Item 1. |
Financial Statements |
INDAPTUS
THERAPEUTICS, INC.
Unaudited
Condensed Consolidated Balance Sheets
See
accompanying notes to the unaudited condensed consolidated financial statements
INDAPTUS
THERAPEUTICS, INC.
Unaudited
Condensed Consolidated Statements of Operations
and Comprehensive Loss
See
accompanying notes to the unaudited condensed consolidated financial statements
INDAPTUS
THERAPEUTICS, INC.
Unaudited
Condensed Consolidated Statements of Stockholders’
Equity
See
accompanying notes to the unaudited condensed consolidated financial statements
INDAPTUS
THERAPEUTICS, INC.
Unaudited
Condensed Consolidated Statements of Cash Flows
See
accompanying notes to the unaudited condensed consolidated financial statements
INDAPTUS
THERAPEUTICS, INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1: GENERAL
|
a. |
Indaptus
Therapeutics, Inc. and its wholly-owned subsidiaries, Decoy Biosystems, Inc. and Intec Pharma Ltd., (collectively, the
“Company”), is a biotechnology company dedicated to enhancing and expanding curative cancer immunotherapy for patients
with unresectable or metastatic solid tumors and lymphomas, which are responsible for more than 90% of all cancer deaths. The
Company is developing a novel, multi-targeted product that activates both innate and adaptive anti-tumor and anti-viral immune
responses. |
Indaptus
Therapeutics, Inc. (“Indaptus”), formerly “Intec Parent Inc.”, was established and incorporated in Delaware on
February 24, 2021, as a private Delaware corporation and wholly-owned subsidiary of Intec Pharma Ltd., (“Intec Israel”),
a former publicly traded company.
|
b. |
On
August 3, 2021, Indaptus completed its merger with Decoy Biosystems, Inc., (“Decoy”), following the satisfaction or waiver
of the conditions set forth in the Agreement and Plan of Merger, dated as of March 15, 2021 among Indaptus, Decoy, Intec Israel,
Domestication Merger Sub Ltd., an Israeli company and a wholly-owned subsidiary of Indaptus, and Dillon Merger Subsidiary Inc., a
Delaware corporation and wholly-owned subsidiary of Indaptus (“the Merger Sub”), pursuant to which Merger Sub merged
with and into Decoy, with Decoy surviving as a wholly-owned subsidiary of Indaptus (the “Merger”) and the business conducted
by Decoy became the business conducted by Indaptus. |
Also,
in connection with the Merger, Indaptus changed its name from “Intec Parent, Inc.” to “Indaptus Therapeutics, Inc.”.
Following completion of the Merger, shares of Indaptus common stock commenced trading at market open on August 4, 2021, on the Nasdaq
Capital Market under the name “Indaptus Therapeutics, Inc.” and under the symbol “INDP”.
|
c. |
In
connection with the Merger, on July 23, 2021, Indaptus entered into a securities purchase agreement (the “Purchase Agreement”)
with a certain institutional investor, pursuant to which Indaptus agreed to sell and issue, in a private placement (the “Private
Placement”), pre-funded warrants and warrants for total net proceeds of approximately $27.3 million, after deducting the placement
agent’s fees and other estimated offering expenses payable by Indaptus in the amount of approximately $2.7 million. In September
2021, the pre-funded warrant was fully exercised. Each warrant is exercisable at an exercise price of $11.00 per share and has a
term of five and one-half years from the date of issuance. In addition, in connection with the Private Placement, Indaptus issued
to the placement agent a warrant to purchase 136,364 shares of Indaptus’ common stock at an exercise price of $13.75.
|
|
d. |
On
June 1, 2022, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) which was amended on
September 1, 2022 with H.C. Wainwright & Co., LLC, as sales agent (“Wainwright”), pursuant to which the Company may
offer and sell, from time to time through Wainwright, shares of the Company’s common stock, par value $0.01 per share, for
aggregate gross proceeds of up to $6.3 million. The
issuance and sale of common stock by the Company under the ATM Agreement is being made
pursuant to the Company’s effective “shelf” registration statement on Form S-3 filed with the SEC on September
1, 2022 and declared effective on September 9, 2022. The Company’s effective “shelf” registration statement on
Form S-3 is under General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule. |
Risks
and uncertainties
The
Company is subject to a number of risks similar to those of other companies of similar size in its industry, including, but not limited
to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses (see below),
competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and
dependence on key individuals.
The
COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in the past year. The COVID-19 pandemic is
affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the
Company relies, including by causing disruptions in the supply of its product candidates and the conduct of future clinical trials. For
example, the pandemic has caused our good manufacturing practice (“GMP”) process to take longer than expected. In addition,
the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and
approvals, including with respect to the Company’s product candidates. Additionally, while the potential economic impact brought
by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial
markets may reduce the Company’s ability to access capital, which could negatively impact its short-term and long-term liquidity.
The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. While it is unknown how long these conditions
will last and what the complete financial effect will be to the Company, capital raise efforts and additional development of the Company’s
technologies may be negatively affected.
Going
concern and management’s plans
The
Company has incurred net losses and utilized cash in operations since inception, has an accumulated deficit as of September 30, 2022
of $26.3
million, and expects to incur future additional losses as clinical testing and commercialization of the Company’s product
candidates will require significant additional financing. The Company believes it has adequate cash and marketable securities to
fund its operations for at least one year after the date of issuance of these unaudited condensed consolidated financial
statements.
Management
plans to raise additional capital through equity and/or debt financings, or other capital sources, including potential collaborations,
licenses, and other similar arrangements. However, these plans are not entirely within its control and cannot be assessed as being probable
of occurring. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic
conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the
conflict between Russia and Ukraine and the ongoing COVID-19 pandemic. If the Company is unable to raise capital when needed or on attractive
terms, it would be forced to delay, reduce, or eliminate its research and development programs or other operations. If any of these events
occur, the Company’s ability to achieve the development and commercialization goals would be adversely affected.
These
unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and
do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
2: SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and S-X Article 10 for interim financial statements. Accordingly, they
do not contain all information and notes required by US GAAP for annual financial statements. In the opinion of management, these unaudited
condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair
statement of the Company’s consolidated financial position as of September 30, 2022, the consolidated results of operations and
changes in stockholders’ equity for the three and nine-month periods ended September 30, 2022 and 2021, and cash flows for the
nine-month periods ended September 30, 2022 and 2021.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s annual financial statements for
the year ended December 31, 2021, as filed in the Company’s Form 10-K on March
21, 2022. The condensed consolidated balance sheet data as of December 31, 2021, included in these unaudited condensed
consolidated financial statements was derived from the audited financial statements for the year ended December 31, 2021, but does
not include all disclosures required by US GAAP for annual financial statements.
The
results for the nine-month period ended September 30, 2022 are not necessarily indicative of the results expected for the year ending
December 31, 2022.
Principles
of consolidation
The
unaudited condensed consolidated financial statements include the accounts of Indaptus and its subsidiaries. Intercompany balances and
transactions have been eliminated upon consolidation.
Use
of estimates
The
preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of expenses during the reporting periods. The most significant estimates relate to the
determination of the fair value of stock-based compensation and the determination of period-end obligations to certain contract research
organizations. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on
information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ
from those estimates.
Loss
per share
Loss
per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common
stock outstanding during the period. Diluted loss per share is based upon the weighted average number of common stock and of common stock
equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under
the treasury stock method when dilutive.
The
following number of stock options and warrants were excluded from the calculation of diluted loss per share because their effect would
have been anti-dilutive for the periods presented (share data):
SCHEDULE OF ANTI-DILUTIVE SECURITIES
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Weighted average | |
| |
Three months ended | | |
Nine months ended | |
| |
September 30 | | |
September 30 | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Outstanding stock options | |
| 1,608,837 | | |
| 894,645 | | |
| 1,543,931 | | |
| 436,445 | |
Warrants | |
| 3,090,787 | | |
| 3,648,274 | | |
| 3,090,787 | | |
| 1,220,562 | |
Cash
and cash equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of September 30, 2022 and December 31, 2021, 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.
Marketable
securities
The
Company’s investment in marketable securities includes U.S. treasury bonds that are classified as available-for-sale securities
pursuant to Accounting Standards Codification (“ASC”) 320 “Investments — Debt Securities”. These
investments are recorded at fair value with unrealized gains and losses recorded in Accumulated Other Comprehensive Income (Loss), or
AOCI, as a separate component of stockholders’ equity.
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.
Patents
The
Company expenses patent costs, including related legal costs, as incurred and records such costs within general and administrative expense
in the accompanying unaudited condensed consolidated statements of operations.
Research
and development expenses
Research
and development expenses include costs directly attributable to the conduct of research and development programs, including the cost
of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research
and development activities, including clinical trials and professional services. All costs associated with research and development are
expensed as incurred.
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.
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will
not be realized in the foreseeable future. As of September 30, 2022 and December 31, 2021, the Company has recorded a full valuation
allowance against its deferred tax assets.
The
Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized
tax benefits in interest expense and penalties in general and administrative expenses.
Stock-based
compensation
The
Company measures and records the expense related to stock-based payment awards based on the fair value of those awards as determined
using the Black-Scholes-Merton (“Black-Scholes”) option pricing model as of the date of grant. The Company recognizes stock-based
compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, on a straight-line
basis.
The
Black-Scholes model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards,
including the option’s expected term and the price volatility of the underlying stock. The Company estimates the fair value of
options granted by using the Black-Scholes model with the following assumptions:
Expected
Volatility—The Company estimated volatility for option grants by evaluating the historical volatility of a peer group of companies
for the period immediately preceding the option grant for a term that is approximately equal to the options’ expected term.
Expected
Term—The expected term of the Company’s options represents the period that the stock-based awards are expected to be
outstanding. The expected term was estimated using the simplified method for employee stock options since the Company does not have adequate
historical exercise data to estimate the expected term.
Risk-Free
Interest Rate—The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues
with a term that is equal to the options’ expected term at the grant date.
Dividend
Yield—The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend
yield has been estimated to be zero.
The
Company has elected to recognize forfeitures as they occur.
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. |
ASC
820, Fair Value Measurement, requires all entities to disclose the fair value of financial instruments, both assets and liabilities,
for which it is practicable to estimate fair value, and defines the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. As of September 30, 2022 and December 31, 2021, the recorded values
of cash and cash equivalents, marketable securities, assets held for sale, prepaid expenses, and accounts payable and other current liabilities
approximate their fair values due to the short-term nature of these items.
NOTE
3: MARKETABLE SECURITIES
The
Company’s investment in marketable securities included U.S. treasury bonds with maturities of less than one year. These investments
are classified as available-for-sale and are recorded at fair value with unrealized gains and losses recorded in AOCI. These investments
are categorized as Level 2.
As
of September 30, 2022, the fair value of the marketable securities is $21,742,040. As of December 31, 2021, the Company had no marketable
securities.
The
unrealized gains for the three and nine-month periods ended September 30, 2022 amounted to $42,068 and $15,131 respectively.
NOTE
4: PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets are comprised of the following:
SCHEDULE OF PREPAID EXPENSE AND
OTHER CURRENT ASSETS
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Prepaid insurance | |
$ | 836,833 | | |
$ | 945,023 | |
Prepaid research and development | |
| 248,719 | | |
| 127,643 | |
Other receivables | |
| - | | |
| 21,056 | |
Other prepaid expenses | |
| 47,840 | | |
| 12,931 | |
Total prepaid expenses and other current assets | |
$ | 1,133,392 | | |
$ | 1,106,653 | |
NOTE
5: 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
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accounts payable | |
$ | 1,246,240 | | |
$ | 2,637,806 | |
Accrued employee costs | |
| 791,382 | | |
| 1,371,136 | |
Accrued professional fees | |
| 228,811 | | |
| 139,871 | |
Accrued research and development | |
| 241,009 | | |
| 135,751 | |
Accrued board fees | |
| 116,000 | | |
| 125,333 | |
Delaware franchise taxes payable | |
| 96,697 | | |
| - | |
Other accrued expenses | |
| 61,945 | | |
| 97,779 | |
Total accounts payable and other current liabilities | |
$ | 2,782,084 | | |
$ | 4,507,676 | |
NOTE
6: STOCK-BASED COMPENSATION
In
June 2021, the Intec Israel shareholders voted to approve the Indaptus 2021 Stock Incentive Plan, an equity incentive plan for grants
to employees, officers, consultants, directors and other service providers, (the “2021 Plan”), that became effective upon
the closing of the Merger. The maximum aggregate number of Shares that may be issued pursuant to this Plan is 1,864,963
shares (the “Pool”); provided, however
that the
Pool will increase on January 1 of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2024 (each,
an “Evergreen Date”), in an amount equal to the lesser of (i) 3% of the total number of shares of Common Stock outstanding
on the December 31st immediately preceding the applicable Evergreen Date and (ii) such lesser number of shares of Common Stock
as determined to be appropriate by the Committee in its sole discretion. In no event shall more than 1,864,963 shares be available for
issuance.
The
2021 Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock awards, restricted stock units,
unrestricted stock awards, stock appreciation rights and other forms of stock-based compensation. The 2021 Plan permits the Company’s
board to change the type, terms and conditions of awards as circumstances may change. This flexibility to adjust the type of compensation
to be granted is particularly important given current economic and world events.
On
January 26, 2022, Indaptus’ board of directors approved a grant of options to purchase 289,200 shares of common stock to executives.
The options are exercisable at $4.90 per share, vest over three years, and expire ten years after grant.
On
February 1, 2022, Indaptus’ board of directors approved a grant of options to purchase 90,000 shares of common stock to a new employee.
The options are exercisable at $4.97 per share, vest over three years, and expire ten years after grant.
On
February 25, 2022, Indaptus’ board of directors approved a grant of options to purchase 60,000 shares of common stock to an executive.
The options are exercisable at $4.18 per share, vest over three years, and expire ten years after grant.
On
June 21, 2022, Indaptus’ board of directors approved a grant of options to purchase 25,000 shares of common stock to an employee.
The options are exercisable at $2.06 per share, vest over four years, and expire ten years after grant.
On
August 22, 2022, Indaptus’ board of directors approved a grant of options to purchase 7,500 shares of common stock to an employee.
The options are exercisable at $2.36 per share, vest over four years, and expire ten years after grant.
On
September 30, 2022, Indaptus’ board of directors approved a grant of options to purchase 149,750 shares of common stock to non-employee
board members. The options are exercisable at $2.16 per share, vest over 1-2 years, and expire ten years after grant.
A
summary of the stock option activity during the nine months ended September 30, 2022, is presented in the table below:
SCHEDULE OF SHARE BASED COMPENSATION
| |
| | |
Weighted average | | |
| |
| |
Number of options | | |
Exercise price | | |
Remaining contractual life (in years) | | |
Intrinsic value | |
Outstanding as of January 1, 2022 | |
| 1,174,660 | | |
$ | 17.10 | | |
| 9.1 | | |
$ | 241,103 | |
Granted | |
| 621,450 | | |
$ | 4.04 | | |
| 9.5 | | |
$ | - | |
Exercised | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Forfeited and cancelled | |
| (33,237 | ) | |
$ | 11.46 | | |
| - | | |
$ | - | |
Outstanding as of September 30, 2022 | |
| 1,762,873 | | |
$ | 12.60 | | |
| 8.8 | | |
$ | 2,500 | |
Exercisable as of September 30, 2022 | |
| 531,856 | | |
$ | 26.55 | | |
| 7.9 | | |
$ | - | |
Vested and expected to vest as of September 30, 2022 | |
| 1,762,873 | | |
$ | 12.60 | | |
| 8.8 | | |
$ | 2,500 | |
The
following table summarizes the total stock-based compensation expense included in the unaudited condensed consolidated statements of
operations for the periods presented:
SCHEDULE OF STOCK BASED COMPENSATION EXPENSES
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
For the three months ended September 30, | | |
For the nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 217,379 | | |
$ | 209,466 | | |
$ | 602,069 | | |
$ | 225,936 | |
General and administrative | |
| 366,662 | | |
| 585,872 | | |
| 1,717,550 | | |
| 610,520 | |
Total stock-based compensation expense | |
$ | 584,041 | | |
$ | 795,338 | | |
$ | 2,319,619 | | |
$ | 836,456 | |
As
of September 30, 2022, total compensation cost not yet recognized related to unvested stock options was approximately $5.6 million, which
is expected to be recognized over a weighted-average period of 1.6 years.
The
Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. The weighted
average inputs used to measure the value of the options granted during the nine months ended September 30, 2022 are presented in the
table below. The weighted average fair value of stock options issued during the nine months ended September 30, 2022 was $3.27 per share.
SCHEDULE OF WEIGHTED AVERAGE INPUTS
USED TO MEASURE VALUE OF OPTIONS GRANTED
| |
2022 | |
Stock price | |
$ | 4.04 | |
Exercise price | |
$ | 4.04 | |
Expected term (in years) | |
| 5.83 | |
Volatility | |
| 106.6 | % |
Risk free rate | |
| 2.2 | % |
Dividend yield | |
| 0.0 | % |
| |
| | |
The
following table presents the exercise price of outstanding stock options as of September 30, 2022:
SCHEDULE OF EXERCISE PRICE OF
OUTSTANDING STOCK OPTIONS
| |
Options outstanding | |
Exercise price | |
| | |
$0.01 - $8.00 | |
| 722,175 | |
$0.01 - $8.00 | |
| 722,175 | |
$8.01 - $16.00 | |
| 1,006,000 | |
$16.01 or higher | |
| 34,698 | |
Total | |
| 1,762,873 | |
NOTE
7: CAPITALIZATION
|
a. |
As
of September 30, 2022 and December 31, 2021, the Company had 200,000,000 shares of common stock authorized and 8,258,597 shares of
common stock issued and outstanding. |
|
|
|
|
b. |
As
of September 30, 2022 and December 31, 2021, there were warrants outstanding to purchase an
aggregate of 3,090,787 shares of common stock of Indaptus. As of September 30, 2022, these warrants are exercisable at a weighted
average price of $12.50 and their weighted average remaining contractual term is 4.2 years. |
NOTE
8: COMMITMENTS AND CONTINGENCIES
Litigation
On
July 13, 2022, LTS Lohmann Therapie Systeme AG (“LTS”) filed a Request for Arbitration with the International Chamber of Commerce (“Request”), naming as respondent the
Company’s subsidiary Intec Israel. The Request alleges that LTS is entitled to payment of Euro 2
million for reimbursement under a process development agreement (“PDA”) following discontinuation of the former
Accordion Pill business. As of September 30, 2022, Intec Israel paid approximately Euro 1
million (approximately $1
million USD). It is Intec Israel’s position that this payment satisfies its obligations under the PDA. Intec Israel
will vigorously defend this position in the arbitration but, as of September 30, 2022, the Company accrued approximately
Euro 1 million
(approximately $1 million)
with respect to this alleged obligation to LTS. The arbitration process is expected to last through the first quarter of
2023.
From
time to time, the Company could become involved in additional disputes and various litigation matters that arise in the normal course
of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations
matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure.
If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability
for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties,
accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses
the potential liability related to pending claims and litigation.
Leases
On
October 1, 2021, the Company entered into a noncancelable two-year operating lease agreement for approximately 2,000 square feet of office
space in San Diego, California. The base rent is $7,999 per month with an increase of 3% after the first anniversary of the lease term
commencement, which was November 1, 2021. The lease liability is measured at a discount rate of 7%.
Future
minimum annual lease payments under the Company’s noncancelable operating lease as of September 30, 2022 are as follows:
SUMMARY OF MINIMUM LEASE PAYMENTS
| |
| | |
2022 | |
$ | 24,476 | |
2023 | |
| 82,388 | |
Total minimum lease payments | |
| 106,864 | |
Less: amount representing interest | |
| (3,290 | ) |
Present value of operating lease liability | |
| 103,574 | |
Less: current portion | |
| (98,625 | ) |
Operating lease liability, net of current portion | |
$ | 4,949 | |
The
Company recognized rent expense of $73,069 and $19,432 during the nine months ended September 30, 2022 and 2021, respectively. The Company
recognized rent expense of $24,356 and $6,701 during the three months ended September 30, 2022 and 2021, respectively. Total cash payments
for the operating lease totaled $71,989 and $19,160 during the nine months ended September 30, 2022 and 2021, respectively.
NOTE
9: SUBSEQUENT EVENTS
The
Company evaluated subsequent events from September 30, 2022, the date of these unaudited condensed consolidated financial
statements, through November 10, 2022, which represents the date the condensed consolidated financial statements were issued, for
events requiring recognition or disclosure in the consolidated financial statements for the period ended September 30, 2022. The
Company concluded that no events have occurred that would require recognition or disclosure in the condensed consolidated financial
statements.
Item 2. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Unless
the context indicates otherwise, in this Quarterly Report on Form 10-Q, the terms “Indaptus,” “Company,” “we,”
“us” and “our” refer to Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc. the successor of Intec Pharma
Ltd. following the domestication merger) and, where appropriate, its consolidated subsidiaries following the domestication merger and
the reverse merger described below. References to “Intec Israel” refer to Intec Pharma Ltd., the predecessor of Indaptus
prior to the domestication merger described below, and references to “Decoy” refer to Decoy Biosystems, Inc., the entity
acquired by Indaptus in connection with the reverse merger described below.
The
following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results
of operations and financial condition for the periods described. This discussion should be read together with our condensed consolidated
financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information
should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021,
filed with the Securities and Exchange Commission on March 21, 2022, including the consolidated annual financial statements as of December
31, 2021 and their accompanying notes included therein. We have prepared our condensed consolidated interim financial statements in accordance
with U.S. GAAP and Article 10 of SEC Regulation S-X.
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, expenses
capital requirements and the need for additional financing following the recently completed merger. More detailed information about the
risks and uncertainties affecting us is contained under the heading “Risk Factors” included in our most recent Annual Report
on Form 10-K filed with the SEC on March 21, 2022, and in other filings that we have made and may make with the Securities and Exchange
Commission in the future.
Overview
We
are a pre-clinical biotechnology company developing a novel and patented systemically-administered anti-cancer and anti-viral immunotherapy.
We have evolved from more than a century of immunotherapy advances. Our approach is based on the hypothesis that efficient activation
of both innate and adaptive immune cells and associated anti-tumor and anti-viral immune responses will require a multi-targeted package
of immune system activating signals that can be administered safely intravenously. Our patented technology is composed of single strains
of attenuated and killed, non-pathogenic, Gram-negative bacteria, with reduced i.v. toxicity, but largely uncompromised ability to prime
or activate many of the cellular components of innate and adaptive immunity. This approach has led to broad anti-tumor and anti-viral
activity, including safe, durable anti-tumor response synergy with each of five different classes of existing agents, including checkpoint
therapy, targeted antibody therapy and low-dose chemotherapy in pre-clinical models. Tumor eradication by our technology has demonstrated
activation of both innate and adaptive immunological memory and, importantly, does not require provision of or targeting a tumor antigen
in pre-clinical models. We have carried out successful GMP manufacturing of our lead clinical candidate, Decoy20, and completed other
IND-enabling studies.
Unlike
many competitor products, our technology does not depend on targeting with or to a specific antigen, providing broad applicability across
multiple indications. Our product candidates are designed to have a much shorter half-life and produce less systemic exposure than small
molecule, antibody or human cell-based therapies, potentially reducing the risk of non-specific auto-immune reactions. Our technology
produces single agent activity and/or combination therapy-based durable responses of lymphoma, hepatocellular, colorectal and pancreatic
tumors and has also produced significant single agent activity against chronic hepatitis B virus (HBV) and chronic human immunodeficiency
virus (HIV) infections in pre-clinical models. In May 2022, the U.S. Food and Drug Administration cleared our Investigational New Drug,
or IND, application for a Phase 1 clinical trial in patients with advanced solid tumors where currently approved therapies have failed
and plan to commence a Phase 1 clinical trial before the end of 2022 targeting solid tumors. Target indications include, but not limited
to, colorectal, hepatocellular (± HBV), bladder, cervical and pancreatic carcinoma.
Decoy
Merger
On
August 3, 2021, we completed our merger with Decoy following the satisfaction or waiver of the conditions set forth in the Merger Agreement,
dated as of March 15, 2021 among the Company, Decoy, Intec Israel, Domestication Merger Sub Ltd., an Israeli company and a wholly-owned
subsidiary of the Company, or Domestication Merger Sub, and Dillon Merger Subsidiary Inc., a Delaware corporation and wholly owned subsidiary
of the Company, or Merger Sub, pursuant to which Merger Sub merged with and into Decoy, with Decoy surviving as a wholly owned subsidiary
of the Company, or the Merger, and the business conducted by Decoy became the business conducted by the combined company.
On
July 27, 2021, we, Intec Israel and Domestication Merger Sub completed the previously announced domestication merger pursuant to the
terms and conditions 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 ours. 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.”.
Following
completion of the Merger, our shares of 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 of directors determined to wind down the Accordion Pill business
of Intec Israel which was completed as of the date of issuance of these consolidated financial statements.
In
connection with the winding down, we laid off all our employees and we terminated our contracts with counterparties, including the termination
of the process development agreement between Intec Israel and LTS Lohmann Therapie Systeme AG (LTS), and the termination of the unprotected
lease agreement between Intec Israel and its landlord for the lease of offices located in Jerusalem, Israel.
Private
Placement
In
connection with the Merger, on July 23, 2021, or the Signing Date, we entered into a securities purchase agreement, or the Purchase Agreement,
with a certain institutional investor pursuant to which we agreed to sell and issue, in a private placement, or the Private Placement,
a pre-funded warrant to purchase up to 2,727,273 shares of our common stock, or the Pre-funded Warrant, and a warrant to purchase up
to 2,727,273 of our common stock, or the Warrant, at a purchase price of $10.99 per Pre-funded Warrant and associated Warrant, for aggregate
gross proceeds to us of approximately $30.0 million, before deducting the placement agent’s fees and other offering expenses payable
by the Company. The Warrant has a term of five and one-half years, is exercisable immediately following the issuance date and has an
exercise price of $11.00 per share, subject to adjustment as set forth therein.
On
August 3, 2021, the Private Placement closed and in September 2021, the Pre-Funded Warrants were fully exercised. In addition, we issued
to the placement agent a warrant to purchase 136,364 shares of our common stock at an exercise price of $13.75.
In
connection with the Purchase Agreement, we entered into a registration rights agreement, or the Registration Rights Agreement, with the
Purchaser requiring us to file a resale registration statement, or the Resale Registration Statement, with the SEC to register for resale
of the shares of our common stock issuable upon exercise of the Pre-Funded Warrant and Warrant. We subsequently filed a registration
statement registering for resale the shares of our common stock issuable upon exercise of the Pre-Funded Warrant and Warrant which became
effective on September 29, 2021.
Components
of Operating Results
Operating
Expenses
Research
and Development
Research
and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily
of fees paid to contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, as well as compensation
expenses for certain employees involved in the planning, managing, and analyzing the work of the CROs and CMOs.
We
expect our research and development expenses to increase substantially for the foreseeable future as we continue to ramp up our clinical
development activities and incur expenses associated with hiring additional personnel to support our research and development efforts.
Our expenditures on future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to
completion. The duration, costs and timing of pre-clinical studies and clinical trials and development of product candidates will depend
on a variety of factors, including:
|
● |
the timing and receipt
of regulatory approvals; |
|
● |
the scope, rate of progress
and expenses of pre-clinical studies and clinical trials and other research and development activities; |
|
● |
potential safety monitoring
and other studies requested by regulatory agencies; and |
|
● |
significant and changing
government regulation. |
General
and Administrative
General
and administrative expenses include compensation, employee benefits, and stock-based compensation for executive management, finance administration
and human resources, facility costs (including rent), professional service fees, and other general overhead costs, including depreciation,
to support our operations.
We
expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to increase our headcount
to support our research and development activities and operations generally, the growth of our business and, if any of our product candidates
receive marketing approval, commercialization activities. We also expect to continue to incur additional expenses as a result of operating
as a public company, including expenses related to compliance with the rules and regulations of the SEC, additional director and officer
insurance expenses, investor relations activities and other administrative and professional services.
Other
Income, Net
Other
income includes interest earned on deposits and other items of income, expense, gain and loss that are incidental to the core operations
of the Company.
Results
of Operations
Three
months ended September 30, 2022 compared to three months ended September 30, 2021
The
following tables sets forth our results of operations for the three months ended September 30, 2022 and 2021 and the relative dollar
change between the two periods.
| |
Three months ended | | |
| |
| |
September 30, | | |
Change | |
| |
2022 | | |
2021 | | |
($) | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development | |
$ | 1,609,554 | | |
$ | 697,674 | | |
$ | 911,880 | |
General and administrative | |
| 1,942,995 | | |
| 2,670,317 | | |
| (727,322 | ) |
| |
| | | |
| | | |
| | |
Total operating expenses | |
| 3,552,549 | | |
| 3,367,991 | | |
| 184,558 | |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (3,552,549 | ) | |
| (3,367,991 | ) | |
| (184,558 | ) |
| |
| | | |
| | | |
| | |
Other income, net | |
| 86,184 | | |
| 827 | | |
| 85,357 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (3,466,365 | ) | |
$ | (3,367,164 | ) | |
$ | (99,201 | ) |
Net loss attributable to common stockholders per share, basic and diluted | |
$ | (0.42 | ) | |
$ | (0.81 | ) | |
$ | 0.39 | |
Weighted average number of shares used in calculating net loss per share, basic and diluted | |
| 8,258,597 | | |
| 4,180,744 | | |
| | |
Research
and Development Expenses
Our
research and development expenses for the three months ended September 30, 2022 amounted to approximately $1.6 million, an increase of
approximately $900,000 compared to approximately $700,000 for the three months ended September 30, 2021. This increase was attributable
primarily to (i) an increase of approximately $300,000 for payroll and related expenses and (ii) an increase of approximately $600,000
for the preparation of the Phase 1 clinical trial and costs associated with the manufacturing processes of our lead clinical candidate.
We expect our research and development expenses to increase substantially for the remainder of the year as we plan to commence a Phase
1 clinical trial.
General
and Administrative Expenses
Our
general and administrative expenses for the three months ended September 30, 2022 amounted to approximately $2 million, a decrease of
approximately $700,000 compared to approximately $2.7 million for the three months ended September 30, 2021. This decrease was attributable
primarily to a decrease of approximately $650,000 for payroll and stock-based compensation, and approximately $550,000 for professional
fees that were associated with the Merger. This decrease was offset by various expenses associated with being a public company.
Other
Income, net
Other
income, net, increased in the three months ended September 30, 2022 compared to the same period in 2021 primarily as a result of foreign
currency exchange income and interest earned on deposits.
Nine
months ended September 30, 2022 compared to nine months ended September 30, 2021
The
following tables sets forth our results of operations for the nine months ended September 30, 2022 and 2021 and the relative dollar change
between the two periods.
| |
Nine months ended | | |
| |
| |
September 30, | | |
Change | |
| |
2022 | | |
2021 | | |
($) | |
Operating expenses: | |
| | | |
| | | |
| | |
Research and development | |
$ | 4,412,817 | | |
$ | 1,578,512 | | |
$ | 2,834,305 | |
General and administrative | |
| 6,411,066 | | |
| 2,932,100 | | |
| 3,478,966 | |
| |
| | | |
| | | |
| | |
Total operating expenses | |
| 10,823,883 | | |
| 4,510,612 | | |
| 6,313,271 | |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (10,823,883 | ) | |
| (4,510,612 | ) | |
| (6,313,271 | ) |
| |
| | | |
| | | |
| | |
Other income, net | |
| 156,862 | | |
| 15,548 | | |
| 141,314 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (10,667,021 | ) | |
$ | (4,495,064 | ) | |
$ | (6,171,957 | ) |
Net loss attributable to common stockholders per share, basic and diluted | |
$ | (1.29 | ) | |
$ | (1.67 | ) | |
$ | 0.38 | |
Weighted average number of shares used in calculating net loss per share, basic and diluted | |
| 8,258,597 | | |
| 2,692,770 | | |
| | |
Research
and Development Expenses
Our
research and development expenses for the nine months ended September 30, 2022 amounted to approximately $4.4 million, an increase of
approximately $2.8 million compared to approximately $1.6 million for the nine months ended September 30, 2021. This increase was attributable
primarily to (i) an increase of approximately $1.3 million for payroll and related expenses including approximately $400,000 of stock-based
compensation, and (ii) an increase of approximately $1.5 million for our IND preparation and submission, for the preparation of our Phase
1 clinical trial and costs associated with the manufacturing processes of our lead clinical candidate. We expect our research and development
expenses to increase substantially for the remainder of the year as we plan to commence the Phase 1 clinical trial.
General
and Administrative Expenses
Our
general and administrative expenses for the nine months ended September 30, 2022 amounted to approximately $6.4 million, an increase
of approximately $3.5 million compared to approximately $2.9 million for the nine months ended September 30, 2021. This increase was
attributable primarily to (i) an increase of approximately $1.6 million for payroll and related expenses, including approximately $1.1
million of stock-based compensation, resulting from increased headcount of our executive team following the Merger and (ii) an approximately
$1.7 million increase in directors and officers’ insurance expenses, professional fees and other expenses associated with being a
public company following the Merger.
Other
Income, net
Other
income, net, increased in the nine months ended September 30, 2022 compared to the same period in 2021 primarily as a result of proceeds
received in excess of the estimated fair value of assets held for sale, foreign currency exchange income and interest earned on deposits.
Liquidity
and Resources
Since
our inception, we have funded our operations primarily through public and private offerings of our equity securities. As of September
30, 2022, we had cash and cash equivalents and marketable securities of approximately $28.5 million. As of December 31, 2021, we had
cash and cash equivalents of approximately $39.1 million.
Pursuant
to that certain at-the-market offering agreement dated June 1, 2022, as amended, or the Offering Agreement, by and between us and H.C.
Wainwright & Co., LLC, we may elect from time to time, to offer and sell shares of common stock through an “at the market offering”
as defined in Rule 415(a)(4) promulgated under the Securities Act. The issuance and sale of shares of common stock by us under the program,
having an aggregate offering price of up to $6.3 million, will be made pursuant to our effective “shelf” registration statement
on Form S-3 (Registration Statement No. 333-267236) filed with the SEC on September 1, 2022, and declared effective on September 9, 2022.
No shares of common stock have been sold under the program.
Net
cash used in operating activities was approximately $10.9 million for the nine months ended September 30, 2022, compared with net cash
used in operating activities of approximately $7.8 million for the for the nine months ended September 30, 2021. The cash used in operating
activities during the aforementioned periods resulted primarily from our net losses incurred during such periods, as adjusted for non-cash
charges and measurements and changes in components of working capital. Adjustment to net loss for non-cash items was mainly stock-based
compensation.
Net
cash used in investing activities was approximately $21.5 million for the nine months ended September 30, 2022 which was primarily due
to the purchase of marketable securities investments during that period. There was an immaterial amount in net cash used in investing
activities in the nine months ended September 30, 2021.
There
was no net cash provided by financing activities in the nine months ended September 30, 2022. Net cash provided by financing activities
was approximately $48 million for the nine months ended September 30, 2021 which was primarily due to the Merger and the Private Placement
that closed in August 2021 as well as a series of Simple Agreements for Future Equity (SAFEs) that we issued to accredited investors.
Current
Outlook
Following
the Private Placement that closed in August 2021, we believe that we have adequate cash to fund our ongoing activities for more than
one year from the date of this Quarterly Report on Form 10-Q.
We
are closely monitoring ongoing developments in connection with the COVID-19 pandemic. As of the date of issuance of these condensed consolidated
financial statements, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. While it is unknown how
long these conditions will last and what the complete financial effect will be to us, capital raise efforts and additional development
of our technologies may be negatively affected.
Developing
drugs, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will
need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing in the
future to fund our operations, including if and when we progress into additional clinical trials, obtain regulatory approval for one
or more of our product candidates, obtain commercial manufacturing capabilities and commercialize one or more of our product candidates.
Our future capital requirements will depend on many factors, including, but not limited to:
|
● |
the progress and costs
of our preparations for clinical trials and other research and development activities; |
|
|
|
|
● |
the scope, prioritization
and number of clinical trials and other research and development programs; |
|
|
|
|
● |
the amount of revenues
and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to
our product candidates; |
|
|
|
|
● |
the impact of the COVID-19
pandemic and the Russian invasion of Ukraine; |
|
|
|
|
● |
the costs of the development
and expansion of our operational infrastructure; |
|
|
|
|
● |
the costs and timing of
obtaining regulatory approval for one or more of our product candidates; |
|
|
|
|
● |
the ability of us, or our
collaborators, to achieve development milestones, marketing approval and other events or developments under our potential future
licensing agreements; |
|
|
|
|
● |
the costs of filing, prosecuting,
enforcing and defending patent claims and other intellectual property rights; |
|
|
|
|
● |
the costs and timing of
securing manufacturing arrangements for clinical or commercial production; |
|
● |
the costs of contracting
with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves; |
|
|
|
|
● |
the costs of acquiring
or undertaking development and commercialization efforts for any future products, product candidates or technology; |
|
|
|
|
● |
the magnitude of our general
and administrative expenses; |
|
|
|
|
● |
market conditions; and |
|
|
|
|
● |
any cost that we may incur
under future in- and out-licensing arrangements relating to one or more of our product candidates. |
Until
we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising. We cannot be certain
that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay,
reduce the scope of or eliminate research or development programs and other operations and make necessary change to our operations to
reduce the level of our expenditures in line with available resources.
We
have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
Critical
Accounting Estimates
This
discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires
us to make estimates that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed
by us, including the use of estimates, are presented in our annual financial statements for the year ended December 31, 2021, and their
accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. We periodically
evaluate our estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances. Critical accounting policies are those that are most important to the portrayal of our financial condition and results
of operations and require our subjective or complex judgments, resulting in the need to make estimates about the effect of matters that
are inherently uncertain. If actual performance should differ from historical experience or if the underlying assumptions were to change,
our financial condition and results of operations may be materially impacted.
We
believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our
financial statements.
Accounting
for Research and Development Costs
We
record the costs associated with services provided by CROs and CMOs as they are incurred. Though the scope and timing of work are generally
based on signed agreements, some judgement is involved in determining periodic expenses because payment flows do not always match the
periods over which services and materials are provided to us. As a result, our management is required to make estimates of services received
and efforts expended pursuant to agreements established with these third-parties at each period-end date. During the three and nine months
ended September 30, 2022, we incurred approximately $1.6 million and $4.4 million, respectively, of research and development expenses.
As of September 30, 2022, we recorded an accrued liability of approximately $200,000 for expenses incurred, but not yet invoiced, and
prepaid expenses and deposits of approximately $1 million for payments made that relate to future periods. Over or under estimating the
services received or efforts expended could cause us to overstate or understate research and development expenses incurred within a reporting
period, and related accrued and prepaid expenses.
Stock-Based
Compensation
We
measure and record the expense related to stock-based payment awards based on the fair value of those awards on the date of grant. We
use the Black-Scholes-Merton, or Black-Scholes, option pricing model to establish the fair value. We recognize stock-based compensation
expense over the requisite service period of the individual grant, generally equal to the vesting period, on a straight-line basis. The
Black Scholes model requires that our management make certain estimates regarding the expected stock price volatility, expected term,
risk–free interest rate, and dividend yield to derive an estimated fair value. The use of different assumptions would increase
or decrease the related determination of fair value, increasing or decreasing the compensation expense related to a particular stock-based
award.
Recently
Issued Accounting Pronouncements
None.