Exhibit 99.2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
(formerly Intec Parent, Inc.)
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) | |
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging
growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 1.02 | Termination of Material Definitive Agreement. |
The information under Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 2.01 | Completion of Acquisition or Disposition of Assets. |
Completion of the Decoy Merger
On August 3, 2021, Indaptus Therapeutics, Inc. (formerly Intec Parent, Inc.), a Delaware corporation (the “Company”), completed its business combination 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”).
Also, in connection with the Merger, the Company changed its name from “Intec Parent, Inc.” to “Indaptus Therapeutics, Inc.” and the business conducted by Decoy became the business conducted by the Company, 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 Decoy’s business, see the section “Business of Decoy” 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 Company common stock, par value $0.01 per share (the “Company Common Stock”). 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 the Company 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 Company 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.
The Company’s 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.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Annex A to the Registration Statement, and as Exhibit 2.1 to Intec Israel’s Current Report on Form 8-K filed on March 15, 2021.
Winding Down of Accordion Pill Business
In connection with the completion of the Merger, on August 4, 2021, the Company’s board determined to wind down the Accordion Pill business of Intec Israel. The Company initiated the process of making its employees in Israel aware of the decision beginning on August 4, 2021 and intends to maintain an adequate number of employees in Israel until the completion of the wind down of the Accordion Pill business. The Company expects to incur salaries, severance payments and close out expenses of approximately $800,000 in connection with the wind down.
| 2 |
In connection with the winding down, on August 4, 2021, the Company initiated the termination of outstanding contracts with counterparties and the sale of its 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 2.2 million Euros (approximately $2.6 million) in termination fees and related expenses. 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.
As a result of winding down, the Company expects to incur an impairment charge. As of the date of this report, the Company is unable to make a determination of an estimate or range of estimates of the impairment charge and will file a Current Report on 8-K within four business days of its determination of the impairment charge.
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.
| Item 2.05 | Costs Associated with Exit or Disposal Activities. |
The information under Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 2.06 | Material Impairments. |
The information under Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 3.03 | Material Modification to Rights of Security Holders. |
The information under Items 2.01, 5.01 and 5.03 of this Current Report on Form 8-K is incorporated herein by reference.
The rights of the Company’s stockholders, including the former Decoy stockholders will be governed by the Company’s Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws and the Delaware General Corporation Law. The Registration Statement contains additional information about the Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws, and the Delaware General Corporation Law, which are incorporated by reference into this Item 3.03.
| 3 |
| Item 5.01 | Changes in Control of Registrant. |
As a result of the shares exchanged in the Merger, the Company experienced a change in control with former Decoy stockholders acquiring control of the Company. The information under Items 2.01, 3.03, 5.02 and 5.03 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 5.03 | Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On August 3, 2021, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation to change the name of the corporation from “Intec Parent, Inc.” to “Indaptus Therapeutics, Inc.” upon the consummation of the Merger. A copy of the Certificate of Amendment is attached hereto as Exhibit 3.1.
| Item 7.01 | Regulation FD Disclosure. |
On August 3, 2021, the Company issued a press release announcing the completion of the Private Placement and Merger. The full text of the press release is attached hereto as Exhibit 99.1.
On August 6, 2021, the Company updated its corporate presentation that it intends to use in conferences and meetings with investors from time to time. A copy of the corporate presentation is being furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein solely for purposes of this Item 7.01 disclosure.
| 4 |
The press release and investor presentation and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise be subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
| Item 9.01 | Financial Statement and Exhibits. |
(a) Financial Statements of Businesses Acquired.
The audited financial statements of Decoy as of December 31, 2020 and 2019 required by Item 9.01(a) were previously filed with the SEC as part of the Registration Statement and, pursuant to General Instruction B.3 of Form 8-K, are not required to be filed herewith.
The unaudited condensed interim financial statements of Decoy as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 are attached hereto as Exhibit 99.3.
(b) Pro Forma Financial Information.
The Company will file the financial statements required to be filed by this Item 9.01(b) not later than seventy one (71) calendar days after the date on which this Current Report on Form 8-K is required to be filed.
(d) Exhibits.
| * | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules upon request by the SEC. |
| 5 |
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 6, 2021
| INDAPTUS THERAPEUTICS, INC. | ||
| By: | /s/ Nir Sassi | |
| Nir Sassi | ||
| Chief Financial Officer | ||
| 6 |
Exhibit 3.1
CERTIFICATE
OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTEC PARENT, INC.
Pursuant to Section 242 of the Delaware General Corporation Law (the “DGCL”), Intec Parent, Inc., a Delaware corporation (the “Company”), by its undersigned representative hereunto duly authorized, hereby adopts the following Certificate of Amendment (this “Amendment”) to its Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on July 23, 2021 (the “Certificate of Incorporation”).
FIRST: The name of the Company prior to any changes effected by this Amendment was Intec Parent, Inc.
SECOND: Article I of the Certificate of Incorporation of the Company shall be deleted in its entirety and replaced with the following:
“The name of the Corporation is Indaptus Therapeutics, Inc.”
THIRD: This Amendment was duly adopted in accordance with Section 242(b) of the DGCL.
FOURTH: Other than the changes effected by this Amendment, the terms of the Certificate of Incorporation shall remain in full force and effect.
FIFTH: This Amendment shall be effective upon its filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed this 3rd day of August, 2021.
| By: | /s/ Jeffrey Meckler | |
| Jeffrey Meckler, Chief Executive Officer |
Exhibit 99.1
Intec Closes Merger with Decoy Biosystems
Completes $30 Million Private Placement
Changes Corporate Name to Indaptus Therapeutics to Reflect Clinical Focus
NEW YORK, Aug. 3, 2021 /PRNewswire/ —Indaptus Therapeutics, Inc. (Nasdaq: INDP) (“Indaptus” or the “Company,” and formerly, Intec Parent, Inc.) today announced the closing of its previously announced merger with Decoy Biosystems, Inc. (“Decoy”) and the completion of a $30 million private placement in accordance with the merger agreement. In addition, the Company announced a corporate name change to Indaptus Therapeutics, as it better reflects the Company’s therapeutic focus.
Indaptus is expected to begin trading on the Nasdaq Capital Market at the open of trading on August 4, 2021, under the ticker symbol “INDP” and a new CUSIP number (45339J 105). The previous ticker symbol was “NTEC” (Nasdaq: NTEC). The Company will have a new website address: www.indaptusrx.com.
“Today’s collective events serve to launch us forward and support the advancement of a new modality that activates both the innate and adaptive immune systems to battle a variety of tumor types and chronic viral infections,” said Jeffrey A. Meckler, Chief Executive Officer of Indaptus. “We look forward to leveraging the powerful potential of our dual acting platform and to moving our first program in immunotherapy into the clinic next year.”
“We are delighted to merge Decoy to form Indaptus, bringing together two teams of seasoned biopharmaceutical executives to drive our programs to deliver meaningful medicines for patients with unmet medical need. This transition into a publicly traded company marks a significant milestone, providing the opportunity for greater financial resources and enhanced corporate structure to better advance our immunotherapy platform,” said Michael J. Newman, Ph.D., Founder and Chief Executive Officer of Decoy.
“The completion of this merger, combined with the recent fundraise, allows Indaptus to potentially transform the way we treat tumors with a novel, multipronged approach to leveraging the body’s own immune system to fight cancers of unmet medical need,” said Roger Pomerantz, M.D., F.A.C.P., Chairman of the Board of Directors of Indaptus. “We expect these important advances will make a meaningful difference in the lives of patients battling cancer, while also building shareholder value over time.”
Prior to the closing of the merger, Indaptus closed its previously announced private placement financing with a single, healthcare-focused institutional investor to raise gross proceeds of approximately $30 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. The Company intends to use the net proceeds from the private placement for working capital purposes.
H.C. Wainwright & Co. acted as the exclusive placement agent for the private placement.
About the Merger
As previously announced, on July 26, 2021, Intec Pharma Ltd. (“Intec Pharma”) effected a domestication merger, one of the closing conditions to the merger, whereby an Israeli wholly-owned subsidiary of Indaptus, merged with and into Intec Pharma with Intec Pharma being the surviving entity and a wholly-owned subsidiary of Indaptus. Immediately prior to the domestication merger, Intec Pharma effected a 1 for 4 reverse share split.
In connection with the Decoy merger, each outstanding share of Decoy common stock, after giving effect to the conversion of Decoy SAFEs and Decoy preferred stock converted into approximately 2.65 shares of Indaptus common stock. 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 Decoy merger there are approximately 5,405,963 shares of Indaptus common stock outstanding, with pre-merger Decoy shareholders owning approximately 65.6% and pre-merger Intec Pharma shareholders owning approximately 34.4% of Indaptus. 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. The figures above do not give effect to shares issuable upon the exercise of outstanding Indaptus warrants or options, other than the pre-funded warrants.
In connection with the previously announced domestication merger of Intec Pharma, the predecessor of Indaptus, after which Intec Pharma became a wholly owned subsidiary of Indaptus (formerly Intec Parent, Inc.), a request was made for the Nasdaq Stock Market LLC to file with the Securities and Exchange Commission an application on Form 25 to delist and deregister the ordinary shares of Intec Pharma under Section 12(b) of the Securities Exchange Act of 1934, as amended.
The securities sold in the private placement have not been registered under the Securities Act of 1933, as amended, and may not be resold in the U.S. except pursuant to an effective registration statement or an applicable exemption from the registration requirements. Indaptus has agreed to file a registration statement with the Securities and Exchange Commission registering the resale of the shares of common stock underlying the securities sold in this private placement.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction.
Board of Directors and Management of Indaptus Therapeutics
Dr. Roger Pomerantz serves as Indaptus’s Chairman with Jeffrey Meckler serving as Chief Executive Officer and director, Michael Newman to serve as Chief Scientific Officer and director, Nir Sassi serving as Chief Financial Officer and Walt Linscott serving as Chief Business Officer. Other board members include William B. Hayes, Hila Karah, and Anthony J. Maddaluna and will also include Brian O’Callaghan and Hoonmo Lee. Additional information regarding the business experience of the Indaptus board of directors and management can be found in Indaptus’s proxy statement/prospectus included in the registration statement on Form S-4 filed with the Securities and Exchange Commission on May 12, 2021.
About Indaptus Therapeutics
Indaptus Therapeutics has evolved from more than a century of immunotherapy advances. The Company’s 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. Indaptus’ 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 Indaptus 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. Indaptus has carried out successful GMP manufacturing of its lead clinical candidate, Decoy20, and is currently completing other IND-enabling studies.
Forward-Looking Statements
This press release contains forward-looking statements with the meaning of the Private Securities Litigation Reform Act. These include statements regarding management’s expectations, beliefs and intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies, plans and prospects. 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. For example, forward-looking statements are used in this press release when we discuss our expected timeline of our development pipeline. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the following: Indaptus’ plans to develop and potentially commercialize its technology, the timing and cost of Indaptus’ planned investigational new drug application and any clinical trials, the completion and receiving favorable results in any clinical trials, Indaptus’ ability to obtain and maintain regulatory approval of any product candidate, Indaptus’ ability to protect and maintain its intellectual property and licensing arrangements, Indaptus’ ability to develop, manufacture and commercialize its product candidates, the risk of product liability claims, the availability of reimbursement, the influence of extensive and costly government regulation, and Indaptus’ estimates regarding future revenue, expenses capital requirements and the need for additional financing following the 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. All forward-looking statements speak only as of the date of this press release and are expressly qualified in their entirety by the cautionary statements included in this press release. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, except as required by applicable law.
Investor Contact:
Will
O’Connor
Stern IR
+1 212-362-1200
will@sternir.com
Exhibit 99.2
Exhibit 99.3
DECOY BIOSYSTEMS, INC.
UNAUDITED FINANCIAL STATEMENTS
AS OF MARCH 31, 2021 AND DECEMBER 31, 2020 AND FOR THE THREE MONTHS ENDED MARCH 31, 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 |
Unaudited Balance Sheets
March 31, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,486,915 | $ | 1,637,499 | ||||
| Deferred transaction costs | 604,988 | - | ||||||
| Prepaid expenses and other current assets | 204,383 | 94,500 | ||||||
| Total current assets | 5,296,286 | 1,731,999 | ||||||
| Property and equipment, net | 1,136 | 1,349 | ||||||
| Other assets | 44,445 | 44,445 | ||||||
| Total assets | $ | 5,341,867 | $ | 1,777,793 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and other current liabilities | $ | 1,079,415 | $ | 598,365 | ||||
| SAFE agreements | 5,092,129 | 1,417,129 | ||||||
| Total current liabilities | 6,171,544 | 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 March 31, 2021 and December 31, 2020 | 315 | 315 | ||||||
| Common stock; $0.001 par value, 1,300,000 and 1,200,000 shares authorized as of March 31, 2021 and December 2020, respectively; 732,635 shares issued and outstanding as of March 31, 2021 and December 31, 2020 | 733 | 733 | ||||||
| Additional paid in capital | 7,741,197 | 7,720,752 | ||||||
| Accumulated deficit | (8,571,922 | ) | (7,959,501 | ) | ||||
| Total stockholders’ equity | (829,677 | ) | (237,701 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 5,341,867 | $ | 1,777,793 | ||||
See accompanying notes to the financial statements
| 3 |
Unaudited Statements of Operations
| Three months ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating expenses | ||||||||
| Research and development | $ | 489,721 | $ | 374,443 | ||||
| General and administrative | 124,254 | 194,118 | ||||||
| Total operating expenses | 613,975 | 568,561 | ||||||
| Loss from operations | (613,975 | ) | (568,561 | ) | ||||
| Other income, net | 1,554 | 9,980 | ||||||
| Net loss | $ | (612,421 | ) | $ | (558,581 | ) | ||
| Net loss available to common stockholders per share of common stock, basic and diluted | $ | (0.84 | ) | $ | (0.76 | ) | ||
| Weighted average number of shares used in calculating net loss per share, basic and diluted | 732,635 | 732,635 | ||||||
See accompanying notes to the financial statements
| 4 |
Unaudited Statements of Stockholders’ Equity
| 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 | ||||||||||||||||||||
| 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 | ) | ||||||||||||||
See accompanying notes to the financial statements
| 5 |
Unaudited Statements of Cash Flows
| Three months ended | ||||||||
| March 31 | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (612,421 | ) | $ | (558,581 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 213 | 213 | ||||||
| Stock-based compensation | 20,445 | 38,883 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Deferred transaction costs | (604,988 | ) | - | |||||
| Prepaid expenses and other current assets | (109,883 | ) | 51,759 | |||||
| Accounts payable and other current liabilities | 481,050 | 54,991 | ||||||
| Net cash used in operating activities | (825,584 | ) | (412,735 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from SAFEs | 3,675,000 | 1,132,129 | ||||||
| Net cash flows provided by financing activities | 3,675,000 | 1,132,129 | ||||||
| Net increase in cash and cash equivalents | 2,849,416 | 719,394 | ||||||
| Cash and cash equivalents at beginning of period | 1,637,499 | 3,798,955 | ||||||
| Cash and cash equivalents at end of period | $ | 4,486,915 | $ | 4,518,349 | ||||
| Supplemental cash flow disclosures | ||||||||
| Cash paid for income taxes | $ | 800 | $ | 800 | ||||
| Cash received for interest earned on deposits | $ | 506 | $ | 10,856 | ||||
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.
| 7 |
DECOY BIOSYSTEMS, INC.
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 months ended March 31, 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 March 31, 2021 of $8.6 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 March 31, 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. There can be no assurance the Company will be able to obtain sufficient funds or that sufficient funding will be available on acceptable terms.
During the three months ended March 31, 2021, the Company issued Simple Agreements for Future Equity (“SAFEs”) in the amount of $3,675,000 (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. Regardless, 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 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. Thus, management cannot provide assurance that it will be able to obtain sufficient sources of financing or liquidity on acceptable terms, or at all. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
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.
| 8 |
DECOY BIOSYSTEMS, INC.
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 condensed financial statements. Operating results for the three months ended March 31, 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.
Loss per share
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 months ended March 31, 2021 and 2020 as the Company reported a net loss for each period.
| 9 |
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 March 31, 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 March 31, 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.
| 10 |
DECOY BIOSYSTEMS, INC.
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 and CMOs as well as compensation expenses for certain employees involved in the planning, managing, and analyzing the work of the CROs and CMOs.
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.
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 March 31, 2021 and December 31, 2020, 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. For stock options with performance conditions, the Company records compensation expense when it is deemed probable that the performance condition will be met.
| 11 |
DECOY BIOSYSTEMS, INC.
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 estimates 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 March 31, 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.
| 12 |
DECOY BIOSYSTEMS, INC.
As of March 31, 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:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid research and development | $ | 196,356 | $ | 83,550 | ||||
| Prepaid insurance | 4,608 | 6,972 | ||||||
| Other prepaid expenses | 3,419 | 3,978 | ||||||
| Total prepaid expenses and other current assets | $ | 204,383 | $ | 94,500 | ||||
| 13 |
DECOY BIOSYSTEMS, INC.
NOTE 4: ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities are comprised of the following:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Deposit | $ | 650,000 | $ | 200,000 | ||||
| Accrued legal fees | 200,446 | 171,630 | ||||||
| Accrued research and development | 140,499 | 63,753 | ||||||
| Accounts payable | 75,565 | 155,957 | ||||||
| Other accrued expenses | 12,905 | 7,025 | ||||||
| Total accounts payable and other current liabilities | $ | 1,079,415 | $ | 598,365 | ||||
NOTE 5: SIMPLE AGREEMENTS FOR FUTURE EQUITY
The Company issued a series of SAFEs with accredited investors between December 2019 and March 2021. The total (“Purchase Amount”) of the SAFEs is $5.1 million and $1.4 million as of March 31, 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.
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.
| 14 |
DECOY BIOSYSTEMS, INC.
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 March 31, 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. Refer to Note 9 for information about SAFEs issued in April 2021. As the SAFEs may potentially be settled in cash, the Company has presented the instruments as liabilities as of March 31, 2021 and December 31, 2020.
NOTE 6: SHARE-BASED COMPENSATION
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.
| 15 |
DECOY BIOSYSTEMS, INC.
A summary of the stock option activity during the three months ended March 31, 2021 is presented in the table below:
| 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 March 31, 2021 | 77,639 | $ | 7.58 | 8.0 | $ | 28,003 | ||||||||||
| Exercisable at March 31, 2021 | 49,946 | |||||||||||||||
| Vested and expected to vest March 31, 2021 | 77,639 | $ | 7.58 | 8.0 | $ | 28,003 | ||||||||||
The Company recognized share-based compensation expense of $20,445 and $38,883 during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, total compensation cost not yet recognized related to unvested stock options was $158,275, which is expected to be recognized over a weighted-average period of 2.2 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 months ended March 31, 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.
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.
| 16 |
DECOY BIOSYSTEMS, INC.
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.
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.
| 17 |
DECOY BIOSYSTEMS, INC.
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 March 31, 2021, the Company had 1,300,000 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 March 31, 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 March 31, 2021, the Company has not recognized any losses related to such legal proceedings.
| 18 |
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 $9,180 during the three months ended March 31, 2021 and 2020, respectively.
NOTE 9: SUBSEQUENT EVENTS
The Company evaluated subsequent events from March 31, 2021, the date of these financial statements, through August 3, 2021, which represents the date the financial statements were issued, for events requiring recognition or disclosure in the financial statements for the period ended March 31, 2021. The Company concluded that no events have occurred that would require recognition or disclosure in the financial statements, except as described below:
Financing transactions
In April 2021, the Company issued additional SAFEs totaling $1,325,000 pursuant to the same terms described in Note 5.
Amendment to the Company’s Articles of Incorporation
In April 2021, the Company amended its Articles of Incorporation to increase the number of authorized shares of its common stock from 1,300,000 to 1,450,000.
Approval and closing of merger agreement
In May 2021, Decoy’s shareholders voted to approve the definitive merger agreement dated March 15, 2021.
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 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 $11.00 per share. Indaptus intends to use the net proceeds from the private placement for working capital purposes. Assuming the exercise in full of the pre-funded warrants sold in the private placement, there would be 8,133,236 shares of Indaptus common stock outstanding.
| 19 |
7:ZI]EEM-*4R7L5K%$VHD3C
M -YA;RW5SI0CMPT)B:*X+LZ2[MF5V##$JO
MRY/WQSVHU[Q#J.F:KI\DOV>UTZ*));\M=*NUI'$85BT9&T98Y#*3MZC&";_,
M9G06WC6P@DM[9+@Q6T*PH@-L5D'R#?#D[O,QO)\PA,X !'-3BT\7^?;74B/-
M+%:2H&8P"5F9F95?&$Z)$&*@<]Q/';C-Q([!PS\Y.UU4XSR!C(%/G\"+-<6C?:[=HH)HYG$]IYCLR9.02^T
M,6>0DE3C=Q@@&KFK:?K$][926,LJ/#;B(W+^66!>2/>VW&W<$1OX<9;BL:[M
M?&-T]C;3)<2PQ1QRR.7ME26169]LN/FW96,?NPJ\L23TJ=@W_K^NYJ>$/"5U
MX7%UYVK)J#W,I>65K01.P_AR5;#,,G+D$MQTP*CE\#)-=3327[,)FWR1F+Y6
M?S7