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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from   ____________ to  ____________

Commission File Number: 001-12584

THERIVA BIOLOGICS, INC.

(Exact name of Registrant as Specified in Its Charter)

Nevada

13-3808303

(State or Other Jurisdiction of Incorporation or Organization)

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

9605 Medical Center Drive, Suite 270

Rockville, MD

20850

(Address of Principal Executive Offices)

(Zip Code)

(301) 417-4364

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

TOVX

NYSE American

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company

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

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

Yes        No

As of November 9, 2022, the registrant had 15,844,061 shares of common stock, $0.001 par value per share, outstanding.

THERIVA BIOLOGICS, INC.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “Theriva Biologics,” the “Company,” “we,” “us” and “our” refer to Theriva Biologics, Inc. and our subsidiary VCN Biosciences S.L. (“VCN”).

NOTE REGARDING TRADEMARKS

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

THERIVA BIOLOGICS, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations and Comprehensive loss for the Three and Nine Months ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months ended September 30, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

PART II. OTHER INFORMATION

49

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

52

 

SIGNATURES

53

2

PART I–FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Theriva Biologics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands except share and par value amounts)

    

September 30, 2022

    

December 31, 2021

Assets

 

  

 

  

Current Assets

 

  

 

  

Cash and cash equivalents

$

50,490

$

67,325

Prepaid expenses and other current assets

 

2,241

 

1,533

Total Current Assets

 

52,731

 

68,858

Non-Current Assets

Property and equipment, net

 

262

 

101

Restricted cash

90

Right of use asset

1,246

1,383

In-process research and development

 

20,089

 

Goodwill

4,254

Deposits and other assets

 

23

 

23

Total Assets

$

78,695

$

70,365

Liabilities and Stockholders‘ Equity

 

 

  

Current Liabilities:

 

 

  

Accounts payable

$

770

$

524

Accrued expenses

 

1,411

 

1,928

Accrued employee benefits

 

1,319

 

978

Contingent consideration, current portion

9,483

Loans Payable-current

52

Operating lease liability

 

157

 

124

Total Current Liabilities

 

13,192

 

3,554

Non-current Liabilities

Non-current contingent consideration

2,419

Loan Payable - Long term

202

Deferred tax liabilities, net

3,489

Lease liability - Long term

1,244

1,403

Total Liabilities

 

20,546

 

4,957

Commitments and Contingencies

 

 

  

Series C convertible preferred stock, $0.001 par value; 10,000,000;275,000 issued and outstanding

2,006

Series D convertible preferred stock, $0.001 par value; 10,000,000;100,000 issued and outstanding

 

728

 

Stockholders’ Equity (Deficit):

 

 

  

Common stock, $0.001 par value; 20,000,000 shares authorized, 15,844,294 issued and 15,844,061 outstanding at September 30, 2022 and 13,204,487 issued and 13,204,254 outstanding at December 31, 2021

 

16

 

13

Additional paid-in capital

 

343,621

 

336,679

Accumulated other comprehensive loss

(2,844)

Accumulated deficit

 

(285,378)

 

(271,284)

Total Stockholders‘ Equity

 

55,415

 

65,408

Total Liabilities and Stockholders‘ Equity

$

78,695

$

70,365

See accompanying notes to unaudited condensed consolidated financial statements.

3

Theriva Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

    

For the three months ended September 30, 

    

For the nine months ended September 30,

    

2022

    

2021

    

2022

    

2021

Operating Costs and Expenses:

 

  

 

  

 

  

 

  

General and administrative

$

2,444

$

1,303

$

5,599

$

3,988

Research and development

 

2,570

 

1,972

 

8,652

 

5,021

Total Operating Costs and Expenses

 

5,014

 

3,275

 

14,251

 

9,009

Loss from Operations

 

(5,014)

 

(3,275)

 

(14,251)

 

(9,009)

Other Expense:

Exchange loss

 

(9)

 

 

(40)

 

Interest income

 

170

 

2

 

197

 

4

Total Other Income(Expense)

 

161

 

2

 

157

 

4

Net Loss

 

(4,853)

 

(3,273)

 

(14,094)

 

(9,005)

Net Loss Attributable to Non-controlling Interest

 

 

 

 

(1)

Net Loss Attributable to Theriva Biologics, Inc. and Subsidiaries

$

(4,853)

$

(3,273)

$

(14,094)

$

(9,004)

Effect of Warrant exercise price adjustment

(340)

(340)

Series A Preferred Stock Dividends

(24)

Effect of Series A Preferred Stock price adjustment

(7,402)

Series B Preferred Stock Dividends

 

 

 

 

(1,497)

Net Loss Attributable to Common Stockholders

$

(5,193)

$

(3,273)

$

(14,434)

$

(17,926)

Net Loss Per Share - Basic and Dilutive

$

(0.33)

$

(0.25)

$

(0.95)

$

(1.51)

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

 

15,844,061

 

13,204,254

 

15,176,927

 

11,844,863

Net Loss

(4,853)

(3,273)

(14,094)

(9,005)

Loss on foreign currency translation

(1,527)

(2,844)

Total comprehensive loss

(6,380)

(3,273)

(16,938)

(9,005)

Comprehensive loss attributable to non-controlling interest

(1)

Comprehensive loss attributable to Theriva Biologics, Inc. and Subsidiaries

(6,380)

(3,273)

(16,938)

(9,004)

See accompanying notes to unaudited condensed consolidated financial statements.

4

Theriva Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity (Deficit)

(In thousands, except share and par value amounts)

Common Stock $0.001 Par Value

Series B Preferred

Accumulated

Other

Total

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

APIC

    

Deficit

    

income

    

Equity

Balance at December 31, 2021

 

13,204,531

$

13

 

$

$

336,679

$

(271,284)

$

$

65,408

Stock-based compensation

 

 

 

 

 

112

 

 

 

112

Issuance of Common Stock for VCN Acquisition

 

2,639,530

 

3

 

 

 

6,596

 

 

 

6,599

Translation gains (losses)

 

 

 

 

 

 

 

181

 

181

Net loss

 

 

 

 

 

 

(4,273)

 

 

(4,273)

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

15,844,061

$

16

 

$

$

343,387

$

(275,557)

$

181

$

68,027

Stock-based compensation

113

113

Translation gains (losses)

(1,498)

(1,498)

Net loss

(4,968)

(4,968)

Balance at June 30, 2022

15,844,061

$

16

$

$

343,500

$

(280,525)

$

(1,317)

$

61,674

Stock-based compensation

121

121

Translation gains (losses)

(1,527)

(1,527)

Net loss

(4,853)

(4,853)

Balance at September 30, 2022

15,844,061

$

16

$

$

343,621

$

(285,378)

$

(2,844)

$

55,415

Common Stock $0.001 Par Value

Series B Preferred

    

    

Non-

Total

Accumulated

Controlling

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

APIC

    

Deficit

    

Interest

    

Deficit

Balance at December 31, 2020

2,924,993

$

3

3,973

$

2,477

$

240,847

$

(248,094)

$

(2,773)

$

(7,540)

Stock-based compensation

101

101

Stock issued under “at-the-market“ offering

7,868,532

8

65,952

65,960

Warrants Exercised

1,165,575

1

8,041

8,042

Series A Preferred Stock Dividends

(24)

(24)

Effect of Series A Preferred Stock price adjustment

7,402

(7,402)

Conversion of Series A Preferred Stock to Common

899,677

1

12,821

12,822

Conversion of Series B Preferred Stock to Common

345,478

(3,973)

(2,477)

3,974

(1,497)

Net loss

(2,536)

(2,536)

Non-controlling interest

(1)

(1)

Balance at March 31, 2021

13,204,255

 

$

13

 

 

$

 

$

339,138

 

$

(259,553)

 

$

(2,774)

 

$

76,824

Stock-based compensation

102

102

Net loss

(3,195)

(3,195)

Balance at June 30, 2021

13,204,255

$

13

$

$

339,240

$

(262,748)

$

(2,774)

$

73,731

Stock-based compensation

102

102

Net loss

(3,273)

(3,273)

Balance at September 30, 2021

 

13,204,255

 

$

13

 

 

$

 

$

339,342

 

$

(266,021)

 

$

(2,774)

 

$

70,560

See accompanying notes to unaudited condensed consolidated financial statements.

5

Theriva Biologics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

For the Nine Months Ended September 30,

    

2022

    

2021

Cash Flows From Operating Activities:

 

  

 

  

Net loss

$

(14,094)

$

(9,005)

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

 

 

Stock-based compensation

 

346

 

305

Change in fair value of contingent consideration

 

(257)

 

Depreciation

 

60

 

74

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

780

 

285

Right of use asset

 

137

 

123

Accounts payable

 

(504)

 

368

Accrued expenses

 

(326)

 

85

Accrued employee benefits

 

271

 

(147)

Lease liability

 

(127)

 

(168)

Net Cash Used In Operating Activities

 

(13,714)

 

(8,080)

Cash Flows from Investing Activities

 

 

Purchase of property and equipment

(25)

(14)

Cash paid for business combination; net of cash acquired

(3,863)

Pre-acquisition loan to VCN

(417)

Net Cash Used in Investing Activities

(4,305)

(14)

Cash Flows from Financing Activities

 

 

Payment of VCN’s CDTI loan

(1,376)

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

2,006

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

728

Proceeds from “at the market“ stock issuance

 

 

65,960

Proceeds from issuance of common stock for warrant exercises

8,042

Net Cash Provided by Financing Activities

1,358

74,002

Effects of FX on cash

(84)

Net (decrease) increase in cash and cash equivalents and restricted cash

(16,661)

65,908

Cash and cash equivalents and restricted at the beginning of this period

 

67,325

 

6,227

Cash and cash equivalents and restricted cash at the end of this period

$

50,580

$

72,135

Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position

Cash and cash equivalents

$

50,490

$

72,135

Restricted cash included in other long-term assets

90

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$

50,580

$

72,135

Supplemental non-cash investing and financing activities:

 

 

Fair value of contingent consideration issued in a business combination

$

12,158

$

Fair value of equity issued as consideration in a business combination

$

6,599

$

Effective settlement of pre-closing VCN financing

$

417

$

Goodwill measurement period adjustment

$

(884)

$

In-process R&D measurement period adjustment

$

810

$

Deferred tax liability measurement period adjustment

$

202

$

Effect of Warrant exercise price adjustment

$

340

$

Effect of Series A Preferred Stock price adjustment

$

$

7,402

Right of use asset from operating lease

$

$

1,270

Conversion of Series B Preferred Stock

$

$

2,477

Deemed dividends for accretion of Series B Preferred Stock discount

$

$

1,497

In-kind dividends paid in preferred stock

$

$

24

See accompanying notes to unaudited condensed consolidated financial statements.

6

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization, Nature of Operations and Basis of Presentation

Description of Business

Theriva Biologics, Inc. (the “Company” or “Theriva Biologics”) is a diversified clinical-stage company developing therapeutics in areas of high unmet need. As a result of the acquisition of VCN (the “Acquisition”), described in more detail below, the Company began transitioning its strategic focus to oncology through the development of VCN’s new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune system. Prior to the Acquisition, the Company’s focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases in areas which included our lead clinical development candidates: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, Clostridioides difficile infection (CDI), overgrowth of pathogenic organisms, the emergence of antimicrobial resistance (AMR), and acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases.

Basis of Presentation

On July 11, 2022, the Board of Directors of the Company approved a reverse stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001 per share, at a ratio of one (1) share of common stock for every ten (10) shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split was effective on July 25, 2022 (the “Effective Time).

As a result of the Reverse Stock Split, each ten (10) pre-split shares of common stock outstanding automatically combined into one (1) new share of common stock without any action on the part of the holders, and the number of outstanding shares of common stock was reduced from 158,437,840 shares to 15,844,061 shares (subject to rounding of fractional shares) and the number of authorized shares of common stock was reduced from 200,000,000 share to 20,000,000 shares. Stockholders who otherwise were entitled to receive fractional shares because they held a number of pre-reverse stock split shares of the Company’s common stock not evenly divisible by 10, received, in lieu of a fractional share, that number of shares rounded up to the nearest whole share. The Reverse Stock Split did not alter the par value of the Company’s common stock or modify any voting rights or other terms of the common stock. In addition, pursuant to their terms, a proportionate adjustment was made to the per share conversion exercise price and number of shares issuable under all of the Company’s outstanding shares of convertible preferred stock and stock options and warrants to purchase shares of common stock, and the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive plans was reduced proportionately.

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

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. 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 2021 Form 10-K. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of results for the full year.

7

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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. The Company has one operating segment (which includes the legacy Company business and the VCN business) and therefore one reporting segment which represents the consolidated entity.

Business Combination

The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

As a result of the acquisition of VCN (see Note 2), the Company recorded two intangible assets, in-process research and development (“IPR&D”) and goodwill. The IPR&D and goodwill are deemed to have indefinite lives and therefore not amortized.

IPR&D

IPR&D assets represent the fair value assigned to technologies that the Company acquired, which at the time of acquisition have not reached technological feasibility and have no alternative future use. IPR&D assets are considered to have indefinite-lives until the completion or abandonment of the associated research and development projects. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed to have definite lives and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.

During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis on October 1, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that could indicate an impairment. The impairment test consists of a comparison of the estimated fair value of the IPR&D with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.

Goodwill

The Company tests the carrying amounts of goodwill for recoverability on an annual basis on October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs a one-step test in its evaluation of the carrying value of goodwill if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to its carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations. As of September 30, 2022, the Company has determined that it has one reporting unit.

8

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets.

Impairment of Long-Lived Assets

Long-lived assets include property, equipment and right-of-use assets. Management reviews the Company’s long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as whether there is reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. No impairment charges were recorded during the three and nine months ended September 30, 2022 and 2021.

Recent Accounting Pronouncements and Developments

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company has adopted ASU 2020-06 on January 1, 2022. The ASU impacted the analysis of the accounting treatment for the issuance of Convertible Preferred Series C & D stock during the current quarter, specifically the cash conversion and beneficial conversion features.

9

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

2. BUSINESS COMBINATION

Summary

On March 10, 2022, the Company completed the acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN. VCN is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. VCN’s lead product candidate, VCN-01, is being studied by the Company in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC). VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment. Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. VCN has the rights to four exclusive patents for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending. As consideration for the purchase of the VCN Shares, the Company paid $4,700,000 to Grifols Innovation and New Technologies Limited, the owner of approximately 86% of the equity of VCN, and issued to the remaining sellers and certain key VCN employees and consultants of VCN an aggregate of 2,639,530 shares of its common stock In addition to the consideration described above, under the terms of the Purchase Agreement, the Company assumed up to $2,390,000 of existing liabilities of VCN and has agreed to make cash payments of up to $70.2 million to Grifols upon the achievement of certain clinical and commercialization milestones. In September 2022, the trial received “safe to proceed” from the FDA for its phase 2 clinical trial of VCN-01. Due to this approval, the company will pay Grifols $3.0 million in Q4 2022.

In anticipation of the Acquisition, prior to the Closing, the Company loaned VCN $417,000 to help finance the costs of certain of VCN’s research and development activities. At the Closing, VCN and Grifols entered into a sublease agreement for the sublease by VCN of laboratory and office space as well as a transitional services agreement. As a post-Closing covenant, the Company has agreed to commit to fund VCN’s research and development programs, including but not limited to VCN-01 in a pancreatic ductal adenocarcinoma PDAC phase 2 trial, VCN-01 in a retinoblastoma (RB) phase 2/3 trial and necessary G&A within a budgetary plan of approximately $27.8 million.

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

Cash paid at Closing

    

$

4,700

Receivable from VCN “effectively settled“

 

417

FV of common shares issued

 

6,599

FV of contingent consideration

 

12,159

$

23,875

As of March 31, 2022, the fair value of the contingent consideration was approximately $12.2 million. During the nine months ended September 30, 2022 the Company recognized a non-cash gain of $257,000 related to the decrease in the fair value of the contingent consideration. This gain was recorded as a reduction of general and administrative expense in the accompanying condensed consolidated statement of operations.

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

10

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

2. BUSINESS COMBINATION - (continued)

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

    

Estimated fair value

($in thousands)

Cash and cash equivalents

$

837

Receivables

 

1,707

Property and equipment

 

216

In-process research and development intangible asset

 

21,703

Goodwill

 

5,765

Deferred tax assets (liabilities), net

 

(3,699)

Accounts payable

 

(814)

Accrued expenses

 

(113)

Accrued employee benefits

 

(90)

Loan Payable-current

 

(67)

Other long-term liabilities

 

(1,570)

Total purchase consideration

$

23,875

The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this filing. Any changes in the estimated fair values of the purchase consideration and of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction may change the amount and allocation of the purchase price. As such, the purchase price amount and allocations for this transaction are preliminary estimates including in-process research and development, goodwill and contingent consideration, which may be subject to change within the measurement period.

The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $21.7 million of indefinite-lived in-process research and development intangible assets.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill of $5.8 million was established as a result of the Acquisition and is not tax deductible.

VCN operations recorded a net loss of $5.8 million from the date of acquisition through September 30, 2022.

During the three months ended June 30, 2022 the Company recognized a measurement period adjustment related to the estimate of acquired liabilities resulting in a $277,000 reduction in accrued expenses and goodwill and during the three months ended September 30, 2022 the Company recognized another measurement period adjustment related to the estimated fair value of its in-process R&D resulting in a $810,000 increase in in-process R&D, an increase of $202,000 in deferred tax liabilities and a decrease of  $607,000 in goodwill. The cumulative impact of the re-measurements as of the nine month ended September 30, 2022 was a reduction in accrued liabilities of $277,000, an increase in in-process R&D of $810,000; an increase in deferred tax liabilities of $202,000 and a decrease in goodwill of $884,000.

11

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Pro Forma Consolidated Financial Information (unaudited)

The following unaudited pro forma consolidated financial information summarizes the results of operations for the periods indicated as if the VCN acquisition had been completed as of January 1, 2021 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

    

2022

    

2021

    

2022

    

2021

Net revenues

$

$

$

Net loss

$

(4,853)

$

(3,808)

(14,956)

$

(10,810)

2. BUSINESS COMBINATION - (continued)

Transaction Costs

In conjunction with the Acquisition, the Company incurred approximately $1.2 million and $0.2 million in 2021 and 2022, respectively, in transaction costs, which were expensed as general, and administrative expense in the consolidated statements of operations.

3. Goodwill and Intangibles

Goodwill of $5.8 million and in-process R&D of $21.7 million were recorded in connection with the Acquisition of VCN, as described in Note 2. During the quarter ending September 30, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a triggering event. The Company performed an interim impairment analysis and concluded that the Goodwill and IPRD was not impaired as of September 30,2022.

The following table provides the Company’s goodwill as of September 30, 2022. During the three months ended June 30, 2022 the Company recognized a measurement period adjustment related to the estimate of acquired expenses resulting in a $277,000 reduction in accrued liabilities and goodwill and during the three months ended September 30, 2022 the Company recognized another measurement period adjustment related to the estimated fair value of its in-process R&D resulting in an $810,000 increase in in-process R&D, an increase of $202,000 in deferred tax liabilities and a decrease of $607,000 in goodwill. The cumulative impact of the re-measurements as of the nine month ended September 30, 2022 was a reduction in accrued liabilities of $277,000, an increase in in-process R&D of $810,000; an increase in deferred tax liabilities of $202,000 and a decrease in goodwill of $884,000.

    

Goodwill (in thousands)

Balance at December 31, 2021

$

Goodwill from Acquisition of VCN

 

5,765

Goodwill impairment loss

 

Measurement Period Adjustments

(884)

Effects of exchange rates

(627)

Balance at September 30, 2022

$

4,254

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

    

In-process

R&D (in thousands)

Balance at December 31, 2021

$

Acquired IPR&D

 

21,703

Measurement Period Adjustment

 

810

Effects of exchange rates

(2,424)

Balance at September 30, 2022

$

20,089

12

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

4. Fair Value of Financial Instruments

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

Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;

4. Fair Value of Financial Instruments – (continued)

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.

In connection with the Acquisition of VCN, the Company will be required pay up to $70.2 million in additional consideration upon the achievement of certain milestones, including regulatory filings completed noted in Note 3. In September 2022 the trial received “safe to proceed” from the FDA for its phase 2 clinical trial of VCN-01. Due to this approval the company will pay Grifols $3.0 million in Q4 2022. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. As of the March 10, 2022 acquisition date, the contingent consideration had a fair value of $12.2 million. The fair value of the contingent consideration was $11.9 million as of September 30, 2022 and is reflected as current accrued contingent consideration of $9.5 million and non-current contingent consideration liability of $2.4 million in the consolidated balance sheet. During the three months ended September 30, 2022 the Company recognized in operating expense a $226,000 fair value adjustment increase to contingent consideration. During the nine months ended September 30, 2022 the Company recognized in operating expense a $257,000 fair value adjustment decrease to contingent consideration.

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

    

As of March 10, 2022

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

12,159

 

 

$

12,159

    

As of September 30, 2022

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

11,902

 

 

$

11,902

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

13

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

    

Contingent 

Consideration

Balance at March 10, 2022

$

12,159

Change in fair value

 

(257)

Balance at September 30, 2022

$

11,902

4. Fair Value of Financial Instruments – (continued)

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

As of March 10, 2022

 

Valuation

Significant

Weighted Average

 

    

Methodology

    

Unobservable Input

    

(range, if applicable)

 

Contingent Consideration

 

Probability weighted

 

Milestone dates

 

2022-2027

 

income approach

 

  

 

Discount rate

 

7.3% to 8.6%

 

  

 

Weighted Average Discount rate

 

7.77%

 

  

 

Probability of Occurrence (periodic for each Milestone)

 

9.9% to 82.4%

 

  

 

Probability of occurrence (cumulative through each Milestone)

 

5.1% to 62.8%

    

As of September 30, 2022

 

Valuation

Significant

Weighted Average

 

    

Methodology

    

Unobservable Input

    

(range, if applicable)

 

Contingent Consideration

 

Probability weighted

 

Milestone dates

 

2022-2027

income approach

 

 

Discount rate

12.4% to 13.6%

Weighted Average Discount rate

13.0%

Probability of Occurrence (periodic for each Milestone)

9.9% to 82.4%

 

 

Probability of occurrence (cumulative through each Milestone)

5.1% to 62.8%

5. Selected Balance Sheet Information

Prepaid expenses and other current assets (in thousands)

September 30, 

December 31, 

    

2022

    

2021

Prepaid clinical research organizations

$

1,169

$

458

Prepaid manufacturing expenses

573

VAT receivable

214

Prepaid consulting, subscriptions and other expenses

180

272

Prepaid insurances

105

803

Total

$

2,241

$

1,533

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.

14

Table of Contents

Theriva Biologics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

5. Selected Balance Sheet Information – (continued)

Property and equipment, net (in thousands)

    

September 30, 

December 31, 

    

2022

    

2021

Computers and office equipment

$

802

$

827

Other Property, Plant and Equipment

190

Leasehold improvements

 

94

 

94

Software

 

11

 

11

 

1,097

 

932

Less: accumulated depreciation and amortization

 

(835)

 

(831)

Total

$

262

$

101

Accrued expenses (in thousands)

    

September 30, 

December 31, 

    

2022

    

2021

Accrued clinical consulting services

$

773

$

696

Accrued vendor payments

 

366

 

1,028

Accrued manufacturing costs

173

204

VAT payable

99

Total

$

1,411

$

1,928

Accrued employee benefits (in thousands)

    

September 30, 

December 31, 

    

2022

    

2021

Accrued bonus expense

$

1,067

$

886

Accrued vacation expense

146

92

Accrued compensation expense

 

106

 

Total

$

1,319

$