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Aug. 16, 2021, 4:56 p.m. EDT

10-Q: INDAPTUS THERAPEUTICS, INC.

(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our condensed consolidated interim financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in Intec Israel's Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 16, 2021, including the consolidated annual financial statements as of December 31, 2020, and their accompanying notes included therein. We have prepared our condensed consolidated interim financial statements in accordance with U.S. GAAP.

This Quarterly Report on Form 10-Q of Indaptus Therapeutics, Inc. contains forward-looking statements about our expectations, beliefs and intentions. Forward-looking statements can be identified by the use of forward-looking words such as "believe", "expect", "intend", "plan", "may", "should", "could", "might", "seek", "target", "will", "project", "forecast", "continue" or "anticipate" or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical matters. These forward-looking statements are based on assumptions and assessments made in light of management's experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. Forward-looking statements in Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the following: our plans to develop and potentially commercialize our technology, the timing and cost of our planned investigational new drug application and any clinical trials, the completion and receiving favorable results in any clinical trials, our ability to obtain and maintain regulatory approval of any product candidate, our ability to protect and maintain our intellectual property and licensing arrangements, our ability to develop, manufacture and commercialize our product candidates, the risk of product liability claims, the availability of reimbursement, the influence of extensive and costly government regulation, and our estimates regarding future revenue, expenses capital requirements and the need for additional financing following the recently completed merger. These risks, as well as other risks are discussed in the proxy statement/prospectus that was included in the registration statement on Form S-4 filed with the SEC in connection with the merger.

Unless the context indicates otherwise, in this Quarterly Report on Form 10-Q, the terms "Indaptus," "Company," "we," "us" and "our" refer to Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.) and, where appropriate, its consolidated subsidiaries following the domestication merger and the reverse merger described below. References to "Intec Parent" refer to Intec Parent, Inc., the successor of Intec Pharma Ltd. following the domestication merger, references to "Intec Israel" refer to Intec Pharma Ltd., the predecessor of Intec Parent prior to the domestication merger described below, and references to "Decoy" refer to Decoy Biosystems, Inc., the entity acquired by Intec Parent in connection with the reverse merger described below.

Unless otherwise indicated, all information in this Quarterly Report on Form 10-Q gives effect to a 1-for-4 reverse share split of the ordinary shares of Intec Israel that became effective on July 26, 2021 prior to the domestication merger described below, and also gives effect to a 1-for-20 reverse share split of the ordinary shares of Intec Israel that became effective on October 30, 2020, and all references to ordinary shares outstanding and per share amounts give effect to these reverse share splits.

Completion of the Merger

On August 3, 2021, Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.), a Delaware corporation ("Indaptus," "Company," "we," "us," or "our"), completed its merger with Decoy Biosystems, Inc., a Delaware corporation ("Decoy") following the satisfaction or waiver of the conditions set forth in the Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 15, 2021 among the Company, Decoy, Intec Pharma Ltd., an Israeli company and wholly owned subsidiary of the Company ("Intec Israel"), Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of the Company ("Domestication Merger Sub"), and Dillon Merger Subsidiary Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub") pursuant to which Merger Sub merged with and into Decoy, with Decoy surviving as a wholly owned subsidiary of the Company (the "Merger").

Previously, on July 27, 2021, Intec Israel, Indaptus and Domestication Merger Sub completed the previously announced domestication merger pursuant to the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated April 27, 2021 (the "Domestication Merger Agreement"), whereby Domestication Merger Sub merged with and into Intec Israel, with Intec Israel being the surviving entity and a wholly-owned subsidiary of Indaptus (the "Domestication Merger"). At the time of the Domestication Merger, Intec Israel continued to possess all of its assets, rights, powers and property as constituted immediately prior to the Domestication Merger and continued to be subject to all of its debts, liabilities and obligations as constituted immediately prior to the Domestication Merger.

Also, in connection with the Merger, we changed our name from "Intec Parent, Inc." to "Indaptus Therapeutics, Inc." and the business conducted by Indaptus became the business conducted by us, which is a pre-clinical stage biotech company developing a novel and patented systemically-administered anti-cancer and anti-viral immunotherapy. For a further description of Indaptus' business, see the section "Business of Indaptus" in the registration statement on Form S-4, as amended (File No. 333-255389), filed with the Securities and Exchange Commission ("SEC") on May 12, 2021 (the "Registration Statement").

At the effective time of the Merger, each outstanding share of Decoy common stock, par value $0.001 per share (the "Decoy Common Stock") (including shares issuable upon the conversion of Decoy SAFEs (Simple Agreements for Future Equity) and Decoy preferred stock, par value $0.001 per share, into Decoy Common Stock) converted into 2.654353395 shares of Indaptus common stock, par value $0.01 per share. In addition, at the effective time of the Merger, each outstanding and unexercised Decoy stock option converted into a stock option exercisable for that number of shares of common stock of Indaptus subject to such option and the exercise price being appropriately adjusted to reflect the exchange ratio. Immediately following closing of the Merger there are 5,405,963 shares of Indaptus common stock outstanding, with pre-merger Decoy shareholders owning approximately 65.6% and pre-merger Intec Israel shareholders owning approximately 34.4% of the Company. The figures above do not give effect to shares issuable upon the exercise of outstanding Indaptus warrants or options. Assuming the exercise in full of the pre-funded warrants sold in the Private Placement (as described below), there would be 8,133,236 shares of Indaptus common stock outstanding.

Following completion of the Merger, shares of Indaptus common stock commenced trading at market open on August 4, 2021, on the Nasdaq Capital Market under the name "Indaptus Therapeutics, Inc." and ticker symbol "INDP" and under the new CUSIP 45339J 105.

Winding Down of Accordion Pill Business

In connection with the completion of the Merger, on August 4, 2021, our board determined to wind down the Accordion Pill business of Intec Israel. We initiated the process of making our employees in Israel aware of the decision beginning on August 4, 2021, and we intend to maintain an adequate number of employees in Israel until the completion of the wind down of the Accordion Pill business. We expect to incur salaries, severance payments and close out expenses of approximately $800,000 in connection with the wind down.

In connection with the winding down, on August 4, 2021, we initiated the termination of outstanding contracts with counterparties and the sale of our Accordion Pill related assets, including the termination of the Process Development Agreement dated as of December 17, 2018 between Intec Israel and LTS Lohmann Therapie Systeme AG ("LTS"), that provided for the manufacture of AP-CD/LD capsules, as a result of which Intec Israel expects to pay approximately 2 million Euros (approximately $2.4 million) as a termination fee. In addition, on August 5, 2021, Intec Israel and its landlord agreed to terminate the Unprotected Lease Agreement with R.M.P.A. Assets Ltd. dated June 2, 2003, as amended, for the lease of offices located in Jerusalem, Israel, as a result of which Intec Israel agreed to the payment of a break-up fee of $600,000.

In addition, as a result of winding down, Intec Israel performed an impairment assessment on its non-current assets as of June 30, 2021, which resulted in an impairment charge of approximately $3.2 million. For more information, see note 4 in our condensed consolidated financial statements for the six months ended June 30, 2021.

We expect that the winding down of the Accordion Pill business will be substantially complete by the end of the third quarter of 2021.

Private Placement

On July 23, 2021 (the "Signing Date"), Intec Parent entered into a securities purchase agreement (the "Purchase Agreement") with a certain institutional investor (the "Purchaser"), pursuant to which we agreed to sell and issue, in a private placement (the "Private Placement") a pre-funded warrant to purchase up to 2,727,273 shares of the Company's common stock (the "Pre-funded Warrant") and a warrant to purchase up to 2,727,273 of our common stock at a purchase price of $10.99 per Pre-funded Warrant and associated Warrant, for aggregate gross proceeds to us of approximately $29.9 million (or approximately $30.0 million assuming the full exercise of the Pre-funded Warrant), before deducting the placement agent's fees and other estimated offering expenses payable by the Company. In addition, the Company agreed to issue to the placement agent a warrant to purchase 136,364 shares of Indaptus' common stock. On August 3, 2021, the Private Placement closed.

The Pre-funded Warrant has an exercise price of $0.01 per share, subject to customary adjustment for events affecting our shares of common stock, is exercisable upon issuance and will terminate upon exercise in full. The Pre-funded Warrant contains provisions that prohibit exercise if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of our shares of common stock outstanding immediately after giving effect to such exercise. The holder of the Pre-funded Warrant may increase or decrease this percentage, but not in excess of 9.99%, by providing at least 61 days' prior notice to us. In the event of certain corporate transactions, the holder of the Pre-funded Warrant will be entitled to receive, upon exercise of the Pre-funded Warrant, the kind and amount of securities, cash or other property that the holder would have received had it exercised the Pre-funded Warrant immediately prior to such transaction.

The Warrant has a term of five and one-half years, is exercisable immediately following the issuance date and has an exercise price of $11.00 per share, subject to adjustment as set forth therein.

In connection with the Purchase Agreement, Intec Parent entered into a registration rights agreement (the "Registration Rights Agreement") with the Purchaser. Pursuant to the Registration Rights Agreement, the Company will be required to file a resale registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") to register for resale of the shares of our common stock issuable upon exercise of the Pre-Funded Warrant and Warrant, within 30 days of the Signing Date, and to have such Registration Statement declared effective within 45 days after the Signing Date in the event the Registration Statement is not reviewed by the SEC, or 75 days of the Signing Date in the event the Registration Statement is reviewed by the SEC. We will be obligated to pay certain liquidated damages to the Purchaser if we fail to file the Registration Statement when required, fail to cause the Registration Statement to be declared effective by the SEC when required, of if we fail to maintain the effectiveness of the Registration Statement.







        Results of Operations
        The table below provides the results of operations of Intec Israel for the
        periods indicated.
                                                Three months ended                 Six months ended
                                                      June 30                           June 30
                                               2021              2020            2021              2020
                                              (dollars in thousands)            (dollars in thousands)
        Research and development
        expenses, net                      $      (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 )
        Financial income (expenses), net             (35 )             4               (66 )           (66 )
        Loss before income tax                    (7,419 )        (2,907 )         (11,628 )        (6,710 )
        Income tax                                   (13 )           (46 )             (33 )          (107 )
        Net loss                           $      (7,432 )    $   (2,947 )   $     (11,661 )    $   (6,817 )
        


Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

Research and Development Expenses, Net

Intec Israel's research and development expenses, net, for the three months ended June 30, 2021, amounted to approximately $1.8 million, an increase of approximately $500,000 or approximately 38%, compared to approximately $1.3 million for the three months ended June 30, 2020. Intec Israel's research and development expenses, net, for the six months ended June 30, 2021, amounted to approximately $4.0 million, an increase of approximately $700,000, or approximately 21%, compared to approximately $3.3 million for the six months ended June 30, 2020. The increase for the three and six-month periods was primarily related to the accelerated depreciation for property and equipment due to the Merger.

General and Administrative Expenses

Intec Israel's general and administrative expenses for the three months ended June 30, 2021, amounted to approximately $2.4 million, an increase of approximately $800,000, or approximately 50%, compared to approximately $1.6 million for the three months ended June 30, 2020. Intec Israel's general and administrative expenses for the six months ended June 30, 2021, amounted to approximately $4.4 million, an increase of approximately $1.1, or 33%, compared to approximately $3.3 million for the six months ended June 30, 2020. The increase for the three and six-month periods was primarily related to professional services expenses related to the Merger Agreement that was recorded in the three and six-months ended June 30, 2021.

Impairment of long-lived assets

For the three and six-month period ended June 30, 2021, Intec Israel recorded an impairment charge of approximately $3.2 million of our operating lease right-of-use assets, property and equipment and equipment at LTS, described in note 4 to the consolidated financial statements for the six-month ended June 30, 2021, which represents the excess carrying value compared to the fair value of the assets.

Operating Loss

As a result of the foregoing, for the three months ended June 30, 2021, Intec Israel's operating loss was approximately $7.4 million, an increase of approximately $4.5 million, or approximately 155%, compared to our operating loss for the three months ended June 30, 2020, of approximately $2.9 million. For the six months ended June 30, 2021, Intec Israel's operating loss was approximately $11.6 million, an increase of approximately $4.9, or approximately 73%, compared to operating loss for the six months ended June 30, 2020, of approximately $6.7 million.

The increase for the three and six-month periods was mainly due to the impairment of our long-lived assets and an increase in research and development expenses and general and administrative expenses, as detailed above.

Financial Income (expenses), Net

For the three months ended June 30, 2021, Intec Israel had financial expenses from foreign currency exchange expenses in the amount of approximately $28,000 and bank fees. For the three months ended June 30, 2020, Intec Israel had financial income from interest on cash and cash equivalents in the amount of approximately $17,000, offset by financial expenses from foreign currency exchange expenses in the amount of approximately $13,000 and bank fees.

For the six months ended June 30, 2021, Intec Israel had expenses from foreign currency exchange expenses in the amount of approximately $56,000 and bank fees. For the six months ended June 30, 2020, Intec Israel had financial expenses from foreign currency exchange expenses in the amount of approximately $89,000 and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of approximately $27,000 and financial income from change in fair value of marketable securities in the amount of approximately $2,000.

Income tax

For the three and six months ended June 30, 2021, and 2020, Intec Israel has not generated taxable income in Israel. However, for the three months ended June 30, 2021, and 2020, Intec Israel incurred tax expenses in its U.S. subsidiary in the amount of $13,000 and $46,000, respectively, and for the six months ended June 30, 2021, and 2020 Intec Israel incurred tax expenses in its U.S. subsidiary in the amount of $33,000 and $107,000, respectively.

Net Loss

Based on the foregoing, for the three months ended June 30, 2021, Intec Israel's net loss was approximately $7.4 million, an increase of approximately $4.5 million, or approximately 155%, compared to net loss for the three months ended June 30, 2020, of approximately $2.9 million. For the six months ended June 30, 2021, Intec Israel's net loss was approximately $11.7 million, an increase of approximately $4.9 million, or 72%, compared to our net loss for the six months ended June 30, 2020, of approximately $6.8 million. The increase for the three and six-month periods was mainly due to the impairment of Intec Israel's long-lived assets and an increase in research and development expenses and general and administrative expenses, as detailed above.

Liquidity and Resources

Since Intec Israel's inception, Intec Israel funded its operations primarily through public and private offerings (in Israel and in the U.S.) of its equity securities, grants from the IIA and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the feasibility and related agreements it had entered into with multinational pharmaceutical companies, pursuant to which Intec Israel is entitled to full coverage of its development costs with regard to the projects specified in those agreements.

As of June 30, 2021, Intec Israel had cash and cash equivalents and restricted cash of approximately $18.0 million. As of December 31, 2020, Intec Israel had cash and cash equivalents of approximately $14.7 million.

In August 2021, Indaptus sold a pre-funded warrant to purchase 2,727,273 of our common stock and a warrant to purchase 2,727,273 of our common stock in a private placement. The pre-funded warrant is exercisable at an exercise price of $0.01 per share, and the warrant is exercisable at an exercise price of $11.00 per share. The pre-funded warrant and the warrant were sold together at a combined price of $10.99. The total net proceeds were approximately $27.2 million, after deducting placement agent fees and offering expenses in the amount of approximately $2.7 million. In addition, the Company issued to the placement agent a warrant to purchase 136,364 shares of Indaptus' common stock.

Net cash used in operating activities was approximately $7.4 million for the six months ended June 30, 2021, compared with net cash used in operating activities of approximately $6.8 million for the six months ended June 30, 2020. This increase resulted primarily from an increase in research and development expenses and general and administrative expenses in the amount of approximately $1.8 million, offset by changes in operating asset and liability items of approximately $1.2 million.

Intec Israel had no positive or negative cash flow from investing activities for the six months ended June 30, 2021. Intec Israel had a positive cash flow from investing activities of approximately $769,000 for the six months ended June 30, 2020, which resulted primarily from proceeds from disposal of marketable securities.

Net cash provided by financing activities for the six months ended June 30, 2021, was approximately $10.9 million, which was provided by the proceeds received from the sale of Intec Israel's ordinary shares under its Purchase Agreement with Aspire Capital that resulted in net proceeds of approximately $9.9 million and proceeds from exercise of warrants in the amount of approximately $956,000. Net cash provided by financing activities for the six months ended June 30, 2020, was approximately $10.6 million, which was provided primarily by the proceeds from Intec Israel's registered direct offering in May 2020 that resulted in net proceeds of approximately $4.5 million, proceeds from Intec Israel's underwritten public offering in February 2020 that resulted in net proceeds of approximately $5.7 million and by the funds received from the sale of Intec Israel's ordinary shares under Intec Israel's "at-the-market" equity offering program that resulted in net proceeds of approximately $421,000.

Aspire Capital Financing Arrangement

On December 2, 2019, Intec Israel entered into a purchase agreement with Aspire Capital Fund LLC, or Aspire Capital, which was subsequently amended on May 16, 2021, or the Purchase Agreement, which provided that, upon the terms and conditions set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of Intec Israel's ordinary shares over the 30-month term of the Purchase Agreement.

Concurrently with entering into the Purchase Agreement, Intec Israel also entered into a registration rights agreement with Aspire Capital, or the Registration Rights Agreement, in which it agreed to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register for sale under the Securities Act for the sale of our ordinary shares that have been and may be issued to Aspire Capital under the Purchase Agreement.

Intec Israel filed with the SEC a prospectus supplement to its effective shelf registration statement on Form S-3 (File No. 333-230016) registering all of the ordinary shares that may be offered to Aspire Capital from time to time. Under the Purchase Agreement, on any trading day selected by Intec Israel, it had the right, in its sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase Notice, directing Aspire Capital (as principal) to purchase up to 2,500 ordinary shares in an amount no greater than $500,000 per business day, up to $10.0 million of our ordinary shares in the aggregate at a per share price, or the Purchase Price, equal to the lesser of:

? the lowest sale price of our ordinary shares on the purchase date; or

? the arithmetic average of the three (3) lowest closing sale prices for our ordinary shares during the ten (10) consecutive trading days ending on the trading day immediately preceding the purchase date.

Intec Israel and Aspire Capital also could mutually agree to increase the dollar amount to greater than $500,000 and the number of ordinary shares that may be sold to as much as an additional 2,000,000 ordinary shares per business day, respectively.

In addition, on any date on which Intec Israel submits a Purchase Notice to Aspire Capital in an amount equal to at least 2,500 ordinary shares, Intec Israel also ha the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, each, a VWAP Purchase Notice, directing Aspire Capital to purchase an amount of ordinary shares equal to up to 30% of the aggregate of our ordinary shares traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of 3,125 ordinary shares, unless Intec Israel and Aspire Capital mutually agree otherwise. The purchase price per share pursuant to such VWAP Purchase Notice was generally 97% of the volume-weighted average price for our ordinary shares traded on our principal market on the VWAP Purchase Date.

The Purchase Price was adjustable for any reorganization, recapitalization, non-cash dividend, share split, or other similar transaction occurring during the period(s) used to compute the Purchase Price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.

The Purchase Agreement provided that Intec Israel and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our ordinary shares is less than $0.25. There were no trading volume requirements or restrictions under the Purchase Agreement, and Intec Israel could control the timing and amount of sales of ordinary shares to Aspire Capital. Aspire Capital had no right to require any sales by Intec Israel, but was obligated to make purchases from Intec Israel as directed by us in accordance with the Purchase Agreement. There were no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, Intec Israel issued to Aspire Capital the Commitment Shares. The Purchase Agreement could be terminated by Intec Israel at any time, at its discretion, without any cost to it. Aspire Capital agreed that neither Intec Israelnor any of Intec Israel's agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our ordinary shares during any time prior to the termination of the Purchase Agreement. Any proceeds received under the Purchase Agreement were expected to be used to fund our research and development activities, for working capital and for general corporate purposes.

In April 2021, Intec Israel sold 79,848 ordinary shares under the Purchase . . .

Aug 16, 2021

COMTEX_391669358/2041/2021-08-16T16:55:33

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