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

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

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

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

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