an
agreement with CSMC for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company and CSMC (the
“Study”). The Study will provide further evaluation of the efficacy and safety of SYN-010, the Company’s modified-release
reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC. SYN-010 is designed to reduce methane
production by certain microorganisms (M. smithii) in the gut to treat an underlying cause of irritable bowel syndrome with
constipation (IBS-C). After the 2018 transaction with CSMC, the Company’s equity interest in SYN Biomics is 83% and the non-controlling
stockholder’s interest is 17%. As of March 31, 2020 and 2019, the accumulated net loss attributable to the non-controlling
interest is $2.9 million.
In consideration of the support provided
by CSMC for the Study, the Company will pay $441,000 to support the Study and the Company entered into a Stock Purchase Agreement
with CSMC pursuant to which the Company, upon the approval of the Study protocol by the Institutional Review Board (IRB) : (i)
issued to CSMC fifty thousand (50,000) shares of common stock of the Company; and (ii) transferred to CSMC an additional two million
four hundred twenty thousand (2,420,000) shares of common stock of its subsidiary SYN Biomics, Inc. (“Synbiomics”)
owned by the Company, such that after such issuance CSMC owns an aggregate of seven million four hundred eighty thousand (7,480,000)
shares of common stock of SYN Biomics, representing seventeen percent (17%) of the issued and outstanding shares of SYN Biomics’
common stock. The services rendered are recorded to research and development expense in proportion with the progress of the
study and based overall on the fair value of the shares ($285,000) as determined at the date of IRB approval. During the three
months ended March 31, 2020 and 2019, research and development expense recorded related to this transaction approximated
$67,000 and $16,000, respectively.
The 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 the Company’s common stock, with the rate of exchange based upon the relative contribution
of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange. 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.
9. Common and Preferred Stock
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 an aggregate of (i) 2,520,000 Class A Units
, with each Class A Unit offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B 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 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 October 2018 Warrants. 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.
In addition, pursuant to the Underwriting
Agreement that the Company entered into with the Underwriters on October 10, 2018, the Company granted the Underwriters a 45 day
option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional
warrants to purchase an additional 2,428,825 shares of Common Stock. Each Warrant is exercisable for one share 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.
The Units were offered by the Company pursuant
to a registration statement on Form S-1 (File No. 333-227400), as amended, filed with the SEC, which was declared effective
by the SEC on October 10, 2018.
The conversion price of the Series B
Preferred Stock and exercise price of the October 2018 Warrants are 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.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Common and Preferred Stock – (continued)
During the three months ended March 31,
2020 and 2019, 1,073 and 1,036, respectively, Series B shares have been converted into common stock resulting in the recognition
of $339,000 and $398,000, respectively, of unamortized discount from the conversion. As of March 31, 2020, 9,158 shares have been
converted resulting in the recognition of $3.4 million of unamortized discount. This is recorded as a deemed dividend in accumulated
deficit.
The October 2018 Warrants are immediately
exercisable at a price of $1.38 per share of common stock (which is 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 Company may not effect, and the holder
will not be entitled to, exercise any Warrants or conversion of the Series B Preferred Stock, which, upon giving effect to such
exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the holder (together with its affiliates)
to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately after
giving effect to the exercise, or (ii) the combined voting power of the Company’s securities beneficially owned by the holder
(together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the combined voting power of all of
the Company’s securities then outstanding immediately after giving effect to the exercise or conversion, as such percentage
ownership is determined in accordance with the terms of the October 2018 Warrants or Series B Preferred Stock. However, any holder
may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice
from the holder to the Company. The holders of the Series B Preferred will participate, on an as-if-converted-to-common stock basis,
in any dividends to the holders of common stock. Upon a defined Fundamental Transaction, the holders of the Series B Preferred
Stock are entitled to the same consideration as are holders of Common Stock. The Series B Preferred Stock ranks junior to existing
Series A Preferred Stock but on parity with common stock. Liquidation preference is equal to an amount pari passu with the common
stock on an as converted basis (i.e., there is no preference to common stock).
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 year ended December 31, 2018, the Company
recorded a discount of $9.1 million and immediately amortized the discount to record the deemed dividend.
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 $18.90 per share, subject to certain customary anti-dilution adjustments.
Any conversion of Series A Preferred Stock
may be settled by the Company in shares of common stock only.
On or at any time after (i) the VWAP (as
defined in the Certificate of Designation) for at least 20 trading days in any 30 trading day period is greater than $70.00, subject
to adjustment in the case of stock split, stock dividends or the like the Company has the right, after providing notice not less
than 6 months prior to the redemption date, to redeem, in whole or in part, on a pro rata basis from all holders thereof based
on the number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred Stock, for cash, at a redemption
price per share of Series A Preferred Stock of $7,875, 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 issuance 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).
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Common and Preferred Stock – (continued)
The Series A Preferred Stock is classified
as temporary equity due to the shares being redeemable based on contingent events outside of the Company’s control. Since
the effective conversion price of the Series A Preferred Stock is less than the fair value of the underlying common stock at the
date of issuance, there is a beneficial conversion feature (“BCF”) at the issuance date. Because the Series A Preferred
Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created
by the BCF is immediately charged to accumulated deficit as a “deemed dividend” and impacts earnings per share. 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 quarters ended March 31, 2020 and March 31, 2019, the Company accrued dividends of $62,000 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, Inc. 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. B. Riley FBR, Inc. 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 year ended December 31, 2018, the Company sold through
the B. Riley FBR Sales Agreement an aggregate of 3.5 million shares of the Company’s common stock, and received net proceeds
of approximately $12.2 million. For the year ended December 31, 2017, the Company sold through the B. Riley FBR Sales Agreement
an aggregate of 0.3 million shares of the Company’s common stock, and received net proceeds of approximately $6.4 million.
The Company has not sold any shares during 2020 and 2019 through the B. Riley FBR Sales Agreement.
10. Related Party Transactions
On September 5, 2018, the Company entered
into an agreement with CSMC for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company and
CSMC (the “Study”). The Study will provide further evaluation of the efficacy and safety of SYN-010, the Company’s
modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC. SYN-010 is designed
to reduce methane production by certain microorganisms (M. smithii) in the gut to treat an underlying cause of irritable
bowel syndrome with constipation (IBS-C).
In consideration of the support provided
by CSMC for the Study, the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company has agreed,
upon the approval of the Study protocol by the Institutional Review Board (IRB) to: (i) issue to CSMC fifty thousand (50,000) shares
of common stock of the Company; and (ii) transfer to CSMC an additional two million four hundred twenty thousand (2,420,000) shares
of common stock of its subsidiary Synthetic Biomics, Inc. (“SYN Biomics”) owned by the Company, such that after such
issuance CSMC will own an aggregate of seven million four hundred eighty thousand (7,480,000) shares of common stock of SYN Biomics,
representing seventeen percent (17%) of the issued and outstanding shares of SYN Biomics’ common stock.
The 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 the Company’s common stock, with the rate of exchange based upon the relative contribution
of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange. 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.
In December 2013, through the Company’s subsidiary, Synthetic
Biomics, Inc., the Company entered into a worldwide exclusive license agreement with 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
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Related Party Transactions – (continued)
the production of methane gas by certain GI microorganisms.
During the three months ended March 31, 2020 and 2019, the Company did not owe and did not pay CSMC for milestone payments related
this license agreement.
11. Commitments and Contingencies
Leases
All of the Company’s existing leases
as of March 31, 2020 are classified as operating leases. As of March 31, 2020, the Company has one material operating lease for
facilities with a remaining term expiring in 2022. The existing lease has fair value renewal options, none of which are considered
certain of being exercised or included in the minimum lease term. The discount rate used in the calculation of the lease liability
was 9.9%. The rates implicit within the Company's leases are generally not determinable, therefore, the Company's incremental borrowing
rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate
requires judgment. Because the Company currently has no outstanding debt, the incremental borrowing rate for each lease is primarily
based on publicly-available information for companies within the same industry and with similar credit profiles. The rate is then
adjusted for the impact of collateralization, the lease term and other specific terms included in the Company’s lease arrangements.
The incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating leases in existence
upon adoption of ASC 842. The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement.
ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.
Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statement of operations,
and for the three months ended March 31, 2020 and 2019 approximated $50,000. During the same periods, operating cash flows used
for operating leases approximated $77,000 and $75,000, respectively, and right of use assets exchanged for operating lease obligations
was $0. The day one non-cash addition of right of use assets due to adoption of ASC 842 was $538,000.
A maturity analysis of our operating leases
as of March 31, 2020 is as follows (amounts in thousands of dollars):
Future undiscounted cash flow for the years ending December 31:
|
|
|
|
|
2020
|
|
$
|
233
|
|
2021
|
|
|
321
|
|
2022
|
|
|
192
|
|
Total
|
|
$
|
746
|
|
|
|
|
|
|
Discount factor
|
|
$
|
(83
|
)
|
Lease liability
|
|
$
|
663
|
|
Amount due within 12 months
|
|
$
|
(258
|
)
|
Lease liability – long term
|
|
$
|
405
|
|
Risks and Uncertainties
On January 30, 2020, the World Health Organization
(WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the COVID-19 outbreak)
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.
As the COVID-19 coronavirus continues to
spread around the globe, the Company experienced disruptions that impact its business and clinical trials, including halting the
enrollment of new patients in the ongoing Phase 2b investigator-sponsored clinical trial of SYN-010 and 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-010, 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,
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 our 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.
12. Subsequent Events
Management has evaluated the Company’s March 31, 2020
consolidated financial statements for subsequent events through May 5, 2020, the date the Company’s consolidated financial
statements were available to be issued. Management is not aware of any subsequent events that would require recognition or disclosure
in the Company’s consolidated financial statements.