Indaptus Therapeutics(INDP) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Indaptus Therapeutics, Inc., including the balance sheets, statements of operations and other comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and accounting policies for the periods ended June 30, 2022 and 2021 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (June 30, 2022 vs. December 31, 2021): | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $14,258,812 | $39,132,165 | | Marketable securities | $18,753,081 | - | | Total current assets | $33,272,777 | $40,387,218 | | Total assets | $34,059,411 | $40,576,583 | | Total current liabilities | $3,623,939 | $4,604,141 | | Total liabilities | $3,651,846 | $4,677,003 | | Total stockholders' equity | $30,407,565 | $35,899,580 | Condensed Consolidated Statements of Operations and Other Comprehensive Loss Condensed Consolidated Statements of Operations (Three Months Ended June 30): | Item | 2022 | 2021 | | :----------------------------------- | :----------- | :---------- | | Research and development | $1,506,165 | $391,118 | | General and administrative | $2,363,095 | $137,527 | | Total operating expenses | $3,869,260 | $528,645 | | Net loss | $(3,835,502) | $(515,479) | | Net loss per share (basic and diluted) | $(0.46) | $(0.27) | Condensed Consolidated Statements of Operations (Six Months Ended June 30): | Item | 2022 | 2021 | | :----------------------------------- | :----------- | :---------- | | Research and development | $2,803,263 | $880,839 | | General and administrative | $4,468,070 | $261,782 | | Total operating expenses | $7,271,333 | $1,142,621 | | Net loss | $(7,200,656) | $(1,127,900) | | Net loss per share (basic and diluted) | $(0.87) | $(0.58) | Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (January 1, 2022 to June 30, 2022): | Item | Amount | | :-------------------------- | :------------- | | Balance, January 1, 2022 | $35,899,580 | | Stock-based compensation | $1,735,578 | | Other comprehensive loss | $(26,937) | | Net loss | $(7,200,656) | | Balance, June 30, 2022 | $30,407,565 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30): | Activity | 2022 | 2021 | | :-------------------------------- | :------------- | :----------- | | Net cash used in operating activities | $(6,265,890) | $(2,120,321) | | Net cash used in investing activities | $(18,607,463) | $(2,200) | | Net cash provided by financing activities | - | $5,450,000 | | Net (decrease) increase in cash | $(24,873,353) | $3,327,479 | | Cash and cash equivalents at end of period | $14,258,812 | $4,964,978 | Notes to Condensed Consolidated Financial Statements NOTE 1: GENERAL - Indaptus Therapeutics, Inc. is a biotechnology company focused on developing a novel, multi-targeted product for enhancing cancer immunotherapy for unresectable or metastatic solid tumors and lymphomas[21] - The company completed a merger with Decoy Biosystems, Inc. on August 3, 2021, and subsequently changed its name to Indaptus Therapeutics, Inc., with shares commencing trading on Nasdaq Capital Market under 'INDP' on August 4, 2021[21] - In connection with the merger, Indaptus raised approximately $27.3 million in net proceeds from a private placement of pre-funded warrants and warrants in July 2021[21] - The company has an accumulated deficit of $22.9 million as of June 30, 2022, and expects to incur additional losses, requiring future financing. Management believes it has adequate cash for at least one year but plans to raise additional capital[25][26] NOTE 2: SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared in accordance with US GAAP and S-X Article 10 for interim financial statements, reflecting all necessary adjustments for a fair statement[28] - The company uses estimates and assumptions, particularly for stock-based compensation fair value and period-end obligations to contract research organizations[32] Anti-Dilutive Securities Excluded from EPS Calculation (June 30): | Item | 2022 | 2021 | | :---------------------- | :--------- | :------- | | Outstanding stock options | 1,605,623 | 206,079 | | Warrants | 3,090,787 | - | NOTE 3: MARKETABLE SECURITIES - The company's marketable securities consist of U.S. treasury bonds classified as available-for-sale, recorded at fair value with unrealized gains/losses in AOCI[36][52] Marketable Securities Data: | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Fair value | $18,753,081 | - | | Unrealized loss (3 months) | $(17,716) | - | | Unrealized loss (6 months) | $(26,937) | - | NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid Expenses and Other Current Assets: | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Prepaid insurance | $142,588 | $945,023 | | Prepaid research and development | $69,226 | $127,643 | | Other receivables | - | $21,056 | | Other prepaid expenses | $49,070 | $12,931 | | Total | $260,884 | $1,106,653 | NOTE 5: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Accounts Payable and Other Current Liabilities: | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Accounts payable | $2,432,739 | $2,637,806 | | Accrued employee costs | $505,973 | $1,371,136 | | Accrued professional fees | $200,128 | $139,871 | | Accrued research and development | $169,308 | $135,751 | | Accrued board fees | $116,000 | $125,333 | | Delaware franchise taxes payable | $64,465 | - | | Other accrued expenses | $37,421 | $97,779 | | Total | $3,526,034 | $4,507,676 | NOTE 6: STOCK-BASED COMPENSATION - The Indaptus 2021 Stock Incentive Plan, approved in June 2021, provides for up to 1,864,963 shares of common stock for various equity awards[56] Stock Option Activity (Six Months Ended June 30, 2022): | Item | Number of options | Weighted average exercise price | | :-------------------------- | :---------------- | :---------------------------- | | Outstanding as of Jan 1, 2022 | 1,174,660 | $17.10 | | Granted | 464,200 | $4.67 | | Forfeited and cancelled | (33,237) | $11.46 | | Outstanding as of Jun 30, 2022 | 1,605,623 | $13.62 | | Exercisable as of Jun 30, 2022 | 137,797 | $77.01 | Total Stock-Based Compensation Expense: | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $214,254 | $8,280 | $384,690 | $16,470 | | General and administrative | $690,141 | $12,393 | $1,350,888 | $24,648 | | Total | $904,395 | $20,673 | $1,735,578 | $41,118 | As of June 30, 2022, unrecognized compensation cost for unvested options was approximately $5.9 million, to be recognized over 2.0 years NOTE 7: CAPITALIZATION - As of June 30, 2022, and December 31, 2021, the company had 200,000,000 shares of common stock authorized and 8,258,597 shares issued and outstanding[68] - There were warrants outstanding to purchase 3,090,787 shares of common stock as of June 30, 2022, with a weighted average exercise price of $12.50 and a remaining contractual term of 4.5 years[68] NOTE 8: COMMITMENTS AND CONTINGENCIES - LTS Lohmann Therapie-System AG filed a Request for Arbitration on July 13, 2022, seeking €2 million (approximately $2.1 million) from the company's subsidiary Intec Israel for reimbursement related to the discontinuation of the Accordion Pill business. The company accrued this amount as of June 30, 2022[65] Future Minimum Annual Lease Payments (as of June 30, 2022): | Year | Amount | | :--- | :------- | | 2022 | $48,472 | | 2023 | $82,388 | | Total | $130,860 | | Present value of operating lease liability | $125,812 | NOTE 9: SUBSEQUENT EVENTS - The company evaluated subsequent events through August 8, 2022, and concluded that no events requiring recognition or disclosure occurred, except for the LTS arbitration disclosed in Note 8[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a detailed analysis of operating expenses and net loss for the three and six months ended June 30, 2022, and a discussion of liquidity, capital resources, and critical accounting estimates Overview - Indaptus Therapeutics is a pre-clinical biotechnology company developing a novel, patented systemically-administered anti-cancer and anti-viral immunotherapy based on attenuated and killed Gram-negative bacteria[72] - The company's lead clinical candidate, Decoy20, has completed GMP manufacturing and IND-enabling studies. In May 2022, the U.S. FDA cleared its IND application for a Phase 1 clinical trial in advanced solid tumors, planned for the second half of 2022[72][73] - The company completed a merger with Decoy Biosystems, Inc. on August 3, 2021, and subsequently wound down the Accordion Pill business of Intec Israel[74][77] - A private placement in July 2021 generated approximately $27.3 million in net proceeds from the sale of pre-funded warrants and warrants[79][99] Components of Operating Results - Research and development expenses, primarily fees to CROs and CMOs and compensation, are expected to increase substantially due to ramp-up in clinical development activities[82][83] - General and administrative expenses, including compensation, benefits, facility costs, and professional fees, are also expected to increase significantly due to headcount growth, public company operating costs, and potential commercialization activities[84][85] - Other income, net, includes interest earned on deposits and other incidental income/expense items[86] Results of Operations - Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021 Operating Results (Three Months Ended June 30, 2022 vs. 2021): | Item | 2022 | 2021 | Change ($) | | :------------------------- | :----------- | :---------- | :----------- | | Research and development | $1,506,165 | $391,118 | $1,115,047 | | General and administrative | $2,363,095 | $137,527 | $2,225,568 | | Total operating expenses | $3,869,260 | $528,645 | $3,340,615 | | Net loss | $(3,835,502) | $(515,479) | $(3,320,023) | | Net loss per share | $(0.46) | $(0.27) | $(0.19) | - The increase in R&D expenses was primarily due to a $520,000 increase in payroll and related expenses (including $210,000 stock-based compensation) and a $570,000 increase for Phase 1 clinical trial preparation and IND submission[90] - The increase in G&A expenses was mainly driven by a $1.2 million increase in payroll and related expenses (including $700,000 stock-based compensation) due to increased executive headcount post-Merger, and a $900,000 increase in D&O insurance and professional fees as a public company[91] Results of Operations - Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021 Operating Results (Six Months Ended June 30, 2022 vs. 2021): | Item | 2022 | 2021 | Change ($) | | :------------------------- | :----------- | :---------- | :----------- | | Research and development | $2,803,263 | $880,839 | $1,922,424 | | General and administrative | $4,468,070 | $261,782 | $4,206,288 | | Total operating expenses | $7,271,333 | $1,142,621 | $6,128,712 | | Net loss | $(7,200,656) | $(1,127,900) | $(6,072,756) | | Net loss per share | $(0.87) | $(0.58) | $(0.29) | - The increase in R&D expenses was primarily due to a $1 million increase in payroll and related expenses (including $370,000 stock-based compensation) and a $900,000 increase for Phase 1 clinical trial preparation and IND submission[95] - The increase in G&A expenses was mainly due to a $2.3 million increase in payroll and related expenses (including $1.3 million stock-based compensation) from increased executive headcount post-Merger, and a $1.7 million increase in D&O insurance and professional fees as a public company[96] Liquidity and Resources Cash and Cash Equivalents & Marketable Securities: | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $14,258,812 | $39,132,165 | | Marketable securities | $18,753,081 | - | | Total | $33,011,893 | $39,132,165 | Net Cash Flow Activities (Six Months Ended June 30): | Activity | 2022 | 2021 | | :-------------------------------- | :------------- | :----------- | | Net cash used in operating activities | $(6,265,890) | $(2,120,321) | | Net cash used in investing activities | $(18,607,463) | $(2,200) | | Net cash provided by financing activities | - | $5,450,000 | Current Outlook - The company believes it has adequate cash to fund operations for more than one year from the report date, following the August 2021 private placement[103] - Developing drugs and conducting clinical trials are expensive, and significant additional financing will be required to fund future operations, including clinical trials, regulatory approvals, and commercialization[105] - Future capital requirements depend on factors like clinical trial progress, regulatory approvals, manufacturing costs, and intellectual property protection. The COVID-19 pandemic and global economic conditions may adversely impact the ability to raise capital[105][106][107] Critical Accounting Estimates - Accounting for Research and Development Costs: Management makes estimates for services received and efforts expended from CROs and CMOs, which can impact reported R&D expenses and related accruals/prepayments[111] - Stock-Based Compensation: Fair value of awards is determined using the Black-Scholes-Merton model, requiring subjective estimates for expected stock price volatility, expected term, risk-free interest rate, and dividend yield[113] Recently Issued Accounting Pronouncements - There are no recently issued accounting pronouncements that have a material impact on the company[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for smaller reporting companies - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[115] Item 4. Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting were identified during the quarter - As of June 30, 2022, the company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by the principal executive officer and principal financial officer[117] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[118] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in an arbitration request filed by LTS Lohmann Therapie-System AG seeking €2 million from its subsidiary Intec Israel related to the discontinuation of the Accordion Pill business. This amount has been accrued as of June 30, 2022 - LTS Lohmann Therapie-System AG filed a Request for Arbitration on July 13, 2022, against Intec Israel, alleging entitlement to €2 million for reimbursement following the discontinuation of the Accordion Pill business[121] - As of June 30, 2022, the company accrued €2 million (approximately $2.1 million) for this potential obligation[121] Item 1A. Risk Factors This item is not required for a smaller reporting company - As a smaller reporting company, Indaptus Therapeutics, Inc. is not required to provide a separate section for Risk Factors in this Form 10-Q[122] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - The company reported no unregistered sales of equity securities or use of proceeds for the period[123] Item 3. Defaults upon Senior Securities There were no defaults upon senior securities to report for the period - The company reported no defaults upon senior securities for the period[124] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company's operations[124] Item 5. Other Information No other information is required to be disclosed in this section - There is no other information to report under this item[125] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications from executive officers, and XBRL-related documents - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[126]