UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarterly Period ended March 31, 2024

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________ to___________.

Commission File Number: 001-36357

LIPOCINE INC.

(Exact name of registrant as specified in its charter)

Delaware		99-0370688
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

675 Arapeen Drive, Suite 202, Salt Lake City, Utah		84108
(Address of Principal Executive Offices)		(Zip Code)

801-994-7383

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		LPCN		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	☐
Accelerated filer	☐
Non-accelerated filer	☒
Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Outstanding Shares

As of May 7, 2024 the registrant had 5,347,940 shares of common stock outstanding.

TABLE OF CONTENTS

		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	40

Item 4.	Controls and Procedures	40

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 6.	Exhibits	42

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	March 31,			December 31,
	2024			2023
Assets
Current assets:
Cash and cash equivalents	$	3,081,337		$	4,771,758
Marketable investment securities		21,550,661			17,263,788
Accrued interest income		100,134			52,254
Prepaid and other current assets		583,087			773,424

Total current assets		25,315,219			22,861,224

Property and equipment, net of accumulated depreciation of $1,190,703 and $1,182,191 respectively		107,583			116,095
Other assets		23,753			23,753
Total assets	$	25,446,555		$	23,001,072

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	671,445		$	1,395,977
Accrued expenses		761,465			1,218,486
Warrant liability		57,238			17,166
Total current liabilities		1,490,148			2,631,629

Total liabilities		1,490,148			2,631,629

Commitments and contingencies (notes 7, 8, 9 and 10)		-			-

Stockholders’ equity:
Common stock, par value $0.0001 per share, 200,000,000 shares authorized; 5,316,166 issued and 5,315,830 outstanding		8,860			8,860
Additional paid-in capital		220,262,456			220,171,250
Treasury stock at cost, 336 shares		(40,712	)		(40,712	)
Accumulated other comprehensive gain (loss)		(10,604	)		7,259
Accumulated deficit		(196,263,593	)		(199,777,214	)
Total stockholders’ equity		23,956,407			20,369,443

Total liabilities and stockholders’ equity	$	25,446,555		$	23,001,072

See accompanying notes to condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)


	Three Months Ended March 31,
	2024			2023

Revenues:
License revenue	$	7,500,000		$	54,990
Royalty revenue		117,174			-
Total revenues		7,617,174			54,990

Operating expenses:
Research and development		2,818,926			3,106,310
General and administrative		1,575,719			1,287,313
Total operating expenses		4,394,645			4,393,623
Operating income (loss)		3,222,529			(4,338,633	)

Other income (expense):
Interest and investment income		331,364			370,469
Unrealized gain (loss) on warrant liability		(40,072	)		98,134
Total other income, net		291,292			468,603

Income (loss) before income tax expense		3,513,821			(3,870,030	)

Income tax expense		(200	)		(200	)
Net income (loss)		3,513,621			(3,870,230	)
Issuance of Series B preferred stock dividend		-			(89	)
Net income (loss) attributable to common shareholders	$	3,513,621		$	(3,870,319	)

Basic income (loss) per share attributable to common stock	$	0.66		$	(0.74	)
Weighted average common shares outstanding, basic		5,315,830			5,234,830

Diluted income (loss) per share attributable to common stock	$	0.66		$	(0.76	)
Weighted average common shares outstanding, diluted		5,357,530			5,234,830

Comprehensive loss:
Net income (loss)	$	3,513,621		$	(3,870,319	)
Net unrealized gain (loss) on marketable investment securities		(17,863	)		23,562

Comprehensive income (loss)	$	3,495,758		$	(3,846,757	)

See accompanying notes to condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023


	Mezzanine Equity				Stockholder’s Equity
	Series B Preferred Stock				Common Stock				Treasury Stock					Additional			Accumulated Other						Total
	Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount			Paid-In Capital			Comprehensive Gain (Loss)			Accumulated Deficit			Stockholders’ Equity

Balances at December 31, 2022		-	$	-		5,234,830	$	8,852		336	$	(40,712	)	$	219,112,164		$	(20,321	)	$	(183,425,043	)	$	35,634,940

Net loss		-		-		-		-		-		-			-			-			(3,870,230	)		(3,870,230	)
																								-
Unrealized net gain on marketable investment securities		-		-		-		-		-		-			-			23,562			-			23,562
																								-
Stock-based compensation		-		-		-		-		-		-			177,772			-			-			177,772
																								-
Issuance of Series B preferred stock dividend		88,511		9		-		-		-		-			80			-			(89	)		-

Redemption of Series B preferred stock		-		-		-		-		-		-			-			-			-			-

Option exercises		-		-		-		-		-		-			-			-			-			-
																								-
Costs associated with ATM Offering		-		-		-		-		-		-			(6,016	)		-			-			(6,016	)

Balances at March 31, 2023		88,511	$	9		5,234,830	$	8,852		336	$	(40,712	)	$	219,284,000		$	3,241		$	(187,295,362	)	$	31,960,028


	Mezzanine Equity				Stockholder’s Equity
	Series B Preferred Stock				Common Stock				Treasury Stock					Additional			Accumulated Other						Total
	Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount			Paid-In Capital			Comprehensive Gain (Loss)			Accumulated Deficit			Stockholders’ Equity

Balances at December 31, 2023		-	$	-		5,315,830	$	8,860		336	$	(40,712	)	$	220,171,250		$	7,259		$	(199,777,214	)	$	20,369,443
Balance		-	$	-		5,315,830	$	8,860		336	$	(40,712	)	$	220,171,250		$	7,259		$	(199,777,214	)	$	20,369,443

Net income		-		-		-		-		-		-			-			-			3,513,621			3,513,621
Net income (loss)		-		-		-		-		-		-			-			-			3,513,621			3,513,621

Unrealized net loss on marketable investment securities		-		-		-		-		-		-			-			(17,863	)		-			(17,863	)

Stock-based compensation		-		-		-		-		-		-			99,306			-			-			99,306

Costs associated with ATM Offering		-		-		-		-		-		-			(8,100	)		-						(8,100	)

Balances at March 31, 2024		-	$	-		5,315,830	$	8,860		336	$	(40,712	)	$	220,262,456		$	(10,604	)	$	(196,263,593	)	$	23,956,407
Balance		-	$	-		5,315,830	$	8,860		336	$	(40,712	)	$	220,262,456		$	(10,604	)	$	(196,263,593	)	$	23,956,407

See accompanying notes to condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows


	Three Months Ended March 31,
	2024			2023

Cash flows from operating activities:

Net income (loss)	$	3,513,621		$	(3,870,230	)

Adjustments to reconcile net income (loss) to cash provided by (used in)operating activities:
Depreciation expense		8,512			4,819
Stock-based compensation expense		99,306			177,772
Non-cash loss (gain) on change in fair value of warrant liability		40,072			(98,134	)
Amortization of discounts on marketable investment securities		(214,896	)		(254,215	)
Changes in operating assets and liabilities:
Accrued interest income		(47,880	)		41,367
Prepaid and other current assets		190,337			(181,412	)
Accounts payable		(724,532	)		196,088
Accrued expenses		(457,021	)		55,888

Cash provided by (used in) operating activities		2,407,519			(3,928,057	)

Cash flows from investing activities:
Purchase of property and equipment		-			(4,000	)
Purchases of marketable investment securities		(10,789,840	)		(6,441,243	)
Maturities of marketable investment securities		6,700,000			12,000,000

Net cash provided by (used in) investing activities		(4,089,840	)		5,554,757

Cash flows from financing activities:

Costs associated with ATM Offering		(8,100	)		(6,016	)

Cash used in financing activities		(8,100	)		(6,016	)

Net increase in cash and cash equivalents		(1,690,421	)		1,620,684

Cash and cash equivalents at beginning of period		4,771,758			3,148,496

Cash and cash equivalents at end of period	$	3,081,337		$	4,769,180

Supplemental disclosure of cash flow information:
Income taxes paid	$	-			456

Supplemental disclosure of non-cash investing and financing activity:
Net unrealized gain (loss) on available-for-sale securities	$	(17,863	)	$	23,562
Issuance of Series B preferred stock	$	-		$	89

See accompanying notes to condensed consolidated financial statements

LIPOCINE INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Lipocine Inc. (“Lipocine” or the “Company”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries, collectively referred to as the Company. In management’s opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2024.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023.

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions relating to reporting of the assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period in conformity with U.S. GAAP. Actual results could differ from these estimates.

The Company believes that its existing capital resources, together with interest thereon, will be sufficient to meet its projected operating requirements through at least May 9, 2025. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital resources sooner than it currently expects. While the Company believes it has sufficient liquidity and capital resources to fund our projected operating requirements through at least May 9, 2025, the Company will need to raise additional capital at some point through the equity or debt markets or via out-licensing activities to support its operations. If the Company is unsuccessful in raising additional capital, its ability to continue as a going concern will become a risk. Further, the Company’s operating plan may change, and the Company may need additional funds to meet operational needs and capital requirements for product development, regulatory compliance and clinical trial activities sooner than planned. In addition, the Company’s capital resources may be consumed more rapidly if it pursues additional clinical studies for LPCN 1154, LPCN 2101, LPCN 2203, LPCN 2401, LPCN 1148, LPCN 1144, and or LPCN 1107. Conversely, the Company’s capital resources could last longer if the Company reduces expenses, reduces the number of activities currently contemplated under its operating plan, or terminates, modifies the design of or suspends on-going clinical studies.

On January 12, 2024, the Company entered into a License Agreement (the “License Agreement”) with Gordon Silver Limited (“GSL”) and Verity Pharmaceuticals, Inc. (“Verity Pharma”), pursuant to which the Company granted to GSL (an affiliate of Verity Pharma) an exclusive, royalty-bearing, sublicensable right and license to commercialize the Company’s TLANDO® product with respect to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone, as indicated in NDA No. 208088, treatment of Klinefelter syndrome, and pediatric indications relating to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone (the “Field”), in each case within the United States and Canada. The License Agreement also provides GSL with a license to develop and commercialize TLANDO XR, the Company’s potential once-daily oral product candidate for testosterone replacement therapy. The Company retains development and commercialization rights for TLANDO and TLANDO XR outside of the United States and Canada, and with respect to applications outside of the Field inside or outside the United States and Canada.

Upon execution of the License Agreement, GSL agreed to pay the Company a license fee of $11.0 million with an initial payment of $2.5 million which was received on signing of the License Agreement, $5.0 million which was received on February 1, 2024, $2.5 million to be paid no later than January 1, 2025, and $1.0 million to be paid no later than January 1, 2026. The Company is also eligible to receive development and sales milestone payments of up to $259 million in the aggregate, depending primarily on the achievement of certain sales milestones in a single calendar year with respect to all products licensed by GSL under the License Agreement. In addition, the Company is eligible to receive tiered royalty payments at rates ranging from 12% up to 18% of net sales of licensed products in the United States and Canada.

On May 10, 2023, the Company’s Board approved a reverse stock split ratio of 1-for-17. The Company filed an Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware on May 10, 2023, and the Amendment became effective at 5:00 p.m. Eastern Time on Thursday, May 11, 2023. The Company’s shares began trading on a split-adjusted basis on the Nasdaq Capital Market commencing upon market open on May 12, 2023.

The accompanying consolidated financial statements and notes to consolidated financial statements give retroactive effect to the reverse stock split for all periods presented. The reverse stock split did not change the number of authorized shares of common stock or its par value.

(2) Revenue

The Company generates most of its revenue from license and royalty arrangements. At inception of each contract, the Company identifies the goods and services that have been promised to the customer and each of those that represent a distinct performance obligation, determines the transaction price including any variable consideration, allocates the transaction price to the distinct performance obligations and determines whether control transfers to the customer at a point in time or over time. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company reassesses its reserves for variable consideration at each reporting date and makes adjustments, if necessary, which may affect revenue and earnings in periods in which any such changes become known.

See Note 7 for a description of the license agreement (“Verity License Agreement”) with Verity Pharma, Inc. (“Verity”). See Note 11 for a description of the agreement with Spriaso, a related party.

License Fees

For distinct license performance obligations, upfront license fees are recognized when the Company satisfies the underlying performance obligation. Performance obligations under these licenses, which consist of the right to use the Company’s proprietary technology, are satisfied at a point in time corresponding with delivery of the underlying technology rights to the licensee, which is generally upon transfer of the licensed technology/product to the customer. In addition, license arrangements may include contingent milestone payments, which are due following achievement by our licensee of specified sales or regulatory milestones and the licensee and/or Company will fulfill its performance obligation prior to achievement of these milestones. Because of the uncertainty of the milestone achievement, and/or the dependence on sales of our licensee, variable consideration for contingent milestones is fully constrained and is not recognized as revenue until the milestone is achieved by our licensee, to the extent collectability is reasonably certain.

Royalties

Royalties revenue consists of sales-based and minimum royalties earned under license agreements for our products. Sales-based royalties revenue represents variable consideration under license agreements and is recognized in the period a customer sells products incorporating the Company’s licensed technologies/products. The Company estimates sales-based royalties revenue earned but unpaid at each reporting period using information provided by the licensee. The Company’s license arrangements may also provide for minimum royalties, which the Company recognizes upon the satisfaction of the underlying performance obligation, which generally occurs with delivery of the underlying technology rights to the licensee. Sales-based and minimum royalties are generally due within 45 days after the end of each quarter in which they are earned.

Revenue Concentration

A major partner is considered to be one that comprises more than 10% of the Company’s total revenues. For the three months ended March 31, 2024, the Company recognized licensing revenue of $7.5 million and royalty revenue of $51,000 relating to the Verity License Agreement. The revenue recognized in 2024 was 99% from one major customer, Verity. License revenue recognized in the three months ended March 31, 2023 of $55,000, was 100% from a related-party, Spriaso.

(3) Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding plus, where applicable, the additional potential common shares that would have been outstanding related to dilutive options, warrants and unvested restricted stock units to the extent such shares are dilutive.

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three months ended March 31, 2024 and 2023:

	2024			2023
	Three Months Ended March 31,
	2024			2023
Basic earnings (loss) per share attributable to common stock:
Numerator
Net earnings (loss)	$	3,513,621		$	(3,870,319	)

Denominator
Weighted avg. common shares outstanding		5,315,830			5,234,830

Basic earnings (loss) per share attributable to common stock	$	0.66		$	(0.74	)

Diluted earnings (loss) per share attributable to common stock:
Numerator
Net earnings (loss)	$	3,513,621		$	(3,870,319	)
Effect of dilutive securities on net earnings (loss):
Common stock warrants		(40,072	)		98,134
Total net earnings (loss) for purpose of calculating diluted net earnings (loss) per common share	$	3,553,693		$	(3,968,453	)
Denominator
Weighted avg. common shares outstanding		5,315,830			5,234,830
Weighted average effect of dilutive securities:
Stock options		34,446			-
Restricted stock units		7,254			-
Dilutive securities		7,254			-
Total shares for purpose of calculating diluted net loss per common share		5,357,530			5,234,830

Diluted loss per share attributable to common stock	$	0.66		$	(0.76	)

The computation of diluted loss per share for the three months ended March 31, 2024 and 2023 does not include the following stock options and warrants to purchase shares of common stock or unvested restricted stock units in the computation of diluted loss per share because these instruments were antidilutive:

	March 31,
	2024		2023
Stock options		252,251		262,282
Unvested restricted stock units		14,508		-
Warrants		49,433		49,433

(4) Marketable Investment Securities

The Company has classified its marketable investment securities as available-for-sale securities, all of which are debt securities. These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive income (loss) in stockholders’ equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security as of March 31, 2024, and December 31, 2023, were as follows:

March 31, 2024	Amortized Cost		Gross unrealized holding gains		Gross unrealized holding losses			Aggregate fair value

Government treasury bills	$	8,614,220	$	-	$	(380	)	$	8,613,840
U.S. government agency securities		12,947,045		-		(10,224	)		12,936,821

	$	21,561,265	$	-	$	(10,604	)	$	21,550,661

December 31, 2023	Amortized Cost		Gross unrealized holding gains		Gross unrealized holding losses			Aggregate fair value

Government treasury bills	$	14,272,530	$	8,574	$	-		$	14,281,104
U.S. government agency securities		2,983,999		-		(1,315	)		2,982,684

	$	17,256,529	$	8,574	$	(1,315	)	$	17,263,788

Maturities of debt securities classified as available-for-sale securities as of March 31, 2024 are as follows:

March 31, 2024	Amortized Cost		Aggregate fair value
Due within one year	$	21,561,265	$	21,550,661
	$	21,561,265	$	21,550,661

There were no sales of marketable investment securities during the three months ended March 31, 2024 and 2023 and therefore no realized gains or losses. Additionally, during the three months ended March 31, 2024 and 2023, $6.7 million and $12.0 million of marketable investment securities matured, respectively. The Company determined there were no other-than-temporary impairments for the three months ended March 31, 2024 and 2023.

(5) Fair Value

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

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

	●	Level 2 Inputs: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets.

	●	Level 3 Inputs: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For accrued interest income, prepaid and other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:

			Fair value measurements at reporting date using
	March 31, 2024		Level 1 inputs		Level 2 inputs		Level 3 inputs

Assets:
Cash equivalents - money market funds	$	2,946,064	$	2,946,064	$	-	$	-
Government treasury bills		8,613,840		8,613,840		-		-
US. Government agency securities		12,936,821		12,936,821		-		-
	$	24,496,725	$	24,496,725	$	-	$	-

Liabilities:
Warrant liability	$	57,238	$	-	$	-	$	57,238
	$	24,553,963	$	24,496,725	$	-	$	57,238

			Fair value measurements at reporting date using
	Deember 31, 2023		Level 1 inputs		Level 2 inputs		Level 3 inputs

Assets:
Cash equivalents - money market funds	$	4,695,491	$	4,695,491	$	-	$	-
Government treasury bills		14,281,104		14,281,104		-		-
U.S. government agency securities		2,982,684		-		2,982,684		-
	$	21,959,279	$	18,976,595	$	2,982,684	$	-

Liabilities:
Warrant liability	$	17,166	$	-	$	-	$	17,166
	$	21,976,445	$	18,976,595	$	2,982,684	$	17,166

The following methods and assumptions were used to determine the fair value of each class of assets and liabilities recorded at fair value in the balance sheets:

Cash equivalents: Cash equivalents primarily consist of highly rated money market funds and treasury bills with original maturities to the Company of three months or less and are purchased daily at par value with specified yield rates. Cash equivalents related to money market funds and treasury bills are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations for similar assets.

Government treasury bills: The Company uses a third-party pricing service to value these investments. United States treasury bills are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets for identical assets and reportable trades.

U.S. government agency securities: The Company uses a third-party pricing service to value these investments. U.S. government agency securities are classified within Level 2 of the fair value hierarchy because they are valued using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs.

Warrant liability: The warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of March 31, 2024, include (i) volatility of 100%, (ii) risk free interest rate of 5.38%, (iii) strike price of $8.50, (iv) fair value of common stock of $5.20, and (v) expected life of 0.6 years. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of December 31, 2023, include (i) volatility of 100%, (ii) risk free interest rate of 4.79%, (iii) strike price of $8.50, (iv) fair value of common stock of $2.79, and (v) expected life of 0.9 years.

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or changes in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2, or Level 3 for the three ended March 31, 2024.

(6) Income Taxes

The tax provision for interim periods is determined using an estimate of the Company’s effective tax rate for the full year adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment.

At March 31, 2024 and December 31, 2023, the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized.

(7) Contractual Agreements

(a)

Abbott Products, Inc.

On March 29, 2012, the Company terminated its collaborative agreement with Solvay Pharmaceuticals, Inc. (later acquired by Abbott Products, Inc.) for TLANDO. As part of the termination, the Company reacquired the rights to the intellectual property from Abbott. All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1.0 million in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. TLANDO was commercially launched on June 7, 2022. The Company incurred royalty expense of approximately $9,000 and $4,000 during the three months ended March 31, 2024 and 2023, respectively.

(b)

Antares Pharma, Inc.

On October 14, 2021, the Company entered into the Antares License Agreement with Antares pursuant to which the Company granted to Antares an exclusive, royalty-bearing, sublicensable right and license to develop and commercialize, upon final approval of TLANDO® from the U.S. Food and Drug Administration (“FDA”), the Company’s TLANDO product with respect to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone, as indicated in New Drug Application (“NDA”) No. 208088, treatment of Klinefelter syndrome, and pediatric indications relating to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone, in each case within the United States. TLANDO received FDA approval on March 29, 2022.

Upon execution of the Antares License Agreement, Antares paid the Company an initial payment of $11.0 million. Antares agreed to make additional payments of $5.0 million to the Company on each of January 1, 2025, and January 1, 2026, provided that certain conditions were satisfied. The Company was also eligible to receive milestone payments of up to $160.0 million in the aggregate, depending on the achievement of certain sales milestones in a single calendar year with respect to TLANDO, as licensed by Antares under the Antares License Agreement. In addition, the Company was to receive tiered royalty payments at rates ranging from percentages in the mid-teens up to 20% of net sales of TLANDO in the United States, subject to certain minimum royalty obligations. On October 2, 2023, the Company received notice from Antares of Antares’ termination of the License Agreement. In accordance with the terms of the License Agreement, the License Agreement terminated effective January 31, 2024. On January 12, 2024, the Company entered into a license agreement (the “Verity License Agreement”) with Verity Pharmaceuticals Inc. (“Verity”). See Note 7(c) for a description of the Verity License Agreement. Upon termination of the Antares License Agreement, all rights and licenses granted by the Company to Antares under the Antares License Agreement terminated and all rights in TLANDO were transferred to the Company’s new licensing partner, Verity.

The Company recognized revenue of approximately $67,000 and $0 for the three months ended March 31, 2024 and 2023, respectively, under the Antares License Agreement and does not expect to receive any further royalties in the future.

(c)

Verity Pharmaceuticals, Inc.

On January 12, 2024, the Company entered into a License Agreement (the “License Agreement”) with Gordon Silver Limited (“GSL”) and Verity, pursuant to which the Company granted to GSL (an affiliate of Verity Pharma) an exclusive, royalty-bearing, sublicensable right and license to commercialize the Company’s TLANDO product with respect to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone, as indicated in NDA No. 208088, treatment of Klinefelter syndrome, and pediatric indications relating to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone (the “Field”), in each case within the United States and Canada. The Verity License Agreement also provides GSL with a license to develop and commercialize TLANDO XR (LPCN 1111), the Company’s potential once-daily oral product candidate for testosterone replacement therapy. The Company retains rights to TLANDO and TLANDO XR in applications outside of the Field and to development and commercialization rights in the field outside of the United States and Canada.

Upon execution of the Verity License Agreement, GSL agreed to pay the Company a license fee of $11.0 million with an initial payment of $2.5 million which was received on signing of the Verity License Agreement, $5.0 million which was received on February 1, 2024, $2.5 million to be paid no later than January 1, 2025, and $1.0 million to be paid no later than January 1, 2026. The Company is also eligible to receive development and sales milestone payments of up to $259.0 million in the aggregate, depending primarily on the achievement of certain sales milestones in a single calendar year with respect to all products licensed by GSL under the Verity License Agreement. GSL is generally responsible for expenses relating to the development (including the conduct of any clinical trials) and commercialization of licensed products in the Field in the United States and Canada, while the Company is generally responsible for expenses relating to development activities outside of the Field and/or the United States and Canada.

The Company concluded that licensing revenue recognized in conjunction with the Verity License Agreement met the requirements under ASC 606, Revenue from Contracts with Customers. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. License revenue from payments to be received in the future will be recognized when it is probable that we will receive license payments under the terms of the Verity License Agreement.

During the three months ended March 31, 2024, the Company recognized $7.5 million in licensing revenue and $51,000 in royalty revenue.

(d)

Contract Research and Development

The Company has entered into agreements with various contract organizations that conduct pre-clinical, clinical, analytical and manufacturing development work on behalf of the Company as well as a number of independent contractors and primarily clinical researchers who serve as advisors to the Company. The Company incurred expenses of $1.9 million and $2.1 million, respectively, for the three months ended March 31, 2024 and 2023 under these agreements and has recorded these expenses in research and development expenses.

(8) Leases

The Company has a non-cancelable operating lease for office space and laboratory facilities in Salt Lake City, Utah. The term of the lease has been extended through February 28, 2025.

Future minimum lease payments under the non-cancelable operating lease as of March 31, 2024 are:

		Operating
		leases
Year ending December 31:
2024		$

SEC Form 10-Q filed by Lipocine Inc.