CorMedix Inc

Note 1 - Organization, Business and Basis of Presentation:

Organization and Business

CorMedix Inc. (“CorMedix” or the “Company”) was incorporated in the State of Delaware on July 28, 2006. The Company is a biopharmaceutical company focused on developing and commercializing therapeutic products for life-threatening diseases and conditions.

The Company’s primary focus is on the commercialization of its lead product, DefenCath® in the United States, or U.S. The Company has in-licensed the worldwide rights to develop and commercialize DefenCath. The name DefenCath is the U.S. proprietary name approved by the U.S. Food and Drug Administration, or FDA.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Quarterly Reports on Form 10-Q and Article 8 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary to fairly state the interim results. Interim operating results are not necessarily indicative of results that may be expected for the full year ending December 31, 2024 or for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 12, 2024. The accompanying consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements included in such Annual Report on Form 10-K.

Note 2 - Summary of Significant Accounting Policies and Liquidity and Uncertainties:

Liquidity and Uncertainties

The condensed consolidated financial statements have been prepared in conformity with GAAP which contemplate continuation of the Company as a going concern. To date, the Company’s commercial operations have not generated sufficient revenues to enable profitability. Based on the Company’s current commercial plans and development plans for DefenCath and its other operating requirements, the Company’s existing cash, cash equivalents and short-term investments at March 31, 2024 are expected to fund its operations for at least twelve months from the issuance of this Quarterly Report on Form 10-Q.

In March 2024, the Company received $1,395,000, net of expenses, from the sale of its unused New Jersey net operating losses (“NOL”), that was eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer program (“NJEDA Program”). The NJEDA Program allowed the Company to sell its available NOL tax benefits for the state fiscal year 2023 in the amount of approximately $1,529,000.

The Company may raise additional capital through various potential sources, such as equity and/or debt financings, strategic relationships, potential strategic transactions and/or out-licensing. Management can provide no assurances that such financing or strategic relationships will be available on acceptable terms, or at all. As of March 31, 2024, the Company has $104,400,000 available under its current shelf registration for the issuance of equity, debt or equity-linked securities (see Note 5).

The Company’s operations are subject to a number of other factors that can affect its operating results and cash flow projections over the next twelve months from the issuance of these financial statements. Such factors include, but are not limited to: the ability to market DefenCath and generate necessary revenue in the time periods required; ability to manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, Company products; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products; and the Company’s ability to raise capital to support its operations.

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Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities and disclosure of contingent assets and liabilities in the Company’s consolidated balance sheets and the reported amounts of revenue and expenses reported for each of the periods presented are affected by estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates.

Reclassifications

Certain reclassifications were made to the prior year’s amounts to conform to the 2024 presentation.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. The Company maintains its cash and cash equivalents in bank deposit and other interest-bearing accounts, the balances of which, at times, may exceed federally insured limits.

The following table is the reconciliation of the accounting standard that modifies certain aspects of the recognition, measurement, presentation and disclosure of financial instruments as shown on the Company’s consolidated statement of cash flows:

The appropriate classification of marketable securities is determined at the time of purchase and reevaluated as of each balance sheet date. Investments in marketable debt classified as available-for-sale and equity securities are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Changes in fair value that are considered temporary are reported in other comprehensive income. Realized gains and losses, amortization of premiums and discounts and interest and dividends earned are included in other income (expense). The Company considers available evidence in evaluating potential impairments of its investments, including the duration and extent to which fair value is less than cost. There were no deemed permanent impairments at March 31, 2024 or December 31, 2023.

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The Company’s marketable securities are highly liquid and consist of U.S. government agency securities, high-grade corporate obligations and commercial paper with original maturities of more than 90 days. As of March 31, 2024 and December 31, 2023, all of the Company’s investments had contractual maturities of less than one year. The following table summarizes the amortized cost, unrealized gains and losses and the fair value at March 31, 2024 and December 31, 2023:

Fair Value Measurements

In accordance with Accounting Standards Codification (“ASC”) 825,*Financial Instruments,*disclosures of fair value information about financial instruments is required, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate that value. The Company’s financial instruments recorded in the consolidated balance sheets include cash and cash equivalents, accounts receivable, investment securities, accounts payable and accrued expenses. The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their estimated fair values based upon the short-term nature of their maturity dates.

The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on the Company’s condensed consolidated balance sheets are categorized as follows:

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The following table provides the carrying value and fair value of the Company’s financial assets measured at fair value on a reoccurring basis as of March 31, 2024 and December 31, 2023:

Inventories

The Company engages third parties to manufacture and package inventory held for sale and warehouse such goods until packaged for final distribution and sale. Costs related to the manufacturing of DefenCath incurred prior to FDA approval in order to support the preparation for commercial launch of its product were expensed as research and development expenses (“R&D”) as incurred. Upon FDA approval, costs related to the manufacturing of inventory are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Inventories expensed as R&D prior to FDA approval that can be used for commercial purposes amounted to approximately $6,388,000.

Inventory is valued utilizing the standard cost method, which approximates costs determined on the first-in first-out basis. The Company records an inventory reserve for losses associated with dated, expired, excess or obsolete items. This reserve is based on management’s current knowledge with respect to inventory levels, planned production and sales volume assumptions. As of March 31, 2024 and December 31, 2023, no reserves were deemed necessary.

Inventories consist of raw materials (including labeling and packaging), work-in-process, and finished goods for DefenCath. Inventories consist of the following:

License Agreement

The Company’s rights under the License and Assignment Agreement with ND Partners, LLP are capitalized and stated at cost and will amortize using the straight-line method over estimated economic life of the intangible asset. The Company will amortize the intangible asset over its useful life, based on its assessment of various factors impacting estimated useful lives and cash flows of the acquired rights. Such factors include the launch date of DefenCath, the strength of the intellectual property protection of DefenCath and various other competitive, developmental and regulatory considerations, and contractual terms. See Note 4 – Commitments and Contingencies for further discussion.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities (included in accrued expenses), and operating lease liabilities, net of current portion, on the consolidated balance sheet (see Note 6).

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

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The Company has elected, as an accounting policy, not to apply the recognition requirements in ASC 842 to short-term leases. Short-term leases are leases that have a term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes the lease payments for short-term leases on a straight-line basis over the lease term.

The Company has also elected, as a practical expedient, by underlying class of asset, not to separate lease components from non-lease components and, instead, account for them as a single component.

Loss Per Common Share

Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding during the period included 2,500,625 shares underlying outstanding pre-funded warrants. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The Company’s outstanding shares of Series E preferred stock entitle the holders to receive dividends on a basis equivalent to the dividends paid to holders of common stock. As a result, the Series E preferred stock meet the definition of participating securities requiring the application of the two-class method. Under the two-class method, earnings available to common shareholders, including both distributed and undistributed earnings, are allocated to each class of common stock and participating securities according to dividends declared and participating rights in undistributed earnings, which may cause diluted earnings per share to be more dilutive than the calculation using the treasury stock method. No loss has been allocated to these participating securities since they do not have contractual obligations that require participation in the Company’s losses.

Since the Company has only incurred losses, potentially dilutive securities are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive, and therefore basic and diluted loss per share are the same for all periods presented. The shares outstanding at the end of the respective periods presented below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

Stock-Based Compensation

Share-based compensation cost is measured at grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for options with service or performance-based conditions. Stock-based compensation is recognized as expense over the requisite service period on a straight-line basis or when the achievement of the performance condition is probable.

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Research and Development

Research and development costs are charged to expense as incurred. Research and development include fees associated with operational consultants, contract clinical research organizations, contract manufacturing organizations, clinical site fees, contract laboratory research organizations, contract central testing laboratories, licensing activities, and allocated executive, human resources and facilities expenses. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial and the invoices received from its external service providers. As actual costs become known, the Company adjusts its accruals in the period when actual costs become known. Costs related to the acquisition of technology rights and patents for which development work is still in process are charged to operations as incurred and considered a component of research and development expense.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe the adoption of recently issued standards have or may have a material impact on its consolidated financial statements or disclosures.

ASU No. 2023-09

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes - Improvements to Income Tax Disclosures (Topic 740). The standard requires disaggregation of the effective rate reconciliation into standard categories, enhances disclosure of income taxes paid, and modifies other income tax-related disclosures. The standard will be effective for CorMedix beginning in annual reporting period ending December 31, 2025, with early adoption permitted. CorMedix is currently assessing the impact of adopting this guidance on its consolidated financial statements.

ASU No. 2023-07

In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). The standard requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The standard is effective for CorMedix beginning in annual reporting period ending December 31, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. CorMedix is currently assessing the impact of adopting this guidance on its consolidated financial statements.

Note 3 - Accrued Expenses:

Accrued Expenses

Accrued expenses consist of the following:

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Note 4 - Commitments and Contingencies:

Contingency Matters

In re CorMedix Inc. Securities Litigation,Case No. 2:21-cv-14020 (D.N.J.)

On October 13, 2021, the United States District Court for the District of New Jersey consolidated into In re CorMedix Inc. Securities Litigation, Case No. 2:21-cv 14020-JXN-CLW, two putative class action lawsuits filed on or about July 22, 2021 and September 13, 2021, respectively, and appointed lead counsel and lead plaintiff, a purported stockholder of the Company. The lead plaintiff filed a consolidated amended class action complaint on December 14, 2021, alleging violations of Sections 10(b) and 20(a) of the Exchange Act, along with Rule 10b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933. On October 10, 2022, the lead plaintiff filed a second amended consolidated complaint that superseded the original complaints in In re CorMedix Securities Litigation. On March 21, 2024, the court denied Defendant’s motion to dismiss without prejudice and granted lead plaintiff leave to amend the complaint. On April 22, 2024, lead plaintiff filed a third amended consolidated complaint that superseded the second amended consolidated complaint. In the third amended complaint, the lead plaintiff seeks to represent a class of shareholders who purchased or otherwise acquired CorMedix securities between October 16, 2019 and August 8, 2022, inclusive. The third amended complaint names as defendants the Company and six (6) current and former officers of CorMedix, namely Khoso Baluch, Robert Cook, Matthew David, Phoebe Mounts, John L. Armstrong, and Joseph Todisco (the “Officer Defendants” and collectively with CorMedix, the “CorMedix Defendants”). The third amended complaint alleges that the CorMedix Defendants violated Section 10(b) of the Exchange Act (and Rule 10b-5) and that the Officer Defendants violated Section 20(a). In general, the purported bases for these claims are allegedly false and misleading statements and omissions related to the NDA submissions to the FDA for DefenCath, subsequent complete response letters, as well as communications from the FDA related and directed to the Company’s contract manufacturing organization and heparin supplier. The Company intends to vigorously contest such claims. Defendants’ motion to dismiss the third amended complaint is due on or before June 6, 2024. Lead plaintiff’s opposition is due on or before July 22, 2024. Defendants’ reply is due on or before August 21, 2024.

In re CorMedix Inc. Derivative Litigation,Case No. 2:21-cv-18493-JXN-LDW (D.N.J.)

On or about October 13, 2021, a purported shareholder, derivatively and on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the District of New Jersey, in a case entitled Voter v. Baluch, et al., Case No. 2:21-cv-18493-JXN-LDW (the “Derivative Litigation”). The complaint names as defendants Khoso Baluch, Janet Dillione, Alan W. Dunton, Myron Kaplan, Steven Lefkowitz, Paulo F. Costa, Greg Duncan, Matthew David, Phoebe Mounts and Joseph Todisco along with the Company as Nominal Defendant. The complaint alleges breaches of fiduciary duties, abuse of control, and waste of corporate assets against the defendants and a claim for contribution for purported violations of Sections 10(b) and 21D of the Exchange Act against certain defendants. The individual defendants intend to vigorously contest such claims. On January 21, 2022, pursuant to a stipulation between the parties, the Court entered an order staying the case while the motion to dismiss the class action lawsuit described in the foregoing paragraph is pending. The stay may be terminated before the motion to dismiss is resolved according to certain circumstances described in the stipulation available on the Court’s public docket.

On or about January 13, 2023, another purported shareholder, derivatively and on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the District of New Jersey, in a case entitledDeSalvo v. Costa, et al., Case No. 2:23-cv-00150-JXN-CLW. Defendants Paulo F. Costa, Janet D. Dillione, Greg Duncan, Alan Dunton, Myron Kaplan, Steven Lefkowitz, Joseph Todisco, Khoso Baluch, Robert Cook, Matthew David, Phoebe Mounts, and John L. Armstrong along with the Company as Nominal Defendant. The complaint alleges breaches of fiduciary duty and unjust enrichment against the individual defendants.

On or about January 25, 2023, another purported shareholder, derivatively and on behalf of the Company, filed a shareholder derivative complaint in the United States District Court for the District of New Jersey, in a case entitledScullion v. Baluch, et al., Case No. 2:23-cv-00406-ES-ESK. Defendants Khoso Baluch, Janet Dillione, Alan W. Dunton, Myron Kaplan, Steven Lefkowitz, Paulo F. Costa, Gregory Duncan, Matthew David, and Phoebe Mounts, along with the Company as Nominal Defendant. The complaint alleges breaches of fiduciary duties.

On or about April 18, 2023, the Court entered an order consolidating the above-mentioned shareholder derivative complaints for all purposes, including pretrial proceedings, trial and appeal. The consolidated derivative action is entitled,In re CorMedix Inc. Derivative Litigation, C.A. No. 2:21-cv-18493-JXN-LDW. The individual defendants intend to vigorously contest the claims set forth in the consolidated derivative action. The provisions of the Order to Stay entered in theVoterAction on January 21, 2022, apply to the consolidated derivative action. On April 20, 2023, the consolidated derivative action was administratively terminated and removed from the Court’s docket until the motion to dismiss the class action is resolved and the Private Securities Litigation Reform Act, or PSLRA, stay is lifted. As noted above, on April 22, 2024, the lead plaintiff in the class action filed a third amended complaint. The class action remains stayed under the PSLRA.

Demand Letter

On or about June 23, 2022, the Company’s Board received a letter demanding it investigate and pursue causes of action, purportedly on behalf of Company, against certain current and former directors, officers, and/or other employees of the Company (the “Letter”), which the Board believes are duplicative of the claims already asserted in the Derivative Litigation. As set forth in the Board’s response to the Letter, the Board will consider the Letter at an appropriate time, as circumstances warrant, as it continues to monitor the progress of the Derivative Litigation.

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License and Assignment Agreement

In 2008, the Company entered into a License and Assignment Agreement (the “ND License Agreement”) with ND Partners, LLP (“NDP”). Pursuant to the ND License Agreement, NDP granted the Company exclusive, worldwide licenses for certain antimicrobial catheter lock solutions, processes for treating and inhibiting infections, a biocidal lock system and a taurolidine delivery apparatus, and the corresponding United States and foreign patents and applications (the “NDP Technology”). As consideration in part for the rights to the NDP Technology, upon execution of the ND License Agreement, the Company paid NDP an initial licensing fee of $325,000 and granted NDP a 5% equity interest in the Company, consisting of 7,996 shares of the Company’s common stock.

Under the ND License Agreement, the Company is required to make cash payments to NDP upon the achievement of certain milestones. In 2014, a certain milestone was achieved resulting in the release of 7,277 shares held in escrow. As of December 31, 2022, the shares remaining in escrow were cancelled in accordance with the terms of the escrow agreement. Under the ND License Agreement, the maximum aggregate amount of cash payments due upon achievement of milestones was $3,000,000, with the balance being $2,000,000 as of March 31, 2024 and December 31, 2023. The initial licensing fee of $325,000, the fair value of the 5% equity interest and an additional $500,000, as a result of the achievement of one milestone, were recognized on the Company’s statement of operations in R&D in prior periods, as the related milestones were achieved by the Company prior to the FDA approval. During the three months ended March 31, 2024, the Company determined it was probable that the net sales milestones will be achieved in future periods and, as a result, the Company recorded a license intangible asset of $2,000,000 and a license agreement liability of $2,000,000, which is included within accrued expenses in the Company’s condensed consolidated balance sheet as of March 31, 2024.

The license intangible asset will be amortized as cost of goods sold over its estimated economic life, beginning in the second quarter of 2024, correlating with the product launch of DefenCath and the first period in which revenue will be recognized.

The ND License Agreement will expire on a country-by-country basis upon the earlier of (i) the expiration of the last patent claim under the ND License Agreement in a given country, or (ii) the payment of all milestone payments. Upon the expiration of the ND License Agreement in each country, we will have an irrevocable, perpetual, fully paid-up, royalty-free exclusive license to the NDP Technology in such country. The ND License Agreement also may be terminated by NDP if the Company materially breaches or defaults under the ND License Agreement and that breach is not cured within 60 days following the delivery of written notice to the Company, or by the Company on a country-by-country basis upon 60 days prior written notice in the event the Company’s Board determines not to proceed with the development of the NDP Technology. If the ND License Agreement is terminated by either party, the Company’s rights to the NDP Technology will revert back to NDP.

Note 5 - Stockholders’ Equity:

Common Stock

On August 12, 2021, the Company filed a shelf registration statement (the “2021 Shelf Registration Statement”) for the issuance of up to $150,000,000. As of March 31, 2024, the Company has $104,000,000 available under the 2021 Shelf Registration Statement.

On June 28, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with RBC Capital Markets, LLC and Truist Securities, Inc., as representatives of the several underwriters named therein, relating to the issuance and sale of an aggregate of 7,500,000 shares of the Company’s common stock, and in lieu of common stock to certain investors, pre-funded warrants to purchase 2,500,625 shares of common stock to the underwriters. Pursuant to the Underwriting Agreement, the Company also granted the underwriters a 30-day option to purchase up to 1,500,093 additional shares of common stock.

The offering pursuant to the 2021 Shelf Registration Statement closed on July 3, 2023. Upon closing, the Company issued and sold an aggregate of 7,500,000 shares of its common stock at a public offering price of $4.00 per share and, in lieu of common stock to certain investors, pre-funded warrants to purchase up to an aggregate of 2,500,625 shares of its commons stock at a price of $3.999 per pre-funded warrant (see Pre-Funded Warrants below). The Company realized net proceeds of approximately $37,300,000 from the sale of its common stock and the pre-funded warrants. On July 26, 2023, the underwriters’ representatives fully exercised the option to purchase additional shares of the Company’s common stock, and on July 28, 2023, the Company issued and sold an aggregate of 1,500,093 shares of its common stock at the public offering price of $4.00 per share, less underwriting discounts and commissions, and the Company realized net proceeds of approximately $5,600,000.

During the quarter ended March 31, 2023, the Company sold an aggregate of 1,684,592 of its common stock under the previous ATM program and realized net proceeds of $7,200,000.

The Company did not sell any common stock during the quarter ended March 31, 2024.

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Restricted Stock Units

In January 2024, the Company granted 283,333 restricted stock units (“RSUs”) to its executive officers under its Amended and Restated 2019 Omnibus Stock Incentive Plan with a weighted average grant date fair value of $3.47 per share. The fair market value of the RSUs was estimated to be the closing price of the Company’s common stock on the date of grant. These RSUs vest 25% on the grant date and 25% each on the first, second and third anniversaries of the grant date, subject to continued service as an employee or consultant through the applicable vesting date. The Company issued 42,844 shares upon the vesting of 25% of these RSUs and 27,989 shares were withheld in lieu of withholding taxes.

As of March 31, 2024 and 2023, the Company has 366,235 and 207,469 outstanding RSUs, respectively, for which the Company recorded $362,000 and $86,000 compensation expense for the quarter ended March 31, 2024 and 2023, respectively. As of March 31, 2024, unrecognized compensation expense related to unvested RSUs is $999,000, will be recognized over a weighted average remaining period of 1.8 at March 31, 2024.

Preferred Stock

The Company is authorized to issue up to 2,000,000 shares of preferred stock in one or more series without stockholder approval. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Of the 2,000,000 shares of preferred stock authorized, the Company’s board of directors has designated (all with par value of $0.001 per share) the following:

Stock Options

During the three months ended March 31, 2024 and 2023, the Company granted ten-year qualified and non-qualified stock options covering an aggregate of 1,911,167 and 1,747,000 shares, respectively, of the Company’s common stock under the Amended and Restated 2019 Omnibus Stock Incentive Plan. The weighted average exercise price of these options is $3.52 and $4.36 per share, respectively.

During the three months ended March 31, 2024 and 2023, stock-based compensation expense for stock options issued to employees, directors, officers and consultants was $2,082,000 and $2,130,000, respectively.

As of March 31, 2024, there was approximately $9,132,000 in total unrecognized compensation expense related to stock options granted, which will be recognized over an expected remaining weighted average period of 1.6 years.

The fair value of each stock option award estimated on the grant date is determined using the Black-Scholes option pricing model. The following assumptions were used for the Black-Scholes option pricing model for the stock options granted during the three months ended March 31, 2024:

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During the three months ended March 31, 2024, the Company uses the simplified method to calculate the expected term which takes into account the vesting term and the expiration date of the stock options. The expected term of the stock options granted to consultants, if any, is based upon the full term of the respective option agreements. The expected stock price volatility for the Company’s stock options is calculated based on the historical volatility of the Company’s stock price for the expected term. The expected dividend yield of 0% reflects the Company’s current and expected future policy for dividends on the Company’s common stock. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.

Note 6 - Leases:

The Company entered into a seven-year operating lease agreement in March 2020 for an office space at 300 Connell Drive, Berkeley Heights, New Jersey 07922. The lease agreement, with a monthly average cost of approximately $17,000, commenced on September 16, 2020.

The Company entered into an operating lease for office space in Germany that began in July 2017 that is set to expire in June 2024. The rental agreement has a three-month term which automatically renews and includes a monthly cost of 400 Euros. The Company elected to apply the short-term practical expedient to the office lease.

Operating lease expense in the Company’s condensed consolidated statements of operations and comprehensive loss for each of the three months ended March 31, 2024 and 2023 was approximately $52,000, which includes costs associated with leases for which ROU assets have been recognized as well as short-term leases.

At March 31, 2024, the Company has a total operating lease liability of $632,000, of which approximately $155,000 and $477,000 were classified as operating lease liabilities, short-term and operating lease liabilities, net of current portion, respectively, on the consolidated balance sheet. At December 31, 2023, the Company’s total operating lease liability was $668,000, of which $151,000 was classified as operating lease liabilities, short-term and $517,000 was classified as operating lease liabilities, net of current portion, on the condensed consolidated balance sheet. Operating ROU assets as of March 31, 2024 and December 31, 2023 were $605,000 and $640,000, respectively.

For the three months ended March 31, 2024 and 2023, cash paid for amounts included in the measurement of lease liabilities in operating cash flows from operating leases was $51,000 and $50,000, respectively.

The weighted average remaining lease term as of March 31, 2024 and 2023 were 3.6 and 4.6 years, respectively, and the weighted average discount rate for operating leases was 9% at March 31, 2024 and 2023.

As of March 31, 2024, maturities of lease liabilities were as follows:

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