Indaptus Therapeutics, Inc 8-K, filed Aug 16, 2021
Indaptus Therapeutics, Inc. (INDP)
About this 8-K
Indaptus Therapeutics, Inc filed this 8-K on August 16, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
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Washington, DC 20549
FORM
CURRENT REPORT
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Item 9.01.Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The unaudited condensed interim financial statements of Decoy Biosystems, Inc., a Delaware corporation (“Decoy”), as of June 30, 2021 and December 31, 2020 and for the six months ended June 30, 2021 is attached hereto as Exhibit 99.1.
(b) Pro Forma Financial Information.
As previously disclosed in the Current Reports on Form 8-K filed by Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.), a Delaware corporation (the “Company”), on August 6, 2021 with the Securities and Exchange Commission, on August 3, 2021, the Company completed its business combination with Decoy following the satisfaction or waiver of the conditions set forth in the Agreement and Plan of Merger, dated as of March 15, 2021 among the Company, Decoy, Intec Pharma Ltd., an Israeli company and wholly owned subsidiary of the Company, Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of the Company, 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”).
The unaudited pro forma condensed combined balance sheet data as of June 30, 2021, giving effect to the Merger as if it took place on June 30, 2021, and the statements of operations for six-month period ended June 30, 2021, giving effect to the Merger as if it took place on January 1, 2021, is attached hereto as Exhibit 99.2.
(d) Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 16, 2021
| INDAPTUS THERAPEUTICS, INC. | ||
| By: | /s/ Nir Sassi | |
| Nir Sassi | ||
| Chief Financial Officer | ||
Exhibit 99.1
DECOY BIOSYSTEMS, INC.
UNAUDITED FINANCIAL STATEMENTS
AS OF JUNE 30, 2021 AND DECEMBER 31, 2020 AND
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020
DECOY BIOSYSTEMS, INC.
TABLE OF CONTENTS
| Page | ||
| Unaudited Financial Statements | ||
| Unaudited Balance Sheets | 3 | |
| Unaudited Statements of Operations | 4 | |
| Unaudited Statements of Stockholders’ Equity | 5 | |
| Unaudited Statements of Cash Flows | 6 | |
| Notes to the Unaudited Financial Statements | 7 | |
| 2 |
Unaudited Balance Sheets
| June 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,964,978 | $ | 1,637,499 | ||||
| Deferred transaction costs | 873,836 | - | ||||||
| Prepaid expenses and other current assets | 125,855 | 94,500 | ||||||
| Total current assets | 5,964,669 | 1,731,999 | ||||||
| Property and equipment, net | 3,123 | 1,349 | ||||||
| Other assets | 4,000 | 44,445 | ||||||
| Total assets | $ | 5,971,792 | $ | 1,777,793 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and other current liabilities | $ | 879,146 | $ | 598,365 | ||||
| SAFE agreements | 6,417,129 | 1,417,129 | ||||||
| Total current liabilities | 7,296,275 | 2,015,494 | ||||||
| Commitments and contingencies (Note 8) | - | - | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock; Series Seed; $0.001 par value; 366,317 shares authorized, 314,928 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | 315 | 315 | ||||||
| Common stock; $0.001 par value, 1,450,000 and 1,200,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 732,635 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | 733 | 733 | ||||||
| Additional paid in capital | 7,761,870 | 7,720,752 | ||||||
| Accumulated deficit | (9,087,401 | ) | (7,959,501 | ) | ||||
| Total stockholders’ equity | (1,324,483 | ) | (237,701 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 5,971,792 | $ | 1,777,793 | ||||
See accompanying notes to the financial statements
| 3 |
Unaudited Statements of Operations
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | $ | 391,118 | $ | 578,605 | $ | 880,839 | $ | 953,048 | ||||||||
| General and administrative | 137,527 | 137,134 | 261,782 | 331,252 | ||||||||||||
| Total operating expenses | 528,645 | 715,739 | 1,142,621 | 1,284,300 | ||||||||||||
| Loss from operations | (528,645 | ) | (715,739 | ) | (1,142,621 | ) | (1,284,300 | ) | ||||||||
| Other income, net | 13,166 | 3,121 | 14,721 | 13,101 | ||||||||||||
| Net loss | $ | (515,479 | ) | $ | (712,618 | ) | $ | (1,127,900 | ) | $ | (1,271,199 | ) | ||||
| Net loss available to common stockholders per share of common stock, basic and diluted | $ | (0.70 | ) | $ | (0.97 | ) | $ | (1.54 | ) | $ | (1.74 | ) | ||||
| Weighted average number of shares used in calculating net loss per share, basic and diluted | 732,635 | 732,635 | 732,635 | 732,635 | ||||||||||||
See accompanying notes to the financial statements
| 4 |
Unaudited Statements of Stockholders’ Equity
| Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||
| Series Seed Preferred | Common stock | Additional paid in | Accumulated | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||
| Balance, January 1, 2020 | 314,928 | $ | 315 | 732,635 | $ | 733 | $ | 7,584,749 | $ | (4,375,350 | ) | $ | 3,210,447 | |||||||||||||||||||
| Stock-based compensation | - | - | - | - | 38,883 | - | 38,883 | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (558,581 | ) | (558,581 | ) | |||||||||||||||||||||||
| Balance, March 31, 2020 | 314,928 | 315 | 732,635 | 733 | 7,623,632 | (4,933,931 | ) | 2,690,749 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 38,781 | - | 38,781 | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (712,618 | ) | (712,618 | ) | |||||||||||||||||||||||
| Balance, June 30, 2020 | 314,928 | $ | 315 | 732,635 | $ | 733 | $ | 7,662,413 | $ | (5,646,549 | ) | $ | 2,016,912 | |||||||||||||||||||
| Balance, January 1, 2021 | 314,928 | 315 | 732,635 | 733 | 7,720,752 | (7,959,501 | ) | (237,701 | ) | |||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 20,445 | - | 20,445 | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (612,421 | ) | (612,421 | ) | |||||||||||||||||||||||
| Balance, March 31, 2021 | 314,928 | 315 | 732,635 | 733 | 7,741,197 | (8,571,922 | ) | (829,677 | ) | |||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 20,673 | - | 20,673 | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (515,479 | ) | (515,479 | ) | |||||||||||||||||||||||
| Balance, June 30, 2021 | 314,928 | $ | 315 | 732,635 | $ | 733 | $ | 7,761,870 | $ | (9,087,401 | ) | $ | (1,324,483 | ) | ||||||||||||||||||
| Balance | 314,928 | $ | 315 | 732,635 | $ | 733 | $ | 7,761,870 | $ | (9,087,401 | ) | $ | (1,324,483 | ) | ||||||||||||||||||
See accompanying notes to the financial statements
| 5 |
Unaudited Statements of Cash Flows
| 2021 | 2020 | |||||||
| Six months ended | ||||||||
| June | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,127,900 | ) | $ | (1,271,199 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 426 | 426 | ||||||
| Stock-based compensation | 41,118 | 77,664 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Deferred transaction costs | (873,836 | ) | - | |||||
| Prepaid expenses and other current assets | (31,355 | ) | 65,023 | |||||
| Other assets | 40,445 | |||||||
| Accounts payable and other current liabilities | (169,219 | ) | (101,252 | ) | ||||
| Net cash used in operating activities | (2,120,321 | ) | (1,229,338 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (2,200 | ) | - | |||||
| Net cash flows used in investing activities | (2,200 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Advances received from potential merger counterparty | 450,000 | |||||||
| Proceeds from SAFEs | 5,000,000 | 1,167,129 | ||||||
| Net cash flows provided by financing activities | 5,450,000 | 1,167,129 | ||||||
| Net increase (decrease) in cash and cash equivalents | 3,327,479 | (62,209 | ) | |||||
| Cash and cash equivalents at beginning of period | 1,637,499 | 3,798,955 | ||||||
| Cash and cash equivalents at end of period | $ | 4,964,978 | $ | 3,736,746 | ||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid for income taxes | $ | 800 | $ | 800 | ||||
| Cash received for interest earned on deposits | $ | 2,362 | $ | 12,365 | ||||
See accompanying notes to the financial statements
| 6 |
Notes to the Unaudited Financial Statements
NOTE 1: DESCRIPTION OF BUSINESS
Decoy Biosystems, Inc. (the “Company” or “Decoy”) was incorporated in Delaware in 2013. 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.
The Company has taken advantage of the world’s first immunotherapy, developed in 1894, to produce a systemically administered, killed and intact, non-pathogenic bacterial product that is able to synergistically activate both innate and adaptive anti-tumor immune responses. Decoy’s broadly patented technology, including its first clinical candidate, Decoy20, produces significant pre-clinical single agent activity against orthotopic colorectal and metastatic pancreatic carcinoma, and synergizes with existing immunotherapies, including anti-PD-1 checkpoint therapy, targeted therapy and low-dose chemotherapy, to eradicate established hepatocellular carcinoma and non-Hodgkin’s lymphoma tumors, with induction of innate and adaptive immunological memory. These initial target indications make up 20% of yearly world-wide cancer cases and 24% of cancer deaths. Decoy technology is also active against chronic hepatitis B virus (“HBV”) and human immunodeficiency virus (“HIV”) infection in standard pre-clinical models. Decoy20 is expected to enter clinical development for cancer in the first half of 2022.
In March 2021, the Company entered into a definitive merger agreement with a counterparty and its publicly traded parent. In connection with the merger, the Company’s outstanding common stock, preferred stock, and SAFEs will be converted in the business combination into the right to receive shares of the counterparty’s stock at a calculated exchange ratio. Decoy will emerge from the merger as the surviving corporation and will become a wholly owned subsidiary of the counterparty’s parent entity. Additionally, outstanding stock options will be exchanged for equivalent securities in the counterparty on their existing terms (with standard adjustments to exercise price and underlying shares, consistent with the foregoing exchange ratio). The vesting of certain outstanding stock options will be accelerated upon the change in control. Refer to Note 9 for information regarding the closing of the merger.
The Company operates in one business segment with the Company’s chief executive officer reviewing all activities.
The Company is located and headquartered in San Diego, California.
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.
In March 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus as a “pandemic”. First identified in late 2019 and known now as COVID-19, the outbreak has impacted millions of individuals worldwide. In response, many countries have implemented measures to combat the outbreak which have impacted global business operations. As of the date of issuance of the financial statements, the Company’s operations have not been significantly impacted; however, the Company continues to monitor the situation. No impairments were recorded in the three and six months ended June 30, 2021; however, due to significant uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows, and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.
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 June 30, 2021 of $9.1 million, and expects to incur future additional losses as clinical testing and commercialization of Decoy20 will require significant additional financing. Management anticipates cash on hand as of June 30, 2021 will not be sufficient to continue development of Decoy20 and additional funding will be required over the next twelve months to support upcoming clinical trials and other development activities.
| 7 |
DECOY BIOSYSTEMS, INC.
During the six months ended June 30, 2021, the Company issued Simple Agreements for Future Equity (“SAFEs”) in the amount of $5,000,000 (Note 5). Additionally, in March 2021, the Company executed a definitive merger agreement with a publicly traded counterparty to effect a public listing of its stock, and on August 3, 2021, the business combination closed. Prior to the closing of the transaction, the counterparty closed a private placement to raise gross cash proceeds of $30,000,000. The combined company’s ability to continue to meet its cash requirements and continue as a going concern will depend on, among other things, management’s ability to raise additional equity or debt financing, the degree of success the Company experiences in further development of its technologies, and management’s ability to manage costs and working capital successfully. Further, financial and economic conditions, including those resulting from the COVID-19 pandemic, could limit access to capital sources and impair the Company’s ability to raise capital. Based on the combined company’s existing resources and its projections of future cash expenditures, the combined company believes it has sufficient liquidity for at least the next 12 months.
The Company’s financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the audited financial statements and notes for the year ended December 31, 2020.
The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The accompanying interim unaudited financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the year ended December 31, 2020.
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 assets and liabilities at the date of the financial statements, and the reported amounts of income and expense during the reporting periods. The most significant estimates relate to the determination of the fair value of the Company’s common stock, the fair value of stock option grants, 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.
The basic loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The diluted loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the diluted weighted average number of shares outstanding during the period. The potentially dilutive stock options on the Company’s common stock were not considered in the computation of diluted net loss per share as they would be anti-dilutive. No dilutive effective was calculated for the three and six months ended June 30, 2021 and 2020 as the Company reported a net loss for each period.
| 8 |
DECOY BIOSYSTEMS, INC.
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. Cash equivalents are recorded at cost, which approximates fair value. As of June 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.
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 three years for employee-related computers and other office equipment and five years for furniture. Leasehold improvements are amortized over the shorter of the lease-term or the estimated useful life of the related asset. The Company recognized $213 and $213 of depreciation expense for the three months ended June 30, 2021 and 2020, respectively. The Company recognized $426 and $426 of depreciation expense for the six months ended June 30, 2021 and 2020, respectively.
Patents
The Company expenses patent costs, including related legal costs, as incurred and records such costs within general and administrative expense in the accompanying 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.
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. Expenses directly related to the merger transaction have been deferred until the closing of the transaction, which occurred August 3, 2021.
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. As of June 30, 2021 and December 31, 2020, the Company has recorded a full valuation allowance against its deferred tax assets.
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DECOY BIOSYSTEMS, INC.
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. For stock options with performance conditions, the Company records compensation expense when it is deemed probable that the performance condition will be met.
The Black-Scholes model requires the use of highly subjective and complex assumptions, which determine the fair value of share-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 Company has elected to use the contractual expiration period to compute the expected term, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
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.
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 June 30, 2021 and December 31, 2020, the recorded values of cash and cash equivalents, prepaid expenses, and accounts payable and other current liabilities approximate their fair values due to the short-term nature of these items.
| 10 |
DECOY BIOSYSTEMS, INC.
As of June 30, 2021 and December 31, 2020, the carrying value of outstanding SAFEs (refer to Note 5) 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.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company invests its excess cash in low-risk, highly liquid money market funds with a major financial institution.
Recent 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.
NOTE 3: PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are comprised of the following:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid research and development | $ | 119,189 | $ | 83,550 | ||||
| Prepaid insurance | 2,244 | 6,972 | ||||||
| Other prepaid expenses | 4,422 | 3,978 | ||||||
| Total prepaid expenses and other current assets | $ | 125,855 | $ | 94,500 | ||||
NOTE 4: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities are comprised of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Deposit | $ | 650,000 | $ | 200,000 | ||||
| Accrued research and development | 171,132 | 63,753 | ||||||
| Accounts payable | 31,208 | 155,957 | ||||||
| Accrued legal fees | 11,568 | 171,630 | ||||||
| Other accrued expenses | 15,238 | 7,025 | ||||||
| Total accounts payable and other current liabilities | $ | 879,146 | $ | 598,365 | ||||
NOTE 5: SIMPLE AGREEMENTS FOR FUTURE EQUITY
The Company issued a series of SAFEs with accredited investors between December 2019 and April 2021. The total (“Purchase Amount”) of the SAFEs is $6.4 million and $1.4 million as of June 30, 2021 and December 31, 2020, respectively. The SAFEs contemplate four settlement scenarios as described below. In all scenarios, the (“Valuation Cap”) is $25 million, the (“Capitalization”) is defined as all shares of capital stock issued and outstanding on an as-converted basis including the exercise or conversion of outstanding stock options, and the (“SAFE Price”) is the price per share derived by dividing the Valuation Cap by the Capitalization.
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DECOY BIOSYSTEMS, INC.
Equity Financing
An (“Equity Financing”) is defined as a transaction for the purpose of raising capital pursuant to which the Company issues preferred stock at a fixed pre-money valuation. Upon an Equity Financing, the Company will issue to the investor either (a) if the pre-money valuation is less than or equal to $25.0 million, a number of shares of preferred stock equal to the Purchase Amount divided by the price per share of the preferred stock or (b) if the pre-money valuation is greater than $25.0 million, a number of shares of preferred stock equal to the Purchase Amount divided by the SAFE Price.
Liquidity Event
A (“Liquidity Event”) is a change of control or initial public offering. Upon a Liquidity Event, the holder will, at its option, receive from the Company either (a) a cash payment equal to the Purchase Amount or (b) a number of shares of common stock equal to the Purchase Amount divided by (i) the price per share equal to the Valuation Cap divided by (ii) the Capitalization. However, if the Liquidity Event is a change of control intended to qualify as a tax-free reorganization for U.S. federal income tax purposes, the SAFE will settle in shares and the holder will not have the right to elect a cash settlement (Note 9).
Dissolution Event
A (“Dissolution Event”) is (i) a voluntary termination of operations, (ii) general assignment for the benefit of the Company’s creditors, or (iii) any other liquidation dissolution, or winding up of the Company except a Liquidity Event, whether voluntary or involuntary. In the event of a Dissolution Event, the Company will pay an amount equal to the Purchase Amount immediately prior to or concurrent with the consummation of the Dissolution Event. The Purchase Amount will be paid in preference to any distribution of the Company’s assets to holders of outstanding capital stock.
Termination
The SAFEs terminate upon either (i) the issuance of stock to the holders pursuant to an Equity Financing or Liquidity Event or (ii) the payment of amounts due to the holders pursuant to a Liquidity Event or Dissolution Event.
As of June 30, 2021, the Company was the target of a potential acquisition by a publicly traded company and concluded it was appropriate to include the SAFEs in current liabilities in anticipation of their conversion pursuant to a Liquidity Event. As the SAFEs may potentially be settled in cash, the Company has presented the instruments as liabilities as of June 30, 2021 and December 31, 2020.
In 2018, the Company adopted the Decoy Biosystems, Inc. 2018 Equity Incentive Plan (the “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. The Plan was amended in December 2019 to authorize additional shares reserved for stock option grants. The Plan, as amended, authorizes grants of options up to 89,004 shares. Stock options must be granted with an exercise price equal to the underlying stock’s fair market value at the date of grant. Stock options generally have a ten-year contractual term and vest over a three-year or four-year period starting from the date specified in each agreement.
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DECOY BIOSYSTEMS, INC.
SUMMARY OF STOCK OPTION ACTIVITY
| Weighted average | ||||||||||||||||
| Shares | Exercise price | Remaining contractual life | Intrinsic value | |||||||||||||
| Outstanding January 1, 2021 | 77,639 | $ | 7.58 | 8.2 | $ | 28,003 | ||||||||||
| Granted | - | |||||||||||||||
| Forfeited and cancelled | - | |||||||||||||||
| Outstanding June 30, 2021 | 77,639 | $ | 7.58 | 7.7 | $ | 28,003 | ||||||||||
| Exercisable at June 30, 2021 | 53,432 | |||||||||||||||
| Vested and expected to vest June 30, 2021 | 77,639 | $ | 7.58 | 7.7 | $ | 28,003 | ||||||||||
The Company recognized share-based compensation expense of $20,673 and $38,781 during the three months ended June 30, 2021 and 2020, respectively. The Company recognized share-based compensation expense of $41,118 and $77,664 during the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, total compensation cost not yet recognized related to unvested stock options was $137,602, which is expected to be recognized over a weighted-average period of 2.0 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 Company did not award stock options in during the three and six months ended June 30, 2021 and 2020.
NOTE 7: CAPITALIZATION
Series Seed Preferred stock
In August 2018, the Company entered into the Series Seed Preferred Stock Purchase Agreement (“Series Seed SPA”), under which 314,928 (“Series Seed Preferred”) shares were purchased in exchange for cash consideration of $6.0 million. The purchase price of Series Seed Preferred shares was $19.11 per share. In connection with the merger transaction, all outstanding shares of Series Seed Preferred stock was converted to common stock on August 3, 2021.
The Series Seed Preferred shares contain the following rights and privileges:
Dividends
Holders of Series Seed Preferred are entitled to receive dividends on a pro rata basis when and as declared by the board of directors out of any assets of the Company legally available for such purpose.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company, the assets of the Company shall be distributed among the holders of Series Seed Preferred and common stock pro rata based on the number of shares held by each shareholder on an as-converted to common basis.
A liquidation transaction is defined as an acquisition of the Company, including a merger, acquisition, or consolidation of the corporation provided that the Company’s stockholders of the Company do not hold more than 50% of the voting power of the surviving entity. If at least 60% of the common and preferred shareholders, voting together as a single class on an as-converted to common basis, elect not to treat the transaction as a liquidation transaction, an acquisition of the Company will not be deemed to constitute a liquidation transaction.
Redemption
The Series Seed Preferred stock is not redeemable, except as to allow the operation of the liquidation rights discussed above.
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DECOY BIOSYSTEMS, INC.
Conversion rights
Optional conversion
Each share of preferred stock is convertible, at the option of the holder, at any time after the issuance date into a number of common shares determined by dividing the (“Original Issue Price”) defined as $19.109106, by the (“Conversion Price”), initially equal to the Original Issue Price and subject to adjustment as described below.
Mandatory conversion
Each share of preferred stock will automatically convert into shares of common stock at the then-current Conversion Price upon the earlier of (a) the date specified by a vote or written consent of a majority of the shareholders of Series Seed Preferred stock then outstanding or (b) immediately prior to the closing of the Company’s common stock to the public in a firm commitment underwritten public offering pursuant to a registration under the Securities Act of 1933 which values the Company at $30.0 million or more and which results in aggregate gross proceeds to the Company of at least $15.0 million.
Adjustment to conversion prices
The Conversion Price for the Series Seed Preferred stock is subject to adjustments from time to time in the event of stock splits and dividends, reverse stock splits, and the issuance of additional shares below the Conversion Price.
In the event the Company declares a distribution other than a subdivision, combination, merger, or sale of assets, the holders of Series Seed Preferred stock are entitled to a proportionate share of any such distribution on an as-converted to common basis.
In the event of a recapitalization of common stock or the merger or consolidation of the Company with or into another corporation, provision shall be made so the holders of Series Seed Preferred are thereafter entitled to receive the number of shares of stock or other securities or property of the Company on an as-converted to common basis.
The Company must at all times reserve and keep available sufficient authorized but unissued shares of common stock to effect the conversion of the Series Seed Preferred stock. If at any time the number of authorized but unissued shares of common stock is insufficient to effect such conversion, the Company must take corporation actions as may be necessary to increase the number of authorized but unissued common shares.
Voting
Each holder of outstanding shares of preferred stock shall have the same right to vote or act on all matters on which the holders of common stock have the right to vote or act. Holders of preferred stock shall be entitled to notice of any stockholders’ meeting or action as to such matters on the same basis as the holders of common stock. Holders of common and preferred stock shall vote together or act together as if a single class on all such matters.
Common stock
As of June 30, 2021, the Company had 1,450,000 shares of common stock authorized and 732,635 shares of common stock issued and outstanding (Note 9). As of December 31, 2020, the Company had 1,200,000 shares of common stock authorized and 732,635 shares of common stock issued and outstanding.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Litigation
As of June 30, 2021 and December 31, 2020, 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. As of June 30, 2021, the Company has not recognized any losses related to such legal proceedings.
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DECOY BIOSYSTEMS, INC.
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 $6,365 and $1,707 during the three months ended June 30, 2021 and 2020, respectively. The Company recognized rent expense of $12,730 and $10,887 during the six months ended June 30, 2021 and 2020, respectively.
NOTE 9: SUBSEQUENT EVENTS
The Company evaluated subsequent events from June 30, 2021, the date of these financial statements, through August 13, 2021, which represents the date the financial statements were issued, for events requiring recognition or disclosure in the financial statements for the period ended June 30, 2021. The Company concluded that no events have occurred that would require recognition or disclosure in the financial statements, except as described below:
Approval and closing of merger agreement
On August 3, 2021, the merger closed and all outstanding SAFEs were converted to 288,822 shares of common stock of the combined company. Further, the Company’s outstanding preferred stock was converted to common stock and all outstanding shares of common stock were exchanged for shares of the combined company. The combined company is called Indaptus Therapeutics, Inc. (“Indaptus”) and its common stock began trading on The Nasdaq Capital Market on August 4, 2021. Immediately following the closing of the merger, there were 5,405,963 shares of Indaptus common stock outstanding with pre-merger Decoy shareholders owning approximately 65.6% of such outstanding shares.
Prior to the closing of the merger, Indaptus closed a private placement financing to raise gross cash proceeds of $30.0 million. Additionally, the Company expects net cash proceeds from the merger to total $9.4 million. Indaptus issued pre-funded warrants to purchase 2,727,273 shares of its common stock and warrants to purchase up to 2,727,273 shares of its common stock, at an effective purchase price of $11.00 per pre-funded warrant and associated warrant. The warrants have a term of five and one-half years, are exercisable immediately and have an exercise price of $11.00 per share. Indaptus intends to use the net proceeds from the private placement for working capital purposes. Assuming the exercise in full of the pre-funded warrants sold in the private placement, there would be 8,133,236 shares of Indaptus common stock outstanding.
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Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL information
On August 3, 2021, (the “Closing Date”) Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.), a Delaware corporation (the “Company”), 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, Intec Pharma Ltd., an Israeli company and wholly owned subsidiary of the Company (“Intec Israel”), 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”).
Previously, on July 27, 2021, the Company, Intec Israel and Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of Indaptus (the “Domestication Merger Sub”), completed a 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.
In connection with the Merger and for the purpose of meeting Nasdaq’s initial listing requirements, Intec Israel implemented a 1-for-4 reverse share split of its outstanding ordinary shares that was effective after the close of trading on July 26, 2021, and prior to the effectiveness of the Domestication Merger. All share and per share amounts in these condensed combined financial statements have been retroactively adjusted to reflect the reverse share split.
Further, in connection with the Merger, on July 23, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a certain institutional investor for the sale and issuance by the Company in a private placement (the “Private Placement”) of approximately $29.9 million (or approximately $30 million assuming the full exercise of the pre-funded warrant) of a pre-funded warrant and accompanying warrant. The closing of the Private Placement was completed on August 3, 2021.
Following the completion of the Merger, on August 4, 2021, the Company’s board resolved to effect a business termination of Intec Israel through the winding down of Intec Israel’s operations, satisfying liabilities, and disposing its assets (“Business Termination”). The Company expects that the winding down of the Accordion Pill business will be substantially complete by the end of the third quarter of 2021.
The Merger will be accounted for as a “reverse merger” since immediately upon the completion of the Merger, the Decoy shareholders prior to the Merger held a majority of the voting interest of the Company. However, the board of directors of the Company include a majority of Intec Israel’s board members prior to the Merger and the Company’s senior management are primarily comprised of Intec Israel’s senior management prior to the Merger. For accounting purposes, Decoy will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a reverse merger. Accordingly, Decoy’s assets, liabilities and results of operations will become the historical financial statements of the combined company, and the net cash remaining following Intec Israel’s Business Termination, will be included in the Company’s assets effective as of the Closing Date. No step-up in basis or goodwill will be recorded in this transaction.
The unaudited pro forma condensed combined balance sheet data as of June 30, 2021, gives effect to the Merger as if it took place on June 30, 2021. The unaudited pro forma condensed combined statement of operations for six-month period ended June 30, 2021, gives effect to the Merger as if it took place on January 1, 2021. The historical financial statements of Intec Israel and Decoy have been adjusted to give pro forma effect to events that reflect the U.S. GAAP accounting for the transaction to illustrate the effects of the reverse merger to the Company’s historical financial statements. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Merger.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial information reflects Intec Israel’s Business Termination, initiated after the Closing Date. In addition, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the Merger. The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Intec Israel and Decoy been a combined company during the specified periods. The actual results reported in periods following the Merger may differ significantly from those reflected in the unaudited pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences in the assumptions used to prepare this pro forma financial information.
The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with (i) the unaudited financial statements for the six-month period ended June 30, 2021 and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Intec Israel’s quarterly report on Form 10-Q for the six and three-month periods ended June 30, 2021, filed with the United States Securities and Exchange Commission on August 16, 2021, and (ii) the historical unaudited financial statements of Decoy for the six-month period ended June 30, 2021 included in the Company’s Form 8-K, filed with the United States Securities and Exchange Commission of which the unaudited pro-forma condensed combined financial information forms a part.
Accounting rules require evaluation of certain assumptions, estimates, or determination of financial statement classifications. The accounting policies of Intec Israel may materially vary from those of Decoy. During preparation of the unaudited pro forma condensed combined financial information, management has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies. Following the Merger, the Company’s management will conduct a final review of the Company’s accounting policies in order to determine if differences in accounting policies require adjustment or reclassification of Intec Israel’s results of operations or reclassification of assets or liabilities to conform to Decoy’s accounting policies and classifications. As a result of this review, the Company’s management may identify differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2021
(in thousands)
| Decoy | Intec Israel | Business Termination of Intec Israel (*) | Pro Forma Adjustments | Notes | Pro Forma Combined (**) | ||||||||||||||||||
| Assets | |||||||||||||||||||||||
| CURRENT ASSETS: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,965 | $ | 16,991 | $ | (16,991 | ) | $ | 39,153 | C | $ | 44,118 | |||||||||||
| Restricted cash | — | 1,000 | (1,000 | ) | — | — | |||||||||||||||||
| Deferred transaction costs | 874 | — | — | (874 | ) | D | — | ||||||||||||||||
| Prepaid expenses and other | 126 | 801 | (801 | ) | 126 | ||||||||||||||||||
| TOTAL CURRENT ASSETS | 5,965 | 18,792 | (18,792 | ) | 38,279 | 44,244 | |||||||||||||||||
| NON-CURRENT ASSETS: | |||||||||||||||||||||||
| Property and equipment, net | 3 | — | — | — | 3 | ||||||||||||||||||
| Operating lease right-of-use assets | — | — | — | — | — | ||||||||||||||||||
| Other assets | 4 | 1,300 | (1,300 | ) | — | 4 | |||||||||||||||||
| TOTAL NON-CURRENT ASSETS | 7 | 1,300 | (1,300 | ) | — | 7 | |||||||||||||||||
| TOTAL ASSETS | $ | 5,972 | $ | 20,092 | $ | (20,092 | ) | $ | 38,279 | $ | 44,251 | ||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||||||||
| Accounts payable and accruals: | |||||||||||||||||||||||
| Trade | $ | 229 | $ | 397 | (397 | ) | $ | — | $ | 229 | |||||||||||||
| Other | 650 | 5,043 | (5,043 | ) | 2,556 | B | 3,206 | ||||||||||||||||
| SAFE agreements | 6,417 | — | — | (6,417 | ) | E | — | ||||||||||||||||
| TOTAL CURRENT LIABILITIES | 7,296 | 5,440 | (5,440 | ) | (3,861 | ) | 3,435 | ||||||||||||||||
| LONG-TERM LIABILITIES: | |||||||||||||||||||||||
| Operating lease liabilities | — | — | — | — | — | ||||||||||||||||||
| Other liabilities | — | 716 | (716 | ) | — | — | |||||||||||||||||
| TOTAL LONG-TERM LIABILITIES | — | 716 | (716 | ) | — | — | |||||||||||||||||
| TOTAL LIABILITIES | 7,296 | 6,156 | (6,156 | ) | (3,861 | ) | 3,435 | ||||||||||||||||
| SHAREHOLDERS’ EQUITY: | |||||||||||||||||||||||
| Common stock | 1 | 727 | (727 | ) | 80 | F | 81 | ||||||||||||||||
| Preferred Stock; Series seed; $0.001 par value; 366,317 shares authorized, 314,928 shares issued and outstanding as of June 30, 2021 | (*** | ) | — | — | (*** | ) | A | — | |||||||||||||||
| Additional paid-in capital | 7,762 | 228,421 | (228,421 | ) | 42,060 | F | 49,822 | ||||||||||||||||
| Accumulated deficit | (9,087 | ) | (215,212 | ) | 215,212 | — | F | (9,087 | ) | ||||||||||||||
| TOTAL SHAREHOLDERS’ EQUITY | (1,324 | ) | 13,936 | (13,936 | ) | 42,140 | 40,816 | ||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 5,972 | $ | 20,092 | $ | (20,092 | ) | $ | 38,279 | $ | 44,251 | ||||||||||||
| (*) | Represents the cancellation of Intec Israel assets and liabilities resulting from the Business Termination initiated after the Closing Date. The estimated net cash from the Business Termination in the amount of $11.9 million was recorded under the Pro Forma Adjustments column. |
| (**) | Represents the combined company balance sheet immediately upon the completion of the Merger. |
| (***) | Represents an amount less than $1,000. |
The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the six-month period ended June 30, 2021
(in thousands, except per share amounts)
| Decoy | Intec Israel | Business Termination of Intec Israel (*) | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | $ | (881 | ) | $ | (3,964 | ) | $ | 3,964 | $ | — | $ | (881 | ) | ||||||||||
| General and administrative | (262 | ) | (4,408 | ) | 4,408 | (1,300 | ) | G | (1,562 | ) | |||||||||||||
| Impairment of long-lived assets | — | (3,190 | ) | 3,190 | — | — | |||||||||||||||||
| Total operating expenses | (1,143 | ) | (11,562 | ) | 11,562 | (1,300 | ) | (2,443 | ) | ||||||||||||||
| Other income, net | 15 | — | — | — | 15 | ||||||||||||||||||
| Finance expense | — | (66 | ) | 66 | — | — | |||||||||||||||||
| Loss before income taxes | (1,128 | ) | (11,628 | ) | 11,628 | (1,300 | ) | (2,428 | ) | ||||||||||||||
| Income tax | — | (33 | ) | 33 | — | — | |||||||||||||||||
| Net loss | $ | (1,128 | ) | $ | (11,661 | ) | $ | 11,661 | $ | (1,300 | ) | $ | (2,428 | ) | |||||||||
| Basic and diluted loss per common share | $ | (1.54 | ) | $ | — | H | $ | (0.32 | ) | ||||||||||||||
| Weighted average common shares outstanding, basic and diluted | 732,635 | — | 7,507,666 | ||||||||||||||||||||
| (*) | To cancel Intec Israel’s operations resulting from the Business Termination. |
The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of Transaction
On August 3, 2021, pursuant to the Merger Agreement the Company completed the Merger with Decoy. Previously, on July 23, 2021, the Company entered into a Purchase Agreement with a certain institutional investor pursuant to which the Company agreed to sell and issue, in 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 the Company’s common stock (the “Warrant”) at a purchase price of $10.99 per Pre-funded Warrant and associated Warrant, for total net proceeds of approximately $27.2 million (or approximately $27.3 million assuming the full exercise of the Pre-funded Warrant), after deducting the placement agent’s fees and other estimated offering expenses payable by the Company in the amount of approximately $2.7 million. In addition, the Company agreed to issue to the placement agent a warrant to purchase 136,364 shares of the Company’s common stock. The closing of the Private Placement was completed on August 3, 2021.
On July 27, 2021, the Company, Intec Israel, and Domestication Merger Sub completed the Domestication Merger pursuant to the terms of 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 Intec Parent. In connection with the Domestication Merger, all Intec Israel ordinary shares, outstanding after the reverse share split (as described below) and immediately prior to the Domestication Merger were converted, on a one-for-one basis, into shares of the Company common stock, par value $0.01 per share (the “Company Common Stock”), and all options and warrants to purchase Intec Israel ordinary shares outstanding after the reverse share split and immediately prior to the Domestication Merger were exchanged for equivalent securities of the Company.
In connection with the Merger and for the purpose of meeting Nasdaq’s initial listing requirements, Intec Israel implemented a 1-for-4 reverse share split of its outstanding ordinary shares that was effective after the close of trading on July 26, 2021, and prior to the effectiveness of the Domestication Merger (the “Reverse Split”). As a result of the Reverse Split, every four outstanding ordinary shares was combined into one ordinary share.
Immediately prior to the Merger, each share of Decoy preferred stock issued and outstanding immediately prior to the Merger automatically converted into Decoy common stock (the “Preferred Stock Conversion”) and each Decoy SAFE (Simple Agreements for Future Equity) outstanding immediately prior to the Merger was treated in accordance with the terms of the relevant agreements governing the Decoy SAFEs and automatically converted into Decoy common stock (the “SAFE Conversion”).
At the Closing Date of the Merger:
| ● | each outstanding share of Decoy common stock (after giving effect to the Preferred Stock Conversion and SAFE Conversion) automatically converted into shares of the Company’s Common Stock, based on the exchange ratio as described in the Merger Agreement, and | |
| ● | each outstanding and unexercised Decoy stock option, whether vested or unvested, automatically converted into a stock option exercisable for that number of shares of the Company’s Common Stock, with the number of the Company’s Common Stock subject to such option and the exercise price being appropriately adjusted to reflect the exchange ratio. |
Under the exchange ratio formula described in the Merger Agreement, immediately following the Merger (but without giving effect to the exercise of the Pre-Funded Warrant sold in the Private Placement), pre-merger Decoy securityholders owned approximately 63.65% of the Company’s share capital (on a fully diluted basis) and pre-merger Intec Israel securityholders owned approximately 36.35% of the Company’s share capital (on a fully diluted basis).
The exchange ratio was calculated using a formula intended to allocate a percentage of the combined company to existing Decoy securityholders. The exchange ratio is based on a $30.0 million valuation plus $3.8 million net cash for Decoy net of the deposit amount as defined in the Merger Agreement and a $10.0 million valuation plus $9.3 million net cash including the deposit amount as defined in the Merger Agreement for Intec Israel at the effective time of the Merger. Based on the formulation described above, the exchange ratio was equal to 2.654353395 shares of the Company’s Common Stock for each share of Decoy common stock (after giving effect to the Reverse Split).
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11. The unaudited pro forma condensed combined balance sheet data as of June 30, 2021, gives effect to the Merger as if it took place on June 30, 2021. The unaudited pro forma condensed combined statement of operations for the six-month period ended June 30, 2021, gives effect to the Merger as if it had been consummated on January 1, 2021, and gives effect to the Reverse Split.
Based on the Company’s preliminary review of Intec Israel’s and Decoy’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of Intec Israel to conform its accounting policies to those of Decoy are not expected to be material. Following completion of the Merger, further review of Intec Israel’s accounting policies may result in additional revisions to Intec Israel’s accounting policies and classifications to conform to those of Decoy.
The unaudited pro forma condensed combined balance sheet data as of June 30, 2021, reflects the assumption of the estimated net cash remaining following Intec Israel’s Business Termination.
The unaudited pro forma condensed combined financial information was prepared under U.S. GAAP. For accounting purposes, Decoy will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a reverse merger of Decoy. The net acquired assets, which is the estimated net cash of Intec Israel following the Business Termination at the effective time of the Merger is approximately $9.3 million. Further, given the nature of the transaction, no step-up in basis or goodwill will be recorded as a result of the Merger.
To the extent there are significant changes to the business of Intec Israel or Decoy following completion of the Merger, the assumptions and estimates set forth in the unaudited pro forma condensed combined financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following the completion of the Merger. There can be no assurance that these additional analyses will not result in material changes to the estimates of value.
The historical financial information has been adjusted to give effect to matters that reflect the U.S. GAAP accounting for the transaction to illustrate the effects of the reverse merger to the Company’s historical financial statements.
3. Company Common Stock and Options to Purchase Company Common Stock Issued to Decoy Securityholders upon Closing of the Merger
Pursuant to the Merger Agreement, at the Closing Date of the Merger, the Company issued to Decoy securityholders a number of shares of Indaptus and options to purchase Indaptus Common Stock representing approximately 63.65% of the outstanding shares of Company Common Stock at the time of the Merger (on a fully diluted basis).
Prior to the Merger, all outstanding Decoy SAFEs (Simple Agreements for Future Equity) and preferred shares were converted into shares of Decoy common stock, which were exchanged for Company Common Stock as described above. The number of shares of Company Common Stock to be issued to Decoy securityholders, for purposes of these pro forma financial statements as of June 30, 2021, is calculated pursuant to the terms of the Merger Agreement, using the exchange ratio and assuming the conversion of the Decoy SAFEs and preferred shares into shares of Decoy common stock all had occurred on June 30, 2021, as follows (giving effect to the Reverse Split):
| Fully-diluted ordinary shares of Intec Israel(i) | 2,143,594 | |||
| Divided by the assumed Intec Israel ownership percentage of combined company | 36.35 | % | ||
| Estimated fully-diluted adjusted total shares of common stock of combined company | 5,896,893 | |||
| Less: fully-dilutes ordinary shares of Intec Israel | -2,143,594 | |||
| Total fully-diluted shares of combined company to be allocated to Decoy securityholders* | 3,753,299 | |||
| *Includes: | ||||
| Total outstanding shares of combined company to be allocated to Decoy securityholders in exchange of 1,336,386 outstanding shares of Decoy common stock as of June 30, 2021(ii) | 3,547,220 | |||
| Total stock options of combined company to be allocated to Decoy securityholders in exchange of 77,639 outstanding Decoy stock options as of June 30, 2021 | 206,079 |
(i) Includes all outstanding ordinary shares, warrants and options to employees that are outstanding as of the date of this report.
(ii) Includes all outstanding shares of Decoy common stock, assuming the conversion of the preferred shares and Decoy SAFEs agreements into shares of Decoy common stock.
4. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2021
The unaudited pro forma condensed combined balance sheet includes pro forma adjustments that reflect the U.S. GAAP accounting for the Merger to illustrate the effects of the reverse merger to Decoy’s historical financial statements. Based on the Company’s management’s review of Intec Israel’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of Intec Israel to conform to the accounting policies of Decoy are not expected to be significant. The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
A. To convert Decoy’s 314,928 Series seed preferred shares into shares of Decoy common stock immediately prior to the Merger.
B. To record: (i) Intec Israel’s estimated transaction costs of approximately $3.2 million that were not accrued as of June 30, 2021, and include advisory fees and legal expenses; and (ii) to cancel a liability related to Decoy’s deposit as of June 30, 2021, in the amount of $650 thousand (the “Deposit Amount”). Intec Israel transferred an amount of $650 thousand to Decoy to cover the transaction expenses which was recorded as a liability in Decoy’s balance sheet. In the combined balance sheet, the liability was cancelled, and this amount was recorded in additional paid-in capital.
C. To reflect: (i) $30.0 million in proceeds received by Indaptus, net of $2.7 million in estimated transaction costs, in connection with the consummation of the private placement, assuming a full exercise of the pre-funded warrants; and (ii) $11.9 million in net cash remaining following Intec Israel’s Business Termination effective as of the Closing Date.
D. To cancel Decoy’s deferred transaction costs as of June 30, 2021, in the amount of $874 thousand. In the combined balance sheet, the deferred transaction costs were cancelled, and this amount was recorded in additional paid-in capital.
E. To reflect the conversion of approximately $6.4 million of Decoy SAFEs outstanding as of June 30, 2021, into shares of Decoy common stock immediately prior to the Merger.
F. To reflect:
(i) The conversion of Decoy’s outstanding Series seed preferred shares into 314,928 shares of Decoy common stock.
(ii) The conversion of Decoy SAFEs into 288,823 shares of Decoy common stock.
(iii) The recognition of deferred transaction costs and payment of transaction costs associated with the Merger.
(iv) The exchange of 1,858,743 Intec Israel ordinary shares that are outstanding as of June 30, 2021, into 1,858,743 shares of Company common stock.
(v) The exchange of outstanding shares of Decoy common stock into 3,547,220 shares of Company Common Stock based on the exchange ratio.
(vi) The allocation of equity for the closing of the Private Placement, assuming a full exercise of the pre-funded warrants.
| Additional | ||||||||||||||||||||||||||||||||
| Intec Israel | Decoy | Indaptus | paid in | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | Total | |||||||||||||||||||||||||
| (i) Conversion of outstanding Decoy’s Series seed preferred shares into common stock | — | — | 314,928 | (* | ) | — | — | — | — | |||||||||||||||||||||||
| (ii) Conversion of SAFE into common stock | — | — | 288,823 | (* | ) | — | — | 6,417 | 6,417 | |||||||||||||||||||||||
| (iii) Recognition of deferred transaction costs and payment of transaction costs | — | — | — | — | — | — | (4,080 | ) | (4,080 | ) | ||||||||||||||||||||||
| (iv) Exchange of outstanding Intec Israel ordinary shares into Company Common Stock | (1,858,743 | ) | — | — | 1,858,743 | 19 | 12,484 | 12,503 | ||||||||||||||||||||||||
| (v) Exchange of outstanding Decoy common stock into Company Common Stock based on the assumed Exchange Ratio | — | — | (1,336,386 | ) | (1 | ) | 3,547,220 | 35 | (34 | ) | — | |||||||||||||||||||||
| (vi) Indaptus Private Placement, assuming a full exercise of the pre-funded warrants (net of fees) | — | — | — | — | 2,727,273 | 27 | 27,273 | 27,300 | ||||||||||||||||||||||||
| Pro forma adjustments | (1,858,743 | ) | (732,635 | ) | $ |
(1 | ) | 8,133,236 | $ |
81 | $ |
42,060 | $ |
42,140 | ||||||||||||||||||
5. Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2021
The unaudited pro forma condensed combined statements of operations include pro forma adjustments that reflect the U.S. GAAP accounting for the Merger to illustrate the effects of the reverse merger to Intec Israel’s and Decoy’s historical financial statements. Based on the Company’s management’s review of Intec Israel’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of Intec Israel to conform to the accounting policies of Decoy are not expected to be significant. The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
G. Costs associated with operating a public company.
H. The pro forma combined basic and diluted loss per share have been adjusted to reflect the pro forma net loss for the six-month period ended June 30, 2021. In addition, the number of shares used in calculating the pro forma combined basic and diluted net loss per share has been adjusted to include the number of shares of Company Common Stock issued to Decoy securityholders as of the Closing Date, based on the exchange ratio and as a result of the Private Placement. The following table sets forth the calculation of the pro forma weighted average number of shares outstanding — basic and diluted and giving effect to the Reverse Split:
| Six months ended June 30, 2021 | ||||
| Historical Intec Israel weighted average ordinary shares outstanding | 1,233,173 | |||
| Company common stock to be issued to Decoy shareholders and to a certain institutional investor under the Private Placement | 6,274,493 | |||
| Total weighted-average shares outstanding | 7,507,666 | |||