UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT |
For the quarterly period ended March 31, 2023
or
☐ | |
TRANSITION REPORT | |
For the transition period from __________________ to ______________
Commission file number: 001-38244
GENPREX, INC.
(Exact name of registrant as specified in its charter)
Delaware | 90-0772347 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification |
3300 Bee Cave Road, #650-227, Austin, TX | 78746 |
(Address of principal executive offices) | (Zip Code) |
(512) 537-7997
(Registrant’s telephone number, including area code: (512) 370-4081
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | GNPX | The Nasdaq Capital Market |
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, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer,” accelerated filer”“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
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. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 27, 2017,May 10, 2023, the registrant had 333,06551,979,078 shares of voting common stock, par value $0.001 per share, outstanding and 25,611 shares of non-voting common stock, par value $0.001 per share, outstanding.
Page No. | ||||
PART I | ||||
ITEM 1. | ||||
| Condensed Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2023, and 2022 (unaudited) | 5 | |||
Notes to Unaudited Condensed Financial Statements | ||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||
| ITEM | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26 | ||
ITEM 4. | ||||
PART II | ||||
ITEM 1. | ||||
ITEM 1A. | ||||
ITEM 2. | ||||
| ITEM | 27 | |||
ITEM 4. | MINE SAFETY DISCLOSURES | 27 | ||
ITEM 5. | ||||
ITEM 6. | ||||
Condensed Balance Sheets
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 18,082,785 | $ | 20,954,069 | ||||
Accounts receivable | — | 34,852 | ||||||
Prepaid expenses and other | $ | 1,859,341 | $ | 484,224 | ||||
Total current assets | $ | 19,942,126 | $ | 21,473,145 | ||||
Property and equipment, net | $ | 19,016 | $ | 23,032 | ||||
Other assets: | ||||||||
Security deposits | $ | 21,818 | $ | 21,818 | ||||
Supplies | $ | 2,615,396 | $ | 2,864,937 | ||||
Intellectual property, net | $ | 721,722 | $ | 702,095 | ||||
Total other assets | $ | 3,358,936 | $ | 3,588,850 | ||||
Total assets | $ | 23,320,078 | $ | 25,085,027 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,212,254 | $ | 442,925 | ||||
Other current liabilities | $ | 2,622,963 | $ | 2,367,362 | ||||
Total current liabilities | $ | 4,835,217 | $ | 2,810,287 | ||||
Stockholders’ equity: | ||||||||
Preferred stock $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding | — | — | ||||||
Common stock $0.001 par value: 200,000,000 shares authorized; 51,974,078 and 48,105,962 shares issued and outstanding at March 31, 2023, and December 31, 2022, respectively | $ | 51,974 | $ | 48,106 | ||||
Additional paid-in capital | $ | 130,463,480 | $ | 125,054,453 | ||||
Accumulated deficit | $ | (112,030,593 | ) | $ | (102,827,819 | ) | ||
Total stockholders’ equity | $ | 18,484,861 | $ | 22,274,740 | ||||
Total liabilities and stockholders’ equity | $ | 23,320,078 | $ | 25,085,027 | ||||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 373,945 | $ | 1,602,295 | ||||
| Prepaid expenses and other | 26,812 | 36,533 | ||||||
| Total current assets | 400,757 | 1,638,828 | ||||||
| Property and equipment, net | 8,833 | 5,157 | ||||||
| Other assets: | ||||||||
| Deposits | - | - | ||||||
| Deferred offering costs | 559,810 | 25,507 | ||||||
| Intellectual property, net | 297,381 | 241,037 | ||||||
| Total other assets | 857,191 | 266,544 | ||||||
| Total assets | $ | 1,266,781 | $ | 1,910,529 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 363,077 | $ | 285,661 | ||||
| Other current liabilities | $ | 32,180 | - | |||||
| Total current liabilities | 395,257 | 285,661 | ||||||
| Investment unit | - | - | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
Preferred stock $0.001 par value: 4,500,000 shares authorized; Series A, 1,001,667 shares issued and outstanding | 1,002 | 1,002 | ||||||
| Series B, 207,917 shares issued and outstanding | 208 | 208 | ||||||
| Series C, 73,452 shares issued and outstanding | 73 | 73 | ||||||
| Series D, 1,443 shares issued and outstanding | 1 | 1 | ||||||
| Series E, 2,886 shares issued and outstanding | 3 | 3 | ||||||
| Series F, 4,008 shares issued and outstanding | 4 | 4 | ||||||
| Series G, 81,107, 5,946 and 103,580 shares issued and outstanding, respectively | 104 | 82 | ||||||
Common stock $0.001 par value: 5,500,000 shares authorized; 327,676, 307,676 and 353,676 shares issued and outstanding, respectively | 355 | 328 | ||||||
| Additional paid-in capital | 17,655,553 | 15,761,362 | ||||||
| Accumulated deficit | (16,785,779 | ) | (14,138,195 | ) | ||||
| Total stockholders’ equity | 871,524 | 1,624,868 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,266,781 | $ | 1,910,529 | ||||
See accompanying notes to the unaudited condensed financial statements.
Condensed Statements of Operations (unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
Cost and expenses: | ||||||||
Depreciation | 4,016 | 6,730 | ||||||
Research and development | 5,310,148 | 2,040,225 | ||||||
General and administrative | 3,957,081 | 3,263,741 | ||||||
Total costs and expenses | 9,271,245 | 5,310,696 | ||||||
Operating loss | (9,271,245 | ) | (5,310,696 | ) | ||||
Interest income | 68,471 | 879 | ||||||
Net loss | (9,202,774 | ) | (5,309,817 | ) | ||||
Net loss per share—basic and diluted | $ | (0.19 | ) | $ | (0.11 | ) | ||
Weighted average number of common shares— basic and diluted | 49,471,653 | 47,879,597 | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
| Cost and expenses: | ||||||||||||||||
| Depreciation | 808 | 216 | 2,213 | 648 | ||||||||||||
| Research and development | 55,517 | 89,896 | 228,860 | 225,546 | ||||||||||||
| General and administrative | 658,797 | 629,747 | 2,416,557 | 2,906,898 | ||||||||||||
| Total costs and expenses | 715,122 | 719,859 | 2,647,630 | 3,133,092 | ||||||||||||
| Operating loss | (715,122 | ) | (719,859 | ) | (2,647,630 | ) | (3,133,092 | ) | ||||||||
| Interest Income | 24 | - | 55 | - | ||||||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | $ | (715,098 | ) | $ | (719,859 | ) | $ | (2,647,576 | ) | $ | (3,133,092 | ) | ||||
| Net loss per share—basic and diluted | $ | (2.04 | ) | $ | (2.25 | ) | $ | (7.77 | ) | $ | (10.04 | ) | ||||
| Weighted average number of shares | ||||||||||||||||
| Weighted average number of common shares— basic and diluted | 351,176 | 320,176 | 340,764 | 311,985 | ||||||||||||
Condensed Statements of Cash FlowsChanges in Stockholders' Equity (unaudited)
Common Stock | Additional | Accumulated | ||||||||||||||||||
Shares | Amount | Paid-In Capital | Deficit | Total | ||||||||||||||||
Balance at December 31, 2021 | 47,874,708 | $ | 47,874 | $ | 120,316,315 | $ | (79,087,198 | ) | $ | 41,276,991 | ||||||||||
Issuance of stock for services | 5,000 | 5 | 17,495 | — | 17,500 | |||||||||||||||
Share-based compensation | — | — | 1,039,940 | — | 1,039,940 | |||||||||||||||
Net loss | — | — | — | (5,309,817 | ) | (5,309,817 | ) | |||||||||||||
Balance at March 31, 2022 | 47,879,708 | $ | 47,879 | $ | 121,373,750 | $ | (84,397,015 | ) | $ | 37,024,614 | ||||||||||
Balance at December 31, 2022 | 48,105,962 | $ | 48,106 | $ | 125,054,453 | $ | (102,827,819 | ) | $ | 22,274,740 | ||||||||||
Issuance of stock and warrants for cash | 3,863,116 | 3,863 | 4,076,917 | — | 4,080,780 | |||||||||||||||
Issuance of stock for services | 5,000 | 5 | 7,945 | — | 7,950 | |||||||||||||||
Share-based compensation | — | — | 1,324,165 | — | 1,324,165 | |||||||||||||||
Net loss | — | — | — | (9,202,774 | ) | (9,202,774 | ) | |||||||||||||
Balance at March 31, 2023 | 51,974,078 | $ | 51,974 | $ | 130,463,480 | $ | (112,030,593 | ) | $ | 18,484,861 | ||||||||||
Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,647,576 | ) | $ | (3,133,092 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 2,213 | 648 | ||||||
| Share based compensation | 1,100,328 | 2,316,859 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 8,182 | 2,519 | ||||||
| Prepaid expenses and other | 1,540 | (15,050 | ) | |||||
| Deferred operating costs | (534,303 | ) | - | |||||
| Deposits | - | - | ||||||
| Accounts payable and accrued expenses | 109,588 | 428,496 | ||||||
| Net cash used in operating activities | (1,960,028 | ) | (399,620 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to property and equipment | (5,998 | ) | - | |||||
| Additions to intellectual property | (56,343 | ) | (71,887 | ) | ||||
| Net cash used in investing activities | (62,341 | ) | (71,887 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuances of common stock | 26 | - | ||||||
| Proceeds from issuances of preferred stock | 793,993 | 1,205,866 | ||||||
| Net cash provided by financing activities | 794,019 | 1,205,866 | ||||||
| Net increase (decrease) in cash | (1,228,350 | ) | (734,359 | ) | ||||
| Cash, beginning of period | 1,602,295 | 234,220 | ||||||
| Cash, end of period | $ | 373,945 | $ | 968,579 | ||||
See accompanying notes to the unaudited condensed financial statements.
Condensed Statements of Cash Flows (unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (9,202,774 | ) | $ | (5,309,817 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | $ | 4,016 | 6,730 | |||||
Share-based compensation | $ | 1,332,115 | 1,057,439 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | $ | 34,852 | (32,171 | ) | ||||
Prepaid expenses and other | $ | (1,375,118 | ) | (605,561 | ) | |||
Research and development supplies | $ | 249,542 | 12,160 | |||||
Accounts payable | $ | 1,769,329 | 279,783 | |||||
Other current liabilities | $ | 255,601 | 519,739 | |||||
Net cash used in operating activities | $ | (6,932,437 | ) | (4,071,698 | ) | |||
Cash flows from investing activities: | ||||||||
Additions to intellectual property | $ | (19,627 | ) | (1,841 | ) | |||
Net cash used in investing activities | $ | (19,627 | ) | $ | (1,841 | ) | ||
Cash flows from financing activities: | ||||||||
Proceeds from issuances of stock and warrants | $ | 4,080,780 | — | |||||
Net cash provided by financing activities | $ | 4,080,780 | — | |||||
Net decrease in cash and cash equivalents | $ | (2,871,284 | ) | (4,073,539 | ) | |||
Cash and cash equivalents, beginning of period | $ | 20,954,069 | 38,628,876 | |||||
Cash and cash equivalents, end of period | $ | 18,082,785 | $ | 34,555,337 | ||||
See accompanying notes to the unaudited condensed financial statements.
Note 1—1 - Description of Business and Basis of Presentation
Unless the context requires otherwise, references to “Genprex,” the “Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to Genprex, Inc. We are a clinical stage gene therapy company pioneering the development of gene-based therapies for large patient populations with unmet medical needs. Our oncology platform utilizes our non-viral ONCOPREX® Nanoparticle Delivery System. Using this system, plasmids containing tumor suppressor genes, which are deleted early in the development of cancer, are encapsulated within lipid nanoparticles and administered intravenously to the patient to re-express the deleted tumor suppressor genes. Our diabetes technology is designed to work in Type 1 diabetes by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. In Type 2 diabetes, our technology is believed to work by replenishing and rejuvenating the beta cells that make insulin.
Oncology Platform
Our lead oncology drug candidate, REQORSA® Immunogene Therapy (generic name: quaratusugene ozeplasmid), previously referred to as GPX-001, uses the ONCOPREX Nanoparticle Delivery System to express the TUSC2 tumor suppressor gene and is initially being developed in combination with prominent cancer drugs to treat Non-Small Cell Lung Cancer (“we” or “the Company”NSCLC”), and Small Cell Lung Cancer (“SCLC”). The active agent in REQORSA is a privately held, clinical-stage biopharmaceutical company developing immunogene therapiesplasmid that expresses the TUSC2 tumor suppressor gene. REQORSA has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for cancer. Our first product candidate, branded as Oncoprex™,apoptosis (programmed cell death) in cancer cells, and modulates the immune response against cancer cells. In preclinical studies, REQORSA has been shown to be complementary with targeted drugs and immunotherapies. We believe REQORSA’s unique attributes position REQORSA to provide treatment for patients with NSCLC, SCLC, and possibly other cancers, and that it can improve on current therapies.
Acclaim – 1: The Acclaim-1 study is a Phase 1/2 clinical trial that has three portions - a Phase 1 dose escalation portion, a Phase 2 expansion portion, and a Phase 2 randomized portion. We have completed patient enrollment in phase IIthe Phase 1 dose escalation portion of Acclaim-1. Acclaim-1 uses a combination of REQORSA and AstraZeneca's Tagrisso® in patients with late-stage NSCLC that has activating epidermal growth factor receptor (“EGFR”) mutations and progression after treatment with Tagrisso. We expect the Acclaim-1 Safety Review Committee (“Acclaim-1 SRC”) to meet and review safety data from the 0.12 mg/kg dose group after the required safety follow-up period has taken place, and to then make recommendations on the dose to be used in the Phase 2 portion of the trial. The next portion of the Acclaim-1 trial will be the Phase 2 expansion portion, in which patients with progression after Tagrisso and patients with progression after Tagrisso and chemotherapy will be entered into two separate expansion groups. In preparation for the Phase 2 expansion portion of the trial, we are in the process of adding additional clinical trialssites and in May 2023 amended the protocol to clarify the control arm treatments in the Phase 2 randomized portion of the trial. The Food and Drug Administration (“FDA”) has granted Fast Track Designation for lung cancerthe Acclaim-1 treatment combination of REQORSA and Tagrisso in NSCLC patients who have progressed after Tagrisso treatment.
Acclaim – 2: The Acclaim-2 study is a Phase 1/2 clinical trial that has three portions - a Phase 1 dose escalation portion, a Phase 2 expansion portion, and a Phase 2 randomized portion. We currently are enrolling and treating patients in the United States.
Acclaim – 3: The Acclaim-3 study has two portions - a Phase 1 dose escalation portion and chemical companies, specialized biotechnology firms, universities and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any that are being developed by us or that would render our technology and products obsolete and noncompetitive. Many of these competitors have substantially greater financial and technical resources than us.a Phase 2 expansion portion. In addition, many of our competitors have significantly greater experience than us in pre-clinical testing and human clinical trials of new or improved pharmaceutical products and in obtaining FDA and other regulatory approvals on products for use in health care.
In April 2023, at the 2023 Annual Meeting of the American Association of Cancer Researchers (AACR 2023), we presented data that we believe further validates our ONCOPREX Nanoparticle Delivery System platform. These positive pre-clinical data were reported from our University of Texas MD Anderson Cancer Center ("MD Anderson") collaborators and documented the successful delivery of a second tumor suppressor gene, the NPRL2 tumor suppressor gene. The studies used the ONCOPREX Nanoparticle Delivery System to express the NPRL2 gene in anti-PD1 resistant, metastatic human NSCLCs in humanized mouse models. We believe these studies of NPRL2 provide solid data that the ONCOPREX Nanoparticle Delivery System is a platform that can be used with multiple tumor suppressor genes.
The TUSC2 gene is one of a series of tumor suppressor genes on Form S-1 (File No. 333-219386)the short arm of Chromosome 3. The therapeutic use of TUSC2 is covered by our exclusive worldwide licenses from MD Anderson. NPRL2 is another tumor suppressor gene also located on the short arm of Chromosome 3 and we have filed for patent protection for its therapeutic use. We believe that our ONCOPREX Nanoparticle Delivery System may allow for delivery of a number of other cancer-fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. In August 2022, we entered into a three-year sponsored research agreement with MD Anderson to support further pre-clinical studies of TUSC2 and NPRL2.
Diabetes Gene Therapy
In diabetes, we have exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education (“University of Pittsburgh”) multiple technologies relating to the initial public offering (IPO)development of a gene therapy product for each of Type 1 and Type 2 diabetes. The same general novel approach is used in each of Type 1 and Type 2 whereby an adeno-associated virus (“AAV”) vector containing the Pdx1 and MafA genes is administered directly into the pancreatic duct. In humans, this can be done with a routine endoscopy procedure. Our diabetes product candidates are currently being evaluated and optimized in preclinical animal studies at the University of Pittsburgh. GPX-002 is being developed for the treatment of Type 1 diabetes and GPX-003 is being developed for the treatment of Type 2 diabetes. GPX-002 is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. GPX-003 is believed to work by replenishing and rejuvenating the beta cells that make insulin. We expect to finalize our common stock. The Registration Statement, as amended, was declared effective by the Securitiesconstructs and Exchange Commission (SEC) on October 13, 2017. On November 14, 2017, we filed our updated final prospectusmeet with the SEC, relatingFDA before the end of 2023 to obtain their guidance on the saletoxicology studies that we plan to conduct. In August 2022, we entered into a one-year sponsored research agreement with the University of upPittsburgh for the use of GPX-003 in a non-human primate (“NHP”) model of Type 2 diabetes. We are in the process of extending this agreement and expect pre-clinical data to 4,500,000 shares of our common stockbe reported at a pricemedical meeting in 2024. In February 2023, our research collaborators at the University of $5.00 per share.Pittsburgh presented preclinical data in a NHP model of Type 1 diabetes highlighting the therapeutic potential of GPX-002 at the 16th International Conference on Advanced Technologies & Treatments for Diabetes (ATTD 2023) in Berlin, Germany. The IPO is ongoing.
Capital Requirements, Liquidity and Going Concern Considerations
Our unaudited condensed financial statements are prepared using thein accordance with generally accepted accounting principles in the United States ("U.S. GAAP") applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, as shown in the accompanying unaudited condensed financial statements, we have sustained substantial losses from operations since inception and have no current source of revenue. In addition, we have used, rather than provided, cash in our operations. We expect to continue to incur significant expenditures to further clinical trials for the commercial development of our patents.
Management recognizes that we must obtain additional capital resources to successfully commercialize our intellectual property.product candidates. To date, we have received funding in the form of equity and debt, and we plan to either continue obtainingseek additional funding through 2017 or until we have secured a capital market transaction.in the future. However, no assurances can be given that we will be successful in raising additional capital. If we are not able to timely and successfully raise additional capital, the timing of our clinical trials, financial condition and results of operations will continue to may be materially and adversely affected. These unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.liabilities.
Note 2—2 - Summary of Significant Accounting Policies
Our unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP, and the requirements of the United States ("U.S.") Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP”)GAAP can be condensed or omitted. Accordingly, they do not include all of the information and reflectfootnotes normally included in financial statements prepared in conformity with U.S. GAAP. The December 31, 2022 condensed balance sheet was derived from the December 31, 2022 audited financial statements. They should be read in conjunction with the financial statements and notes thereto included in our 2022 Annual Report on Form 10-K, filed with the SEC on March 31, 2023 (the “Form 10-K”).
The accompanying condensed financial statements are unaudited and include all adjustments which are(consisting of a normal and recurring nature,adjustments) that are, in the opinion of management considers necessary for a fair presentation of our condensed financial position and results of operations for the related periods.interim periods presented. The results of operations for anythe interim periods are not necessarily indicative of the results to that may be expected for the fullentire year.
A summary of our significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed financial statements follows.
Use of Estimates
The preparation of our unaudited condensed financial statements in conformity with U.S. GAAP requires us 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 unaudited condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts of cash in financial institutions which exceed FDIC insured limits expose us to cash concentration risk. We have no cash equivalents in a money market account and had $118,950$17,839,772 and $1,351,868$20,679,538 in excess of FDIC insured limits of $250,000$250,000 at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive shares of common stock, which includes common stock equivalents consisting of (i) options and warrants to purchase shares of common stock, and (ii) unvested restricted stock units to purchase shares of common stock granted by our board of directors but which have not been exercised totaling 19,318,924.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, money-market savings account, accounts payablereceivable, and accrued expensesaccounts payables approximate fair value because of the immediate or short-term maturity of these financial instruments.
Property and Equipment
Furniture and equipment are stated at cost.cost less accumulated depreciation. Depreciation is calculated using the straight linestraight-line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.
Research and Development Materials Costs
Research and development expenditures are comprisedconsist of costs incurred to conduct research, develop engineering materials for further study, and development activities.develop clinical strategies for current and future programs. These costs include payments to collaborative research partners, includingmanufacturing partners and consultants, and clinical strategy partners, wages and associated employee benefits, facilities, and overhead costs. These expenditures relate to our preclinical and Phase 1 and 1/2 clinical trials and are expensed as incurred. Purchased materialsMaterials produced to be used in futureclinical research are capitalized and included in prepaid expenses.
Research and development supplies purchased and capitalized for future commercialization of our nanomolecular therapy product for the treatment of cancer. In consideration for the award, we provided the TETF with an “Investment Unit”use were $2,615,396 and $2,864,937 at March 31, 2023 and December 31, 2022, consisting of (i) a Promissory Note (“Note”) and (ii) a right to purchase our equity shares (“Warrant”). The funds received for this award were assigned to the Investment Unit, and classified separately from equity as “mezzanine” in the balance sheet.
Intellectual Property
Intellectual property consists of external legal and related costs associated with patents and other proprietary technology and rights developed, acquired, licensed by, or maintained by us that we believe contribute to a probable economic benefit toward such patents and activities. These legal costs incurred in connection with theobtaining and maintaining intellectual property protection, such as patent applications and patent maintenance, are capitalized. Intellectual property is stated at cost, to be amortized on a straight-line basis over the estimated useful lives of the assets.
Accounting for Stock-Based Compensation
We use the fair value-based method of accounting for stock-based compensation for options granted to employees, independent consultants and contractors. We measure options granted at fair value determined as of the grant date and recognize the expense over the periods in which the related services are rendered based on the terms and conditions of the award. Generally, where the award only has a service condition, the requisite service period is the same as the vesting period.
Long-Lived Assets
We review long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of itsour intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. We recognize an impairment loss if the carrying value of the asset exceeds the discounted expected future cash flows. During the ninethree months ended September 30, 2017March 31, 2023, and the year ended December 31, 2016,2022, there were no deemed impairments of our long-lived assets.
Recent Accounting Developments
Accounting pronouncements issued but not effective until after September 30, 2017March 31, 2023, are not expected to have a significant effect on our financial condition, results of operations, or cash flows.
Note 3—3 - Intellectual Property
We own or have exclusive license agreements on thirty (30) issued15 granted patents and two (2)24 pending patentspatent applications worldwide for technologies developed in-house or by researchers at the National Institutes of Health, The University of TexasCancer Institute, MD Anderson, Cancer Center, and Thethe University of Texas Southwestern Medical Center.Center, and the University of Pittsburgh. These patents comprise various therapeutic, diagnostic, technical and processing claims. See Note 9.
University of Pittsburgh
On February 11, 2020, we entered into an incentiveexclusive license agreement with the University of Pittsburgh for economic developmentpatented gene therapy technologies relating to the potential treatment of Type 1 and Type 2 diabetes. This license was first amended on August 17, 2022, to extend the milestone related to the filing of a new investigational drug ("IND") application. This license was amended again on November 3, 2022, to include a new licensed glucagon promoter technology related to Type 1 diabetes and set FDA and clinical milestones related to the glucagon technology (See Note 7 – Commitments and Contingences – Commitments – University of Pittsburgh).
On November 22, 2022, we entered into an exclusive license agreement with the University of Pittsburgh relating to the transformation of macrophages enabling them to reduce autoimmunity activity in Type 1 diabetes.
On December 29, 2022, we entered into an exclusive license agreement with the University of Pittsburgh relating to the use of an insulin promoter in combination with our existing gene therapy, including the Pdx1 and MafA transcription factors, as a potential treatment for Type 2 diabetes.
The University of Texas economy by providing financial support that leverages private investmentMD Anderson Cancer Center
On May 4, 2020, we entered into an exclusive worldwide license agreement with The Board of Regents of the University of Texas System on behalf of MD Anderson relating to a portfolio of patent applications and related technology for the creationtreatment of high-quality technology jobscancer using our lead drug candidate and immunotherapies.
Note 4 - Equity
Registered Direct Offering
On March 1, 2023, we completed a registered direct offering, in Texas. The award received required uswhich we sold to comply with certain performance conditions to ensure the monies the Company received were used for development activities in the state of Texas, and that we maintained our corporate nexus in Texas. Further, in connection with the award, the Company issued an Investment Unit to the TETF. As further described below, the Investment Unit consists of a Promissory Note and a Right to Purchase:
At-The-Market Offering
On November 18, 2022, we entered into an Equity Distribution Agreement (the "Sales Agreement") with JMP Securities LLC ("JMP Securities") pursuant to which we may sell from time to time, at our option, shares of our common stock through JMP Securities, as sales agent (the "ATM Facility"), up to an aggregate offering price of $50 million. Sales of the shares pursuant to the ATM Facility were previously made under our previously filed and currently effective Registration Statement on Form S-3 (Reg. No.333-239134), and future ATM Facility sales may be made, once declared effective, under our Registration Statement on Form S-3 (Reg. No.333-271386). Additionally, under the terms of the Sales Agreement, the shares may be sold at market prices, at negotiated prices or at prices related to the prevailing market price. We will pay JMP Securities a commission of 3.0% of the gross proceeds from the TETF during March 2014, and issued 184,797sale of the shares. During the year ended December 31, 2022, we sold 3,886 shares of series B Preferred Stock.
Stock Issuances
During the three months ended March 31, 2023, we issued (i) 26,0005,000 shares of Common Stockcommon stock for serviceservices provided to us valued at $918,580, and$7,950 to the Chairman of our Scientific Advisory Board.
During the year ended December 31, 2022, we issued (ii) 22,473(i) 20,000 shares of Series G common stock for services provided to us valued at $42,000 to the Chairman of our Scientific Advisory Board, (ii) 13,643 shares of common stock upon the exercise of warrants on a cashless basis, (iii) 116,973 shares of common stock upon the exercise of options by an executive, and (iv) 76,752 shares of common stock for services provided to us, valued at $99,010, to consultants.
Preferred Stock for cash of $793,971.
We have 4,500,000are authorized to issue 10,000,000 shares of preferred stock authorized with a par value of $0.001. The Board has the authority$0.001 per share, none of which are outstanding at March 31, 2023.
Common Stock
We are authorized to issue the shares in one or more series and to set the designations, preferences, powers and other rights, as it deems appropriate.
Common Stock Purchase Warrants
Common stock purchase warrant activity for the nineperiod and year ended March 31, 2023, and December 31, 2022, respectively, is as follows:
Number of | Weighted Average | |||||||
Warrants | Exercise Price | |||||||
Outstanding at December 31, 2022 | 2,147,778 | $ | 4.32 | |||||
Warrants issued | 3,839,524 | 1.10 | ||||||
Warrants cancelled or expired | 38,400 | 6.25 | ||||||
Outstanding at March 31, 2023 | 5,948,902 | $ | 2.23 | |||||
Vested or expected to vest at March 31, 2023 | 3,827,024 | 1.10 | ||||||
Exercisable at March 31, 2023 | 5,690,569 | $ | 2.23 | |||||
During the three-month period ended March 31, 2023, we issued (i) a warrant to purchase up to 30,000 shares of common stock to a service provider at an exercise price of $1.65 per share, the fair market value of a share of common stock on the date of issuance, and (ii) a warrant to purchase up to 3,809,524 shares of common stock to the accredited healthcare-focused institutional investor in connection with the registered direct offering at an exercise price of $1.10 per share. During the three-month period ended March 31, 2023, we recorded share-based compensation of $2,330,318 associated with the vesting and issuance of warrants. The following assumptions were used in calculation of fair market value of warrants via Black-Scholes-Merton pricing models for the three months ended September 30, 2017.March 31, 2023:
Expected term (in years): | 2.5 – 3.0 | |
Risk-free rate: | 4.99% – 5.06% | |
Volatility: | 83.14% | |
Dividend yield: | 0% |
In the year ended December 31, 2022, we issued (i) a warrant to purchase up to 50,000 shares of common stock to a service provider at an exercise price of $1.38 per share, the fair market value of a share of common stock on the date of issuance, (ii) a warrant to purchase up to 50,000 shares of common stock to a service provider at an exercise price of $1.49 per share, the fair market value of a share of common stock on the date of issuance, (iii) a warrant, previously accounted for as a warrant issuable to a consultant in consideration of services provided in connection with our IPO, to purchase up to 3,000 shares of common stock at an exercise price of $5.00 per share, the fair market value of a share of common stock at the time of our IPO, and (iv) 13,643 shares of common stock to a placement agent associated with a registered direct offering in November 2019 upon the exercise of warrants on a cashless basis. During the year ended December 31, 2022, we recorded share-based compensation of $55,612 associated with the vesting of warrants. We expect to record $90,689 of share-based compensation for time-based vesting over the next year and another $300,000 of share-based compensation based on performance-based vesting.
2018 Equity Incentive Plan
Our board of directors and stockholders have approved and adopted our 2018 Equity Incentive Plan (“2018 Plan”), which became effective on the completion of our IPO on April 3, 2018. The 2018 Plan provides for the grant of incentive stock options that are intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit ("RSU") awards, performance-based stock awards and performance-based cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to our non-employee directors and consultants.
A total of 4,160,000 shares of common stock were initially available under the 2018 Plan, plus a number of shares of common stock (not to exceed 2,628,749 shares) subject to outstanding awards under our 2009 Equity Incentive Plan (the “2009 Plan”) as of the IPO that expire, are forfeited or otherwise terminate or that are used to cover the exercise price or applicable tax withholdings. No further grants will be made under the 2009 Plan.
In addition, the number of shares of common stock reserved for issuance under the 2018 Plan automatically increases on January 1 of each year, since January 1, 2019, by 5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our Board or a committee appointed to administer the 2018 Plan.
On January 1, 2022 and 2023, the number of shares of common stock reserved for issuance under the 2018 Plan was increased by an aggregate of 2,393,735 and 2,405,298 shares, respectively. As of March 31, 2023, a total of 891,375 shares of common stock remain available for issuance under the 2018 Plan.
2018 Employee Stock Purchase Warrants
Our board of directors and stockholders approved and adopted our 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on April 3, 2018. The ESPP has not yet been utilized as a benefit available to our employees. The ESPP authorizes the issuance of 208,050 shares of our common stock pursuant to purchase warrant activityrights that may be granted to our eligible employees. The number of shares of common stock reserved for issuance under the nine months ended September 30, 2017.
Stock Options
As of March 31, 2023, we had outstanding stock options to purchase 393,28011,456,827 shares of Common Stockcommon stock that have been granted to various executives, employees, vendorsdirectors, and independent contractors. These options vest immediately or over periods ranging from twelve (12)12 to forty-eight (48)48 months, are exercisable for a period of up to ten years, and enable the holders to purchase shares of our Common Stockcommon stock at exercise prices ranging from $0.001—$35.33. The$0.30 to $9.80 per share and have per-share fair values of these options rangeranging from $0.001$0.24 to $17.91,$7.93, based on Black-Scholes-Merton pricing models. The following assumptions were used in calculation of fair market value of options via Black-Scholes-Merton pricing models for the three months ended March 31, 2023:
Expected term (in years): | 6.0 | |
Risk-free rate: | 4.67% – 4.71% | |
Volatility: | 83.14% | |
Dividend yield: | 0% |
During the three-month period ended March 31, 2023, we granted stock options to purchase an aggregate of 82,500 shares of our common stock with exercise prices ranging from $1.30 to $1.51 per share to employees.
In the year ended December 31, 2022, we (i) granted stock options to purchase an aggregate of 2,983,666 shares of our common stock with exercise prices ranging from $1.27 to $3.50 per share to board members, executives, employees and consultants, (ii) cancelled options to purchase 66,667 shares of common stock at exercise prices ranging from $2.00 to $3.66 per share in connection with the following assumptions: volatility (76.74%); risk-free rates (1.77%—1.82%);termination of certain employees, and terms (3—10 years). (iii) issued 116,973 shares of our common stock upon the exercise of options held by an executive with an exercise price of $0.02 per share.
Stock option activity for the ninethree months ended September 30, 2017.
Number of | Weighted Average | |||||||
Shares | Exercise Price | |||||||
Outstanding at December 31, 2022 | 11,374,327 | $ | 3.08 | |||||
Options granted | 82,500 | 1.43 | ||||||
Outstanding at March 31, 2023 | 11,456,827 | $ | 3.07 | |||||
Vested or expected to vest at March 31, 2023 | 1,288,281 | 3.09 | ||||||
Exercisable at March 31, 2023 | 8,139,636 | $ | 3.24 | |||||
Restricted Stock Units
A summary of the RSU activity under the 2018 Plan during the three months ended March 31, 2023 is presented below. These amounts include RSUs granted to employees.
Number of | Weighted Average | |||||||
Shares | Grant Date Fair Value | |||||||
Outstanding at December 31, 2022 | — | — | ||||||
Restricted stock units granted | 1,913,195 | 1.65 | ||||||
Restricted stock units forfeited or cancelled | — | — | ||||||
Outstanding at March 31, 2023 | 1,913,195 | $ | 1.65 | |||||
Vested or expected to vest at March 31, 2023 | — | — | ||||||
Share-Based Compensation
For the three months ended March 31, 2023, our total share-based compensation was approximately $1.3 million, nearly all of which represents the vesting of options issued to executives, employees, and service providers. As of March 31, 2023, our total compensation cost related to non-vested time-based stock option awards and warrants granted to executives, employees, board members, and service providers and not yet recognized was approximately $8.8 million. We expect to record this stock-based compensation expense over the next three years using a graded vesting method. As of March 31, 2023, the weighted average term over which these expenses are expected to be recognized is 1.70 years.
As of March 31, 2023, there are no performance-based stock option awards outstanding and one performance-based warrant outstanding issued to a service provider. Our total compensation cost related to the non-vested performance-based warrant not yet recognized was approximately $300,000. The entirety of this warrant may be recognized and recorded upon the achievement of certain clinical milestones.
Note 6—5 - 401(k) Savings Plan
In 2022, we established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code ("401(k) Plan") and established an employer matching program for participants in the 401(k) Plan. The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. We incurred $63,048 of expense for matching contributions to the 401(k) Plan during the three months ended March 31, 2023.
Note 6 - Related Party Transactions
Introgen Research Institute
Introgen Research Institute (“IRI”) is a Texas-based technology company currently affiliated withformed by Rodney Varner, our CEO.
Note 7—7 - Commitments and Contingencies
Commitments
MD Anderson Cancer Center
In July 2018, we entered into a clinical trialtwo-year sponsored research agreement with the University of Texas MD Anderson Cancer Center to administer a phase I/II clinical trial, combining FUS1-nanoparticles and Erlotinib in Stage IV lung cancer patients. The trial is expected to run throughsponsor preclinical studies focused on the endcombination of 2018REQORSA with an immunotherapy with a projected total cost of approximately $2 million. Payments are dueThis agreement was extended beyond the original expiration date, expiring in May 2022 after giving effect to such extension. In August 2022, we entered into a three-year sponsored research agreement with MD Anderson to sponsor preclinical studies focused on REQORSA and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time.
In 2009,2011, we agreed to assume certain contractual and other obligations of IRI in consideration for the sublicense rights, expertise, and assistance associated with the assignment of certain technologies and intellectual property.property originally licensed to another party under the 1994 License Agreement with MD Anderson (“Original MD Anderson License Agreement”). These technologies and intellectual property were later sublicensed to IRI (the “IRI Sublicense”). We also agreed to pay royalties of one percent (1%)1% on sales of resulting Licensed Products,certain licensed products for a period of
On March 3, 2021, we entered into an amendment (the “MD License Amendment”) to the Patent and Technology License Agreement dated May 4, 2020, with MD Anderson. The MD License Amendment grants us a worldwide, exclusive, sublicensable license to an additional portfolio of six patents and one patent application and related technology for methods for treating cancer by administration of a TUSC2 therapy in conjunction with EGFR inhibitors or other anti-cancer therapies in patients predicted to be responsive to TUSC2 therapy. Pursuant to the MD License Amendment, we agreed to (i) pay annual maintenance fees ranging from the mid five figures to the low six figures, (ii) total milestone payments of $6,150,000, (iii) a one-time fee in the mid five figures and (iv) certain patent related expenses. As of March 31, 2023, we have incurred and paid approximately $300,000 toward this agreement.
National Institutes of Health (“NIH”).
We have a royalty obligation to the National Institutes of Health (“NIH”("NIH") represented a current obligation, of which $15,393 of 2016 patent prosecution costs were paid in the fourth quarter of 2016 and $176,000 was included in Accounts Payable at December 31, 2016 (consisting of accrued annual royalties of $140,000 and patent costs of $36,000). During the first quarter of 2017, we modified the terms of our accrued royalty obligation to NIH. Under the modified agreement, NIH agreed to extinguish $120,000 of the accrued royalties payable to them in consideration for payment by us of (i) accrued patent costs of $36,000, (ii) a royalty payment of $20,000, and (iii) a contingent payment of $240,000, increasing at $20,000 per year starting in 2018, to be paid upon our receipt of FDA approval. The payments for the patent costs of $36,000 and royalties of $20,000 were paid during the second quarter of 2017.
University of Pittsburgh
Pursuant to an exclusive license agreement dated February 11, 2020 by and between us and the University of Pittsburgh, amended on August 17, 2022, and amended again on November 3, 2022, we agreed to pay (i) an initial licensing fee of $25,000, (ii) annual maintenance fees of $25,000 for the firstthree years and $40,000 for each subsequent year following the first anniversary of the agreement, (iii) royalties ranging from 1.5% to 3% of net sales of licensed technologies, (iv) an annual minimal royalty payment of $250,000 per year beginning in the year of the first commercial sale of licensed technology, (v) a share of non-royalty sublicense income of 20%, and (vi) an aggregate of $3,975,000 in milestone payments related to the usage of a glucagon promoter and gene therapy technologies to potentially treat Type 1 diabetes. Unless earlier terminated pursuant to its terms, the agreement expires upon the later of (i) 20 years after the first commercial sale of the licensed technology thereunder and (ii) expiration of the last valid claim under the patent rights. As of March 31, 2023, we have incurred and paid approximately $110,000 toward this agreement.
Pursuant to an exclusive license agreement dated November 22, 2022 by and between us and the University of Pittsburgh, we agreed to pay (i) an initial licensing fee of $25,000, (ii) annual maintenance fees of $25,000 for the firstthree years and $40,000 for each subsequent year following the first anniversary of the agreement, (iii) royalties ranging from 1.5% to 3% of net sales of licensed technologies, (iv) an annual minimal royalty payment of $250,000 per year beginning in the year of the first commercial sale of licensed technology, (v) a share of non-royalty sublicense income of 20%, and (vi) an aggregate of $3,975,000 in milestone payments related to the usage of a macrophage technology and gene therapy technologies to potentially treat Type 1 diabetes. Unless earlier terminated pursuant to its terms, the agreement expires upon the later of (i) 20 years after the first commercial sale of the licensed technology thereunder and (ii) expiration of the last valid claim under the patent rights. As of March 31, 2023, we have incurred and paid approximately $25,000 toward this agreement.
Pursuant to an exclusive license agreement dated December 29, 2022 by and between us and the University of Pittsburgh, we agreed to pay (i) an initial licensing fee of $25,000, (ii) annual maintenance fees of $25,000 for the firstthree years and $40,000 for each subsequent year following the first anniversary of the agreement, (iii) royalties ranging from 1.5% to 3% of net sales of licensed technologies, (iv) an annual minimal royalty payment of $250,000 per year beginning in the year of the first commercial sale of licensed technology, (v) a share of non-royalty sublicense income of 20%, and (vi) an aggregate of $3,975,000 in milestone payments related to the usage of an insulin promoter and gene therapy technologies to potentially treat Type 2 diabetes. Unless earlier terminated pursuant to its terms, the agreement expires upon the later of (i) 20 years after the first commercial sale of the licensed technology thereunder and (ii) expiration of the last valid claim under the patent rights. As of March 31, 2023, we have incurred and paid approximately $25,000 toward this agreement.
Contract Development and Manufacturing Organization
We entered into a three-year development services agreement in July 2022, amended in each of January 2023 and March 2023, with a contract development and manufacturing organization to manufacture good manufacturing practices ("GMP") grade materials for use in our clinical trials with a projected total cost of approximately $4.5 million, of which approximately $1.3 million has been incurred as of March 31, 2023.
Contingencies
From time to time, we may become subject to threatened and/or asserted claims arising in the ordinary course of our business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably likely to have a material impact on our Company’s financial condition, results of operations or liquidity.
Note 8—Income Taxes
The provisionCOVID-19 pandemic continues to have a major impact in the U.S. and around the world. The availability of vaccines holds promise for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effectsfuture, though new variants of the differences arevirus and potential waning immunity from vaccines may result in continued impact from this pandemic in the future, which could adversely impact our operations. Through March 31, 2021, we had not experienced any material impact on its financial results or operations as follows:
Note 9 - Subsequent Events
Share Issuance
On April 1, 2023, we issued 5,000 shares of our common stock to the operating loss carryforward has been fully reserved at September 30, 2017 Chairman of our Scientific Advisory Board in consideration for services.
OptionIssuances
On April 3, 2023, and December 31, 2016 and 2015. The principal differences betweenMay 15, 2023, we issued grants of stock options under the operating loss for income tax purposes and reporting purposes are shares issued for services and share-based compensation and a temporary difference in depreciation expense.
You should read the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2016 and the related Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations both of("MD&A") together with our interim condensed financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in United States ("U.S.") dollars, unless otherwise noted.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements which are contained in our updated final prospectus filed withmade pursuant to the safe harbor provisions of Section 27A of the Securities and Exchange Commission, or SEC, on November 14, 2017 relating to our Registration Statement on Form S-1 originally filed on July 21, 2017,Act of 1933, as amended (File No. 333-219386)(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. Unless the context requires otherwise, references to "Genprex," the "Company," "we," "us" or "our" in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Genprex, Inc.
Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Quarterly Report. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward- lookingestimates or projections contained in the forward-looking statements include but are not limited to:
● | Market conditions; |
● | Our capital position; |
● | Our ability to compete effectively and with larger and/or better-financed biotechnology and pharmaceutical companies; |
● | Our uncertainty of developing marketable products; |
● | Our ability to develop and commercialize our products; |
● | Our ability to obtain regulatory approvals; |
● | Our ability and third parties’ ability to maintain and protect intellectual property rights; |
● | Our ability to raise additional future financing and possible lack of financial and other resources; |
● | The effects and ultimate impact of public health crises such as the coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; |
● | The success of our clinical trials through all phases of clinical development; |
● | Our ability to conduct and complete our clinical trials in accordance with projected timelines; |
● | Any delays in regulatory review and approval of our current and future product candidates; |
● | Our dependence on third-party manufacturers to supply or manufacture our products; |
● | Our ability to control product development costs; |
● | Our ability to attract and retain key employees; |
● | Our ability to enter into new strategic collaborations, licensing or other arrangements; |
● | Changes in government regulation affecting product candidates that could increase our development costs; |
● | Our involvement in patent, trademark and other intellectual property litigation that could be expensive and divert management’s attention; |
● | The possibility that there may be no market acceptance for our products; and |
● | Changes in third-party reimbursement policies which could adversely affect potential future sales of any of our products that are approved for marketing. |
The foregoing list sets forth some, but not all, of the factors that could affect our ability to those discussedachieve results described in “Risk Factors”any forward-looking statements, which speak only as set forth in Part II, Item 1A, “Risk Factors” inof the date of this Quarterly Report on Form 10-Q and in our other filings withor the SEC. We undertakedate of the document incorporated by reference into this Quarterly Report. Except as required by law, we assume no obligation and expressly disclaim any duty to publicly update or revise any forward-looking statements, including any changes that might result from any facts,statement to reflect events or circumstances after the date hereof that may bear upon forward- looking statements. Furthermore,of this Quarterly Report or to reflect the occurrence of unanticipated events. In addition, we cannot guarantee futureassess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results events, levels of activity, performance, or achievements.to differ materially from those contained in any forward-looking statements contained in this Quarterly Report. All forward-looking statements are expressly qualified in their entirety by the cautionary statements contained in this section.
Overview
We are a clinical stage gene therapy company developing a new approachpioneering the development of gene-based therapies for large patient populations with unmet medical needs. Our oncology platform utilizes our non-viral ONCOPREX® Nanoparticle Delivery System. Using this system, plasmids containing tumor suppressor genes, which are deleted early in the development of cancer, are encapsulated within lipid nanoparticles and administered intravenously to treating cancer, based upon our novel proprietarythe patient to re-express the deleted tumor suppressor genes. Our diabetes technology platform, including our initial product candidate, Oncoprex™ immunogene therapy, or Oncoprex. Our platform technologies areis designed to encapsulatework in Type 1 diabetes by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. In Type 2 diabetes, our technology is believed to work by replenishing and rejuvenating the beta cells that make insulin.
Oncology Platform
Our lead oncology drug candidate, REQORSA® Immunogene Therapy (generic name: quaratusugene ozeplasmid), previously referred to as GPX-001, uses the ONCOPREX Nanoparticle Delivery System to express the TUSC2 tumor suppressor gene and is initially being developed in combination with prominent cancer fighting genes into nanoscale hollow spheres called nanovesicles, which are then administered intravenouslydrugs to treat Non-Small Cell Lung Cancer (“NSCLC”) and taken up bySmall Cell Lung Cancer (“SCLC”). The active agent in REQORSA is a plasmid that expresses the TUSC2 tumor suppressor gene. REQORSA has a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, where they express proteins that are missing or foundre-establishes pathways for apoptosis (programmed cell death) in low quantitiescancer cells, and modulatemodulates the immune environmentresponse against cancer cells. In preclinical studies, REQORSA has been shown to restore defectivebe complementary with targeted drugs and immunotherapies. We believe REQORSA’s unique attributes position REQORSA to provide treatment for patients with NSCLC, SCLC, and possibly other cancers, and that it can improve on current therapies.
Acclaim – 1: The Acclaim-1 study is a Phase 1/2 clinical trial that has three portions - a Phase 1 dose escalation portion, a Phase 2 expansion portion, and a Phase 2 randomized portion. We have completed patient enrollment in the Phase 1 dose escalation portion of Acclaim-1. Acclaim-1 uses a combination of REQORSA and AstraZeneca's Tagrisso® in patients with late-stage NSCLC that has activating epidermal growth factor receptor (“EGFR”) mutations and progression after treatment with Tagrisso. We expect the Acclaim-1 Safety Review Committee (“Acclaim-1 SRC”) to meet and review safety data from the 0.12 mg/kg dose group after the required safety follow-up period has taken place, and to then make recommendations on the dose to be used in the Phase 2 portion of the trial. The next portion of the Acclaim-1 trial will be the Phase 2 expansion portion, in which patients with progression after Tagrisso and patients with progression after Tagrisso and chemotherapy will be entered into two separate expansion groups. In preparation for the Phase 2 expansion portion of the trial, we are in the process of adding additional clinical sites and in May 2023 amended the protocol to clarify the control arm treatments in the Phase 2 randomized portion of the trial. The Food and Drug Administration (“FDA”) has granted Fast Track Designation for the Acclaim-1 treatment combination of REQORSA and Tagrisso in NSCLC patients who have progressed after Tagrisso treatment.
Acclaim – 2: The Acclaim-2 study is a Phase 1/2 clinical trial that has three portions - a Phase 1 dose escalation portion, a Phase 2 expansion portion, and a Phase 2 randomized portion. We currently are enrolling and treating patients in the Phase 1 dose escalation portion of Acclaim-2. The Acclaim-2 trial uses a combination of REQORSA and Merck & Co.’s Keytruda® in patients with late-stage NSCLC whose disease has progressed after treatment with Keytruda. Patients are currently being treated at the 0.06 mg/kg dose level in the first cohort of patients and, subject to the Acclaim-2 Safety Review Committee approval, will be treated at successive dose levels of 0.09 mg/kg and 0.12 mg/kg. In March 2023, we amended the Acclaim-2 protocol to include additional treatments in the control group with the goal of accelerating enrollment in the randomized portion of the study. We expect enrollment in the dose escalation portion of the study to be completed by the end of 2023. We will then evaluate patients in the Phase 2 expansion portion of the study at the maximum tolerated dose ("MTD") or recommended Phase 2 dose ("RP2D"). The FDA has granted Fast Track Designation for the Acclaim-2 treatment combination of REQORSA and Keytruda in NSCLC patients who have progressed after Keytruda treatment.
Acclaim – 3: The Acclaim-3 study has two portions - a Phase 1 dose escalation portion and a Phase 2 expansion portion. In November 2022, we filed with the FDA our protocol for our Phase 1/2 Acclaim-3 clinical trial using a combination of REQORSA and Genentech, Inc.’s Tecentriq® as maintenance therapy in patients with extensive stage small cell lung cancer fighting functions.(“ES-SCLC”) who did not develop tumor progression after receiving Tecentriq and chemotherapy as initial standard treatment. We hold an exclusive worldwide licenseexpect to dose the first patient in Acclaim-3 by the end of the third quarter of 2023. Patients will be treated with REQORSA and Tecentriq until disease progression or unacceptable toxicity is experienced.
In April 2023, at the 2023 Annual Meeting of the American Association of Cancer Researchers (AACR 2023), we presented data that we believe further validates our ONCOPREX Nanoparticle Delivery System platform. These positive pre-clinical data were reported from Theour University of Texas MD Anderson Cancer Center or ("MD Anderson,Anderson") collaborators and documented the successful delivery of a second tumor suppressor gene, the NPRL2 tumor suppressor gene. The studies used the ONCOPREX Nanoparticle Delivery System to patents coveringexpress the therapeutic useNPRL2 gene in anti-PD1 resistant, metastatic human NSCLCs in humanized mouse models. We believe these studies of NPRL2 provide solid data that the ONCOPREX Nanoparticle Delivery System is a platform that can be used with multiple tumor suppressor genes.
The TUSC2 gene is one of a series of tumor suppressor genes on the short arm of Chromosome 3. The therapeutic use of TUSC2 is covered by our exclusive worldwide licenses from MD Anderson. NPRL2 is another tumor suppressor gene also located on the short arm of Chromosome 3 and we have filed for patent protection for its therapeutic use. We believe that have been shown in preclinical and clinical research to have cancer fighting properties.
Diabetes Gene Therapy
In diabetes, we have exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education (“University of Pittsburgh”) multiple technologies relating to the development of a gene therapy product for each of Type 1 and Type 2 diabetes. The same general novel approach is used in each of Type 1 and Type 2 whereby an adeno-associated virus (“AAV”) vector containing the Pdx1 and MafA genes is administered directly into the pancreatic duct. In humans, this can be done with a routine endoscopy procedure. Our diabetes product candidates are currently being evaluated and optimized in preclinical animal studies at the University of Pittsburgh. GPX-002 is being developed for the treatment of Type 1 diabetes and GPX-003 is being developed for the treatment of Type 2 diabetes. GPX-002 is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. GPX-003 is believed to work by replenishing and rejuvenating the beta cells that make insulin. We expect to finalize our constructs and meet with the FDA before the end of 2023 to obtain their guidance on the toxicology studies that we plan to conduct. In August 2022, we entered into a one-year sponsored research agreement with the University of Pittsburgh for the use of GPX-003 in a non-human primate (“NHP”) model of Type 2 diabetes. We are in the process of extending this agreement and expect pre-clinical data to be reported at a medical meeting in 2024. In February 2023, our research collaborators at the University of Pittsburgh presented preclinical data in a NHP model of Type 1 diabetes highlighting the therapeutic potential of GPX-002 at the 16th International Conference on Advanced Technologies & Treatments for Diabetes (ATTD 2023) in Berlin, Germany. The study results showed the treated animals had statistically significant decreased insulin requirements, increased c-peptide levels, and improved glucose tolerance compared to baseline.
JOBS Act
On April 5, 2012, the JOBS Act and Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our interim condensed financial statements appearing in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.U.S. ("U.S. GAAP"). The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements, as well asand the reported amounts of expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Research and Development Costs
We record accrued expenses for costs invoiced from research and development activities conducted on our behalf by third-party service providers, which include the conduct of pre-clinicalpreclinical studies and clinical trials and contract research, manufacturing, and testing activities. We record the costs of research and development activities based upon the amount of services provided, and we include these costs in accrued liabilities in the condensed balance sheets and within research and development expense in the statementcondensed statements of operations. These costs are a significant component of our research and development expenses.
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate of patient enrollment in any of our clinical trials may vary from our estimates and could result in usour reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinicalcontract research organizations ("CROs") and other third-party service providers. To date, there have been no material differences from our accrued expenses to actual expenses.
Impairment of Long-Lived Assets
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.
Components of our Results of Operations and Financial Condition
Operating expenses
We classify our operating expenses into three categories: research and development, general and administrative, and depreciation.
Research and development
. Research and development expenses consist primarily of:• | costs incurred to conduct research, such as the discovery and development of our current and potential product candidates; | |
| • | costs related to the production and storage of supplies for engineering purposes and storage and usage of clinical supplies, including waste created in the process of producing clinical materials, spoilage, and testing of clinical materials; | |
| • | costs related to the use of contract manufacturers, manufacturing consultants, testing organizations, cold-storage facilities, and logistics service providers; | |
• | fees paid to clinical consultants, clinical trial sites and vendors, including CROs in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as patient screening fees, laboratory work, and statistical compilation and analysis; | |
• | costs related to compliance with drug development regulatory requirements; and | |
| • | costs related to staffing and personnel associated with research and development activities, including wages, taxes, benefits, leases, overheads, supplies, and share-based compensation. |
We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.
We expect our research and development expenses to increase in the future as we advance our current and potentialfuture product candidates into and through clinical trials, andas we pursue regulatory approval of our current and potential product candidates in the United StatesU.S. and Europe.Europe, and as we expand our research programs to include new therapies and new therapy combinations. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our current and potential product candidates may be affected by a variety of factors including the quality of our current and potential product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability.viability, and limited contracted partners. We may never succeed in achieving regulatory approval for any of our current and potentialor future product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our current and potential product candidates.
General and administrative
. General and administrative expense consists of personnel related costs, which include administrative and executive salaries, as well as the costs of professional services, such as accounting and legal, travel, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increaseDepreciation
. Depreciation expense consists of depreciationResults of Operations
Comparison of the Three Months Ended September 30, 2016March 31, 2023, and 2017
The following summarizes our results of operations for the three months ended September 30, 2016March 31, 2023, and 2017.
Research and Development Expense.
Research and development expense was $55,517 for the three months ended September 30, 2017. The expense is mainly related to clinical expertise to advance development of our Oncoprex treatment.
General and Administrative Expense
General and administrative ("G&A") expense was $0 for each of the three month periods ended September 30, 2017 and 2016.
Interest Income. Interest income was $68,471 and $879 for the three months ended March 31, 2023 and 2022, respectively, representing an increase of $67,591. The increase associated employee-related expenses, and additional service providers.
Depreciation Expense.
Depreciation expense wasLiquidity and Capital Resources
From our inception through September 30, 2017,March 31, 2023, we have never generated revenue from product sales and have incurred net losses in each year since inception.year. As of September 30, 2017,March 31, 2023, we had an accumulated deficit of $16,785,779.$112,030,593. We have funded our operations primarily through the sale and issuance of preferredcapital stock. During 2016,For the year ended December 31, 2022, we sold 76,577an aggregate of 3,886 shares of Series G preferredcommon stock at $35.33 per sharefor total net proceeds of $4,532 pursuant to various investment fundsour ATM Facility as governed by the Equity Distribution Agreement (as further described below) and issued 116,973 shares of common stock upon the exercise of options for a totalgross proceeds of $2,705,465. In$1,755. During the first ninethree months of 2017,ended March 31, 2023, we sold 22,47353,592 shares of Series G preferredcommon stock for aggregate net proceeds of $78,355 pursuant to our ATM Facility and completed a registered direct offering in which we sold 3,809,524 shares of our common stock and warrants to purchase 3,809,524 shares of our common stock to an accredited healthcare-focused institutional investor for aggregate net proceeds of approximately $3.6 million. See also "Note 4 - Equity - Registered Direct Offering" to our interim condensed financial statements included in this Quarterly Report on Form 10-Q.
On November 18, 2022, we entered into our Equity Distribution Agreement (the "Sales Agreement") with JMP Securities LLC as Agent, with respect to an at-the-market offering program (our “ATM Facility”) under which we may offer and sell, from time to time at $35.33 per share forour sole discretion, shares of our common stock, having an aggregate offering price of up to $50.0 million through the Agent. We have agreed to pay the Agent a totalcommission equal to three percent (3%) of $793,971.
As of September 30, 2017,March 31, 2023, we had $373,945$18,082,785 in cash.
We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our current andor potential product candidates, which we expect will take a number of years and which is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations.operations, which include conducting our Acclaim-1, Acclaim-2, and Acclaim-3 clinical trials and completing pre-clinical work and conducting clinical trials for our diabetes program. We have completed patient enrollment in the Phase 1 dose escalation portion of Acclaim-1. We expect the Acclaim-1 SRC to meet and review safety data from the 0.12 mg/kg dose group after the required safety follow-up period has taken place, and to then make recommendations on the dose to be used in the Phase 2 portion of the trial. In preparation for the Phase 2 expansion of the trial, we are in the process of adding additional clinical sites and in May 2023 amended the protocol to clarify the control arm treatments in the Phase 2 randomized portion of the trial. We expect enrollment in the Phase 1 dose escalation portion of the Acclaim-2 trial to be completed by the end of 2023 after which we will move into the expansion portion of the trial. Enrollment in the Acclaim-3 clinical trial is expected to commence by the end of the third quarter 2023. Until such time as we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, drawdowns on our ATM Facility pursuant to our Sales Agreement with JMP Securities as Agent, and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant rights to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to curtail or cease operations, in part or in full.our operations. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
Based on our current cash and cash equivalents, we estimate that we will be able to fund our financial condition raises substantial doubt asexpenditure requirements for our necessary operations and expected clinical trial activities up to the second quarter of 2024. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our abilityavailable capital resources sooner than we currently plan due to continueincorrect assumptions or due to a decision to expand our activities beyond those currently planned. We previously have experienced delays in engaging clinical sites as a going concern.
The following table sets forth the primary sources and uses of cash forand cash equivalents during the ninethree months ended September 30, 2017:
| Nine Months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Net cash used in operating activities | $ | (1,960,028 | ) | $ | (399,620 | ) | ||
| Net cash used in investing activities | (62,341 | ) | (71,887 | ) | ||||
| Net cash provided by financing activities | 794,019 | 1,205,866 | ||||||
| Net increase (decrease) in cash and cash equivalents | (1,228,350 | 734,359 | ||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities | $ | (6,932,437 | ) | $ | (4,071,698 | ) | ||
Net cash used in investing activities | (19,627 | ) | (1,841 | ) | ||||
Net cash provided by financing activities | 4,080,780 | — | ||||||
Net decrease in cash and cash equivalents | $ | (2,871,284 | ) | $ | (4,073,539 | ) | ||
Cash used in operating activities
Net cash used in operating activities was $1,960,028$6,932,437 and $399,620$4,071,698 for the ninethree months ended September 30, 2017March 31, 2023, and 2016, respectively. The $1,560,4082022, respectively, an increase in net cash used in operating activitiesof $2,860,739, or 70%. This increase was primarily due to our personnel expenses growing as a result of an increase in spending in research and development, specifically relatedheadcount from 18 to monitoring and review of sponsored research performed by MD Anderson,28 employees as well as increaseincreases in payments made to professionalscontract manufacturing and employees.
Cash used in investing activities
Net cash used in investing activities was $62,341$19,627 and $71,887$1,841 for the ninethree months ended September 30, 2017March 31, 2023, and 2016, respectively. The decrease2022, respectively, an increase of $9,546$17,786. This increase was primarily due to increased patenttiming associated with prosecution expenses and additional investment in computer equipment in the prior year.
Cash provided by financing activities
Net cash provided by financing activities was $794,019$4,080,780 and $1,205,866$0 during the ninethree months ended September 30, 2017March 31, 2023, and 2016,2022, respectively. The $411,847 decrease in net cash provided by financing activitiesThis increase of $4,080,780 was primarily due to larger investmentsales of common stock in capital raising activities during the prior year to support ongoing research and development and operational activities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not required to provide the information required by financing activities was $2,705,872 and $724,912 forthis Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the years ended December 31, 2016 and 2015, respectively. The $1,980,960 increase in net cash provided by financing activities was primarily due to cash provided by issuance of Series G Preferred Stock in 2016 to support increased research and development activities and the hiring of additional management.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) of the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. OurExchange Act, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the endExchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the period coveredreports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by this Quarterly Report on Form 10-Q.a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, because of certain material weaknesses in our internal controls over financial reporting, our disclosure controls and procedures were not effective as of March 31, 2023. The material weaknesses relate to a lack of segregation of duties between accounting and other functions and the endabsence of sufficient depth of in-house accounting personnel with the ability to properly account for complex transactions.
Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to maintain effective segregation of duties on our assessment of our internal control over financial reporting and has concluded that the control deficiency represents a material weakness.
In response to the material weaknesses described above, during the quarter ended March 31, 2023, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with U.S. GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Remediation Plans
Management is actively engaged in remediation efforts to address the material weaknesses identified in the management’s evaluation of internal controls and procedures. The remediation efforts, which have been or are in the process of being implemented, are intended to address the identified material weaknesses, and include:
• | new accounting software, processes, and workflows to further segregate duties among limited accounting staff; |
• | specific review procedures, including the added involvement of our General Counsel to review certain accounting transactions following a given period in an effort to enhance accuracy of reporting; |
• | specific review procedures, including the added involvement of our manufacturing staff to enhance controls associated with the tracking and reporting of inventory values in our supply chain; |
• | a formal Disclosure Committee that has oversight responsibility for the accuracy and timeliness of disclosures made by us through controls and procedures and the monitoring of their integrity and effectiveness; and |
• | additional hiring of staff and development of accounting processes and policies to further segregate accounting responsibilities. |
During the quarter ended March 31, 2023, we took actions to remediate the material weaknesses relating to our internal controls over financial reporting including: (i) the continued implementation of workflow approval processes in our accounting software to further segregate duties, enhance billing accuracy, and ensure transparency and oversight from department leaders, legal, and finance; and (ii) the introduction and integration of the period covered by this Quarterly Report on Form 10-Qassociate general counsel with SEC reporting experience into our internal controls over financial reporting process to ensure that informationassist in the review and oversight of financial reporting and disclosure controls. Subsequent to the quarter ended March 31, 2023, we are requiredreviewing a plan to disclose in reportsengage additional internal staff, external staff, or an advisory firm to provide support on technical issues related to U.S. GAAP as related to the maintenance of our accounting books and records and the preparation of our financial statements.
As Management continues to evaluate and work to improve its internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of the remediation measures described above. While remediation efforts are active, management requires additional time to demonstrate the operating effectiveness of our remediation efforts. The material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Overover Financial Reporting
Except as described above, there were no changes in our internal control over financial reporting during our most recent fiscalthe quarter ended September 30, 2017March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Internal Control over Financial Reporting
Because of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent material errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks, including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate.
From time to any litigation.
The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may beCompany is not required to incur substantial costs to maintainprovide the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
During the three months ended March 31, 2023, we issued and sold the following unregistered securities:
1) | On January 1, |
2) | On February 16, 2023, we issued |
The offers, sales and issuancesforegoing issuance of securities was not registered under the Securities Act or the securities describedlaws of any state, and the securities were offered and issued in paragraphs (1) and (2) were deemed to be exemptreliance on the exemption from registration under the Securities Act in reliance onafforded by Section 4(a)(2) (or Regulation D promulgated thereunder) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D.
Item 3. Defaults Upon Senior Securities Act in reliance on either Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or Section 4(a)(2) in that the issuance of securities to the accredited investors did not involve a public offering. The recipient of such securities was our employee and received the securities under our 2009 Plan.
INDEX TO EXHIBITS
Exhibit Number | Description of Exhibit | |
| 4.1 | Form of Warrant, dated March 1, 2023, incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on February 27, 2023. | |
| 10.1 | Form of Securities Purchase Agreement, dated March 1, 2023, incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on February 27, 2023. | |
31.1* | ||
31.2* | ||
32.1** | ||
101.INS* | Inline XBRL Instance Document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101). | |
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements 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.
GENPREX, INC. | |||
Date: | By: | /s/ J. Rodney Varner | |
J. Rodney Varner | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: | |||
/s/ Ryan M. Confer | |||
Ryan M. Confer | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) | |||