Indaptus Therapeutics(INDP) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited financial statements show a $11.7 million net loss for H1 2021, driven by asset impairment and merger expenses Condensed Consolidated Balance Sheets Total assets decreased to $20.1 million as of June 30, 2021, due to non-current asset impairment, despite increased cash Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $16,991 | $14,671 | | Total Current Assets | $18,792 | $14,968 | | Total Non-Current Assets | $1,300 | $5,928 | | Total Assets | $20,092 | $20,896 | | Liabilities & Equity | | | | Total Current Liabilities | $5,440 | $5,334 | | Total Liabilities | $6,156 | $6,363 | | Total Shareholders' Equity | $13,936 | $14,533 | | Total Liabilities & Equity | $20,092 | $20,896 | Condensed Consolidated Statements of Operations Net loss increased to $11.7 million for H1 2021, driven by a $3.2 million asset impairment and higher merger expenses Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Research and Development Expenses | $(1,807) | $(1,275) | $(3,964) | $(3,299) | | General and Administrative Expenses | $(2,387) | $(1,630) | $(4,408) | $(3,345) | | Impairment of Long-Lived Assets | $(3,190) | - | $(3,190) | - | | Operating Loss | $(7,384) | $(2,905) | $(11,562) | $(6,644) | | Net Loss | $(7,432) | $(2,947) | $(11,661) | $(6,817) | | Loss Per Share (Basic and Diluted) | $(5.53) | $(3.66) | $(9.46) | $(9.65) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $7.4 million for H1 2021, with $10.9 million from financing, increasing cash to $18.0 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,397) | $(6,817) | | Net cash provided by investing activities | - | $769 | | Net cash provided by financing activities | $10,856 | $10,604 | | Increase in Cash and Restricted Cash | $3,459 | $4,556 | | Ending Cash and Restricted Cash | $17,991 | $13,799 | Notes to Condensed Consolidated Financial Statements Notes detail the Decoy Biosystems merger, Accordion Pill wind-down, $3.2 million asset impairment, and merger-related lawsuit settlements - The company completed a reverse merger with Decoy Biosystems, Inc. on August 3, 2021, and changed its name to Indaptus Therapeutics Inc. For accounting purposes, Decoy is considered the acquirer[35][73][75] - A decision was made to terminate the legacy Accordion Pill business, which was deemed a triggering event for an impairment assessment. This resulted in an impairment charge of approximately $3.2 million on non-current assets as of June 30, 2021[37][59] - In connection with the merger, the company completed a private placement for net proceeds of approximately $27.2 million and implemented a 1-for-4 reverse share split in July 2021[37][75][77] - Lawsuits filed in connection with the merger were voluntarily dismissed by plaintiffs after supplemental disclosures were made. The company agreed to pay plaintiffs' counsel a fee of $225,000 to resolve the matter[55][57] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business transformation post-merger, Accordion Pill wind-down, $11.7 million net loss, and $27.2 million in new financing Completion of the Merger and Business Transformation The company completed a reverse merger with Decoy Biosystems, transforming into a pre-clinical biotech and winding down the legacy Accordion Pill business - The company completed a reverse merger with Decoy Biosystems, Inc. on August 3, 2021, and changed its name to Indaptus Therapeutics, Inc[83][85] - The board determined to wind down the legacy Accordion Pill business, expecting to incur approximately $800,000 in salaries, severance, and close-out expenses[89] - Termination of key contracts related to the old business includes a €2.0 million ($2.4 million) termination fee to LTS and a $600,000 break-up fee for its office lease[90] Results of Operations Net loss for H1 2021 increased 72% to $11.7 million, driven by $3.2 million asset impairment and higher operating expenses Comparison of Operating Results (in thousands) | Expense/Loss | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | R&D Expenses, Net | $(3,964) | $(3,299) | 20.2% | | G&A Expenses | $(4,408) | $(3,345) | 31.8% | | Impairment of long-lived assets | $(3,190) | - | N/A | | Operating Loss | $(11,562) | $(6,644) | 74.0% | | Net Loss | $(11,661) | $(6,817) | 71.1% | - The increase in operating loss was mainly driven by the $3.2 million impairment charge and increased professional services expenses related to the Merger Agreement[99][100][101] Liquidity and Capital Resources Cash totaled $18.0 million as of June 30, 2021, with $27.2 million raised post-quarter, providing over twelve months of funding - The company had cash, cash equivalents, and restricted cash of approximately $18.0 million as of June 30, 2021[108] - In August 2021, the company raised approximately $27.2 million in net proceeds from a private placement of pre-funded warrants and warrants[109] - Net cash provided by financing activities for the six months ended June 30, 2021, was approximately $10.9 million, primarily from sales of ordinary shares under the Aspire Capital agreement[112] - Management believes that current cash is adequate to fund ongoing activities for more than twelve months from the report date[124] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this disclosure on market risk is not required - The company is a smaller reporting company and is not required to provide this disclosure[136] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2021, with no material changes to internal controls during the quarter - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[139] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[140] PART II — OTHER INFORMATION Item 1. Legal Proceedings Four lawsuits related to merger disclosures were dismissed after supplemental disclosures, with the company paying $225,000 in legal fees - Four lawsuits were filed in May 2021 alleging failure to disclose material information in connection with the Merger[144] - The company made supplemental disclosures, and plaintiffs subsequently voluntarily dismissed the actions. The company agreed to pay plaintiffs' counsel a fee of $225,000 to fully resolve the matter[144] Item 1A. Risk Factors The company faces risks as a pre-clinical biotech, including financial instability, reliance on Decoy20, regulatory hurdles, competition, and IP challenges Risks Related to Financial Position and Capital Requirements As a pre-clinical company with a history of losses, Indaptus requires substantial additional capital, with no guarantee of available financing - Indaptus is a pre-clinical-stage company with a limited operating history and has incurred significant operating losses since inception, with an accumulated deficit of $7.96 million as of December 31, 2020[146][147] - The company will need to seek additional equity or debt financing to fund its operations, and failure to do so may require it to delay, limit, or eliminate business opportunities[149][151] Risks Related to Indaptus' Business, Industry and Regulatory Requirements Success depends on Decoy20, which faces long, costly, and uncertain development, regulatory hurdles, COVID-19 impacts, and intense competition - The company's business is largely dependent on the success of its lead product candidate, Decoy20, and plans to file an Investigational New Drug (IND) application with the FDA in the second half of 2021[153] - The COVID-19 pandemic may adversely affect operations, including causing disruptions in the supply of product candidates, conduct of clinical trials, and the company's ability to access capital[175] - The company faces intense competition from enterprises with significantly greater financial resources and expertise in R&D, manufacturing, and marketing[186][187] Risks Relating to Indaptus' Reliance on Third Parties Indaptus relies entirely on third parties for manufacturing and clinical trials, posing risks to supply, quality, and development timelines - The company does not have internal manufacturing capabilities and relies completely on third parties for preclinical and clinical supplies[217] - The company intends to rely on third-party CROs to conduct clinical trials, and any failure by these CROs to perform their duties could delay or terminate trials[176][177] Risks Relating to Indaptus' Intellectual Property Success depends on protecting intellectual property, but patents face challenges, invalidation, infringement risks, and global enforcement difficulties - The company's success depends on its ability to obtain and maintain patent protection for its technology, but patents may be challenged, narrowed, or invalidated[223][224] - The company may infringe on third-party intellectual property rights, which could lead to costly lawsuits, prevent product commercialization, or require expensive licensing agreements[233][235] Risks Related to Ownership of Indaptus's Common Stock Common stock ownership risks include no dividends, costly public company requirements, potential dilution from future sales, and delisting risks - The company does not anticipate paying any cash dividends in the foreseeable future, so capital appreciation is the sole potential source of gain for shareholders[246] - Future sales of common stock to raise capital are expected, which could result in substantial dilution to existing shareholders[258][260] - Failure to maintain effective internal controls over financial reporting could adversely affect investor confidence and the company's share price[254][255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None[264] Item 3. Defaults upon Senior Securities No defaults upon senior securities were reported - None[265] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[265] Item 5. Other Information No other information was reported - None[265] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents and officer certifications - Lists various corporate documents and certifications filed as exhibits to the report[266]