Indaptus Therapeutics, Inc. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                  TO                

Commission File Number 333-255389

INTEC PARENT, INC.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: +972-2 -586-4657

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☐ NO ☒

Indicate by check mark whether the Registrant has submitted electronically and posted every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The number of shares of Registrant’s common stock outstanding as of June 25, 2021: 100

EXPLANATORY NOTE

On March 15, 2021, as previously announced, Intec Pharma Ltd., an Israeli company (“Intec Israel”), Intec Parent, Inc., a Delaware corporation and wholly owned subsidiary of Intec Israel (“Intec Parent”), Domestication Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of Intec Parent (“Domestication Merger Sub”), Dillon Merger Subsidiary, Inc., a Delaware corporation and a wholly owned subsidiary of Intec Parent (“Merger Sub”), and Decoy Biosystems, Inc., a Delaware corporation (“Decoy”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), whereby upon satisfaction of certain closing conditions set forth in the Merger Agreement, including consummation of the Domestication Merger (as defined below), Merger Sub will merge with and into Decoy, with Decoy being the surviving entity and a wholly owned subsidiary of Intec Parent (the “Merger”). On April 27, 2021, as previously announced, Intec Israel, Intec Parent and Domestication Merger Sub entered into an Agreement and Plan of Merger (the “Domestication Merger Agreement”), pursuant to which the Domestication Merger Sub will merge with and into Intec Israel, with Intec Israel being the surviving entity and a wholly owned subsidiary of Intec Parent (the “Domestication Merger”). On April 22, 2021, a registration statement on Form S-4 (File No. 333-255389) was filed by Intec Parent and Intec Israel as co-registrants and was declared effective on May 14, 2021 (the “Registration Statement”). The Registration Statement contained a joint proxy statement/prospectus for (1) solicitation of the approval of the shareholders of Intec Israel for certain proposals, including the Merger and the Domestication Merger, to be considered at a special meeting, and (2) the registration of shares of common stock of Intec Parent to be issued in connection with the Domestication Merger and the Merger. On June 21, 2021, as previously announced, the shareholders of Intec Israel approved all of the proposals at the special meeting.

Intec Parent does not conduct any business or have any operations and does not hold any assets. As of the date hereof, the Domestication Merger and the Merger, which is subject to certain closing conditions including a closing financing by Intec Israel or Intec Parent and the disposition of Intec Israel’s Accordion Pill business, have not been consummated, although Intec Parent expects that the Domestication Merger and the Merger will occur in the third quarter of 2021. Upon the consummation of the Domestication Merger and the Merger, Intec Parent will become the successor to Intec Israel as Intec Israel will withdraw the listing of its common shares on the Nasdaq Capital Market and, subject to the approval of Nasdaq, the common stock of Intec Parent post-merger will be listed on the Nasdaq Capital Market and commence trading thereon. In light of the facts described above, the quarterly report on Form 10-Q for the quarter ended March 31, 2021 for Intec Israel filed on May 17, 2021 is attached hereto for purposes of satisfying Intec Parent’s disclosure obligations, as a wholly owned subsidiary of Intec Israel, under Form 10-Q.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                   TO                 

Commission File Number 001-37521

INTEC PHARMA LTD.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: +972-2 - 586-4657

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The number of shares of Registrant’s ordinary shares outstanding as of May 13, 2021: 4,821,971.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

INTEC PHARMA LTD.

UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

MARCH 31, 2021

TABLE OF CONTENTS

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTEC PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION:

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued):

These unaudited interim 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, 2020, as filed in the 10-K on March 16, 2021. The condensed balance sheet data as of December 31, 2020 included in these unaudited condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31, 2020 but does not include all disclosures required by US GAAP for annual financial statements.

The results for the three-month period ended March 31, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

a.    Principles of consolidation

b.    Fair value measurement

c.    Loss per share

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

The following share options and warrants were excluded from the calculation of diluted loss per ordinary share because their effect would have been anti-dilutive for the periods presented (share data):

 SCHEDULE OF ANTI-DILUTIVE SECURITIES

NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES:

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

As part of its operations, the Company entered into feasibility agreements with multinational companies for the development of products that combine the Company’s proprietary Accordion Pill platform technology with certain drugs for the treatment of various indications. These agreements sometimes include a mutual possibility of entering into negotiations for the acquisition of a future license for the commercial use of the products that are being developed by the multinational companies under the feasibility agreements. In addition, the multinational companies agreed to reimburse the Company for its expenses, based on milestones that are detailed in the feasibility agreements.

This funding is recognized in the statements of operations as a deduction from research and development expenses, as they are incurred.

NOTE 4 - SHARE CAPITAL:

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 4 - SHARE CAPITAL (continued):

In the three months ended March 31, 2020, the Company granted options as follows:

 SCHEDULE OF OPTIONS GRANTED TO EMPLOYEES

The fair value of options granted to employees during the three months ended March 31, 2020 was $127 thousand.

The fair value of options granted to employees on the date of grant was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

 UNDERLYING DATA USED FOR COMPUTING THE FAIR VALUE OF THE OPTIONS

SCHEDULE OF EFFECT OF SHARE-BASED COMPENSATION

NOTE 5 - ACCOUNTS PAYBLE AND ACCRUALS - OTHER:

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUALS - OTHER

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 6 - MERGER AGREEMENT:

On March 15, 2021, Intec Israel entered into a Merger Agreement with Intec Parent, Merger Sub, Domestication Merger Sub, and Decoy, pursuant to which, following the Domestication Merger, and upon satisfaction of additional closing conditions, the Merger Sub will merge with and into Decoy, with Decoy being the surviving entity and a wholly owned subsidiary of Intec Parent. If the Merger is completed, then the business of Decoy will become the business of Intec Parent.

Under the exchange ratio formula in the Merger Agreement, without taking into consideration the effect of the respective levels of cash and liabilities of each of the Company and Decoy, which will result in an adjustment to such exchange ratio, following the closing of the Merger (the “Closing”), the former Decoy securityholders immediately before the Merger are expected to own approximately 75% of the aggregate number of the outstanding securities of Intec Parent (based on a valuation of $30 million), and the securityholders of the Company immediately before the Domestication Merger are expected to own approximately 25% of the aggregate number of the outstanding securities of Intec Parent (based on a valuation of $10 million), calculated on a fully-diluted basis. The actual allocation will be subject to adjustment based on, among other things, the respective net cash balances of Decoy and the consolidated Intec entities (including, in the case of Intec Israel, any proceeds from any disposition of Intec Israel’s Accordion Pill business), subject to certain exceptions. As further described below, the Closing is also conditioned on completion of the Domestication Merger and on a financing by Intec Israel or Intec Parent, which will dilute securityholders of both Intec Israel and Decoy on a pro-rata basis, subject to certain exceptions.

The Merger Agreement contains customary representations, warranties and covenants made by each of Intec Israel and Decoy, including covenants relating to (i) the conduct of their respective businesses prior to the Closing, (ii) the preparation and filing of a registration statement on Form S-4 registering the Merger Shares and the shares of Intec Parent Common Stock to be issued in connection with the Domestication Merger (the “Registration Statement”) and the preparation and/or filing, as applicable, of a proxy statement/information statement for the special meeting or approval by written consent, as applicable, of shareholders of each of Intec Israel and Decoy, (iii) holding a meeting or approval by written consent, as applicable, of shareholders of each of Intec Israel and Decoy to obtain their requisite approvals in connection with the Domestication Merger and Merger, as applicable, including, among other approvals, the approval by Intec Israel’s shareholders of the issuance of the Merger Shares, and (iv) subject to certain exceptions, the recommendation of the board of directors of each party to the Merger Agreement to its shareholders that such approvals be given.

Consummation of the Merger is subject to certain closing conditions, including, among other things, (i) consummation of the Domestication Merger, (ii) approval of certain matters related to the Merger by the shareholders of Intec Israel and approval of the Merger by the stockholders of Decoy, (iii) the effectiveness of the Registration Statement, (iv) the continued listing of Intec Israel’s ordinary shares on the Nasdaq Capital Market (and following the Domestication Merger, the shares of Intec Parent Common Stock) and the authorization for listing on the Nasdaq Capital Market of the Merger Shares, (v) the receipt of a tax ruling from the Israel Tax Authority with respect to the Domestication Merger, (vi) disposition of Intec Israel’s Accordion Pill business, and (vii) a closing financing by Intec Israel or Intec Parent such that upon Closing of the Merger (taking account of the proceeds to be received with respect to such financing), the combined net cash of Intec Parent shall be not less than $30 million and not more than $50 million, and which represents an agreed minimum valuation derived from the Exchange Ratio for Intec Parent following the Closing. The Merger Agreement requires Intec Israel to convene a shareholders’ meeting for purposes of obtaining the necessary shareholder approvals required in connection with the Merger.

The Merger Agreement contains certain termination rights for both Intec Israel and Decoy, including, but not limited to, the right of Intec Israel and Decoy to terminate the Merger Agreement by mutual written consent or if a court of competent jurisdiction or other Governmental Body (as defined in the Merger Agreement) has issued a final and nonpeelable order, decree or ruling, or has taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger.

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 6 - MERGER AGREEMENT (continued):

As of March 31, 2021, Intec Israel has transferred $650 thousand to Decoy for transaction expenses, of which $350 thousand was recorded in the statement of operation as general and administrative expenses and $300 thousand was recorded as deposit under prepaid expenses and other receivables. Either Intec Israel or Decoy may terminate the Merger Agreement if the Merger is not consummated on or before the date that is 155 days after March 17, 2021. This date may be extended in certain circumstances. In connection with the termination of the Merger Agreement, under specified circumstances, Decoy may be required to pay to Intec Israel a break-up fee of $1.0 million, or Intec Israel may be required to pay to Decoy a reverse break-up fee of $1.0 million, which was deposited with an escrow agent and therefore recorded as restricted cash as of March 31, 2021, and forfeit an amount of $350 thousand that was transferred to Decoy to cover transaction expenses.

As set forth in the Merger Agreement and pursuant to an Agreement and Plan of Merger dated as of April 27, 2021 between Intec Israel, Intec Parent and Domestication Merger Sub, prior to the date of the closing date (the “Closing Date”), Intec Israel shall domesticate as a wholly owned subsidiary of a Delaware corporation by merging with and into the Domestication Merger Sub, with Intec Israel surviving the merger and becoming a wholly-owned subsidiary of Intec Parent. In connection with the Domestication Merger, all Intec Israel’s ordinary shares, having no par value per share (the “Intec Israel Shares”), outstanding immediately prior to the Domestication Merger, will convert, on a one-for-one basis, into shares of Intec Parent Common Stock and all options and warrants to purchase Intec Israel Shares outstanding immediately prior to the Domestication Merger will be exchanged for equivalent securities of Intec Parent.

In accordance with the terms of the Merger Agreement, the Company agreed that prior to the Closing Date it would use commercially reasonable efforts to enter into one or more agreements providing for the sale, transfer or assignment of the Company’s Accordion Pill business by way of Asset Disposition or Share Disposition or that it would otherwise take steps related to the divestment or disposal of its assets and satisfaction of liabilities of the Accordion Pill business by way of Business Termination, to be affected immediately after the Closing. Following the above, the depreciation of the property and equipment was accelerated in accordance with the Company’s expectation for the Closing Date. As a result, the loss per share for the three-month period ended March 31, 2021, increased by five cents from $0.91 to $0.96. For the three-month period ended March 31, 2021, the Company recorded depreciation expenses of approximately $526 thousand.

NOTE 7 - EVENTS SUBSEQUENT TO MARCH 31, 2021

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

This Quarterly Report on Form 10-Q of Intec Pharma Ltd. 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: risks related to the proposed merger, our limited operating history and history of operating losses, our ability to continue as a going concern, our ability to obtain additional financing, the impact of the outbreak of coronavirus on our operations, our ability to successfully operate our business or execute our business plan, the timing and cost of our clinical trials, the completion and receiving favorable results in our clinical trials, our ability to obtain and maintain regulatory approval of our product candidates, 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, and the influence of extensive and costly government regulation. 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 16, 2021, and in other filings that we have made and may make with the Securities and Exchange Commission in the future.

All references to “we,” “us,” “our,” “Intec”, “Intec Israel”, “the Company” and “our company”, in this Quarterly Report on Form 10-Q, are to Intec Pharma Ltd. and its subsidiaries Intec Pharma Inc. and Intec Parent, Inc., Dillon Merger Sub, Inc. and Domestication Merger Sub Ltd., unless the context otherwise requires. All references to Intec Parent are to Intec Parent, Inc., a newly formed Delaware wholly owned subsidiary of Intec Israel that is intended to be the successor to Intec Israel following the domestication of Intec Israel to Delaware as further described in this Quarterly Report on Form 10-Q.” All references to “ordinary shares” and “share capital” refer to ordinary shares and share capital of Intec Israel. All references to “Israel” are to the State of Israel. Our historical results do not necessarily indicate our expected results for any future periods.

Unless otherwise indicated, all information in this Quarterly Report on Form 10-Q gives effect to a 1-for-20 reverse share split of our ordinary shares that became effective on October 30, 2020, and all references to ordinary shares outstanding and per share amounts give effect to the reverse share split.

Overview

We are a clinical stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which we refer to as the Accordion Pill, or AP. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy and safety of existing drugs and drugs in development by utilizing an efficient gastric retention, or, GR and specific release mechanism. Our product pipeline currently includes several product candidates in various stages. Our most advanced product candidate, Accordion Pill Carbidopa/Levodopa, or, AP-CD/LD, was being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients.

Proposed Merger with Decoy Biosystems

On March 15, 2021, Intec Israel, Intec Parent, Inc., a Delaware corporation, and a wholly owned subsidiary of Intec Pharma, or Intec Parent, Dillon Merger Subsidiary Inc., a Delaware corporation and a wholly owned subsidiary of Intec Parent, or the Merger Sub, Domestication Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of Intec Parent, or the Domestication Merger Sub, and Decoy Biosystems, Inc., a Delaware corporation, or Decoy, entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, pursuant to which, following the merger of the Domestication Merger Sub with and into us, with us being the surviving entity and a wholly-owned subsidiary of Intec Parent, or the Domestication Merger, and upon satisfaction of additional closing conditions, the Merger Sub will merge with and into Decoy, with Decoy being the surviving entity and a wholly-owned subsidiary of Intec Parent, or the Merger. The Merger is expected to be completed in the third calendar quarter of 2021 and if it is completed then the business of Decoy will become the business of Intec Parent.

Under the Merger Agreement, the following will occur:

The Domestication Merger

As set forth in the Merger Agreement, prior to the date of the closing, or the Closing Date”, Intec Israel will domesticate as a wholly owned subsidiary of a Delaware corporation by merging with and into the Domestication Merger Sub pursuant to an Agreement and Plan of Merger, dated as of April 27, 2021, among Intec Israel, Domestication Merger Sub and Intec Parent, or the Domestication Merger Agreement, with Intec Israel surviving the merger and becoming a wholly owned subsidiary of Intec Parent. In connection with the Domestication Merger, all Intec Israel ordinary shares, having no par value per share, or the Intec Israel Shares, outstanding immediately prior to the Domestication Merger will convert, on a one-for-one basis, into shares of common stock of Intec Parent, par value $0.01 per share, or the Intec Parent Common Stock, and all options and warrants to purchase Intec Israel Shares outstanding immediately prior to the Domestication Merger will be exchanged for equivalent securities of Intec Parent.

The Merger

As set forth in the Merger Agreement, after completion of the Domestication Merger and subject to the satisfaction of the other closing conditions of the Merger, on the Closing Date, the Merger Sub will merge with and into Decoy, with Decoy being the surviving entity. As a result of the Merger, Decoy will become a wholly owned subsidiary of Intec Parent.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, which will occur on the Closing Date, or the Effective Time:

The shares of Intec Parent Common Stock issuable in exchange for shares of Decoy Common Stock as described above are referred to as the “Merger Shares.”

Under the exchange ratio formula in the Merger Agreement, without taking into consideration the effect of the respective levels of cash and liabilities of each of Intec Israel, each Intec Israel subsidiary, Merger Sub, Domestication Merger Stub and Intec Parent, or the Intec entities, and Decoy, which will result in an adjustment to such exchange ratio, following the closing of the Merger, or the Closing, the former Decoy securityholders immediately before the Merger are expected to own approximately 75% of the aggregate number of the outstanding securities of Intec Parent, and the securityholders of Intec Israel immediately before the Domestication Merger are expected to own approximately 25% of the aggregate number of the outstanding securities of Intec Parent, calculated on a fully diluted basis. The actual allocation will be subject to adjustment based on, among other things, the respective net cash balances of Decoy and the consolidated Intec entities net cash balance (including, in the case of Intec Israel, any proceeds from the Disposition, described below), subject to certain exceptions. As further described below, the Closing is also conditioned on completion of the Domestication Merger, the Disposition, and on a Closing Financing, as described herein, by Intec Israel or Intec Parent, which will dilute securityholders of both Intec Israel and Decoy on a pro-rata basis, subject to certain exceptions.

Disposition of Accordion Pill Business

In accordance with the terms of the Merger Agreement, Intec Israel agreed that prior to the Closing Date it would use commercially reasonable efforts to enter into one or more agreements providing for the sale, transfer or assignment of Intec Israel’s Accordion Pill business by way of an asset sale or a sale of the entire issued share capital of Intec Israel or that it would otherwise take steps related to the divestment or disposal and satisfaction of liabilities related to the same, to be effected immediately after the Closing, or the Disposition.

The Closing Financing

The Closing is conditioned on one or more closing or pre-closing financing transactions by Intec Israel or Intec such that immediately following the Closing of the Merger (taking into account the proceeds to be received with respect to such financing(s)), the combined net cash of Decoy and the Intec entities will be not less than $30 million and not more than $50 million and which incorporates an agreed minimum valuation for Intec Parent following the Closing.

Recent Developments

In December 2020, we initiated a clinical trial in Israel evaluating the safety, tolerability and PK of an optimized AP-THC. Initial results demonstrated that the optimized AP-THC was able to achieve better controlled release profile with prolonged exposure and shorter lag time compared with Marinol which is a prescription medicine in the United States. The active ingredient in Marinol is Dronabinol, which is synthetic THC.

Results of Operations

The table below provides our results of operations for the periods indicated.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Research and Development Expenses

Our research and development expenses for the three months ended March 31, 2021 amounted to approximately $2.1 million, an increase of $100,000, or approximately 5%, compared to approximately $2.0 million for the three months ended March 31, 2020. The increase was primarily related to the accelerated depreciation for property and equipment following the proposed Merger.

General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2021 amounted to approximately $2.0 million, an increase of $300,000, or approximately 18%, compared to approximately $1.7 million for the three months ended March 31, 2020. The increase was primarily related to professional services expenses related to the Merger Agreement that was recorded in the three-month ended March 31, 2021.

Operating Loss

Because of the foregoing, for the three months ended March 31, 2021 our operating loss was approximately $4.1 million, an increase of $400,000, or approximately 11%, compared to our operating loss for the three months ended March 31, 2020 of approximately $3.7 million. The increase was mainly due to an increase in general and administrative expenses, as detailed above.

Financial Expenses, Net

For the three months ended March 31, 2021, we had financial expenses from foreign currency exchange expenses in the amount of approximately $28,000 and bank fees.

For the three months ended March 31, 2020, we had financial expenses from foreign currency exchange expenses in the amount of approximately $79,000 and bank fees, offset by financial income from interest on cash and cash equivalents in the amount of approximately $10,000 and financial income from change in fair value of marketable securities in the amount of approximately $2,000.

Income tax

For the three months ended March 31, 2021 and 2020, we have not generated taxable income in Israel. However, for the three months ended March 31, 2021 and 2020 we incurred tax expenses in Intec Pharma Inc. in the amount of $20,000 and $61,000, respectively.

Net Loss

Because of the foregoing, for the three months ended March 31, 2021 our net loss was approximately $4.2 million, an increase of $300,000, or approximately 8%, compared to our net loss for the three months ended March 31, 2020 of approximately $3.9 million. The increase was mainly due to an increase in general and administrative expenses, as detailed above.

Liquidity and Capital Resources

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

As of March 31, 2021, we had cash and cash equivalents and restricted cash of approximately $11.1 million. As of December 31, 2020, we had cash and cash equivalents of approximately $14.7 million.

Net cash used in operating activities was approximately $4.3 million for the three months ended March 31, 2021 compared with net cash used in operating activities of approximately $5.1 million for the three months ended March 31, 2020. This decrease resulted primarily from the changes in operating asset and liability items of approximately $1.3 million, offset by an increase in our general and administrative expenses in the amount of approximately $300,000.

We had negative cash flow from investing activities of approximately $1,000 for the three months ended March 31, 2021 compared to positive cash flow from investing activities of approximately $769,000 for the three months ended March 31, 2020. This change resulted primarily from proceeds from disposal of marketable securities in the three-month ended March 31, 2020.

Net cash provided by financing activities for the three months ended March 31, 2021 was approximately $956,000, which was provided by the proceeds from exercise of warrants in February 2021. Net cash provided by financing activities for the three months ended March 31, 2020 was approximately $6.1 million, which was provided by the proceeds from our underwritten public offering in February 2020 that resulted in net proceeds of approximately $5.7 million and by the funds received from the sale of our ordinary shares under our “at-the-market” equity offering program that resulted in net proceeds of approximately $421,000.

Aspire Capital Financing Arrangement

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

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

We filed with the SEC a prospectus supplement to our effective shelf registration statement on Form S-3 (File No. 333-230016) registering all of the ordinary shares that may be offered to Aspire Capital from time to time. Under the Purchase Agreement, on any trading day selected by us, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase Notice, directing Aspire Capital (as principal) to purchase up to 10,000 of our ordinary shares in an amount no greater than $500,000 per business day, up to $10.0 million of our ordinary shares in the aggregate at a per share price, or the Purchase Price, equal to the lesser of:

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

In addition, on any date on which we submit a Purchase Notice to Aspire Capital in an amount equal to at least 10,000 ordinary shares, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, each, a VWAP Purchase Notice, directing Aspire Capital to purchase an amount of ordinary shares equal to up to 30% of the aggregate of our ordinary shares traded on our principal market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of 12,500 ordinary shares, unless we and Aspire Capital mutually agree otherwise. The purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for our ordinary shares traded on our principal market on the VWAP Purchase Date.

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

The Purchase Agreement provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our ordinary shares is less than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of sales of our ordinary shares to Aspire Capital. Aspire Capital has no right to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, we issued to Aspire Capital the Commitment Shares. The Purchase Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital has agreed that neither we nor any of our agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our ordinary shares during any time prior to the termination of the Purchase Agreement. Any proceeds from us received under the Purchase Agreement are expected to be used to fund our research and development activities, for working capital and for general corporate purposes.

In April 2021, we sold 319,393 ordinary shares under the Purchase Agreement at a purchase price of $3.7767 per share, for a total consideration of approximately $1.2 million.

The Purchase Agreement currently provides that the number of ordinary shares that may be sold pursuant to the Purchase Agreement will be limited to 963,912 ordinary shares, or the Exchange Cap, which represents 19.99% of our outstanding ordinary shares on May 16, 2021, unless shareholder approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all ordinary shares issued under the Purchase Agreement is equal to or greater than $3.44, which is the price equal to the closing sale price of our ordinary shares immediately preceding the execution of the amendment to the Purchase Agreement. We are not required or permitted to issue any ordinary shares under the Purchase Agreement if such issuance would breach its obligations under the rules or regulations of the Nasdaq Capital Market or other applicable law (including, without limitation, the Israeli Companies Law – 1999, as amended, or the Israeli Companies Law). We may, in our sole discretion, determine whether to obtain shareholder approval to issue more than 19.99% of our outstanding ordinary shares hereunder if such issuance would require shareholder approval under the rules or regulations of the Nasdaq Capital Market or the Israeli Companies Law.

Current Outlook

We believe that we have adequate cash to fund our ongoing activities through the completion of the Merger and into the first quarter of 2022. However, changes may occur that would cause us to consume our existing cash prior to that time, including the costs to consummate the Merger. Prior to closing of the Merger we agreed, among other things, that we would use commercially reasonable efforts to enter into one or more agreements providing for the sale, transfer or assignment or that we would otherwise take steps related to the divestment or disposal and satisfaction of liabilities of our Accordion Pill business, to be effected immediately after Closing. Although we have entered into the Merger Agreement and intend to consummate the Merger, there is no assurance that it will be able to successfully complete the Merger on a timely basis, or at all. If, for any reason, the Merger is not consummated and we are unable to continue to operate the Accordion Pill business or identify and complete an alternative strategic transaction like the Merger, we may be required to dissolve and liquidate our assets. In such case, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to our shareholders after paying our debts and other obligations and setting aside funds for reserves.

We are also closely monitoring ongoing developments in connection with the COVID-19 pandemic, which has resulted in disruptions to our partnering efforts and may negatively impact our commercial prospects and our ability to raise capital. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain. As a result of these uncertainties, there is substantial doubt about our ability to continue as a going concern within one year after the issuance date of these financial statements. For more information, see note 1(c) in our condensed consolidated financial statements for the three months ended March 31, 2021.

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:

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 plans for, or commercialization efforts with respect to, one or more of our product candidates and make necessary change to our operations to reduce the level of our expenditures in line with available resources.

Off-Balance Sheet Arrangements

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 Policies

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these 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 the notes to the consolidated financial statements included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020. 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.

Our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to those policies during the three months ended March 31, 2021.

Recently Issued Accounting Pronouncements

None.

Not required for smaller reporting companies.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of March 31, 2021 these disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, there are currently no pending material legal proceedings, and we are currently not aware of any legal proceedings or claims against us or our property that we believe will have any significant effect on our business, financial position or operating results. None of our officers or directors is a party against us in any legal proceeding.

In May 2021, four lawsuits were filed against us and the members of our board of directors in federal court: Marc St-Hilarie v. Intec Pharma Ltd, et al., 1:21-cv-04000-JSR (filed May 5, 2021, Southern District of New York); Minh Tran v. Intec Pharma Ltd., et al., 1:21-cv-04026-JSP (filed May 5, 2021, Southern District of New York); Craig Davidson v. Intec Pharma Ltd., et al., 1:21-cv-00673-LPS (filed May 7, 2021, District of Delaware); and Jordan Sanchez Figueroa v. Intec Pharma Ltd., et al., 1:21-cv-02621-WFK-RML (filed May 11, 2021, Eastern District of New York). The Davidson lawsuit also names Decoy and certain entities involved in the Merger as defendants. All four complaints allege that we and our board violated federal securities laws by allegedly failing to disclose all material information in connection with the Merger. Since the filing of these lawsuits, Marc St-Hilarie and Minh Tran have filed notices of voluntary dismissal of their claims as moot. It is still too early to assess and predict the probable outcome of these complaints and we believe that these lawsuits are without merit and, if any are prosecuted, intend to defend vigorously against them.

In addition, for a discussion of settlement agreement that was resolved during March 2021, see “COMMITMENTS AND CONTINGENT LIABILITIES” included in note 3b to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Not required for a smaller reporting company.

None.

None.

Not applicable.

The following disclosure would have otherwise been filed on Form 8-K under the heading “Item 1.01 Entry into a Material Definitive Agreement”:

On May 16, 2021, we entered into a First Amendment to Ordinary Shares Purchase Agreement, or the Amendment, with Aspire Capital, amending the Purchase Agreement, which provides for among other things, (i) for an updated Exchange Cap, pursuant to which we may issue up to an additional 963,912 ordinary shares which constitutes 19.99% of our ordinary shares outstanding as of the date of entry into the Amendment, unless shareholder approval or an exception pursuant to the rules of the Nasdaq Capital Market is obtained to issue more than 19.99%, and (ii) if shareholder approval is not obtained, such limitation will not apply after the Exchange Cap is reached if at all times thereafter the average purchase price paid for all shares issued under the Purchase Agreement is equal to or greater than $3.44 per share.

For a detailed description of the terms of the Purchase Agreement, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Aspire Capital Financing Arrangement.”

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.