Genprex, Inc. - Quarter Report: 2020 September (Form 10-Q)

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549  

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2020

or

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

 

For the transition period from __________________ to ______________

 

Commission file number: 001-38244

 

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 No.)
1601 Trinity Street, Bldg. B, #3.312.09, Austin, TX	78712
(Address of principal executive offices)	(Zip Code)

 

(512) 537-7997

(Registrant’s telephone number, including area code)

 

1601 Trinity Street, Bldg. B, Suite 3.322, Austin, TX 78712

(Former name, former address and former fiscal year, if changed since last report)

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 definitions of “large 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 6, 2020, the registrant had 39,618,722 shares of common stock, par value $0.001 per share, outstanding.

 

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GENPREX, INC.

TABLE OF CONTENTS

 

				Page No.
PART I		FINANCIAL INFORMATION		5
ITEM 1.		FINANCIAL STATEMENTS		5
		Condensed Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019		5
		Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)		6
		Condensed Statements of Changes in Stockholders' Equity for the Three, Six, and Nine Months Ended September 30, 2020 and 2019 (unaudited)		7
		Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)		8
		Notes to Unaudited Condensed Financial Statements		9
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		22
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		28
ITEM 4.		CONTROLS AND PROCEDURES		28
PART II		OTHER INFORMATION		29
ITEM 1.		LEGAL PROCEEDINGS		29
ITEM 1A.		RISK FACTORS		29
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		29
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES		29
ITEM 4.		MINE SAFETY DISCLOSURES		29
ITEM 5.		OTHER INFORMATION		29
ITEM 6.		EXHIBITS		30
SIGNATURES			31

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

●

our business strategies;

  

●

the timing of regulatory submissions;

  

●

our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;

  

●

the timing and costs of clinical trials and the timing and costs of other expenses;

  

●

the ultimate impact of the current 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;

  

●

market acceptance of our products;

  

●

our intellectual property;

  

●

our reliance on third party organizations;

  

●

our competitive position;

  

●

our industry environment;

  

●

our anticipated financial and operating results, including anticipated sources of revenues;

  

●

assumptions regarding the size of the available market, benefits of our products, product pricing, timing of product launches;

  

●

management’s expectation with respect to future acquisitions;

  

●

our goals, intensions, plans and expectations, including the introduction of new products and markets; and

  

●

our cash needs and financing plans.

 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.

 

References to Genprex

 

Throughout this Quarterly Report on Form 10-Q, the “Company,” “Genprex,” “we,” “us,” and “our” refers to Genprex, Inc. and “our board of directors” refers to the board of directors of Genprex, Inc.

 

 

 

 

		September 30,				December 31,
		2020				2019
Assets			(unaudited)
Current assets:
Cash		$	21,058,386			$	2,002,492
Accounts receivable			85				655
Prepaid expenses and other			966,108				171,716
Supplies			686,324				801,780
Total current assets			22,710,903				2,976,643
Property and equipment, net			42,340				44,654
Other assets:
Security deposits			10,741				21,732
Intellectual property, net			587,712				491,200
Total other assets			598,453				512,932
Total assets		$	23,351,696			$	3,534,229
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	321,424			$	436,258
Other current liabilities			54,231				74,426
Total current liabilities			375,655				510,684
Investment unit			—				—
Commitments and contingencies			—				—
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; 39,463,722 and 19,263,841 shares issued and outstanding, respectively			39,464				19,264
Additional paid-in capital			76,130,492				43,483,740
Accumulated deficit			(53,193,915	)			(40,479,459	)
Total stockholders’ equity			22,976,041				3,023,545
Total liabilities and stockholders’ equity		$	23,351,696			$	3,534,229

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenues		$	—			$	—			$	—			$	—
Cost and expenses:
Depreciation			5,714				3,437				16,843				9,486
Research and development			1,350,016				467,344				4,983,530				1,477,427
General and administrative			1,421,863				1,909,982				7,731,550				6,768,506
Total costs and expenses			2,777,593				2,380,763				12,731,923				8,255,419
Operating loss			(2,777,593	)			(2,380,763	)			(12,731,923	)			(8,255,419	)
Interest income			2,650				5,051				17,467				25,620
Net loss		$	(2,774,943	)		$	(2,375,712	)		$	(12,714,456	)		$	(8,229,799	)
Net loss per share—basic and diluted		$	(0.07	)		$	(0.15	)		$	(0.37	)		$	(0.53	)
Weighted average number of common shares— basic and diluted			39,055,159				15,831,822				34,139,991				15,598,644

 

		Common Stock								Preferred Stock								Additional				Accumulated
		Shares				Amount				Shares				Amount				Paid-In Capital				Deficit				Total
Balance at December 31, 2018			15,239,148			$	15,240				—			$	—			$	38,690,586			$	(29,824,691	)		$	8,881,135
Issuance of stock for cash			200,000				200				—				—				(200	)			—				—
Issuance of stock for services			121,617				122				—				—				192,274				—				192,396
Share based compensation			—				—				—				—				330,626				—				330,626
Net loss			—				—				—				—				—				(2,158,846	)			(2,158,846	)
Balance at March 31, 2019			15,560,765			$	15,562				—			$	—			$	39,213,286			$	(31,983,537	)		$	7,245,311
Issuance of stock for cash			150,000				150				—				—				(150	)			—				—
Issuance of stock for services			92,090				91				—				—				159,010				—				159,101
Share based compensation			—				—				—				—				1,615,896				—				1,615,896
Net loss			—				—				—				—				—				(3,695,240	)			(3,695,240	)
Balance at June 30, 2019			15,802,855			$	15,803				—			$	—			$	40,988,042			$	(35,678,777	)		$	5,325,068
Issuance of stock for services			40,000				40				—				—				40,895				—				40,935
Share based compensation			—				—				—				—				540,808				—				540,808
Net loss			—				—				—				—				—				(2,375,712	)			(2,375,712	)
Balance at September 30, 2019			15,842,855			$	15,843				—			$	—			$	41,569,745			$	(38,054,489	)		$	3,531,099
Balance at December 31, 2019			19,263,841			$	19,264				—			$	—			$	43,483,740			$	(40,479,459	)		$	3,023,545
Issuance of stock for cash			13,581,000				13,581				—				—				25,718,059				—				25,731,640
Issuance of stock for services			5,000				5				—				—				1,545				—				1,550
Share based compensation			—				—				—				—				752,444				—				752,444
Net loss			—				—				—				—				—				(5,566,220	)			(5,566,220	)
Balance at March 31, 2020			32,849,841			$	32,850				—			$	—			$	69,955,788			$	(46,045,679	)		$	23,942,959
Issuance of stock for cash			5,774,388				5,775				—				—				2,563,567				—				2,569,342
Issuance of stock for services			5,000				5				—				—				10,879				—				10,884
Share based compensation			—				—				—				—				2,359,621				—				2,359,621
Net loss			—				—				—				—				—				(4,373,293	)			(4,373,293	)
Balance at June 30, 2020			38,629,229			$	38,630				—			$	—			$	74,889,855			$	(50,418,972	)		$	24,509,513
Issuance of stock for cash			829,493				829				—				—				792,702				—				793,531
Issuance of stock for services			5,000				5				—				—				15,345				—				15,350
Share based compensation			—				—				—				—				432,590				—				432,590
Net loss			—				—				—				—				—				(2,774,943	)			(2,774,943	)
Balance at September 30, 2020			39,463,722			$	39,464				—			$	—			$	76,130,492			$	(53,193,915	)		$	22,976,041

 

		Nine Months Ended September 30,
		2020				2019
Cash flows from operating activities:
Net loss		$	(12,714,456	)		$	(8,229,799	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			16,843				9,486
Share based compensation			3,572,439				2,879,762
Changes in operating assets and liabilities:
Accounts receivable			570				9,297
Prepaid expenses and other			(794,392	)			(27,862	)
Deposits			10,991				6,353
Accounts payable and accrued expenses			(114,834	)			189,907
Other current liabilities			(20,195	)			(34,497	)
Net cash used in operating activities			(10,043,034	)			(5,197,353	)
Cash flows from investing activities:
Additions to property and equipment			(14,529	)			(8,879	)
Additions to intellectual property			(96,512	)			(44,473	)
Reductions in (Additions to) research and development supplies			115,456				(801,780	)
Net cash provided by (used in) investing activities			4,415				(855,132	)
Cash flows from financing activities:
Proceeds from issuances of stock			29,094,513				—
Net cash provided by financing activities			29,094,513				—
Net increase (decrease) in cash			19,055,894				(6,052,485	)
Cash, beginning of period			2,002,492				8,600,918
Cash, end of period		$	21,058,386			$	2,548,433
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	—			$	—
Cash paid for taxes		$	—			$	—

 

Note 1 - Description of Business and Basis of Presentation

 

Genprex™ (“we” or the “Company”) is a clinical stage gene therapy company focused on developing life-changing treatments for cancer and diabetes.  Our lead cancer drug candidate, REQORSA™ Immunogene therapy drug (formerly referred to as GPX-001), is being developed to treat non-small cell lung cancer (”NSCLC”). REQORSA consists of a tumor suppressor gene called TUSC2, which has both tumor killing (via apoptosis) and immunomodulatory effects. We utilize our novel proprietary Oncoprex® Nanoparticle Delivery System™ to deliver TUSC2 to cancer cells. The TUSC2 gene is one of a series of genes whose therapeutic use is covered by an exclusive worldwide license from The University of Texas MD Anderson Cancer Center (“MD Anderson”). We are planning to initiate our Acclaim-1 and Acclaim-2 clinical trials in the first half of 2021. Acclaim-1 is a Phase 1/2 clinical trial using a combination of REQORSA with AstraZeneca PLC’s Tagrisso® in patients with late stage NSCLC with mutated epidermal growth factor receptors (“EGFRs”) whose disease progressed after treatment with Tagrisso. In January 2020, we received Food and Drug Administration (“FDA”) Fast Track Designation for the Acclaim-1 patient population. Acclaim-2 is a Phase 1/2 clinical trial using a combination of REQORSA with Merck & Co.’s Keytruda®  in NSCLC patients who are low expressors (1% to 49%) of the protein programmed death-ligand 1 (“PD-L1”).

 

In diabetes, we are developing a gene therapy that is exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education and, according to researchers, has the potential to cure type 1 and type 2 diabetes. This potential treatment works 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. Our diabetes product is currently being evaluated in pre-clinical studies.    

 

Oncology Platform Technologies

 

Utilizing our Oncoprex Nanoparticle Delivery System, we are developing cancer treatments that are designed to administer cancer fighting genes. We encapsulate the genes into the Oncoprex nanoscale hollow spheres, administer them intravenously, where they are then taken up by tumor cells and express proteins that are missing or found in low quantities in the tumor cells. With our lead drug candidate, REQORSA, there is a multimodal mechanism of action whereby REQORSA, which encapsulates the TUSC2 gene, interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for apoptosis, or programmed cell death, in cancer cells, and modulates the immune response against cancer cells. REQORSA has also been shown to block mechanisms that create drug resistance.

 

Epidemiology: Non-Small Cell Lung Cancer

 

We are initially targeting NSCLC with REQORSA. According to the World Health Organization in 2018, lung cancer was the leading cause of cancer deaths worldwide, causing more deaths than colorectal, breast, liver or stomach cancers. In the same year, there were more than 2 million new lung cancer cases and 1.7 million deaths from lung cancer worldwide. In the United States, according to the American Cancer Society, it is estimated that in 2020 there will be more than 228,000 new cases of lung cancer and more than 135,000 deaths from lung cancer. The American Society of Clinical Oncology reports that NSCLC represents 84 percent of all lung cancers and has a 24 percent five-year survival rate. However, according to the National Cancer Institute, 57 percent of lung cancer diagnoses are distant, or have metastasized, and the five-year relative survival rate for Stage IV (metastatic) NSCLC is approximately 5 percent. With limited benefit from current therapies, we believe there is a significant unmet medical need for new treatments for NSCLC in the United States and globally, and we believe REQORSA may be suitable for a majority of NSCLC patients.

 

Acclaim-1

 

In January 2020, we received Fast Track Designation from the FDA for use of REQORSA in combination with AstraZeneca’s EGFR inhibitor Tagrisso for the treatment of NSCLC patients with EFGR mutations whose tumors progressed after treatment with Tagrisso. According to the FLAURA study sponsored by AstraZeneca, the median length of time that patients are treated with Tagrisso before their tumors progress is approximately 18 months. Tagrisso is now considered a new standard of care for NSCLC patients with an EGFR mutation. Given the poor prognosis for these patients and our FDA Fast Track Designation, we are prioritizing this drug combination and patient population and plan to initiate the Phase 1/2 clinical trial in the first half of 2021. The Acclaim-1 trial is a Phase 1/2 clinical trial in Stage 4 NSCLC patients who are EGFR mutant and whose disease has progressed after treatment with Tagrisso. The trial consists of a combination of REQORSA and Tagrisso, and we plan to conduct the trial in approximately 10 U.S. sites with about 100 patients (9-18 patients in the Phase 1 component and 82 patients in the Phase 2 component). An interim analysis will be performed after 53 events (i.e., death or progression of disease).   

 

Acclaim-2

 

In 2019, preclinical data was presented by MD Anderson collaborators relating to the combination of TUSC2, the active agent in REQORSA, with Keytruda showing that TUSC2 combined with the checkpoint blockade mechanism of action of Keytruda was more effective than Keytruda alone in increasing the survival of mice with human immune cells (humanized mice) that had metastatic lung cancer. MD Anderson also presented preclinical data in 2019 for the combination of TUSC2, Keytruda and chemotherapy for the treatment of some of the most resistant metastatic lung cancers. This study found that the addition of TUSC2 demonstrates synergy with Keytruda and chemotherapy, and thus, may improve on first-line standard of care for lung cancer. In May 2020, we entered into a worldwide, exclusive license agreement with The Board of Regents of the University of Texas System on behalf of MD Anderson for the use of TUSC2 in combination with immunotherapies, including Keytruda. We plan to initiate the Acclaim-2 trial in the first half of 2021, which is a Phase 1/2 clinical trial combining REQORSA with Keytruda in patients whose disease has progressed on Keytruda in NSCLC patients who are low expressors (1% to 49%) of PD-L1.

 

 

We believe that our Oncoprex Nanoparticle Delivery System could allow delivery of a number of cancer-fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. We believe that REQORSA’s combination of pan-kinase inhibition, direct induction of apoptosis, anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique, and positions REQORSA to provide treatment for patients with NSCLC and possibly other cancers, who are not benefitting from current therapies.

 

Diabetes Gene Therapy

 

Diabetes is a chronic, metabolic disease characterized by elevated levels of blood glucose (or blood sugar), which leads over time to serious damage to the heart, blood vessels, eyes, kidneys and nerves. The most common is type 2 diabetes, which usually occurs in adults, and which arises when the body becomes resistant to insulin or does not make enough insulin. In the past three decades, the prevalence of type 2 diabetes has risen dramatically. Type 1 diabetes, also known as juvenile diabetes or insulin-dependent diabetes, is a chronic condition in which the pancreas produces little or no insulin by itself. According to the International Diabetes Federation in 2019, about 463 million people worldwide had diabetes and 4.2 million deaths were attributed to diabetes. Both the number of cases and the prevalence of diabetes have been steadily increasing over the past few decades.

 

Our diabetes gene therapy, also referred to as GPX-002, was developed by lead researcher Dr. George Gittes, at the Rangos Research Center at UPMC Children’s Hospital of Pittsburgh.  This potential treatment works 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. The therapy utilizes a procedure in which an adeno-associated virus vector delivers Pdx1 and MafA genes to the pancreas.

 

The diabetes gene therapy has been tested in vivo in mice and nonhuman primates. In studies in non-obese diabetic mice, the gene therapy approach restored normal blood glucose levels for an extended period of time, typically around four months. According to Dr. Gittes, the duration of restored blood glucose levels in mice could translate to decades in humans. If successful, this gene therapy could eliminate the need for insulin replacement therapy for diabetic patients.

 

Capital Requirements, Liquidity and Going Concern Considerations

 

Our condensed financial statements are prepared using the generally accepted accounting principles (“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 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 product candidates.

 

Management recognizes that we must obtain additional capital resources to successfully commercialize our product candidates.  To date, we have received funding in the form of equity and debt, and we plan to seek additional funding 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 be materially and adversely affected. These condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities.

 

Note 2 - Summary of Significant Accounting Policies

 

The Company’s condensed financial statements have been prepared in accordance with GAAP. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In our opinion, the unaudited condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary to make the unaudited condensed financial statements not misleading. Operating results for the nine months ended September 30, 2020 and 2019 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2020. For more complete financial information, these unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2019 filed with the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2020. A summary of our significant accounting policies consistently applied in the preparation of the accompanying condensed financial statements follows.

 

 

Capital Stock

 

In connection with the Company’s initial public offering ("IPO") in April 2018, all of the Company’s preferred stock and non-voting common stock were converted into shares of the Company’s common stock. The Company’s common stock was then forward-split at a ratio of 6.6841954-to-1. Furthermore, prior to the closing of the IPO, the Company’s Certificate of Incorporation was amended and restated to provide the Company with the authority to issue up to 210,000,000 shares of stock consisting of 200,000,000 shares of common stock at a par value of $0.001 per share and 10,000,000 shares of preferred stock at a par value of $0.001 per share. 

 

Use of Estimates

 

The preparation of our condensed financial statements in conformity with 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 condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Cash

 

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 had no cash equivalents, and had $20,811,895 and $1,761,278 in excess of FDIC insured limits of $250,000 at September 30, 2020 and December 31, 2019, respectively.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

 

Accounting Standard Codification ("ASC") 820, Fair Value Measurements and Disclosures, defines fair value, provides a consistent framework for measuring fair value under GAAP and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

 

Level 1: Quoted prices for identical instruments in active markets.

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3: Instruments with primarily unobservable value drivers.

 

 

Property and Equipment

 

Furniture and equipment are stated at cost. Depreciation is calculated using the straight-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 Costs

 

Research and development expenditures consist of costs incurred to conduct research and development activities. These include payments to collaborative research partners, manufacturing partners, and clinical strategy partners, wages and associated employee benefits, facilities and overhead costs. These expenditures relate to our preclinical, Phase 1, and Phase 2 clinical trials and are expensed as incurred. Purchased materials to be used in future research are capitalized and included in research and development supplies. Supplies purchased and capitalized for future use were $686,324 and $801,780 at September 30, 2020 and December 31, 2019, respectively.

 

Awards

 

In 2010, we were awarded $4.5 million from the State of Texas Emerging Technology Fund (“TETF”). The award was received in two tranches of $2.25 million each during 2010 and 2011. The award proceeds were used to further the development and future commercialization of REQORSA, our lead product candidate for NSCLC. In consideration of the award, we provided the TETF with an “Investment Unit,” 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. 

 

In 2010, we also were awarded approximately $244,500 from the U.S. Treasury Department for our QTDP Program Nanoparticle Therapy for Lung Cancer. The award was received during 2011 for our historical activities, and required no prospective expenditures. We accounted for these funds received as revenue at that time.

 

Intellectual Property

 

Intellectual property consists of 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 costs incurred in connection with obtaining 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.

 

 

Financial Instruments

 

We have elected the Fair Value Option to account for the Investment Unit at fair value as a combined hybrid financial instrument containing a Warrant and a Note (see Note 4 - Investment Unit). Prior to its exercise, the Warrant component was not classified within equity, as the exercise price of the Warrant was affected by the market price of our stock in a future qualifying financing transaction and was not considered to be indexed to our own stock. The Note is not classified within liabilities, as our management can determine the timing of the repayment obligation, if any. As a result, the Warrant and Note that comprised the Investment Unit were aggregated and classified within the mezzanine section of the balance sheet. 

 

Due to the contingent terms of the financial instruments, changes in the fair value of the Investment Unit were calculated and realized in earnings. In August 2019, the remaining articles of the Investment Unit were terminated.  There were no changes in the fair value of the Investment Unit at September 30, 2020. 

 

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 its 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 expected future cash flows. During the nine months ended September 30, 2020 and the year ended December 31, 2019, there were no deemed impairments of our long-lived assets.

 

Recent Accounting Developments

 

Accounting pronouncements issued but not effective until after September 30, 2020 are not expected to have a significant effect on our financial condition, results of operations, or cash flows.

 

Note 3 - Intellectual Property

 

On February 11, 2020, we entered into an exclusive license agreement with the University of Pittsburgh for patented gene therapy technologies relating to the potential treatment of type 1 and type 2 diabetes. 

 

On May 4, 2020, the Company 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 16 patent applications and related technology for the treatment of cancer using the Company’s lead drug candidate and immunotherapies. 

 

We have exclusive license agreements on 34 issued patents and 16 patent applications worldwide for technologies developed by researchers at the National Cancer Institute, MD Anderson, the University of Texas Southwestern Medical Center, and the University of Pittsburgh. These patents comprise various therapeutic, diagnostic, technical and processing claims. These license rights will be amortized on a straight-line basis over the estimated period of useful lives of the underlying patents or the license agreements.

 

Note 4 - Investment Unit

 

The TETF was created as an incentive for economic development of the Texas economy by providing financial support that leverages private investment for the creation of high-quality technology jobs in Texas. The award received required us to comply with certain performance conditions to ensure the monies the Company received were used for development activities in the State of Texas, and to maintain our corporate nexus in Texas. Further, in connection with the award, the Company issued the Investment Unit to the TETF. On September 25, 2017 and again on August 16, 2019, the Company entered into termination agreements with the Texas Treasury Safekeeping Trust Company, the entity managing and controlling TETF interests, which terminated Article II and all remaining Articles of the Investment Unit, respectively, so that the entirety of the Investment Unit was effectively terminated. As further described below, the Investment Unit consisted of a Note and a Warrant.

 

Promissory Note

 

The Note was an obligation to repay the $4.5 million principal amount, with interest accrued at 8% per annum, but only if an event of default occurred prior to August 13, 2020. If no event of default occurred prior to August 13, 2020, the Note and all related interest would be cancelled. The Note was cancelled on August 16, 2019.

 

Consistent with the stated objectives of the TETF, an event of default that would trigger the repayment obligation under the Note was the failure to maintain our principal place of business or our principal executive offices headquartered in the State of Texas (referred to as the “Texas Residency Requirement”) until August 13, 2020. 

 

Warrant

 

The Warrant was an obligation to issue (a Right to Purchase by the TETF) shares of the same class of stock to be issued in a “First Qualifying Financing Transaction,” at 80% of the per share transaction value (effectively a 20% discount). Alternatively, the TETF could exercise its right to purchase other shares at any time prior to the occurrence of a First Qualifying Financing Transaction for $0.001 per share.

 

The Warrant included a provision that required changes in the strike price, driven by the pricing of the “First Qualifying Financing Transaction.” As a result, the Warrant embedded in the Investment Unit was accounted for as a derivative financial instrument and classified outside of equity under ASC 815-40-15, as the settlement adjustment from the future transaction did not permit the strike price to be considered fixed.

 

On March 12, 2014, the TETF exercised the Warrant for $0.001 per share, and we issued to the TETF an aggregate of 184,797 shares of our Series B preferred stock. These shares were subsequently forward-split and converted into an aggregate of 1,235,219 shares of our common stock in connection with our IPO.  

 

Accounting for the Investment Unit

 

We accounted for the Investment Unit as a hybrid financial instrument under Financial Accounting Standards Board Statement 155, and measured the Investment Unit at the amount of proceeds received from the TETF award. The First Qualifying Financing Transaction occurred during December 2013, resulting in an adjustment to the fair value of the Investment Unit in the amount of approximately $2.5 million. The TETF exercised the Warrant for $0.001 per share. We received a notice of exercise from the TETF during March 2014, and issued 184,797 shares of Series B preferred stock, which were converted to 1,235,219 shares of our common stock upon completion of our IPO. Upon exercise by the TETF of the Warrant, the remaining component within the Investment Unit was the Note. The Investment Unit was valued at zero, because our obligation to repay the Note arose from an event of default (a failure to maintain the Texas Residency Requirement), which was an event which rested entirely within our control. 

 

 

 

Note 5 - Equity

 

Registered Direct Offerings

 

On November 22, 2019, the Company completed a registered direct offering (“2019 RDO”), whereby the Company sold to investors an aggregate of 3,167,986 shares of the Company’s common stock at $0.40 per share and warrants to purchase up to 3,167,986 shares of the Company’s common stock at an exercise price of $0.46 per share. The warrants were first exercisable on May 22, 2020. The Company received net proceeds of approximately $1,093,000 after commissions and expenses. Additionally, the placement agent was issued warrants to purchase common stock equal to 7% of the aggregate number of shares of common stock issued and issuable pursuant to the 2019 RDO (including shares underlying any warrants), or 443,518 shares of common stock at an exercise price of 125% of the 2019 RDO price per share, or $0.50 per share.

 

In connection with the closing of the 2019 RDO, the Company further adjusted the warrants to purchase up to 2,283,740 shares of the Company's common stock, which had been issued as part of the Company's May 9, 2018 private placement and adjusted in August 2018 to (i) reduce the exercise price for each share from $4.25 per share to $0.46 per share, (ii) extend the date upon which such warrants could be exercised to May 22, 2020, and (iii) extend the termination date of such warrants by six months and one day.

 

On January 21, 2020, the Company completed a registered direct offering, in which the Company sold to an accredited investor 961,000 shares of the Company’s common stock at $0.24 per share. The Company received net proceeds of approximately $200,000 after commissions and expenses.

 

On January 23, 2020, the Company completed a registered direct offering, in which the Company sold to investors an aggregate of 7,620,000 shares of the Company’s common stock at $1.05 per share. The Company received net proceeds of approximately $7.2 million after commissions and expenses.

 

On February 19, 2020, the Company amended its Registration Statement on Form S-3 to increase the maximum offering size by approximately $3,000,000. On February 21, 2020, the Company completed a registered direct offering under the amended S-3 Registration Statement, in which the Company sold to investors an aggregate of 5,000,000 shares of the Company’s common stock at $3.50 per share. The Company received net proceeds of approximately $16 million after commissions and expenses. 

 

Stock Issuances

 

During the nine months ended September 30, 2020, we issued (i) 13,581,000 shares of common stock in our registered direct offerings for proceeds of $25,731,640, (ii) 5,511,599 shares of common stock upon the exercise of warrants for cash proceeds of $2,537,731, (iii) 115,552 shares of common stock upon the cashless exercise of warrants, (iv) 976,730 shares of common stock upon the exercise of options for  cash proceeds of $825,027, and (v) 15,000 shares of common stock for services provided to us, valued at $27,900.

 

During the year ended December 31, 2019, we issued (i) 3,167,986 shares of common stock in the 2019 RDO for proceeds of $1,267,194, (ii) 506,707 shares of common stock for services provided to us, valued at $469,588, and (iii) 350,000 shares of common stock held in abeyance for an investor in our May 9, 2018 private placement.

 

 

Preferred Stock

 

In connection with the Company’s IPO, all preferred stock included in Series A through Series G preferred stock, totaling 1,394,953 shares at March 31, 2018 were converted to an aggregate of 9,324,177 shares of the Company's common stock in association with the forward-split (See Note 2 - Capital Stock). Upon the completion of the IPO, the Company became authorized to issue 10,000,000 shares of preferred stock with a par value of $0.001 per share, none of which are outstanding at September 30, 2020.

 

Common Stock

 

Upon the completion of the IPO, all of the Company’s non-voting common stock automatically converted into voting common stock on a one-for-one basis. Immediately following the completion of the IPO, the Company became authorized to issue 200,000,000 shares of common stock with a par value of $0.001 per share, all of which are voting common stock. There were 39,463,722 shares of common stock outstanding at September 30, 2020.

 

Common Stock Purchase Warrants

 

Common stock purchase warrant activity for the period and year ended September 30, 2020 and December 31, 2019, respectively, is as follows:

 

 

In the nine-month period ended September 30, 2020, (i) investors and placement agents of the Company's May 2018 private placement and 2019 RDO exercised warrants to purchase 5,511,599 shares of common stock for cash proceeds of $2,537,731, (ii) the Company issued 115,552 shares of common stock and cancelled 24,158 shares of common stock to placement agents of the 2019 RDO for the exercise of warrants via cashless exercise, and (iii) the Company issued warrants to purchase up to 550,000 shares of common stock to service providers including 500,000 shares of common stock to Cancer Revolution, LLC at an exercise price of $2.27 per share and 50,000 shares of common stock to Capital City Technical Consulting, Inc. at an exercise price of $3.81 per share. During the nine-month period ended September 30, 2020, we recorded share-based compensation of $450,000 associated with Company milestone-based vesting of the Cancer Revolution, LLC warrants. We expect to record $124,000 of share-based compensation for time-based vesting over the next three years and another $300,000 of share-based compensation based on performance-based vesting. 

 

In the year ended December 31, 2019, we (i) issued warrants to purchase 3,167,986 shares of our common stock at an exercise price of $0.46 per share to the investors in the 2019 RDO, (ii) issued warrants to purchase 443,518 shares of our common stock at an exercise price of $0.50 per share to the placement agent in the 2019 RDO, and (iii) reduced the purchase price of the warrants issued to investors in the May 9, 2018 private placement to purchase 2,283,740 shares of our common stock from $4.25 per share to $0.46 per share.

 

On January 29, 2018, the Company entered into an agreement with FundAthena, Inc. whereby the Company agreed to grant warrants to purchase 6,000 shares of common stock at an exercise price of $5.00 per share in consideration of services valued at $30,000 provided to the Company. At September 30, 2020, the Company has not issued these warrants.

 

 

2018 Equity Incentive Plan

 

The Company’s board of directors and stockholders have approved and adopted the Company’s 2018 Equity Incentive Plan (“2018 Plan”), which became effective on the completion of the IPO on April 3, 2018. The 2018 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, other forms of equity compensation and performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers, and to the Company’s non-employee directors and consultants.

 

A total of 4,160,000 shares of common stock are authorized under the 2018 Plan, which includes 554,963 shares of common stock reserved for issuance under our 2009 Equity Incentive Plan that were added to the 2018 Plan. No grants have been made under the 2009 Plan since our IPO, and no further grants will be made under the 2009 Plan. Any shares subject to outstanding stock options under the 2009 Plan that would otherwise be returned to the 2009 Plan will instead be added to the shares initially reserved under the 2018 Plan.

 

In addition, the number of shares of common stock reserved for issuance under the 2018 Plan is automatically increased on January 1 of each calendar year, beginning on January 1, 2019 by 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the 2018 Plan. On January 1, 2019 and 2020, the number of shares of common stock reserved for issuance under the 2018 Plan was increased by an aggregate of 761,957 and 963,192 shares, respectively.

 

2018 Employee Stock Purchase Plan

 

The Company’s board of directors and stockholders approved and adopted the Company’s 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on the completion of the IPO on April 3, 2018. The ESPP will not become effective until the Board determines to make this benefit available to our employees. The ESPP authorizes the issuance of 208,500 shares of the Company’s common stock pursuant to purchase rights granted to our eligible employees. The number of shares of common stock reserved for issuance under the ESPP is automatically increased on January 1 of each calendar year, beginning on January 1, 2019, by 2% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the ESPP. The administrator of the ESPP, which is our board of directors, determined not to increase the number of shares reserved for issuance under the ESPP on January 1, 2019 or January 1, 2020.

 

Stock Options

 

As of September 30, 2020, the Company had outstanding stock options to purchase 6,982,885 shares of common stock that have been granted to various executives, employees, directors, and independent contractors. These options can vest immediately or over periods ranging from 12 to 48 months, are exercisable for a period of up to ten years, and enable the holders to purchase shares of our common stock at exercise prices ranging from $0.001 to $9.80 per share. The per-share fair values of these options range from $0.001 to $7.93, based on Black-Scholes-Merton pricing models with the following assumptions:

 

 

 

 

In the nine-month period ending September 30, 2020, the Company (i) granted stock options to purchase an aggregate of 2,141,529 shares of the Company's common stock with exercise prices ranging from $1.28 to $3.80 per share to employees, board members, and consultants, (ii) cancelled options to purchase 164,837 shares of common stock at an exercise price of $9.80 per share due to separation of a former executive, and (iii) issued 976,730 shares of the Company's common stock upon the exercise of options held by former board members and a former executive with exercise prices ranging from $0.015 to $2.15 per share.

 

In the year ending December 31, 2019, the Company granted stock options to purchase an aggregate of 1,744,300 shares of common stock with exercise prices ranging from $0.30 to $1.62 per share to employees and consultants and cancelled options to purchase 297,058 shares of common stock due to the inactivity of service providers.

Stock option activity for the nine months and year ended September 30, 2020 and December 31, 2019, respectively, is as follows:

 

 

Share-Based Compensation

 

For the nine months ended September 30, 2020, the Company's total share-based compensation was approximately $3.6 million, nearly all of which represents the vesting of options and warrants issued to service providers, executives, employees, and board members. The Company’s total compensation cost related to non-vested time-based stock option awards granted to executives, employees, and board members and not yet recognized was approximately $4.5 million for the quarter ended September 30, 2020. The Company expects to record this stock-based compensation expense over the next three years using a graded vesting method. As of September 30, 2020, the weighted average term over which these expenses are expected to be recognized are 2.26 years. 

 

As of September 30, 2020, there are no performance-based stock option awards outstanding. 

 

 

 

Note 6 - Related Party Transactions

 

Introgen Research Institute

 

Introgen Research Institute (“IRI”) is a Texas-based technology company, currently affiliated with Rodney Varner, our Chief Executive Officer. In April 2009, prior to Mr. Varner becoming an officer and director of our Company in August 2012, we entered into an Assignment and Collaboration Agreement with IRI, providing us with the exclusive right to commercialize a portfolio of intellectual property. This agreement was amended in 2011 to include additional sublicensing of additional intellectual property made available to IRI from MD Anderson.

 

Viet Ly

 

The Company entered into a consulting agreement with Viet Ly on April 19, 2018. The Company agreed to pay Mr. Ly $175,000 initially, with compensation variable from time-to-time as determined by the Company, for strategic consulting services. The Company paid Mr. Ly an aggregate of $28,500 during the quarter ended September 30, 2020 for strategic services. In addition, in April 2020, the Company issued Cancer Revolution LLC, an entity owned by Mr. Ly, a warrant to purchase up to 500,000 shares of common stock at the fair market value of the common stock on the date of issuance that vests based on the achievement of Company milestones.  

 

 

Note 7 - Commitments and Contingencies

 

Leases

 

On April 16, 2018, the Company executed a service agreement with CIC Innovation Communities, LLC to establish and lease offices at the Cambridge Innovation Center in Cambridge, Massachusetts. On April 1, 2020, the Company provided notice of cancellation of our lease in the Cambridge Innovation Center in Cambridge, Massachusetts, effective April 30, 2020. 

 

On April 16, 2018, the Company executed a space utilization agreement with the Board of Regents of the University of Texas System to establish and lease offices at the Dell Medical School in Austin, Texas. The lease ran through October 31, 2020 and the Company pays $462 per month to occupy this location. See Subsequent Event Note 9.

 

 

Commitments

 

MD Anderson Cancer Center

 

We have entered into a clinical study agreement with MD Anderson in Houston, Texas, to administer a Phase 1/2 clinical trial, combining FUS1-nanoparticles and Tarceva in Stage IV lung cancer patients. FUS1 is sometimes referred to as TUSC2 and has recently been branded as REQORSA. The trial was expected to run through the end of 2018 with a projected total cost of approximately $2 million. Payments are due and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time. With Tagrisso now considered a new standard of care in the U.S. for NSCLC in patients with an EGFR mutation and our receipt of FDA Fast Track Designation for use of REQORSA combined with Tagrisso, we are prioritizing this program in lieu of the combination trial of REQORSA and Tarceva.

 

In May 2020, the Company entered into a license agreement with The Board of Regents of the University of Texas System, on behalf of MD Anderson. In consideration of the license, the Company will make certain agreed upon payments to MD Anderson, including an up-front license fee, annual maintenance fees, an aggregate of $4,150,000 in milestone payments over the term of the agreement, and single digit royalty payments (until such time that $3 billion per year in worldwide sales of licensed products using the licensed intellectual property is achieved and low double digits thereafter), minimum annual royalties for sales of licensed products using the licensed intellectual property, as well as reimbursement of patent expenses. The agreement expires on the last to occur of: (a) the expiration of all patents subject to the license agreement, or (b) thirty years after execution, subject to earlier termination rights by the Company and MD Anderson, including MD Anderson's right to terminate the agreement upon the occurrence of certain events, including the Company's failure to meet certain commercial diligence milestones.

 

In July 2018, the Company entered into a two-year sponsored research agreement with MD Anderson to sponsor preclinical studies focused on the combination of TUSC2 with an immunotherapy with a projected total cost of approximately $2 million. In March, 2020, the term of this agreement was extended to May 22, 2022. Payments are due and payable when invoiced throughout the clinical trial period. The agreement may be terminated at any time.

 

In 2009, we agreed to assume certain contractual and other obligations of IRI in consideration of the sublicense rights, expertise, and assistance associated with the assignment of certain technologies and intellectual property. We also agreed to pay royalties of 1% on sales of resulting licensed products, for a period of 21 years following the termination of the last of the MD Anderson License Agreement and Sublicense Agreement, to IRI and we assumed patent prosecution costs and an annual minimum royalty of $20,000 payable to the National Institutes of Health.

 

National Institutes of Health

 

Our $191,393 payment obligation to the National Institutes of Health (“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 it in consideration of 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 by $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.

 

As a result of our modified agreement with the NIH, we have recognized the exchange of the $120,000 fixed obligation for the $240,000 contingent obligation as a $120,000 reduction to intellectual property expense (classified within general and administrative expense) during the first quarter of 2017. The $240,000 contingent obligation which increases annually by $20,000 and is $280,000 as of December 31, 2019 will be recognized when we obtain regulatory approval (the event that triggers the payment obligation).

 

University of Pittsburgh

 

As part of our License Agreement with the University of Pittsburgh in February 2020, we agreed to (i) an initial licensing fee of $25,000, (ii) annual maintenance fees of $25,000 for the first three years and $40,000 for each subsequent year following the first anniversary of the agreement, (iii) royalties between 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) milestone payments of an aggregate of $3,975,000. 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, subject to earlier termination pursuant to the terms of the agreement.

 

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 financial condition, results of operations or liquidity.

 

 

 

Note 8 - Significant Events

 

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The pandemic has become increasingly widespread in the United States, including markets in which the Company operates or may operate in the future. The COVID-19 pandemic has had a notable impact on general economic conditions, including, but not limited to, the temporary closures of many businesses, “shelter in place” orders and other governmental regulations, reduced consumer spending due to both job losses and other effects attributable to the COVID-19, in addition to many other unknowns. To date, the Company has not experienced any material impact on its financial results or operations as a result of the COVID-19 pandemic. The extent to which the COVID-19 pandemic could impact the Company's operations or financial results is uncertain. The Company continues to monitor the impact of the COVID-19 pandemic closely.

 

 

Note 9 - Subsequent Events

 

Share Issuance

On October 1, 2020, the Company issued 5,000 shares of common stock to a service provider in consideration of services to be provided through December 31, 2020.

 

Leases

On October 15, 2020, the Company amended the agreement with the Board of Regents of the University of Texas System to extend the lease of offices at the Dell Medical School in Austin, Texas through April 30, 2021. 

 

New Hires, Promotion, and Option Issuances

On October 22, 2020, the Company granted stock options to purchase an aggregate of 285,000 shares of common stock at an exercise price of $3.36 per share, the fair market value of the common stock on the date of grant, in connection with the new hire of two employees, including the Company's Senior Vice President, Intellectual Property and Licensing and the promotion of a current employee to Vice President, Manufacturing.

 

Option Exercises

The Company issued 150,000 shares of common stock for $216,560 in cash to former board members and a former executive upon the exercise of options from October 1, 2020 through November 5, 2020.