UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
FOR THE TRANSITION PERIOD FROM TO
Commission
File Number
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
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 | ||
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. ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ |
| ☒ | 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 ☐
The number of shares of Registrant’s ordinary shares outstanding as of November 11, 2021: .
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
INDAPTUS THERAPEUTICS, INC.
Unaudited Condensed Consolidated Balance Sheets
| September 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Assets held for sale | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | - | |||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and other current liabilities | $ | $ | ||||||
| SAFE agreements | - | |||||||
| Total current liabilities | ||||||||
| Commitments and contingent liabilities (Note 7) | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock; Series Seed; $par value; and shares authorized as of September 30, 2021 and December 31, 2020, respectively, and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | - | |||||||
| Common stock; $ par value, and shares authorized as of September 30, 2021 and December 31, 2020, respectively; and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
| See accompanying notes to the consolidated financial statements |
| F-1 |
| INDAPTUS THERAPEUTICS, INC. |
Unaudited Condensed Consolidated Statements of Operations
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss available to common stockholders per share of common stock, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares used in calculating net loss per share, basic and diluted | ||||||||||||||||
| See accompanying notes to the consolidated financial statements |
| F-2 |
| INDAPTUS THERAPEUTICS, INC. |
Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
| Series Seed Preferred | Common stock | Additional paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2020 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2020 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| See accompanying notes to the consolidated financial statements |
| F-3 |
| INDAPTUS THERAPEUTICS, INC. |
Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
| Series Seed Preferred | Common stock | Additional paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Conversion of preferred stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||
| Conversion of SAFE agreements | - | - | - | |||||||||||||||||||||||||
| Issuance of common stock upon merger, net of Decoy’s transaction costs in the amount of $ | - | - | - | |||||||||||||||||||||||||
| Issuance of pre-funded warrants and warrants, net of issuance
costs in the amount of $ | - | - | - | - | - | |||||||||||||||||||||||
| Exercise of pre-funded warrants | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| See accompanying notes to the consolidated financial statements |
| F-4 |
| INDAPTUS THERAPEUTICS, INC. |
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine months ended | ||||||||
| September | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from merger | - | |||||||
| Decoy’s transaction costs | ( | ) | - | |||||
| Issuance of pre-funded warrants and warrants | - | |||||||
| Issuance costs of Private Placement | ( | ) | - | |||||
| Exercise of pre-funded warrants | - | |||||||
| Proceeds from SAFEs | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Noncash investing and financing activities | ||||||||
| Conversion of preferred stock | $ | |||||||
| Conversion of SAFEs | $ | |||||||
| Liabilities assumed, net of non-cash assets received in reverse merger | $ | - | ||||||
| Release of deposit upon closing of Merger | $ | - | ||||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash received for interest earned on deposits | $ | $ | ||||||
| See accompanying notes to the consolidated financial statements |
| F-5 |
| INDAPTUS THERAPEUTICS, INC. |
NOTE 1: GENERAL
| a. | Indaptus Therapeutics, Inc. and its wholly owned subsidiaries, Decoy Biosystems, Inc. and Intec Pharma Ltd., collectively (the “Company”), is a biotechnology company dedicated to enhancing and expanding curative cancer immunotherapy for patients with unresectable or metastatic solid tumors and lymphomas, which are responsible for more than 90% of all cancer deaths. The Company is developing a novel, multi-targeted product that activates both innate and adaptive anti-tumor and anti-viral immune responses. |
Indaptus Therapeutics, Inc. (“Indaptus”), formerly “Intec Parent Inc.”, was established and incorporated in Delaware on February 24, 2021, as a private Delaware corporation and wholly owned subsidiary of Intec Pharma Ltd., (“Intec Israel”), a former publicly traded company.
| b. | On August 3, 2021, Indaptus completed its merger with Decoy Biosystems, Inc., (“Decoy”), following the satisfaction or waiver of the conditions set forth in the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 15, 2021 among Indaptus, Decoy, Intec Israel, Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of Indaptus (“Domestication Merger Sub”), and Dillon Merger Subsidiary Inc., a Delaware corporation and wholly owned subsidiary of Indaptus (“the Merger Sub”), pursuant to which Merger Sub merged with and into Decoy, with Decoy surviving as a wholly owned subsidiary of Indaptus (“the Merger”) and the business conducted by Decoy became the business conducted by Indaptus. Previously, on July 26, 2021, Intec Israel implemented a reverse share split of its outstanding ordinary shares, options and warrants and proportionate adjustments were made to its exercise prices. In addition, on July 27, 2021, Intec Israel, Indaptus and the Domestication Merger Sub, completed the domestication merger pursuant to the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated April 27, 2021, whereby Domestication Merger Sub merged with and into Intec Israel, with Intec Israel being the surviving entity and a wholly-owned subsidiary of Indaptus. |
Also, in connection with the Merger, Indaptus changed its name from “Intec Parent, Inc.” to “Indaptus Therapeutics, Inc.”. Following completion of the Merger, shares of Indaptus common stock commenced trading at market open on August 4, 2021, on the Nasdaq Capital Market under the name “Indaptus Therapeutics, Inc.” and under the symbol “INDP”.
In connection with the completion of the Merger, on August 4, 2021, the Company’s board determined to wind down the Accordion Pill business of Intec Israel. The Company expects that the winding down of the Accordion Pill business will be completed by the end of 2021.
For accounting purposes, Decoy is considered to have acquired Indaptus based on the terms of the Merger and an analysis of the criteria outlined in Accounting Standards Codification 805. The Merger has been accounted for as an asset acquisition (reverse merger transaction) rather than a business combination, as the net assets acquired/assumed by Decoy do not meet the definition of a business under U.S. GAAP. Accordingly, the historical financial statements of Decoy became the historical financial statements of the combined company upon the consummation of the Merger and the net assets acquired in connection with the Merger were recorded at their estimated fair market value as of August 3, 2021, the date of completion of the Merger.
Prior
to the Merger Decoy’s capitalization was comprised of
As
of the effective time of the Merger each outstanding share of Decoy Common Stock was converted into shares of Indaptus common stock, par value $per share. Accordingly, shares of
Decoy’s Common Stock were converted to Indaptus’ shares of common stock. In addition, at the effective time
of the Merger, each outstanding and unexercised Decoy stock option converted into a stock option exercisable for that number of shares
of Indaptus common stock subject to such option and the exercise price being appropriately adjusted to reflect the exchange ratio. Accordingly,
The accompanying unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements give retroactive effect to the exchange ratio for all periods presented. Any difference is recognized as an adjustment to additional paid in capital.
| F-6 |
| INDAPTUS THERAPEUTICS, INC. |
On August 3, 2021, immediately prior to the effectiveness of the Merger, Indaptus had shares of common stock outstanding and a market capitalization of $million. The estimated fair value of the net assets of Indaptus on August 3, 2021, prior to the Merger, was approximately $million. The fair value of common stock on the Merger closing date, prior to the Merger, was above the fair value of the Indaptus’ net assets. As Indaptus’ net assets were predominantly composed of cash offset against current liabilities, the fair value of Indaptus’ net assets as of August 3, 2021, prior to the Merger, is considered to be the best indicator of the fair value and, therefore, the estimated preliminary purchase consideration.
The following table summarizes the net assets acquired based on their estimated fair values as of August 3, 2021, immediately prior to completion of the Merger:
| Cash and cash equivalents | $ | |||
| Assets held for sale | ||||
| Prepaid and other assets | ||||
| Accrued liabilities | ( | ) | ||
| Acquired net assets | $ |
| c. | In
connection with the Merger, on July 23, 2021, Indaptus entered into a securities purchase agreement (the “Purchase Agreement”)
with a certain institutional investor, pursuant to which Indaptus agreed to sell and issue, in a private placement (the “Private
Placement”), pre-funded warrants and warrants for total net proceeds of approximately $ |
Risks and uncertainties
The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses (see below), competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals.
The COVID-19 pandemic, that has spread globally, has resulted in significant financial market volatility and uncertainty in the past year. The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including by causing disruptions in the supply of its product candidates and the conduct future clinical trials. The COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to the Company’s product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact its short-term and long-term liquidity. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity, or results of operations is uncertain.
Going concern and management’s plans
The
Company has incurred net losses and utilized cash in operations since inception, has an accumulated deficit as of September 30,
2021, of $ million,
and expects to incur future additional losses as clinical testing and commercialization of the Company’s product candidates will
require significant additional financing. Prior to the closing of the Merger, on August 3, 2021, Indaptus closed a private
placement to raise gross cash proceeds of $
| F-7 |
| INDAPTUS THERAPEUTICS, INC. |
Management plans to raise additional capital through equity and/or debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, these plans are not entirely within its control and cannot be assessed as being probable of occurring. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce, or eliminate its research and development programs or other operations. If any of these events occur, the Company’s ability to achieve the development and commercialization goals would be adversely affected.
These financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and S-X Article 10 for interim financial statements. Accordingly, they do not contain all information and notes required by US GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2021, the consolidated results of operations, changes in stockholders’ equity for the three and nine-month periods ended September 30, 2021, and 2020 and cash flows for the nine-month periods ended September 30, 2021 and 2020.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Decoy’s annual financial statements for the year ended December 31, 2020, and their accompanying notes included in the Form S-4 filed with the SEC in connection with the Merger. The condensed balance sheet data as of December 31, 2020, included in these unaudited condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31, 2020, but does not include all disclosures required by US GAAP for annual financial statements.
The results for the nine-month period ended September 30, 2021, are not necessarily indicative of the results expected for the year ending December 31, 2021.
Principles of consolidation
The consolidated financial statements include the accounts of Indaptus and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.
Use of estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting periods. The most significant estimates relate to the determination of the fair value of stock-based compensation and the determination of period-end obligations to certain contract research organizations. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
| F-8 |
| INDAPTUS THERAPEUTICS, INC. |
Loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common stock outstanding during the period. Diluted loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options, warrants and pre-funded warrants which are included under the treasury stock method when dilutive.
| Weighted average | ||||||||||||||||
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Outstanding stock options | ||||||||||||||||
| Warrants and Pre-funded warrants | ||||||||||||||||
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of September 30, 2021, and December 31, 2020, cash and cash equivalents consist primarily of checking and money market deposits. The Company’s cash balances exceed those that are federally insured; however, the Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held. To date, the Company has not recognized any losses caused by uninsured balances.
Assets held for sale
In
connection with the Merger, the Company determined certain equipment held for use by pre-Merger Intec Israel was no longer useful
to the Company’s operations and entered into an agreement with an unrelated party to sell the equipment. The Company recognizes
assets held for sale at estimated fair value. The fair value of the equipment as of September 30, 2021, was approximately
$
Property and equipment
Property
and equipment assets are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets. The Company uses an estimated useful life of
Patents
The Company expenses patent costs, including related legal costs, as incurred and records such costs within general and administrative expense in the accompanying consolidated statements of operations.
Accrued research and development costs
The Company records the costs associated with research, nonclinical and clinical trials, and manufacturing development as incurred. These costs are a significant component of the Company’s research and development expenses, with a substantial portion of the Company’s on-going research and development activities conducted by third-party service providers, including contract research and manufacturing organizations.
The Company accrues for expenses resulting from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other outside service providers for which payment flows do not match the periods over which services or materials are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements with CROs, CMOs, and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services. In the event advance payments are made to a CRO, CMO, or outside service provider, the payments will be recorded as a prepaid asset, which will be amortized or expensed as the contracted services are performed.
| F-9 |
| INDAPTUS THERAPEUTICS, INC. |
Research and development expenses
Research and development costs that do not meet the criteria for capitalization are expensed as incurred. Research and development expenses consist primarily of fees paid to CROs as well as compensation expenses for certain employees involved in the planning, managing, and analyzing the work of the CROs.
General and administrative expenses
General and administrative expenses include compensation, employee benefits, and stock-based compensation for executive management, finance administration and human resources, facility costs (including rent), professional service fees, and other general overhead costs, including depreciation, to support the Company’s operations.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized in the foreseeable future. As of September 30, 2021, and December 31, 2020, the Company has recorded a full valuation allowance against its deferred tax assets.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.
The Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined using the Black-Scholes-Merton (“Black-Scholes”) option pricing model as of the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, on a straight-line basis.
The Black-Scholes model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock. The Company estimates the fair value of options granted by using the Black-Scholes model with the following assumptions:
Expected Volatility—The Company estimated volatility for option grants by evaluating the historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the options’ expected term.
Expected Term—The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate historical exercise data to estimate the expected term.
Risk-Free Interest Rate—The risk-free interest rate is based on the implied yield currently available on US Treasury zero-coupon issues with a term that is equal to the options’ expected term at the grant date.
Dividend Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.
The Company has elected to recognize forfeitures as they occur.
| F-10 |
| INDAPTUS THERAPEUTICS, INC. |
Fair value measurements
Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company follows the established framework for measuring fair value and providing disclosures about fair value measurements.
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace. |
| Level 3: | Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. |
Accounting Standards Codification (“ASC”) 820 – Fair Value Measurement requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value, and defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2021 and December 31, 2020, the recorded values of cash and cash equivalents, assets held for sale, prepaid expenses, and accounts payable and other current liabilities approximate their fair values due to the short-term nature of these items.
As of December 31, 2020, the carrying value of outstanding SAFEs approximates the estimated aggregate fair value of the instruments as the valuation cap provided in the SAFEs is a reasonable approximation of the Company’s enterprise value. On August 3, 2021, the SAFEs converted into common stock of the post-Merger entity.
Recently adopted accounting pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 as of January 1, 2020 with no impact on the financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 31, 2020 and interim periods within that year. The Company adopted ASU 2019-12 on January 1, 2021 with no material impact to its financial statements or related disclosures.
| F-11 |
| INDAPTUS THERAPEUTICS, INC. |
NOTE 3: PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are comprised of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Prepaid research and development | ||||||||
| Other prepaid expenses | ||||||||
| Short term deposits | - | |||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
NOTE 4: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities are comprised of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued employee costs | - | |||||||
| Other accrued expenses | ||||||||
| Accrued research and development | ||||||||
| Accrued legal fees | ||||||||
| Deposit | - | |||||||
| Total accounts payable and other current liabilities | $ | $ | ||||||
In 2018, Decoy adopted the Decoy Biosystems, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan, pursuant to which the board of directors may grant nonstatutory stock options to purchase shares of the Company’s common stock to outside directors and consultants and either nonstatutory or incentive stock options to purchase shares of the Company’s common stock to employees.
In
June 2021, the Intec Israel shareholders voted to approve the Indaptus 2021 Stock Incentive Plan, a share option plan for grants to
employees, officers, consultants, directors and other service providers, (the “2021 Plan”), that became effective
upon the closing of the Merger. The 2021 Plan provides for up to shares of the Company’s common stock. Immediately
after the Merger, all Decoy’s outstanding options under the 2018 Plan were converted to
The 2021 Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock awards, restricted stock units, unrestricted stock awards, stock appreciation rights and other forms of stock-based compensation. The 2021 Plan permits the Company’s board to change the type, terms and conditions of awards as circumstances may change. This flexibility to adjust the type of compensation to be granted is particularly important given current economic and world events.
| F-12 |
| INDAPTUS THERAPEUTICS, INC. |
On August 4, 2021, Indaptus’ board approved a grant of an aggregate of options to purchase shares of common stock to Indaptus’ directors, executive officers and employees as follows:
| Number of options granted | Exercise price | Vesting period | Expiration | |||||||||||||
| Executive officers and employees | $ | - years | - years | |||||||||||||
| Directors | $ | year | years | |||||||||||||
| Weighted average | ||||||||||||||||
| Shares | Exercise price | Remaining contractual life | Intrinsic value | |||||||||||||
| Outstanding as of January 1, 2021 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Options converted upon Merger | $ | |||||||||||||||
| Forfeited and cancelled | ( | ) | ||||||||||||||
| Outstanding as of September 30, 2021 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2021 | $ | $ | ||||||||||||||
| Vested and expected to vest September 30, 2021 | $ | $ | ||||||||||||||
The Company recognized stock-based compensation expense of $and $during the three months ended September 30, 2021 and 2020, respectively. The Company recognized stock-based compensation expense of $and $during the nine months ended September 30, 2021, and 2020, respectively. As of September 30, 2021, total compensation cost not yet recognized related to unvested stock options was approximately $million, which is expected to be recognized over a weighted-average period of years.
The
Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. The weighted
average inputs used to measure the value of the options granted in August 2021 are presented in the table below. The weighted average
grant date fair value of stock option issued during the three and nine months ended September 30, 2021, was $
| August 4, 2021 | ||||
| Stock price | $ | |||
| Exercise price | $ | |||
| Expected term | ||||
| Volatility | % | |||
| Risk free rate | % | |||
| Dividend yield | % | |||
| Exercise price | Options outstanding | |||
| $ - $ | ||||
| $ - $ | ||||
| $ or higher | ||||
| Total | ||||
| F-13 |
| INDAPTUS THERAPEUTICS, INC. |
NOTE 6: CAPITALIZATION
| a. | In August 2018, Decoy entered into the Series Seed Preferred Stock Purchase Agreement (“Series Seed SPA”), under which (“Series Seed Preferred”) shares were purchased in exchange for cash consideration of $million. The purchase price of Series Seed Preferred shares was $per share. In connection with the Merger, all outstanding shares of Series Seed Preferred stock were converted into common stock on August 3, 2021, the date of closing of the Merger. |
| b. | Decoy issued a series of SAFEs with accredited investors between December 2019 and April 2021. The total carrying value of the SAFEs was $million as of December 31, 2020, and $million immediately before the Merger. On August 3, 2021, the date of the closing of the Merger, the SAFEs were converted into common stock of the Company. | |
| As of December 31, 2020, the SAFEs were potentially settleable in cash, and accordingly, the Company presented the instruments as liabilities. |
| c. | Pre-funded Warrants and Warrants: | |||
| (1) | Immediately after the Merger, all Intec
Israel’s warrants were converted into | |||
| (2) | On
July 23, 2021, Indaptus entered into a Purchase Agreement with a certain institutional investor,
pursuant to which Indaptus agreed to sell and issue, in a Private Placement, Pre-Funded
Warrants to purchase | |||
| Weighted average | ||||||||||||
| Shares | Exercise price | Remaining contractual life | ||||||||||
| Outstanding January 1, 2021 | - | |||||||||||
| Warrants converted upon Merger | $ | |||||||||||
| Warrants issued in the Private Placement | $ | |||||||||||
| Outstanding and exercisable as of September 30, 2021 | $ | |||||||||||
As of September 30, 2021, the Company had shares of common stock authorized and shares of common stock issued and outstanding. As of December 31, 2020, Decoy had shares of common stock authorized and shares of common stock issued and outstanding.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Litigation
As of the date of issuance of these consolidated financial statements there were no pending legal proceedings against the Company that are expected to have a material adverse effect on cash flows, financial condition or results of operations. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.
Leases
The Company leases office space under a short-term operating lease agreement that automatically renews for successive three-month periods. Either the Company or the landlord can terminate the lease with 60 days written notice, whereupon the lease agreement termination will be effective the last day of the last three-month extension period. The Company accounts for the lease pursuant to the short-term practical expedient available under ASC 842-20.
The
Company recognized rent expense of $
| F-14 |
| INDAPTUS THERAPEUTICS, INC. |
NOTE 8: SUBSEQUENT EVENTS
The Company evaluated subsequent events from September 30, 2021, the date of these financial statements, through November 15, 2021, which represents the date the financial statements were issued, for events requiring recognition or disclosure in the financial statements for the period ended September 30, 2021. The Company concluded that no events have occurred that would require recognition or disclosure in the financial statements, except as described below:
| a. | On
October 1, 2021, the Company entered into a -year
lease agreement for approximately |
| b. | In
October 2021, options to purchase |
| F-15 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Unless the context indicates otherwise, in this Quarterly Report on Form 10-Q, the terms “Indaptus,” “Company,” “we,” “us” and “our” refer to Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc. the successor of Intec Pharma Ltd. following the domestication merger) and, where appropriate, its consolidated subsidiaries following the domestication merger and the reverse merger described below. References to “Intec Israel” refer to Intec Pharma Ltd., the predecessor of Indaptus prior to the domestication merger described below, and references to “Decoy” refer to Decoy Biosystems, Inc., the entity acquired by Indaptus in connection with the reverse merger described below.
The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our condensed consolidated financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in Decoy’s annual financial statements as of December 31, 2020, and their accompanying notes included in the Form S-4 filed with the SEC in connection with the reverse merger. We have prepared our condensed consolidated financial statements in accordance with U.S. GAAP.
This Quarterly Report on Form 10-Q of Indaptus Therapeutics, Inc. contains forward-looking statements about our expectations, beliefs and intentions. Forward-looking statements can be identified by the use of forward-looking words such as “believe”, “expect”, “intend”, “plan”, “may”, “should”, “could”, “might”, “seek”, “target”, “will”, “project”, “forecast”, “continue” or “anticipate” or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management’s experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our plans to develop and potentially commercialize our technology, the timing and cost of our planned investigational new drug application and any clinical trials, the completion and receiving favorable results in any clinical trials, our ability to obtain and maintain regulatory approval of any product candidate, our ability to protect and maintain our intellectual property and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates, the risk of product liability claims, the availability of reimbursement, the influence of extensive and costly government regulation, and our estimates regarding future revenue, expenses capital requirements and the need for additional financing following the recently completed merger. These risks, as well as other risks are discussed in the proxy statement/prospectus that was included in the registration statement on Form S-4 filed with the SEC in connection with the merger.
Unless otherwise indicated, all information in this Quarterly Report on Form 10-Q gives effect to a 1-for-4 reverse share split of the ordinary shares of Intec Israel that became effective on July 26, 2021 prior to the domestication merger described below, and also gives effect to a 1-for-20 reverse share split of the ordinary shares of Intec Israel that became effective on October 30, 2020, and all references to ordinary shares outstanding and per share amounts give effect to these reverse share splits.
Overview
We are a pre-clinical biotechnology company developing a novel and patented systemically-administered anti-cancer and anti-viral immunotherapy. We have evolved from more than a century of immunotherapy advances. Our approach is based on the hypothesis that efficient activation of both innate and adaptive immune cells and associated anti-tumor and anti-viral immune responses will require a multi-targeted package of immune system activating signals that can be administered safely intravenously. Our patented technology is composed of single strains of attenuated and killed, non-pathogenic, Gram-negative bacteria, with reduced i.v. toxicity, but largely uncompromised ability to prime or activate many of the cellular components of innate and adaptive immunity. This approach has led to broad anti-tumor and anti-viral activity, including safe, durable anti-tumor response synergy with each of five different classes of existing agents, including checkpoint therapy, targeted antibody therapy and low-dose chemotherapy in pre-clinical models. Tumor eradication by our technology has demonstrated activation of both innate and adaptive immunological memory and, importantly, does not require provision of or targeting a tumor antigen in pre-clinical models. We have carried out successful GMP manufacturing of our lead clinical candidate, Decoy20, and are currently completing other IND-enabling studies. For a further description of Indaptus’ business, see the section “Business of Decoy” in the registration statement on Form S-4, as amended (File No. 333-255389), filed with the Securities and Exchange Commission (“SEC”) on May 12, 2021 (the “Registration Statement”).
Merger
On August 3, 2021, Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.), a Delaware corporation (“Indaptus,” “Company,” “we,” “us,” or “our”), completed its merger with Decoy Biosystems, Inc., a Delaware corporation (“Decoy”) following the satisfaction or waiver of the conditions set forth in the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 15, 2021 among the Company, Decoy, Intec Pharma Ltd., an Israeli company and wholly owned subsidiary of the Company (“Intec Israel”), Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of the Company (“Domestication Merger Sub”), and Dillon Merger Subsidiary Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”) pursuant to which Merger Sub merged with and into Decoy, with Decoy surviving as a wholly owned subsidiary of the Company (the “Merger”) and the business conducted by Decoy became the business conducted by the combined company.
Previously, on July 27, 2021, Intec Israel, Indaptus and Domestication Merger Sub completed the previously announced domestication merger pursuant to the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated April 27, 2021 (the “Domestication Merger Agreement”), whereby Domestication Merger Sub merged with and into Intec Israel, with Intec Israel being the surviving entity and a wholly-owned subsidiary of Indaptus (the “Domestication Merger”). At the time of the Domestication Merger, Intec Israel continued to possess all of its assets, rights, powers and property as constituted immediately prior to the Domestication Merger and continued to be subject to all of its debts, liabilities and obligations as constituted immediately prior to the Domestication Merger.
Also, in connection with the Merger, we changed our name from “Intec Parent, Inc.” to “Indaptus Therapeutics, Inc.”.
| 3 |
At the effective time of the Merger, each outstanding share of Decoy common stock, par value $0.001 per share (the “Decoy Common Stock”) (including shares issuable upon the conversion of Decoy SAFEs (Simple Agreements for Future Equity) and Decoy preferred stock, par value $0.001 per share, into Decoy Common Stock) converted into 2.654353395 shares of Indaptus common stock, par value $0.01 per share. In addition, at the effective time of the Merger, each outstanding and unexercised Decoy stock option converted into a stock option exercisable for that number of shares of common stock of Indaptus subject to such option and the exercise price being appropriately adjusted to reflect the exchange ratio. Immediately following closing of the Merger there were 5,405,970 shares of Indaptus common stock outstanding, with pre-merger Decoy shareholders owning approximately 65.6% and pre-merger Intec Israel shareholders owning approximately 34.4% of the Company. The figures above do not give effect to shares issuable upon the exercise of outstanding Indaptus warrants or options.
Following completion of the Merger, shares of Indaptus common stock commenced trading at market open on August 4, 2021, on the Nasdaq Capital Market under the name “Indaptus Therapeutics, Inc.” and ticker symbol “INDP” and under the new CUSIP 45339J 105.
For accounting purposes, Decoy is considered to have acquired Indaptus based on the terms of the Merger and an analysis of the criteria outlined in Accounting Standards Codification 805. The Merger has been accounted for as an asset acquisition (reverse merger transaction) rather than a business combination, as the net assets acquired/assumed by Decoy do not meet the definition of a business under U.S. GAAP. Accordingly, the historical financial statements of Decoy became the historical financial statements of the combined company upon the consummation of the Merger and the net assets acquired in connection with the Merger were recorded at their estimated fair market value as of August 3, 2021, the date of completion of the Merger.
Winding Down of Accordion Pill Business
In connection with the completion of the Merger, on August 4, 2021, our board determined to wind down the Accordion Pill business of Intec Israel and as of September 30, 2021, we maintain an adequate number of employees in Israel until the completion of the wind down of the Accordion Pill business.
In connection with the winding down, we terminated our contracts with counterparties and the sale of our Accordion Pill related assets, including the termination of the Process Development Agreement dated as of December 17, 2018, between Intec Israel and LTS Lohmann Therapie Systeme AG (“LTS”), that provided for the manufacture of AP-CD/LD capsules, as a result of which we expect to pay approximately 2.0 million Euros (approximately $2.3 million) as a termination fee. In addition, on August 5, 2021, Intec Israel and its landlord agreed to terminate the Unprotected Lease Agreement with R.M.P.A. Assets Ltd. dated June 2, 2003, as amended, for the lease of offices located in Jerusalem, Israel, as a result of which Intec Israel agreed to the payment of a break-up fee of $600,000.
We expect that the winding down of the Accordion Pill business will be substantially complete by the end of 2021.
Private Placement
In connection with the Merger, on July 23, 2021 (the “Signing Date”), we entered into a securities purchase agreement (the “Purchase Agreement”) with a certain institutional investor (the “Purchaser”), pursuant to which we agreed to sell and issue, in a private placement (the “Private Placement”) a pre-funded warrant to purchase up to 2,727,273 shares of the Company’s common stock (the “Pre-funded Warrant”) and a warrant to purchase up to 2,727,273 of our common stock at a purchase price of $10.99 per Pre-funded Warrant and associated Warrant, for aggregate gross proceeds to us of approximately $30.0 million, before deducting the placement agent’s fees and other offering expenses payable by the Company. The Warrant has a term of five and one-half years, is exercisable immediately following the issuance date and has an exercise price of $11.00 per share, subject to adjustment as set forth therein.
On August 3, 2021, the Private Placement closed and in September 2021, the Pre-Funded Warrants were fully exercised. In addition, we issued to the placement agent a warrant to purchase 136,364 shares of our common stock at an exercise price of $13.75.
In connection with the Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchaser. Pursuant to the Registration Rights Agreement, we are required to file a resale registration statement (the “Resale Registration Statement”) with the SEC to register for resale of the shares of our common stock issuable upon exercise of the Pre-Funded Warrant and Warrant, within 30 days of the Signing Date, and to have such Resale Registration Statement declared effective within 45 days after the Signing Date in the event the Resale Registration Statement is not reviewed by the SEC, or 75 days of the Signing Date in the event the Resale Registration Statement is reviewed by the SEC. We will be obligated to pay certain liquidated damages to the Purchaser if we fail to file the Resale Registration Statement when required, fail to cause the Resale Registration Statement to be declared effective by the SEC when required, of if we fail to maintain the effectiveness of the Resale Registration Statement. We subsequently filed a registration statement registering for resale the shares of our common stock issuable upon exercise of the Pre-Funded Warrant and Warrant which became effective on September 29, 2021.
| 4 |
Results of Operations
Three months ended September 30, 2021 compared to three months ended September 30, 2020
The following tables sets forth our results of operations for the three months ended September 30, 2021 and 2020 and the relative dollar and percentage change between the two quarters.
| Three months ended | Change | |||||||||||||||
| September 30, | (2021 to 2020) | |||||||||||||||
| 2021 | 2020 | ($) | % | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 697,674 | $ | 1,349,835 | $ | (652,161 | ) | -48 | % | |||||||
| General and administrative | 2,670,317 | 196,578 | 2,473,739 | 1258 | % | |||||||||||
| Total operating expenses | 3,367,991 | 1,546,413 | 1,821,578 | 118 | % | |||||||||||
| Loss from operations | (3,367,991 | ) | (1,546,413 | ) | (1,821,578 | ) | 118 | % | ||||||||
| Other income, net | 827 | 3,680 | (2,853 | ) | -78 | % | ||||||||||
| Net loss | $ | (3,367,164 | ) | $ | (1,542,733 | ) | $ | (1,824,431 | ) | 118 | % | |||||
| Net loss attributable to common stockholders per share, basic and diluted | $ | (0.81 | ) | $ | (0.79 | ) | $ | (0.01 | ) | 2 | % | |||||
| Weighted average number of shares used in calculating net loss per share, basic and diluted | 4,180,744 | 1,944,672 | 2,236,072 | 115 | % | |||||||||||
Research and Development Expenses
Research and development expenses consist primarily of fees paid to contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) as well as compensation expenses for certain employees involved in the planning, managing, and analyzing the work of the CROs and CMOs. Research and development expenses decreased in the three months ended September 30, 2021 over 2020 primarily as a result of the manufacturing and characterization of Decoy20 during the three months ended September 30, 2020.
General and Administrative Expenses
General and administrative expenses include compensation, employee benefits, and stock-based compensation for executive management, finance administration and human resources, facility costs (including rent), professional service fees, and other general overhead costs, including depreciation, to support our operations. General and administrative expenses increased significantly in the three months ended September 30, 2021 over 2020 as a result of increased payroll and related expenses, stock-based compensation expense for stock options issued in August 2021 and professional fees associated with being a public company following the Merger.
| 5 |
Other Income
Other income for the three months ended September 30, 2021 and 2020 was comprised of interest earned on deposits. Interest income has not been significant due to low interest rates on balances.
Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
| Nine months ended | Change | |||||||||||||||
| September 30, | (2021 to 2020) | |||||||||||||||
| 2021 | 2020 | ($) | % | |||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | $ | 1,578,513 | $ | 2,302,883 | $ | (724,370 | ) | -31 | % | |||||||
| General and administrative | 2,932,099 | 527,830 | 2,404,269 | 456 | % | |||||||||||
| Total operating expenses | 4,510,612 | 2,830,713 | 1,679,899 | 59 | % | |||||||||||
| Loss from operations | (4,510,612 | ) | (2,830,713 | ) | (1,679,899 | ) | 59 | % | ||||||||
| Other income, net | 15,548 | 16,781 | (1,233 | ) | -7 | % | ||||||||||
| Net loss | $ | (4,495,064 | ) | $ | (2,813,932 | ) | $ | (1,681,132 | ) | 60 | % | |||||
| Net loss attributable to common stockholders per share, basic and diluted | $ | (1.67 | ) | $ | (1.45 | ) | $ | (0.22 | ) | 15 | % | |||||
| Weighted average number of shares used in calculating net loss per share, basic and diluted | 2,692,770 | 1,944,672 | 748,098 | 38 | % | |||||||||||
Research and Development Expenses
Research and development expenses consist primarily of fees paid to CROs and CMOs as well as compensation expenses for certain employees involved in the planning, managing, and analyzing the work of the CROs and CMOs. Research and development expenses decreased in the nine months ended September 30, 2021 over 2020 as a result of the manufacturing and characterization of Decoy20 during the nine months ended September 30, 2020.
General and Administrative Expenses
General and administrative expenses include compensation, employee benefits, and stock-based compensation for executive management, finance administration and human resources, facility costs (including rent), professional service fees, and other general overhead costs, including depreciation, to support our operations. General and administrative expenses increased significantly in the nine months ended September 30, 2021 over 2020 primarily as a result of increased payroll and related expenses, stock-based compensation expense for stock options issued in August 2021 and professional fees associated with being a public company following the Merger.
Other Income
Other income for the nine months ended September 30, 2021 and 2020 was comprised of interest earned on deposits. Interest income has not been significant due to low interest rates on balances.
Liquidity and Resources
Since our inception, we funded our operations primarily through private offerings of our equity and debt securities. As of September 30, 2021, we had cash and cash equivalents of approximately $41.9 million. As of December 31, 2020, we had cash and cash equivalents of approximately $1.6 million.
In August 2021, we sold a Pre-funded Warrant to purchase 2,727,273 of our common stock and a Warrant to purchase 2,727,273 of our common stock in a private placement. The Warrant is exercisable at an exercise price of $11.00 per share. In September 2021, the Pre-funded Warrant was fully exercised at an exercise price of $0.01 per share. The Pre-funded Warrant and the Warrant were sold together at a combined price of $11.00, including the pre-funded exercise price. The total net proceeds were approximately $27.3 million, after deducting placement agent fees and offering expenses in the amount of approximately $2.7 million. In addition, we issued to the placement agent a warrant to purchase 136,364 shares of our common stock at an exercise price of $13.75.
Net cash used in operating activities was approximately $7.8 million for the nine months ended September 30, 2021, compared with net cash used in operating activities of approximately $2.4 million for the nine months ended September 30, 2020. This increase resulted primarily from an increase in general and administrative expenses and effects of the Merger and changes in operating assets and liabilities.
Net cash provided by financing activities for the nine months ended September 30, 2021, was approximately $48.0 million, which was provided by the proceeds received from the closing of the Private Placement in August 2021, proceeds from Merger and the sale of additional SAFEs during the nine months ended September 30, 2021.
| 6 |
Current Outlook
Following the Private Placement that closed in August 2021, we believe that we have adequate cash to fund our ongoing activities for more than one year from the date of this Quarterly Report on Form 10-Q.
We are closely monitoring ongoing developments in connection with the COVID-19 pandemic. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.
Developing drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the future to fund our operations, including if and when we progress into additional clinical trials, obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to:
| ● | the progress and costs of our preparations for clinical trials and other research and development activities; | |
| ● | the scope, prioritization and number of clinical trials and other research and development programs; | |
| ● | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates; | |
| ● | the impact of the COVID-19 pandemic; | |
| ● | the costs of the development and expansion of our operational infrastructure; | |
| ● | the costs and timing of obtaining regulatory approval for one or more of our product candidates; | |
| ● | the ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under our potential future licensing agreements; | |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; | |
| ● | the costs and timing of securing manufacturing arrangements for clinical or commercial production; | |
| ● | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves; | |
| ● | the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or technology; | |
| ● | the magnitude of our general and administrative expenses; | |
| ● | market conditions; and | |
| ● | any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates. |
| 7 |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development programs and other operations and make necessary change to our operations to reduce the level of our expenditures in line with available resources.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including the use of estimates, are presented in Decoy’s annual financial statements for the year ended December 31, 2020, and their accompanying notes included in the Form S-4 filed with the SEC in connection with the reverse merger. We periodically evaluate our estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require our subjective or complex judgments, resulting in the need to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical experience or if the underlying assumptions were to change, our financial condition and results of operations may be materially impacted.
Our critical accounting policies and estimates are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Decoy’s financial statements for the year ended December 31, 2020, included in the Form S-4 filed in connection with the reverse merger. There have been no material changes to those policies during the nine months ended September 30, 2021. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Accounting for Research and Development Costs
We record the costs associated with services provided by CROs and CMOs as they are incurred. Though the scope and timing of work are generally based on signed agreements, some judgement is involved in determining periodic expenses because payment flows do not always match the periods over which services and materials are provided to us. As a result, our management is required to make estimates of services received and efforts expended pursuant to agreements established with these third-parties at each period-end date. During the nine months ended September 30, 2021, we incurred $1.6 million of research and development expenses. As of September 30, 2021, we recorded an accrued liability of $0.2 million for expenses incurred, but not yet invoiced, and a prepaid expense of $0.1 million for payments made that relate to future periods. Over or under estimating the services received or efforts expended could cause us to overstate or understate research and development expenses incurred within a reporting period, and related accrued and prepaid expenses.
Stock-Based Compensation
We measure and record the expense related to stock-based payment awards based on the fair value of those awards on the date of grant. We use the Black-Scholes-Merton (“Black-Scholes”) option pricing model to establish the fair market value. We recognize stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, on a straight-line basis. The Black Scholes model requires that our management make certain estimates regarding the expected stock price volatility, expected term, risk–free interest rate, and dividend yield to derive an estimated fair market value. The use of different assumptions would increase or decrease the related determination of fair market value, increasing or decreasing the compensation expense related to a particular stock-based award.
Recently Issued Accounting Pronouncements
None.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Not required for smaller reporting companies.
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| Item 4. | Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2021, these disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
On August 3, 2021, we consummated the Merger between Indaptus and Decoy. Upon closing, the historical financial statements of Decoy became the historical consolidated financial statements of the registrant and upon consummation of the Merger we reconstituted our board of directors. During the quarter ended September 30, 2021, in connection with the Merger, our board of directors has established an audit committee, we hired a Chief Financial Officer, we integrated our financial reporting processes of the business with Decoy’s processes, and we implemented additional closing procedures to enable our financial reporting process. Other than such changes, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no pending material legal proceedings, and we are currently not aware of any legal proceedings or claims against us or our property that we believe will have any significant effect on our business, financial position or operating results. None of our officers or directors is a party against us in any legal proceeding.
| Item1A. | Risk Factors |
Not required for a smaller reporting company.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
| * | Filed herewith |
| # | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Indaptus Therapeutics, Inc. | ||
| Date: November 15, 2021 | By: | /s/ Jeffrey A. Meckler |
| Jeffrey A. Meckler | ||
| Chief
Executive Officer (Principal Executive Officer) | ||
| Date: November 15, 2021 | By: | /s/ Nir Sassi |
| Nir Sassi | ||
| Chief
Financial Officer (Principal Financial and Accounting Officer) | ||
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