Genprex, Inc. - Quarter Report: 2023 June (Form 10-Q)

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Genprex, Inc.

Condensed Balance Sheets

See accompanying notes to the unaudited condensed financial statements.

Genprex, Inc.

Condensed Statements of Operations (unaudited)

See accompanying notes to the unaudited condensed financial statements.

Genprex, Inc.

Condensed Statements of Changes in Stockholders' Equity (unaudited)

See accompanying notes to the unaudited condensed financial statements.

Genprex, Inc.

Condensed Statements of Cash Flows (unaudited)

See accompanying notes to the unaudited condensed financial statements.

GENPREX, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 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 may be 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 (“NSCLC”) and Small 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, re-establishes pathways for 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. 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. On May 25, 2023, after completion of the Phase 1 portion of the trial, the Safety Review Committee (“SRC”) for the Acclaim-1 clinical trial approved advancement from the Phase 1 dose escalation portion of the trial to the Phase 2 expansion portion of the trial. Based on a review of safety data which showed no dose limiting toxicities (“DLTs”), the SRC determined that the recommended Phase 2 dose of REQORSA will be 0.12 mg/kg. This was the highest dose level delivered in the Phase 1 portion and is twice the highest dose level delivered in the Company’s prior clinical trial combining REQORSA with Tarceva® for the treatment of late-stage lung cancer. We expect we will dose the first patient in the fourth quarter of 2023. The Phase 2 expansion portion of the trial is expected to enroll approximately 66 patients; half will be patients who received only prior Tagrisso treatment and the other half will be patients who received prior Tagrisso treatment and chemotherapy, in order to determine toxicity profiles of patients with different eligibility criteria, as well as efficacy and other endpoints. There will be an interim analysis following the treatment of 19 patients in each cohort. 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 in the second quarter of 2024. 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 (“ES-SCLC”) who did not develop tumor progression after receiving Tecentriq and chemotherapy as initial standard treatment. We expect to dose the first patient in Acclaim-3 in the fourth quarter of 2023.  Patients will be treated with REQORSA and Tecentriq until disease progression or unacceptable toxicity is experienced. In June 2023, the FDA granted Fast Track Designation for the Acclaim-3 treatment combination of REQORSA and Tecentriq as maintenance therapy in patients with ES-SCLC who did not develop tumor progression after receiving Tecentriq and chemotherapy as initial standard treatment. In August 2023, the FDA granted Orphan Drug Designation to REQORSA for the treatment of SCLC. 

We have experienced a delay in the production of a new batch of REQORSA in connection with our transition to a lipid nanoparticle (“LNP”) third party contract development and manufacturing organization (“LNP CDMO”) with advanced and automated processes that we believe will allow us to more efficiently scale our product as we increase production for our trials. We currently estimate that we have enough REQORSA to treat patients receiving REQORSA in our ongoing clinical trials through approximately October 2023. In the event we have not produced another batch of REQORSA by October 2023, treatment of patients in our ongoing clinical trials would be delayed until a new batch of REQORSA is successfully produced. Additionally, the dosing of a first patient in our Phase 2 expansion portion of our Acclaim-1 clinical trial and in our Phase 1 dose escalation portion of our Acclaim-3 clinical trial is pending the availability of a new batch of REQORSA. We expect to produce a new batch of REQORSA in the fourth quarter of 2023; however, if we are incorrect in this estimation, we expect we will experience further delays.

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 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 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 may be 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 request to 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 revising the research plan to encompass our most recent technologies to which we acquired exclusive rights from the University of Pittsburgh in July 2023. See also "Note 9 – Subsequent Events" to our interim condensed financial statements included in this Quarterly Report on Form 10-Q.  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. 

Capital Requirements, Liquidity and Going Concern Considerations

Our unaudited condensed financial statements are prepared in 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 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 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.

The Company believes that our current cash and cash equivalents, including from the net proceeds from the July 2023 Registered Direct Offering, described in Note 9 – Subsequent Events, will be sufficient to fund expenditure requirements for our necessary operations and expected clinical trial activities into the third quarter of 2024. The Company has based these estimates, however, on assumptions that may prove to be wrong, and could spend available financial resources much faster than we currently expect. The Company will need to raise additional funds to continue funding our development and operations. Management plans to secure such additional funding.

As a result of the Company’s recurring losses from operations and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern.

See “Note 9 – Subsequent Events – July 2023 Registered Direct Offering” for a description of the Company’s registered direct offering of shares and warrants in July 2023 resulting in net proceeds of approximately $6.7 million.

Note 2 - Summary of Significant Accounting Policies

Our unaudited condensed financial statements have been prepared in accordance with U.S. 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 can be condensed or omitted. Accordingly, they do not include all of the information and footnotes 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 (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of our condensed financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire 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 cash in a money market account and had $9,718,036 and $20,679,538 in excess of FDIC insured limits of $250,000 at June 30, 2023 and December 31, 2022, respectively. We have no cash equivalents at June 30, 2023 and December 31, 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) 17,453,229 unexercised options granted by our board of directors and warrants to purchase shares of common stock, and (ii) 2,284,580 unvested restricted stock units to purchase shares of common stock granted by our board of directors. 

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash, money-market savings account, accounts receivable, and accounts 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 less accumulated depreciation. 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, develop engineering materials for further study, and develop clinical strategies for current and future programs. These costs include payments to collaborative research partners, manufacturing partners and consultants, and clinical strategy partners, wages and associated employee benefits, facilities, and overhead costs. These expenditures relate to our preclinical and Phase 1/2 clinical trials and are expensed as incurred. Materials produced to be used in clinical research are capitalized and included in research and development supplies and are expensed as they are used for testing or clinical activities, or have spoiled.

Research and development supplies purchased and capitalized for future use were $2,770,955 and $2,864,937 at June 30, 2023 and December 31, 2022, respectively.

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 options vest or are expected to vest and 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 our 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 six months ended June 30, 2023, and the year ended December 31, 2022, there were no deemed impairments of our long-lived assets.

Recent Accounting Developments

Accounting pronouncements issued but not effective until after June 30, 2023, are not expected to have a significant effect on our financial condition, results of operations, or cash flows.

Note 3 - Intellectual Property

We own or have exclusive license agreements on 20 granted patents and 22 pending patent applications worldwide for technologies developed in-house or 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.

University of Pittsburgh

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. 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.

See also "Note 9 – Subsequent Events" to our interim condensed financial statements included in this Quarterly Report on Form 10-Q regarding an additional exclusive license agreement that we entered into with the University of Pittsburgh in July 2023.

The University of Texas MD 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 treatment of cancer using our lead drug candidate and immunotherapies. 

Note 4 - Equity

Registered Direct Offering

On March 1, 2023, we completed a registered direct offering, in which we sold to an accredited healthcare-focused institutional investor an aggregate of 3,809,524 shares of our common stock and warrants to purchase up to 3,809,524 shares of our common stock, at a combined offering price of $1.05 per share of common stock and accompanying warrant. The warrants are exercisable immediately upon issuance, expire 5 years from the date of issuance and have an exercise price of $1.10 per share. We received net proceeds of approximately $3.6 million after $400,000 of commissions and expenses, excluding any proceeds that may be received in the future from any exercise of the warrants.

See “Note 9 – Subsequent Events – July 2023 Registered Direct Offering” for a description of the Company’s registered direct offering of shares and warrants in July 2023 resulting in net proceeds of approximately $6.7 million.

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 prior "shelf" Registration Statement on Form S-3 (Reg. No. 333-239134), and future ATM Facility sales may be made under our currently effective "shelf" Registration Statement on Form S-3 (Reg. No. 333-271386) and a related prospectus supplement for the ATM Facility to be filed as appropriate. 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 sale of the shares. During the year ended December 31, 2022, we sold 3,886 shares of common stock for aggregate net proceeds of $4,532 under the ATM Facility. We did not use the ATM Facility during the three months ended June 30, 2023, and during the six months ended June 30, 2023, we sold 53,592 shares of common stock for aggregate net proceeds of $78,355 under the ATM Facility. 

Stock Issuances

During the three months ended June 30, 2023, we issued 5,000 shares of common stock for services provided to us valued at $4,400 to the Chairman of our Scientific Advisory Board. During the six months ended June 30, 2023, we issued 10,000 shares of common stock for services provided to us valued at $12,350 to the Chairman of our Scientific Advisory Board (inclusive of the 5,000 shares issued during the three months ended June 30, 2023, as described in the immediately preceding sentence).

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During the three months ended  June 30, 2022, we issued 5,000 shares of common stock for services provided to us valued at $11,150 to the Chairman of our Scientific Advisory Board. During the six months ended June 30, 2022, we issued (i) 10,000 shares of common stock for services provided to us valued at $28,650 to the Chairman of our Scientific Advisory Board (inclusive of the 5,000 shares issued during the three months ended June 30, 2022, as described in the immediately preceding sentence), and (ii) 13,643 shares of common stock upon the exercise of warrants on a cashless basis.

Preferred Stock

We are 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 June 30, 2023.

Common Stock

We are 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 51,979,078 shares of our common stock outstanding at June 30, 2023.

Common Stock Purchase Warrants

Common stock purchase warrant activity for the three and six months ended June 30, 2023, and  June 30, 2022, respectively, is as follows:

We did not issue any warrants during the three-month period ended June 30, 2023. During the six-month period ended June 30, 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 completed on March 1, 2023, at an exercise price of $1.10 per share. During the three- and six-month periods ended June 30, 2023, we recorded share-based compensation of $34,010 and $77,311, respectively, associated with the vesting and issuance of warrants. We expect to record $13,408 of share-based compensation for time-based vesting through the end of the fiscal year 2023 and $300,000 of share-based compensation based on performance-based vesting in the future with respect to our warrants outstanding as of June 30, 2023.

We did not issue any warrants during the three- or six-month periods ended  June 30, 2022. During the six-month period ended June 30, 2022, we issued 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 and canceled warrants to purchase 112,993 shares of common stock upon termination of a warrant and warrant shares forfeited associated with a cashless exercise. We recorded no share-based compensation associated warrants during the six-month period ended June 30, 2022.

As of June 30, 2023, we had outstanding warrants to purchase 5,948,902 shares of common stock at a weighted average exercise price of $2.23 that have been issued to various consultants, investors, and placement agents. These warrants vest immediately or over periods ranging up to 12 months, are exercisable for a period of up to five years, enable the holders to purchase shares of our common stock at exercise prices ranging from $1.10 to $7.22 per share and have per-share fair values ranging from $0.60 to $4.63, 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 and six months ended June 30, 2023:

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 June 30, 2023, a total of 424,990 shares of common stock remain available for issuance under the 2018 Plan.

2018 Employee Stock Purchase Plan

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 rights that may be 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 our 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 determined not to increase the number of shares reserved for issuance under the ESPP on  January 1, 2023.

Stock Options

As of June 30, 2023, we had outstanding stock options to purchase 11,504,327 shares of common stock that have been granted to various executives, other employees, directors, and independent contractors. These options vest immediately or over periods ranging from 12 to 48 months, are exercisable for a period of up to ten years, enable the holders to purchase shares of our common stock at exercise prices ranging from $0.30 to $9.80 per share and have per-share fair values ranging from $0.24 to $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 June 30, 2023:

During the three-month period ended  June 30, 2023, we granted stock options to purchase an aggregate of 47,500 shares of our common stock with exercise prices ranging from $0.81 to $0.88 per share to employees. During the six-month period ended  June 30, 2023, we granted stock options to purchase an aggregate of 130,000 shares of our common stock with exercise prices ranging from $0.81 to $1.51 per share to employees.

During the three-month period ended  June 30, 2022, we granted stock options to purchase an aggregate of 487,604 shares of our common stock with exercise prices ranging from $1.36 to $2.85 per share to board members, executives, other employees and consultants. During the six-month period ended June 30, 2022, we (i) granted stock options to purchase an aggregate of 2,892,166 shares of our common stock with exercise prices ranging from $1.36 to $3.50 per share to board members, executives, other employees and consultants, and (ii) cancelled options to purchase 17,500 shares of common stock at an exercise price of $2.00 in connection with the termination of certain employees.

Stock option activity for the six months ended June 30, 2023, and year ended  December 31, 2022 is as follows:

Restricted Stock Units

A summary of the RSU activity under the 2018 Plan during the six months ended June 30, 2023 is presented below. These amounts include RSUs granted to executives, other employees, and board members. There was no RSU activity for the year ended December 31, 2022.

Share-Based Compensation

For the three and six months ended June 30, 2023, our total share-based compensation was approximately $1.5 million and $2.9 million, respectively, nearly all of which represents the expected vesting of options issued to executives, other employees, and service providers and RSUs issued to executives, other employees, and board members. As of  June 30, 2023, our total compensation cost related to non-vested time-based stock option awards and warrants granted to executives, other employees, board members, and service providers and not yet recognized was approximately $7.3 million. We expect to record this stock-based compensation expense over the next three years using a graded vesting method. As of June 30, 2023, the weighted average term over which these expenses are expected to be recognized is 1.51 years. 

For the three- and six-month periods ended June 30, 2022, our total share-based compensation was approximately $1.2 million and $2.2 million, respectively, nearly all of which represents the expected vesting of options issued to executives, other employees, and service providers.

As of June 30, 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 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 $27,758 and $90,806 of expense for matching contributions to the 401(k) Plan during the three- and six-month periods ended June 30, 2023, respectively. We incurred $22,048 and $25,752 of expense for matching contributions to the 401(k) Plan during the three- and six-month periods ended  June 30, 2022, respectively.

Note 6 - Related Party Transactions

Introgen Research Institute

Introgen Research Institute (“IRI”) is a Texas-based technology company formed by Rodney Varner, our President, Chief Executive Officer and Chairman of the Board and IRI's sole officer. IRI is owned by trusts of which Mr. Varner's descendants are the sole beneficiaries. 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 (See Note 7 – Commitments and Contingences – Commitments – MD Anderson Cancer Center).

Note 7 - Commitments and Contingencies

Commitments

MD Anderson Cancer Center

In July 2018, we entered into a two-year sponsored research agreement with MD Anderson to sponsor preclinical studies focused on the combination of REQORSA with an immunotherapy with a projected total cost of approximately $2 million. This 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 NPRL2 in oncology to resensitize NSCLC and SCLC to targeted therapies and immunotherapies with a projected total cost of approximately $2.9 million. We incurred approximately $240,000 and $480,000 of expense from this agreement during the three- and six-month periods ended  June 30, 2023, respectively. We did not incur expenses from this agreement during the three- or six-month periods ended  June 30, 2022. As of June 30, 2023, we have paid approximately $720,000 toward this agreement.

In 2011, we agreed to assume certain contractual and other obligations of IRI in consideration for the sublicense rights, expertise, and assistance associated with certain technologies and intellectual 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 1% on sales of certain licensed products for a period of 21 years following the termination of the later of the Original MD Anderson License Agreement and the IRI Sublicense. We assumed patent prosecution costs and an annual minimum royalty of $20,000 payable to the National Institutes of Health.

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. We incurred $45,000 of expense from this agreement during each of the three- and six-month periods ended  June 30, 2023. We incurred $40,000 and $90,000 of expense from this agreement during the three- and six-month periods ended  June 30, 2022, respectively. As of June 30, 2023, we have paid approximately $320,000 toward this agreement. 

National Institutes of Health

We have a royalty obligation to the National Institutes of Health ("NIH") to be paid upon our receipt of FDA approval using NIH technology. The $240,000 contingent obligation which increases annually by $20,000 and is $340,000 as of December 31, 2022, and June 30, 2023, and will be recognized when we obtain regulatory approval (the event that triggers the payment obligation).

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 first three 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. We incurred $25,000 of expense from this agreement during each of the three- and six-month periods ended  June 30, 2023. We incurred $25,000 of expense from this agreement during each of the three- and six-month periods ended  June 30, 2022. As of June 30, 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 first three 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. We incurred $25,000 of expense from this agreement during each of the three- and six-month periods ended  June 30, 2023. We did not incur expenses from this agreement during the three- or six-month periods ended  June 30, 2022. As of June 30, 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 first three 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. We incurred $25,000 of expense from this agreement during each of the three- and six-month periods ended  June 30, 2023. We did not incur expenses from this agreement during the three- or six-month periods ended  June 30, 2022. As of June 30, 2023, we have 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. We incurred approximately $2.3 million and $1.9 million of expense from this agreement during the three and six months ended  June 30, 2023, respectively. We did not incur expenses from this agreement during the three- or six-month periods ended  June 30, 2022. As of June 30, 2023, we have paid approximately $2.4 million toward this 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

Effects of the COVID-19 pandemic are still being felt in the U.S. and around the world. The availability of vaccines holds promise for the future, though new variants of the virus 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 a result of the COVID-19 pandemic. Beginning in June 2021, we experienced delays in engaging clinical sites as a result of a backlog of clinical trial protocols requiring review created by an accumulation of clinical trial protocols. We also have experienced disruptions in our supply chain regarding our manufacturing and testing operations. We continue to closely monitor the impact of the COVID-19 pandemic on its business and workforce.

Note 9 - Subsequent Events

Share Issuance

On July 3, 2023, we issued 5,000 shares of our common stock to the Chairman of our Scientific Advisory Board in consideration for services.

License Agreement

On July 14, 2023, we entered into an exclusive license agreement with the University of Pittsburgh related to a gene therapy for both Type 1 and Type 2 diabetes using a MafB promoter to drive expression of the Pdx1 and MafA transcription factors. 

July 2023 Registered Direct Offering

On July 21, 2023, we completed a registered direct offering priced at the market under Nasdaq rules, in which we sold to accredited healthcare-focused institutional investors an aggregate of (i) 7,425,744 shares of our common stock, and (ii) warrants to purchase up to 7,425,744 shares of our common stock, at a combined offering price of $1.01 per share of common stock and accompanying warrant. The warrants are exercisable immediately upon issuance, expire 5 years from the date of issuance and have an exercise price of $0.885 per share.  Also, we agreed to issue to H.C. Wainwright & Co., LLC or its designees (the “Placement Agent”) warrants to purchase up to an aggregate of 445,545 shares of our common stock.  The warrants issued to the Placement Agent have substantially the same terms as the warrants issued to the investors except that the Placement Agent warrants have an exercise price of $1.2625 per share and expire on July 18, 2028. We received net proceeds of approximately $6.7 million after approximately $800,000 of commissions and expenses, excluding any proceeds that may be received in the future from any exercise of the warrants.

Warrant Issuances

On July 1, 2023, the Company issued a warrant to purchase up to 50,000 shares of its common stock at an exercise price of $0.95 per share to a consultant for services. On August 3, 2023, the Company issued a warrant to purchase up to 15,000 shares of its common stock at an exercise price of $0.73 per share to a consultant for services. On August 10, 2023, the Company issued a warrant to purchase up to 75,000 shares of its common stock at an exercise price of $0.64 per share to a consultant for services.

Option Exercise

On August 16, 2023, we issued 20,000 shares of common stock for $5,960 in cash to a former board member upon the exercise of options.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations ("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 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”). 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 refer to Genprex, Inc. Any statements in this Quarterly Report about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure and statements about our current or future product candidates and their development, our beliefs regarding their preclinical or clinical profile or efficacy, and the regulatory approval process and pathway and the timing thereof, are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. 

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 estimates or projections contained in the forward-looking statements include but are not limited to:

The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements, which speak only as of the date of this Quarterly Report or the date 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 update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results 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 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 may be 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 (“NSCLC”) and Small 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, re-establishes pathways for 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. 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. On May 25, 2023, after completion of the Phase 1 portion of the trial, the Safety Review Committee (“SRC”) for the Acclaim-1 clinical trial approved advancement from the Phase 1 dose escalation portion of the trial to the Phase 2 expansion portion of the trial. Based on a review of safety data which showed no dose limiting toxicities (“DLTs”), the SRC determined that the recommended Phase 2 dose of REQORSA will be 0.12 mg/kg. This was the highest dose level delivered in the Phase 1 portion and is twice the highest dose level delivered in the Company’s prior clinical trial combining REQORSA with Tarceva® for the treatment of late-stage lung cancer. We expect we will dose the first patient in the fourth quarter of 2023. The Phase 2 expansion portion of the trial is expected to enroll approximately 66 patients; half will be patients who received only prior Tagrisso treatment and the other half will be patients who received prior Tagrisso treatment and chemotherapy, in order to determine toxicity profiles of patients with different eligibility criteria, as well as efficacy and other endpoints. There will be an interim analysis following the treatment of 19 patients in each cohort. 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 in the second quarter of 2024. 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 (“ES-SCLC”) who did not develop tumor progression after receiving Tecentriq and chemotherapy as initial standard treatment. We expect to dose the first patient in Acclaim-3 in the fourth quarter of 2023.  Patients will be treated with REQORSA and Tecentriq until disease progression or unacceptable toxicity is experienced. In June 2023, the FDA granted Fast Track Designation for the Acclaim-3 treatment combination of REQORSA and Tecentriq as maintenance therapy in patients with ES-SCLC who did not develop tumor progression after receiving Tecentriq and chemotherapy as initial standard treatment. In August 2023, the FDA granted Orphan Drug Designation to REQORSA for the treatment of SCLC. 

We have experienced a delay in the production of a new batch of REQORSA in connection with our transition to a lipid nanoparticle (“LNP”) third party contract development and manufacturing organization (“LNP CDMO”) with advanced and automated processes that we believe will allow us to more efficiently scale our product as we increase production for our trials. We currently estimate that we have enough REQORSA to treat patients receiving REQORSA in our ongoing clinical trials through approximately October 2023. In the event we have not produced another batch of REQORSA by October 2023, treatment of patients in our ongoing clinical trials would be delayed until a new batch of REQORSA is successfully produced. Additionally, the dosing of a first patient in our Phase 2 expansion portion of our Acclaim-1 clinical trial and in our Phase 1 dose escalation portion of our Acclaim-3 clinical trial is pending the availability of a new batch of REQORSA. We expect to produce a new batch of REQORSA in the fourth quarter of 2023; however, if we are incorrect in this estimation, we expect we will experience further delays.

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 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 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 may be 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 request to 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 revising the research plan to encompass our most recent technologies to which we acquired exclusive rights from the University of Pittsburgh in July 2023. See also "Note 9 – Subsequent Events" to our interim condensed financial statements included in this Quarterly Report on Form 10-Q. 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. 

Recent Developments 

Registered Direct Offering

On July 21, 2023, we completed a registered direct offering priced at the market under Nasdaq rules, in which we sold to accredited healthcare-focused institutional investors an aggregate of (i) 7,425,744 shares of our common stock, and (ii) warrants to purchase up to 7,425,744 shares of our common stock, at a combined offering price of $1.01 per share of common stock and accompanying warrant. The warrants are exercisable immediately upon issuance, expire 5 years from the date of issuance and have an exercise price of $0.885 per share.  Also, we agreed to issue to H.C. Wainwright & Co., LLC or its designees (the “Placement Agent”) warrants to purchase up to an aggregate of 445,545 shares of our common stock.  The warrants issued to the Placement Agent have substantially the same terms as the warrants issued to the investors except that the Placement Agent warrants have an exercise price of $1.2625 per share and expire on July 18, 2028. We received net proceeds of approximately $6.7 million after $800,000 of commissions and expenses, excluding any proceeds that may be received in the future from any exercise of the warrants.

License Agreement

On July 14, 2023, we entered into an exclusive license agreement with the University of Pittsburgh related to a gene therapy for both Type 1 and Type 2 diabetes using a MafB promoter to drive expression of the Pdx1 and MafA transcription factors. 

JOBS Act

On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Although we are currently an emerging growth company, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. We have implemented all new accounting pronouncements that are in effect and may affect our financial statements, and we do not believe that there are any other new accounting pronouncements that have been issued that would have a material impact on our financial position or results of operations.

Notwithstanding the foregoing, subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain exemptions, including, without limitation, the exemption from the requirements (i) to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We expect that our eligibility to qualify as an “emerging growth company” will end on December 31, 2023, the last day of our fiscal year following the fifth anniversary of the date of our initial public offering.

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 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, and 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 preclinical 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 condensed statements of operations. These costs are a significant component of our research and development expenses. Purchased materials to be used in future research are capitalized and included in research and development supplies.

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 our 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 contract 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 based upon discounted cash flows.

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:

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 future product candidates into and through clinical trials, as we pursue regulatory approval of our current and potential product candidates in the U.S. and 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, and limited contracted partners. We may never succeed in achieving regulatory approval for any of our current or 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 product candidates, if at all.

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 increase in future periods due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations, and other costs associated with being a public company.

Depreciation. Depreciation expense consists of depreciation from our fixed assets consisting of our property, equipment, and furniture. We depreciate our assets over their estimated useful life. We estimate furniture and computer and office equipment to have a five-year life.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023, and 2022

The following summarizes our results of operations for the three and six months ended June 30, 2023, and 2022.

Research and Development Expense

Research and Development ("R&D") expense for the three months ended June 30, 2023 was $3,976,917, compared to $2,926,927 for the three months ended June 30, 2022, an increase of $1,049,990, or 36%. This increase was primarily due to (i) advancements and expansions in our manufacturing programs, including the manufacturing of clinical materials and testing with CDMOs, (ii) increased usage of our CROs for our Acclaim-1 and Acclaim-2 clinical trials as well as startup costs associated with our planned Acclaim-3 clinical trial and (iii) increased usage of sponsored research to support our preclinical programs.

R&D expense for the six months ended June 30, 2023, was $9,287,065, compared to $4,967,153 for the six months ended June 30, 2022. This increase of $4,319,912, or 87%, is primarily due to (i) advancements and expansions in our manufacturing programs, including testing and start-up costs associated with the transition to advanced CDMOs experienced in large scale clinical trial and commercial manufacture of gene therapies for operational efficiencies as we advance REQORSA into later stage clinical trials, (ii) increased usage of third-parties, including CROs, to manage and maintain our Acclaim-1 and Acclaim-2 clinical trials, and initiate our planned Acclaim-3 clinical trial and (iii) an increase in R&D personnel from 13 employees at June 30, 2022 to 18 employees on June 30, 2023 to support our manufacturing and pre-clinical and clinical programs. 

General and Administrative Expense

General and administrative ("G&A") expense for the three months ended June 30, 2023 was $4,054,990, compared to $2,836,916 for the three months ended June 30, 2022, an increase of $1,218,074, or 43%. This increase was primarily due to increases in G&A headcount, professional services, and share-based compensation. 

G&A expense for the six months ended June 30, 2023, was $8,012,070, compared to $6,100,656 for the six months ended June 30, 2022. This increase of $1,911,414, or 31%, is primarily due to increases in G&A personnel from 10 employees at June 30, 2022 to 12 employees on June 30, 2023, increased usage in third-parties, including consultants, professional service providers, and legal fees, and increases in share-based compensation.

Interest Income. Interest income was $55,551 and $5,744 for the three months ended June 30, 2023 and 2022, respectively, representing an increase of $49,807. The increase associated with interest income for the three months ended June 30, 2023 was primarily due to cashback incentives associated with credit cards and changes in interest rates associated with the cash balances held in money market instruments.

Depreciation Expense. Depreciation expense was $3,837 and $6,544 for the three months ended June 30, 2023 and 2022, respectively, representing a decrease of $2,707, or 41%. The changes in associated depreciation expense for the three months ended June 30, 2023 was primarily due to the timing of purchases of computer equipment for new employees and changes to accounting policies related to depreciation.

Net Loss. We had a net loss of $7,980,193 and $5,764,643 for the three months ended June 30, 2023 and 2022, respectively, representing an increase of $2,215,550, or 38%. We had a net loss of $17,182,967 and $11,074,460 for the six months ended June 30, 2023 and 2022, respectively, representing an increase of $6,108,507, or 55%. The increases in net loss between these periods was primarily due to an increase in headcount from 21 to 30 employees since June 30, 2022 as well as the expansion of our clinical and manufacturing programs to support our Acclaim-1 and Acclaim-2 clinical trials and our planned Acclaim-3 clinical trial. 

Liquidity and Capital Resources

From inception through June 30, 2023, we have never generated revenue from product sales and have incurred net losses in each year. As of June 30, 2023, we had an accumulated deficit of $120,010,786. We have funded our operations primarily through the sale and issuance of capital stock. For the year ended December 31, 2022, we sold an aggregate of 3,886 shares of common stock for total net proceeds of $4,532 pursuant to our 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 gross proceeds of $1,755. During the six months ended June 30, 2023, we sold 53,592 shares of common 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 $3.7 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 our 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 commission equal to three percent (3%) of the gross sales proceeds of any shares sold through the Agent under the Sales Agreement and also have provided the Agent with customary indemnification and contribution rights. See also "Note 4 - Equity - At-The-Market Offering" to our interim condensed financial statements included in this Quarterly Report on Form 10-Q. 

As of June 30, 2023, we had $9,955,684 in cash and cash equivalents. Subsequent to the quarter ended June 30, 2023, on July 21, 2023, we raised approximately $6.7 million in net proceeds in a registered direct offering pursuant to which we sold 7,425,744 shares of common stock and warrants to purchase up to 7,425,744 shares of common stock. See “Note 9 – Subsequent Events – July 2023 Registered Direct Offering” to the Financial Statements included in this Quarterly Report on Form 10-Q.

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 or 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, 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 the Phase 1 dose escalation portion of the Acclaim-1 trial and on May 25, 2023, the Acclaim-1 SRC approved advancement to the Phase 2 expansion portion of the trial. We expect we will dose the first patient in the Phase 2 expansion portion of the trial in the fourth quarter of 2023, subject to the availability of a new batch of REQORSA. We expect enrollment in the dose escalation portion of the Acclaim-2 trial to be completed in the second quarter of 2024 after which we will move into the expansion of the trial subject to approval by the Acclaim-2 SRC. Dosing of the first patient in the Acclaim-3 clinical trial is expected to occur in the fourth quarter of 2023, subject to availability of a new batch of REQORSA. 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 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 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 expenditure requirements for our necessary operations and expected clinical trial activities into the third quarter of 2024. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently plan due to incorrect 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 result of disruptions at these clinical sites caused by the COVID-19 pandemic. We also have experienced delays in clinical trial enrollment as a result of competition for patients and additional time required in connection with our transition to the new LNP CDMO and manufacture of final drug product. Delays in the conduct of our trials could result in utilizing our capital resources sooner without advancing our clinical trials as anticipated.

The following table sets forth the primary sources and uses of cash and cash equivalents during the six months ended June 30, 2023, and 2022:

Cash used in operating activities

Net cash used in operating activities was $15,039,538 and $8,552,166 for the six months ended June 30, 2023, and 2022, respectively, an increase of $6,487,372, or 76%. This increase was primarily due to our personnel expenses growing as a result of an increase in headcount from 21 to 30 employees as well as increases in contract manufacturing and clinical operation expenses associated with our Acclaim-1 and Acclaim-2 trials and our planned Acclaim-3 clinical trial. 

Cash used in investing activities

Net cash used in investing activities was $39,627 and $23,689 for the six months ended June 30, 2023, and 2022, respectively, an increase of $15,938. This increase was primarily due to timing associated with prosecution costs of our intellectual property. 

Cash provided by financing activities

Net cash provided by financing activities was $4,080,780 and $0 during the six months ended June 30, 2023, and 2022, respectively. This increase of $4,080,780 was primarily due to sales of common stock in capital raising activities during the six months ended June 30, 2023.  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange 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 June 30, 2023. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange 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 reports 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 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 June 30, 2023.  The material weaknesses relate to a lack of segregation of duties between accounting and other functions and the absence 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 are performed by separate individuals. Our size and nature also do not allow for our accounting staff to have depth of expertise in all areas that might be desirable, such as expertise in accounting for a variety of complex transactions. Management evaluated the impact of our failure to maintain effective segregation of duties and sufficient depth of personnel on our assessment of our internal control over financial reporting and has concluded that these control deficiencies represent material weaknesses. 

In response to the material weaknesses described above, during the quarter ended June 30, 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:

During the quarter ended June 30, 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) reviewing a plan to engage 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 these controls are operating effectively. 

Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2023, we issued and sold the following unregistered securities:

The foregoing issuance of securities was not registered under the Securities Act or the securities laws of any state, and the securities were offered and issued in reliance on the exemption from registration under the Securities Act afforded by Section 4(a)(2).

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

INDEX TO EXHIBITS

*  Filed herewith.

** Furnished herewith.

+  Indicates management contract or compensatory plan.

SIGNATURES

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.