NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and SEC Regulation S-X Article 10 for interim financial statements. Accordingly, they do not contain all the information and notes required by US GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of June 30, 2026 and December 31, 2025, the consolidated results of operations and changes in stockholders’ equity for the three and six months ended June 30, 2026 and 2025, and cash flows for the three and six months ended June 30, 2026 and 2025.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the SEC on March 17, 2026. The consolidated balance sheet data as of June 30, 2026, included in these unaudited condensed consolidated financial statements was derived from the audited financial statements for the year ended December 31, 2025, but does not include all disclosures required by US GAAP for annual financial statements.

The results for the three and six months ended June 30, 2026, are not necessarily indicative of the results expected for the year ending December 31, 2026.

Principles of consolidation

These unaudited condensed consolidated financial statements include the accounts of Indaptus and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of these unaudited condensed consolidated 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 liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates relate to the determination of the fair value of stock-based compensation and the determination of period-end obligations to certain contract research organizations. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts when facts and circumstances dictate. These estimates are based on information available as of the date of the unaudited consolidated financial statements; therefore, actual results could differ from those estimates.

Loss per share

Loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is based upon the weighted average number of shares of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options, warrants, pre-funded warrants, and convertible Preferred Stock, which are included under the treasury stock method when dilutive.

The following number of stock options, warrants, pre-funded warrants, and convertible Preferred Stock were excluded from the calculation of diluted loss per share because their effect would have been anti-dilutive for the periods presented (share data):

 SCHEDULE OF ANTI-DILUTIVE SECURITIES 

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of June 30, 2026 and December 31, 2025, cash and cash equivalents consist of business checking deposits and an investment in a government money market mutual fund. 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.

Short-term investments

Short-term investments consist of certificates of deposit. During the three months ended June 30, 2026, the Company placed an aggregate of $4.0 million of its cash into three U.S. dollar-denominated certificates of deposit (the “CDs”) with China Merchants Bank Co., Ltd., New York Branch. The CDs each mature on June 18, 2027 and can be redeemed on demand. They are non-negotiable and non-transferable time deposits, and they are reported as short-term investments within current assets on the unaudited consolidated balance sheets.

Interest is earned at graduated annual rates that increase with the length of the holding period, ranging from 3.10% to 3.80%. Interest is calculated on the actual days outstanding using simple interest and is settled upon redemption. The Company accrues interest income over the holding period and a corresponding interest receivable.

Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including clinical trials and professional services. All costs associated with research and development are expensed as incurred.

The Company accrues for expenses resulting from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other outside service providers for which payment flows do not match the periods over which services or materials are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements with CROs, CMOs, and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services. In the event advance payments are made to a CRO, CMO, or outside service provider, the payments are recorded as a prepaid expense which is amortized or expensed as the contracted services are performed.

Fair value measurement

ASC 820, Fair Value Measurements, (“ASC 820”) provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

As of June 30, 2026 and December 31, 2025, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses and other liabilities approximated their fair values due to the short-term nature of these items.

During the six months ended June 30, 2026, the Company repriced outstanding warrants to purchase its common stock. The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. See Note 6a for details.

During the three months ended June 30, 2026, the Company invested $4.0 million of its cash into CDs as noted above. The valuation of the CDs is considered under Level 2 of the fair value hierarchy, as it is estimated using observable inputs, including prevailing interest rates for deposits of similar remaining maturity.

Recently adopted accounting pronouncements

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Improvements to Income Tax Disclosures. This ASU does not change accounting for income taxes but requires new disclosures focusing on two areas, the effective rate reconciliation and taxes paid. The Company adopted the standard and applied the disclosure requirements on a prospective basis as required for the year ended December 31, 2025.

Recently issued accounting pronouncements

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. This ASU will require entities to provide enhanced disclosures, in a tabular format, related to certain expense categories included in the statement of operations. The ASU aims to increase transparency and provide investors with more detailed information about the nature of expenses reported on the face of the income statement. The new ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on the related disclosures.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting. This ASU was issued to enhance consistency in interim reporting for all entities by providing clarity about the current interim reporting requirements and creating a comprehensive list of interim disclosures required under US GAAP. This ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and amendments can be applied either prospectively or retrospectively. The Company is currently evaluating the impact of the adoption of this standard on its interim disclosures.