PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Genprex, Inc.

Condensed Balance Sheets (unaudited)

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 2 - Summary of Significant Accounting Policies

The Company’s unaudited condensed financial statements have been prepared in accordance with GAAP. However, they do not include all the information and footnotes required by GAAP for complete financial statements. In our opinion, the unaudited condensed financial statements include all adjustments (consisting of normal recurring accruals) necessary to make the unaudited condensed financial statements not misleading. Operating results for the ninethree and six months ended SeptemberJune 30, 2020 and 20192021 are not necessarily indicative of the final results that may be expected for the year ending December 31, 20202021. For more complete financial information, these unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2019 filed with2020, included in the Company's Annual Report on Form 10-K10-K filed with the SECU.S. Securities and Exchange Commission on March 30, 2020. 26, 2021. A summary of our significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed financial statements follows.

Capital Stock

In connection with the Company’s initial public offering ("IPO") in April 2018, all of the Company’s preferred stock and non-voting common stock were converted into shares of the Company’s common stock. The Company’s common stock was then forward-split at a ratio of 6.6841954-to-1.6.6841954-to-1. Furthermore, prior to the closing of the IPO, the Company’s Certificate of Incorporation was amended and restated to provide the Company with the authority to issue up to 210,000,000 shares of stock consisting of 200,000,000 shares of common stock at a par value of $0.001 per share and 10,000,000 shares of preferred stock at a par value of $0.001 per share.

Use of Estimates

The preparation of our unaudited condensed financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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 had nohave cash equivalents in a J.P. Morgan money market account and had $20,811,895$43,990,330 and $1,761,278$27,091,596 in excess of FDIC insured limits of $250,000$250,000 at SeptemberJune 30, 20202021 and December 31, 20192020, respectively.

Fair Value of Financial Instruments

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

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

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

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

Level 3: Instruments with primarily unobservable value drivers.

Property and Equipment

Furniture and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

Research and Development Costs

Research and development expenditures consist of costs incurred to conduct research and development activities. These include payments to collaborative research partners, manufacturing partners, and clinical strategy partners, wages and associated employee benefits, facilities and overhead costs. These expenditures relate to our preclinical Phase 1, and Phase 1/2 clinical trials and are expensed as incurred. Purchased materials to be used in future research are capitalized and included in research and development supplies. SuppliesResearch and development supplies purchased and capitalized for future use were $686,324$3,062,357 and $801,780$3,011,042 at SeptemberJune 30, 20202021 and December 31, 20192020, respectively.

Awards

In 2010, we were awarded $4.5 million from the State of Texas Emerging Technology Fund (“TETF”). The award was received in two tranches of $2.25 million each during 2010 and 2011. The award proceeds were used to further the development and future commercialization of REQORSA, our lead product candidate for NSCLC. In consideration of the award, we provided the TETF with an “Investment Unit,” consistinginvestment unit that consisted of (i) a Promissory Note (“Note”promissory note ("Note") and (ii) a rightwarrant to purchase our equity shares (“Warrant”("Warrant"). The funds received for this award were assigned toWarrant was exercised in March 2014 and TETF was issued 1,235,219 shares of our common stock. The investment unit, including the Investment Unit, and classified separately from equity as “mezzanine” in the balance sheet. Note, was terminated on August 15, 2019. 

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

Intellectual Property

Intellectual property consists of legal and related costs associated with patents and other proprietary technology and rights developed, acquired, licensed by, or maintained by us that we believe contribute to a probable economic benefit toward such patents and activities. These costs incurred in connection with obtaining and maintaining intellectual property protection, such as patent applications and patent maintenance, are capitalized. Intellectual property is stated at cost, to be amortized on a straight-line basis over the estimated useful lives of the assets.

Accounting for Stock-Based Compensation

We use the fair value-based method of accounting for stock-based compensation for options granted to employees, independent consultants and contractors. We measure options granted at fair value determined as of the grant date and recognize the expense over the periods in which the related services are rendered based on the terms and conditions of the award. Generally, where the award only has a service condition, the requisite service period is the same as the vesting period.

Financial Instruments

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

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

Long-Lived Assets

We review long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. We recognize an impairment loss if the carrying value of the asset exceeds the expected future cash flows. During the ninesix months ended SeptemberJune 30, 20202021, and the year ended December 31, 20192020, there were no0 deemed impairments of our long-lived assets.

Recent Accounting Developments

Accounting pronouncements issued but not effective until after SeptemberJune 30, 20202021 are not expected to have a significant effect on our financial condition, results of operations, or cash flows.

2018 Equity Incentive Plan

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

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

In addition, the number of shares of common stock reserved for issuance under the 2018 Plan is automatically increased on January 1 of each calendar year, beginning on January 1, 2019, by 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the 2018 Plan. On January 1, 2019 2020, and 2020,2021, the number of shares of common stock reserved for issuance under the 2018 Plan was increased by an aggregate of 761,957963,192 and 963,1922,155,884 shares, respectively. As of June 30, 2021, a total of 1,820,6310 shares of common stock remain available for issuance under the 2018 Plan.

2018 Employee Stock Purchase Plan

The Company’s board of directors and stockholders approved and adopted the Company’s 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on the completion of the IPO on April 3, 2018. The ESPP will has not become effective until the Board determines to make this yet been utilized as a benefit available to our employees. The ESPP authorizes the issuance of 208,500 shares of the Company’s 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 the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the administrator of the ESPP. The administrator of the ESPP which is our board of directors, determined not to increase the number of shares reserved for issuance under the ESPP on January 1, 2019 or January 1, 20202021.

Stock Options

As of SeptemberJune 30, 20202021, the Company had outstanding stock options to purchase 6,982,8857,938,521 shares of common stock that have been granted to various executives, employees, directors, and independent contractors. These options can vest immediately or over periods ranging from 12 to 48 months, are exercisable for a period of up to ten years, and enable the holders to purchase shares of our common stock at exercise prices ranging from $0.001 to $9.80 per share. The per-share fair values of these options range from $0.001 to $7.93, based on Black-Scholes-Merton pricing models with the following assumptions:

InDuring the ninesix-month period ending SeptemberJune 30, 20202021, the Company (i) granted stock options to purchase an aggregate of 2,141,5291,499,628 shares of the Company's common stock with exercise prices ranging from $3.55 to $7.22 per share to executives, employees, board members, and consultants, (ii) cancelled options to purchase 10,000 shares of common stock at an exercise price of $7.22 per share due to the termination of a former employee, and (iii) issued 395,176 shares of the Company's common stock upon the exercise of options held by a consultant, a former board member, and a former executive, with exercise prices ranging from $0.02 to $2.15 per share.

During the year ending December 31, 2020, the Company (i) granted stock options to purchase an aggregate of 2,466,529 shares of the Company's common stock with exercise prices ranging from $1.28 to $3.80$4.42 per share to employees, board members, and consultants, (ii) cancelled options to purchase 164,837327,640 shares of common stock at an exercise price ofprices ranging from $5.29 to $9.80 per share due to expiration of options and separation of a former executive, and (iii) issued 976,7301,277,743 shares of the Company's common stock upon the exercise of options held by former board members and a former executive with exercise prices ranging from $0.015 to $2.15 per share.

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

Stock option activity for the ninesix months ended June 30, 2021, and year ended September 30, 2020 and December 31, 2019, respectively,2020 is as follows:

Share-Based Compensation

For the ninesix months ended SeptemberJune 30, 20202021, the Company's total share-based compensation was approximately $3.6$1.8 million, nearly all of which represents the vesting of options and warrants issued to service providers, executives, employees, and board members. The Company’s total compensation cost related to non-vested time-based stock option awards and warrants granted to executives, employees, and board members, and service providers and not yet recognized was approximately $4.5$8.4 million for the quarterthree months ended SeptemberJune 30, 20202021. The Company expects to record this stock-based compensation expense over the next three years using a graded vesting method. As of SeptemberJune 30, 20202021, the weighted average term over which these expenses are expected to be recognized are 2.26is 2.14 years. 

As of SeptemberJune 30, 20202021, there are no0 performance-based stock option awards outstanding. outstanding and 1 performance-based warrant outstanding issued to a service provider. The Company’s 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 milestones.

Note 65 - Related Party Transactions

Introgen Research Institute

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

Viet Ly

The Company entered into a consulting agreement with Viet Ly, an advisor to the Company, on April 19, 2018. The Company agreed to initially pay Mr. Ly $175,000 initially, with compensation variableannually, as adjusted from time-to-time as determined by the Company, for strategic consulting services. The Company paid Mr. Ly an aggregate of $28,500 during the quarterthree months ended SeptemberJune 30, 20202021, for strategic services. In addition, in April 2020, the Company issued Cancer Revolution LLC, an entity owned by Mr. Ly, a warrant to purchase up to 500,000 shares of the Company's common stock at the fair market valuean exercise price of the common stock on the date of issuance that$2.27 per share, which vests based on the achievement of certain Company milestones. On February 10, 2021, the Company issued an option to Mr. Ly to purchase up to 100,000 shares of the Company's common stock at an exercise price of $7.72 per share, which vests ratably over 12 months through February 2022. 

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

TheYou should read the following discussion and analysis of our financial condition and results of operations should be read in conjunctiontogether with our unauditedinterim condensed financial statements and the related notes includedappearing elsewhere in this Quarterly Report on Form 10-Q10-Q. In addition to historical information, this discussion and our audited financial statements and notes thereto as of and for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on form 10-K filed with the SEC on March 30, 2020 (the "Annual Report"). 

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)analysis contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptionsthat involve risks, uncertainties and are subject to known and unknown risks and uncertainties that could causeassumptions. Our actual results tomay differ materially from those contemplated by these statements.discussed below. Factors that maycould cause or contribute to such differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those identified below, and those discussed in “Risk Factors” as set forththe section titled “Risk Factors” included in theour Annual Report and in ouron Form 10-K for the fiscal year ended December 31, 2020, as may be amended, supplemented or superseded from time to time by other filingsreports we file with the SEC. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a clinical stage gene therapy company focused on developing life-changing treatments for cancer and diabetes. Our lead cancer drug candidate, REQORSA™ Immunogene therapy drug (formerly(also referred to as GPX-001),is being developed to treat non-small cell lung cancer (”NSCLC”("NSCLC"). The active agent in REQORSA consists ofis a TUSC2 gene expressing plasmid that is encapsulated in a DOTAP cholesterol lipid nanoparticle.  TUSC2 is a tumor suppressor gene called TUSC2, which has both tumor killing (via apoptosis) and immunomodulatory effects. We utilize our novel proprietary Oncoprex®ONCOPREX® Nanoparticle Delivery System™System to deliver the TUSC2 gene expressing plasmid to cancer cells. The TUSC2 gene is one of a series of genes whose therapeutic use is covered by anour exclusive worldwide licenselicenses from The University of Texas MD Anderson Cancer Center (“MD Anderson”). We are planning to initiate ourCenter. 

Our Acclaim-1 and Acclaim-2 clinical trials in the first half of 2021. Acclaim-1trial is a Phase 1/2 clinical trialstudy using a combination of REQORSA with AstraZeneca PLC’s Tagrisso® in patients with late stagelate-stage NSCLC with mutated epidermal growth factor receptors (“EGFRs”("EGFRs") whose disease progressed after treatment with Tagrisso. In January 2020, we received U.S. Food and Drug Administration (“FDA”("FDA") Fast Track Designation for our Acclaim-1 trial.  In June 2021, we announced that the FDA had reviewed and confirmed all comments have been addressed regarding our Acclaim-1 clinical trial protocol and that we had engaged our first clinical site for our Acclaim-1 trial. We expect that patient population.enrollment will commence in our Acclaim-1 clinical trial no later than the fourth quarter of 2021.

Our Acclaim-2 clinical trial is a Phase 1/2 clinical trialstudy using a combination of REQORSA with Merck & Co.’s Keytruda® in late-stage NSCLC patients who are low expressors (1% to 49%) ofpatients. We expect that we will initiate the protein programmed death-ligand 1 (“PD-L1”).Acclaim-2 clinical trial in 2021.

In diabetes, we are developing a gene therapy that is exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education and, according to researchers, hasfor the potential to cure typetreatment of Type 1 and typeType 2 diabetes. This potential treatment worksis designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. Our diabetes product candidate is currently being evaluated in pre-clinicalpreclinical studies.

Oncology Platform Technologies

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

Epidemiology: Non-Small Cell Lung Cancer

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

Acclaim-1

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

Acclaim-2

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

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

Diabetes Gene Therapy

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

Our diabetes gene therapy, also referred to as GPX-002, was developed by lead researcher Dr. George Gittes, at the Rangos Research Center at UPMCthe University of Pittsburgh Medical Center Children’s Hospital of Pittsburgh.Hospital. This potential treatment worksis designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. The therapy utilizes a procedure in which an adeno-associated virus vector delivers Pdx1 and MafA genes to the pancreas.

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

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 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 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 condensed 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 of 2002, as amended, 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 will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1$1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

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 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. ("GAAP”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 use of contract research and manufacturing 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.

Income Taxes

Deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities, using applicable rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. We have provided a full valuation allowance on our deferred tax assets, which primarily consist of cumulative net operating losses from April 1, 2009 (inception) to SeptemberJune 30, 2020.2021. Due to our history of operating losses since inception and losses expected to be incurred in the foreseeable future, a full valuation allowance was considered necessary.

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.

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

As of June 30, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources nor did we have any commitments or contractual obligations.

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 unaudited condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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 potentialfuture product candidates into and through clinical trials, as we pursue regulatory approval of our current and potential product candidates in the United States 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. We may never succeed in achieving regulatory approval for any of our current and potentialor future product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our current and potential product candidates, if at all.

General and administrative. General and administrative expense consists of personnel related costs, which include 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 5-yearfive-year life.

Results of Operations

Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20202021 and 20192020

The following summarizes our results of operations for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.

Research and Development Expense

Research and development ("R&D") expense for the three months ended SeptemberJune 30, 20202021, was $1,350,016$1,526,277 as compared to 467,344$2,155,637 for the three months ended SeptemberJune 30, 2019.2020. The increasedecrease of $882,672,$629,360, or 189%29%, is due primarily to increased activitiesa larger than normal share-based compensation expense in support2020 associated with a one-time accelerated vesting of options held by a former R&D executive pursuant to his separation agreement. Equity-based compensation associated with R&D personnel, a non-cash expense, accounted for $293,439 and $1,609,683 of the R&D expenses for the three months ended June 30, 2021 and 2020, respectively. Excluding equity-based compensation for R&D personnel, R&D expense was $1,232,839 and $545,953 for the three months ended June 30, 2021 and 2020, respectively. The increase of $686,886, or 126%, is primarily due to preparation of REQORSA for our upcoming Acclaim-1 and Acclaim-2 clinical trials including the hiringand increased usage of new employeesthird-parties to develop strategy for and execute on the launch of our Acclaim-1 and Acclaim-2 clinical strategy and additional manufacturing activities.trials. 

R&D expense for the ninesix months ended SeptemberJune 30, 20202021, was $4,983,530$3,695,420 as compared to $1,477,427$3,633,514 for the ninesix months ended SeptemberJune 30, 2019.2020. The increase of $3,506,103,$61,906, or 237%2%, is primarily due to advancements in preparation for our Acclaim-1 and Acclaim-2 trials. Equity-based compensation associated with R&D personnel, a non-cash expense, accounted for $383,303 and $1,987,097 of the hiringR&D expenses for the six months ended June 30, 2021 and 2020, respectively. Excluding equity-based compensation for R&D personnel, R&D expense was $3,312,117 and $1,646,416 for the six months ended June 30, 2021 and 2020, respectively. The increase of new employees$1,665,701, or 101%, is primarily due to (i) major advancements in our manufacturing programs providing drug product for our Acclaim-1 and consultantsAcclaim-2 clinical trials, (ii) increased usage of third-parties to develop strategy for and execute on the launch of our Acclaim-1 and Acclaim-2 clinical trials, major advancementsand (iii) significant ramp up in our manufacturing programs providing drug product forR&D personnel to support our Acclaim-1 and Acclaim-2 clinical trials, and research of novel therapeutic approaches for the treatment of cancer using REQORSA and immunotherapies. Thesetrials. We anticipate that these R&D activities will continue throughout 20202021 and thereafter and will continue to include costs related to the launch and conductongoing support of theour Acclaim-1 and Acclaim-2 clinical trials, the development and execution on related manufacturing strategies and processes required to support these, and potentially other, clinical programs, and additional preclinical research.trials. 

General and Administrative Expense

General and administrative ("G&A") expense for the three months ended SeptemberJune 30, 20202021, was $1,421,863$2,458,097 as compared to $1,909,982$2,216,691 for the three months ended SeptemberJune 30, 2019.2020. The decreaseincrease of $488,119,$241,406, or 26%11%, is primarily due to reclassificationaccrual of expenses associated with R&D personnel to more accurately reflect expenses associated with their job function. Additionally, as a result of travel restrictionspaid time off ("PTO") and social distancing guidelines put in place as a result of the COVID-19 pandemic, we realized cost savings during the three months ended September 30, 2020employee bonuses due to reduced officenew PTO policies and travel expenses.implementation of a total rewards strategy for recruitment and retention of employees, increases in insurance premiums, and increases in equity-based compensation for employees and consultants. 

G&A expense for the ninesix months ended SeptemberJune 30, 20202021, was $7,731,550$6,774,407 as compared to $6,768,506$6,309,687 for the ninesix months ended SeptemberJune 30, 2019.2020. The increase of $963,044,$464,720, or 14%7%, is primarily due to an increaseaccrual of PTO and accrual of employee bonuses due to new PTO policies and implementation of a total rewards strategy for recruitment and retention of employees, increases in financing costsinsurance premiums, and legal fees associated withincreases in equity-based compensation for employees and consultants. We believe that year-over-year G&A expenses have remained mostly flat due to no increases in G&A personnel or operating activities as we focused on ramping up our fundraising activities in early 2020 as well as greater than normal share-based compensation expense associated with the accelerated vesting of options for a former executive pursuantR&D efforts to his separation agreement.support our Acclaim-1 and Acclaim-2 clinical trials. 

Interest Income. Interest income was $2,650$1,104 and $5,051$4,811 for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, a decrease of $2,401,$3,707, or 48%77%. Interest income was $17,467$3,086 and $25,620$14,817 for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, a decrease of $8,153,$11,731, or 32%79%. The decreases associated with interest income for the three and ninesix months ended SeptemberJune 30, 20202021, were due to changes in the cash balances associated with money market instruments.

Interest Expense. There was no interest expense for the three and nine months ended September 30, 2020 and 2019 because we satisfied all debt obligations and repaid all short-term loans prior to 2019. As of September 30, 2020, we had no outstanding debt.

Depreciation Expense. Depreciation expense was $5,714$2,848 and $3,437$5,776 for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively, an increasea decrease of $2,277,$2,928, or 66%51%. Depreciation expense was $16,843$9,090 and $9,486$11,129 for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively, an increasea decrease of $7,357,$2,039, or 78%18%. The increasedecreases in associated depreciation expense duringfor the three and ninesix months ended SeptemberJune 30, 2020, was driven by increased purchase2021, were due to the remaining useful life of R&D equipment used in manufacturing of REQORSA and the timing of purchases of computer equipment for use by employees and manufacturing partners for research activities.new employees.

Liquidity and Capital Resources

From inception through SeptemberJune 30, 2020,2021, we have never generated revenue from product sales and have incurred net losses in each year. As of SeptemberJune 30, 2020,2021, we had an accumulated deficit of approximately $53 million.$68,898,060. We have funded our operations primarily through the sale and issuance of capital stock. During 2019,For the year ended December 31, 2020, we sold 3,167,986an aggregate of 16,697,884 shares of common stock for total net proceeds of $34,493,423 pursuant to registered direct offerings and issued 7,104,524 shares of common stock upon the exercise of warrants to purchase 3,167,986and options for gross proceeds of $3,857,886. During the six months ended June 30, 2021, we sold an aggregate of 4,000,000 shares of common stock for total gross proceeds of $1,267,194$25,000,000 pursuant to a registered direct offering. During the nine months ended September 30, 2020, we sold an aggregate of 13,581,000offering and issued 395,176 shares of common stock upon the exercise of options for total gross proceeds of $25,731,640 pursuant to registered direct offerings and issued 6,603,881 shares of common stock with gross proceeds of $3,362,758 from warrant and option exercises.$434,363. 

As of SeptemberJune 30, 2020,2021, we had $21,058,386$44,243,449 in cash.cash and cash equivalents.   

We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our current andor potential product candidates, or other product candidates to which we may acquire rights, 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 and our Acclaim-2 clinical trials plannedtrials. Acclaim-1 was initiated in June 2021 with the FDA having reviewed and confirmed all comments had been addressed regarding the protocol with respect to such trial and our engagement of our first clinical site. Patient enrollment is expected to commence no later than the fourth quarter of 2021. Acclaim-2 is expected to be launchedinitiated in 2021. 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 and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant rights to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to curtail or cease 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 current operations and planned clinical trial activities into mid 2022.2024. We have based this estimatethese 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 also have been experiencing delays related to COVID-19 with respect to the launch of our Acclaim-1 and Acclaim-2 clinical trials. Specifically, we have experienced delays in engaging clinical sites as a result of a backlog of clinical trial protocols requiring review created by an accumulation of protocols while clinical trials have been widely disrupted during the pandemic and workforce shortages that have been impacting the U.S. economy in general. Although, continued delays will enable us to fund our expenditure requirements for our current operations and planned clinical trial activities longer, we would not be advancing our clinical trials as anticipated and utilizing our available capital resources to support our operations only.

The following table sets forth the primary sources and uses of cash and cash equivalents during the ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:

Cash used in operating activities

Net cash used in operating activities was $10,043,034$8,432,093 and $5,197,353$8,027,875 for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The $4,845,681$404,218, or 5%, or 93%, increase in net cash used in operating activities during the ninesix months ended SeptemberJune 30, 20202021, was due to an increase in financing costs and legal fees associated with our fundraising activities during the first three months of 2020 and significant increases to ourus increasing headcount and service providersadvancing manufacturing and clinical programs to launch our Acclaim-1 clinical trial in June 2021 and in preparation for the launch of our Acclaim-1 and Acclaim-2 clinical trialstrial planned forin 2021.

Cash provided by (used in)used in investing activities

Net cash provided byused in investing activities was $4,415$78,505 and $148,304 for the ninesix months ended SeptemberJune 30, 20202021 and net cash used by investing activities was $855,132 for the nine months ended September 30, 2019.2020, respectively. This differencedecrease of $859,547$69,799, or 47%, was primarily due to a major investment intiming of manufacturing materials during the nine months ended September 30, 2019 that are currently being usedprograms to manufacturedevelop REQORSA forand patent prosecution costs related to defending our planned clinical trials.technologies. Investments in property and equipment were negligible between the six months ended June 30, 2021 and 2020. Investments in intellectual property increased slightlywas $25,275 greater for the ninesix months ended SeptemberJune 30, 2020 compared than the six months ended June 30, 2021 due to patent prosecution costs related to the nineacquisition of our diabetes technology in the first half of 2020. Additions to R&D materials was $40,904 greater for the six months ended SeptemberJune 30, 2019.2020, than the six months ended June 30, 2021. This change was due to increases in manufacturing of our Oncoprex delivery system in 2020 as we prepared for manufacturing of REQORSA and greater usage of R&D materials in 2021 for quality testing as we prepare REQORSA for our Acclaim-1 and Acclaim-2 clinical trials. 

Cash provided by financing activities

Net cash provided by financing activities was $29,094,513$25,434,363 and $0$28,300,866 during the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The $29,094,513increasedecrease of $2,866,503, or 10%, in net cash provided by financing activities was due to our selling of more common stock in capital raising activities and greater option and warrant exercises during the first ninesix months of 2020.

Off-Balance Sheet Arrangements

As of Septemberended June 30, 2020,, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

compared to the six months ended June 30, 2021.

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 SeptemberJune 30, 2020.2021. 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2020,2021, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting due to the lack of segregation of duties. 

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to maintain effective segregation of duties on our assessment of our internal control over financial reporting and has concluded that the control deficiency represents a material weakness. 

In response to the material weakness described above, during the nine monthsquarter ended SeptemberJune 30, 2020,2021, we began evaluatingperformed additional analysis and implementing new internal controls overother post-closing procedures to ensure our financial reporting and disclosure controls and procedures. Although management is still evaluating the design of new controls and procedures,statements were prepared in accordance with GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our improved processesfinancial condition, results of operations and procedures will assist uscash flows for the periods presented.

Remediation Plans

Our management has engaged in remediating ourand is continuing to be engaged in efforts to remediate the control deficiency that led to the material weakness. Once placedThe remediation plan includes implementing the following steps:

We plan to have our enhanced review procedures and documentation standards in operation for aplace and operating by the end of 2021. Our goal is to remediate the material weakness by the end of 2022, subject to there being sufficient period of time, we will subject theseopportunities to conclude, through testing, that the enhanced controls and procedures to appropriate tests in order to determine whether they are operating effectively. Management, with oversight from the Audit Committee of our board of directors, is committed to the remediation of our material weakness as expeditiously as possible.

Changes in Internal Control over Financial Reporting

ThereDuring the quarter ended June 30, 2021, management continued to implement certain remediation measures to improve our internal controls over financial reporting and to remediate previously identified material weaknesses. However, there were no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20202021, 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,Management recognizes that any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The effectivenessmet, and management necessarily applies its judgment in evaluating the cost-benefit relationship of our disclosurepossible 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.procedures.

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

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 26, 2021 (“Annual Report”). Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The Company isrisks described in our Annual Report are not requiredthe only risks we face. Additional risks and uncertainties not currently known to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the Exchange Act.risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

Our business may be adversely affected by the ongoing coronavirus pandemic which has delayed and may continue to delay our clinical trials and may have other adverse effects on our business and operations.

The outbreak of the novel coronavirus ("COVID-19") evolved into a global pandemic as COVID-19 spread to many regions of the world. The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including variants such as the delta variant, and the actions to contain COVID-19 or treat its impact, among others.

As a result of the continuing spread of COVID-19, our business operations have been interrupted and delayed. Specifically, in June 2021, we initiated our Acclaim-1 clinical trial with the FDA having reviewed and confirmed all comments had been addressed regarding the protocol with respect to such trial and our engagement of our first clinical site; however, we have experienced delays in engaging clinical sites as a result of a backlog of clinical trial protocols requiring review created by an accumulation of protocols while clinical trials have been widely disrupted during the pandemic and workforce shortages that have been impacting the U.S. economy in general. Additionally, manufacturing and testing, site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring, data analysis, and laboratory research activities may be paused or delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the COVID-19 pandemic. If COVID-19 continues to spread, some participants and clinical investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, further delaying our clinical trials and potentially rendering us unable to conduct our trials at all. In addition, infections and deaths related to the COVID-19 pandemic may disrupt the United States’ healthcare and healthcare regulatory systems. Such disruptions could divert healthcare resources away from, or materially delay FDA review and/or approval with respect to, our clinical trials. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates. Specifically, we may experience further delays in our Acclaim-1 trial or delays in our Acclaim-2 trial which we expect to initiate in 2021 if our REQORSA drug that is intended to be utilized for such trials expires and is no longer usable. Moreover, if the COVID-19 pandemic continues and our operations are further adversely impacted, we risk a delay, default and/or nonperformance under existing agreements which may increase our costs. These cost increases may not be fully recoverable or adequately covered by insurance.

We currently utilize third parties to, among other things, manufacture raw materials and to manufacture clinical product. If any third-party parties in the supply chain for materials used in the production of our product candidates or the third-party manufacturers of our product candidates themselves are adversely impacted by restrictions resulting from the COVID-19 outbreak, our ability to manufacture our product candidates for our clinical trials and research and development activities related thereto may be disrupted. In particular, we utilize lipids in the manufacture of REQORSA. Lipids are also used in the production of various COVID-19 vaccines and this has resulted in increased demand for this material and may limit the available supply.

The spread of COVID-19, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruption of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of COVID-19 could materially and adversely affect our business and the value of our common stock.

The ultimate impact of the COVID-19 pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the situation closely.

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

During the three months ended September 30, 2020,On April 1, 2021, we issued and sold the following unregistered securities:

5,000 shares of our common stock to a consultant in consideration for services. 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

The exhibits listed on the Index to Exhibits following the signature page are filed as part of this Quarterly Report on Form 10-Q.

INDEX TO EXHIBITS

* Filed herewith.

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.