Lipocine Inc

(1) **Description of Business **

Lipocine Inc. (“Lipocine” or the “Company”), a clinical-stage biopharmaceutical company focused on central nervous system (“CNS”) disorders, is engaged in research and development for the delivery of drugs using its proprietary delivery technology. The Company’s principal operation is to provide oral delivery solutions for existing drugs. Lipocine develops its own drug candidates or it develops drug candidates on behalf of or in collaboration with corporate partners. The Company has funded operating costs primarily through collaborative license, milestone and research arrangements, through federal grants, through the sale of equity securities and through debt. The Company is incorporated under the laws of the State of Delaware.

(2) **Summary of Significant Accounting Policies **

(a) ***Use of Estimates ***

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“US GAAP”) requires management 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include those related to the timing and amount of revenue recognized from licensing agreements, stock-based compensation; income tax uncertainties; the fair value of the warrant liability and the useful lives of property and equipment.

(b) ***Cash and Cash Equivalents ***

The Company considers all highly liquid investments with original maturities to the Company of three months or less to be cash equivalents. Although the Company may deposit its cash and cash equivalents with multiple financial institutions, its deposits, at times, may exceed federally insured limits. Cash and cash equivalents were $4.8 million and $3.1 million at December 31, 2023 and 2022.

(c) ***Receivables ***

Accounts receivable are recorded at the invoiced amount and do not bear interest.

The Company maintains an allowance for doubtful accounts for estimated losses. In establishing the allowance, management considers historical losses adjusted to take into account current market conditions and their customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company had no write-offs in 2023 and 2022 and the Company did not record an allowance for doubtful accounts as of December 31, 2023 and 2022 as there were no accounts receivable outstanding. The Company does not have any off-balance-sheet credit exposure related to its customers.

(d) Revenue Recognition

The Company generates most of its revenue from license and royalty arrangements. At the 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 or 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.

Disaggregation of Revenue. In the following tables, revenues reported for the years ended December 31, 2023 and 2022, under Topic 606, are disaggregated by type of revenue.

Under Topic 606, all revenue has been recognized as point in time for the years ended December 31, 2023 and 2022.

See Note 4 for a description of the license agreement with Antares Pharma, Inc. (the “Antares License Agreement”). See Note 12 for a description of the agreement with Spriaso.

License Fees. For distinct license performance obligations, upfront license fees are recognized when the Company satisfies the underlying performance obligation. This generally occurs upon transfer of the right to use the Company’s licensed technology 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 for which the licensee and/or Company must 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 licenses agreements for our products. 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. Sales-based royalties revenue represents variable consideration under the 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.

Contract Assets

Contract assets consist of minimum royalty revenue earned in relation to the license agreement but not yet payable based on the terms of the contract. On October 2, 2023, the Company received notice from Antares of Antares’ termination of the Antares License Agreement which stated that the Antares License Agreement will terminate effective January 31, 2024. The Company received approximately $902,000 from Antares during the year ended December 31, 2023 under the terms of our license agreement, of which approximately $710,000 was applied to the contract asset and $192,000 was applied to imputed interest receivable. Based on the termination notice, the Company recorded a non-cash revenue reversal of variable consideration relating to the minimum guaranteed royalties recorded as part of the Antares License Agreement of approximately $3.0 million for the balance of the contract asset that is not expected to be received. The contract asset as of December 31, 2023 and 2022, waszero and $3,832,000, respectively and is related to the Antares License Agreement.

Revenue Concentration

A major partner is considered to be one that comprises more than 10% of the Company’s total revenues. The Company recognized a reversal of revenue relating to variable consideration of the Antares License Agreement of $3.0 million and revenue of $500,000 for the years ended December 31, 2023, and 2022, respectively. The reversal of revenue in 2023 is due to the write off of the contract asset resulting in a reversal of variable consideration recognized in 2021 for minimum guaranteed royalties which resulted from termination of the Antares License Agreement. License revenue recognized in 2022 was 100% from one major customer, Antares.

(e) ***Property and Equipment ***

Property and equipment are recorded at cost, less accumulated depreciation. Maintenance and repairs that do not extend the life or improve the asset are expensed in the year incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which arefive years for laboratory and office equipment, three years for computer equipment and software, andseven years for furniture and fixtures.

(f) Accounting for Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount, or fair value, less costs to sell.

(g) ***Income Taxes ***

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that isgreater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of its income tax expense.

(h) ***Share Based Payments ***

The Company recognizes stock-based compensation expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees, nonemployees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. In addition, in the past the Company has granted performance-based stock option awards and restricted stock units, which vest based upon the Company satisfying certain performance conditions. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, the Company estimates that these options or units will vest, which is based on whether the Company considers the performance conditions to be probable of attainment. The Company’s estimates of the number of performance-based options or units that will vest will be revised, if necessary, in subsequent periods.

The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees, nonemployees and members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend yield on the common stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in the statements of operations amounted to $654,000 and $636,000 for the years ended December 31, 2023 and 2022, allocated as follows:

The Company issued 26,467 stock options and 74,334 stock options during the years ended December 31, 2023 and 2022, respectively.

Key assumptions used in the determination of the fair value of stock options granted are as follows:

Expected Term: The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards, the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 107,Share-Based Payment, for awards with stated or implied service periods. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions, and that have the contractual term to satisfy the performance condition, the contractual term was used.

Risk-Free Interest Rate: The risk-free interest rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.

Expected Dividend: The expected dividend assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company does not anticipate declaring dividends in the foreseeable future.

Expected Volatility: The volatility factor is based solely on the Company’s trading history.

For options granted in 2023 and 2022, the Company calculated the fair value of each option grant on the respective dates of grant using the following weighted average assumptions:

FASB Accounting Standards Codification (“ASC”) 718,Stock Compensation, requires the Company to recognize compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

As of December 31, 2023, there was $455,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s stock option plan. That cost is expected to be recognized over a weighted average period of 1.4 years and will be adjusted for subsequent changes in estimated forfeitures. The weighted average fair value of share-based compensation awards granted during the years ended December 31, 2023 and 2022 was approximately $6.19 per share and $11.50 per share, respectively.

(i) ***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:

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 at December 31, 2023 and 2022:

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

Corporate bonds, notes, and commercial paper: The Company uses a third-party pricing service to value these investments. Corporate bonds, notes and commercial paper 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 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 significant assumptions used in preparing the option pricing model for valuing the warrant liability as of December 31, 2022, include (i) volatility of 100%, (ii) risk free interest rate of 4.41%, (iii) strike price of $8.50, (iv) fair value of common stock of $6.77, and (v) expected life of 1.9 years.

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 for the years ended December 31, 2023 and December 31, 2022.

(j) ***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 years ended December 31, 2023 and 2022.

The computation of diluted earnings per share for the years ended December 31, 2023 and 2022 does not include the following stock options or warrants to purchase shares in the computation of diluted earnings per share because these instruments were antidilutive:

(k) ***Segment Information ***

The Company is a single reportable segment engaged in research and development for the delivery of drugs using its proprietary delivery technology. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. The chief operating decision maker made such decisions and assessed performance at the company level, as one segment.

(l) ***Principles of Consolidation ***

The consolidated financial statements include the accounts of the Company and all subsidiaries. The Company eliminates all intercompany accounts and transactions in consolidation.

(3) **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 at December 31, 2023 and 2022 were as follows:

Maturities of debt securities classified as available-for-sale securities at December 31, 2023 are as follows:

There wereno sales of marketable investment securities during the years ended December 31, 2023 and 2022 and thereforeno realized gains or losses. Additionally, $36.0 million and $59.5 million of marketable investment securities matured during the years ended December 31, 2023 and 2022, respectively. The Company determined there wereno other-than-temporary impairments for the years ended December 31, 2023 and 2022.

(4) **Contractual Agreements **

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%. The Company incurred royalty expense of $34,000 and $12,000 in the years ended December 31, 2023 and 2022, respectively.

On October 14, 2021, the Company entered into a license agreement (“License Agreement”) with Antares Pharma, Inc. (“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 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. TLANDO received FDA approval on March 29, 2022.

Upon execution of the Antares License Agreement, Antares paid to 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 all products licensed by Antares under the Antares License Agreement. In addition, upon commercialization, the Company was to receive tiered royalty payments at rates ranging from percentages in the mid-teens to 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 will terminate 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 4(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 will terminate and all rights in TLANDO will be transferred to the Company’s new licensing partner, Verity.

Under the Antares License Agreement, the Company retained development and commercialization rights in the rest of the world, and with respect to applications outside of the Field inside or outside the United States. The License Agreement also provided Antares with an option, exercisable on or before March 31, 2022, to license TLANDO XR (LPCN 1111), the Company’s potential once-daily oral product candidate for testosterone replacement therapy. On April 1, 2022, the Company entered into the First Amendment to the License Agreement (the “Amendment”), pursuant to which the License Agreement was amended to extend the deadline by which Antares was to exercise its option to license TLANDO XR to June 30, 2022. As consideration for the Company agreeing to enter into the Amendment, in April 2022 Antares paid the Company a non-refundable cash fee of $500,000. On June 30, 2022, Antares’ option to license TLANDO XR expired and was not exercised. Lipocine retains all development and commercialization rights to TLANDO XR. The Company recognized a reversal of variable consideration revenue under the Antares License Agreement of $3.0 million during the year ended December 31, 2023 and license revenue $500,000 during the years ended December 31, 2022.

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 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 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 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.

Pursuant to the terms of the 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 has entered into agreements with various contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of the Company as well as a number of independent contractors, primarily clinical researchers, who serve as advisors to the Company. The Company incurred expenses of $6.7 million and $5.6 million under these agreements in 2023 and 2022 and has recorded these expenses in research and development expenses.

(5) Loan and Security Agreement

Silicon Valley Bank Loan

On January 5, 2018, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant to which SVB agreed to lend the Company $10.0 million. The principal borrowed under the Loan and Security Agreement bore interest at a rate equal to the Prime Rate, as reported in the money rates section of The Wall Street Journal or any successor publication representing the rate of interest per annum then in effect, plus one percent per annum, which interest was payable monthly. Additionally on April 1, 2020, the Company entered into a Deferral Agreement with SVB. Under the Deferral Agreement, principal repayments were deferred by six months and the Company was only required to make monthly interest payments. The loan matured on June 1, 2022. The Company made a final payment at maturity equal to $650,000 (the “Final Payment Charge”) at the time the loan matured. The expense of the final payment charge had been recognized over the term of the facility using the effective interest method.

(6) Property and Equipment

Property and equipment consisted of the following:

Depreciation expense for the years ended December 31, 2023 and 2022 was approximately $29,000 and $9,500, respectively.

(7) **Income Taxes **

Income tax expense consists of:

Income tax expense was $755 and $681, respectively, for the years ended December 31, 2023 and 2022 and differed from the amounts computed by applying the U.S. federal income tax rate of 21% for 2023 and 2022, respectively, to pretax income from continuing operations as a result of the following:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are presented below:

The valuation allowance for deferred tax assets as of December 31, 2023 and 2022 was $47.8 million and $45.9 million, respectively. The net change in the valuation allowance was an increase of $1.9 million in 2023 and an increase of $2.9 million in 2022. A valuation allowance has been provided for the full amount of the Company’s net deferred tax assets as the Company believes it is more likely than not that these benefits will not be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment.

During the year ended December 31, 2013, the Company experienced a change in ownership, as defined by the Internal Revenue Code, as amended (the “Code”) under Section 382. A change of ownership occurs when ownership of a company increases by more than 50 percentage points over a three-year testing period of certain stockholders. As a result of this ownership change, we determined that our annual limitation on the utilization of our federal net operating loss (“NOL”) and credit carryforwards is approximately $1.1 million per year. We will only be able to utilize $9.8 million of our pre-ownership change NOL carryforwards and will forgo utilizing $3.3 million of our pre-ownership change NOL carryforwards and $1.2 million of our pre-change credit carryforwards as a result of this ownership change. We do not account for forgone NOL and credit carryovers in our deferred tax assets and only account for the NOL and credit carryforwards that will not expire unutilized as a result of the restrictions of Code Section 382.

As of December 31, 2023, we had NOL and research and development credit carryforwards for U.S. federal income tax reporting purposes of approximately $138.6 million and $4.4 million, respectively. Approximately $33.7 million of the NOL will expire between 2024 and 2034 and $52.4 million of the NOL will expire 2035 through 2037. Pursuant to the Tax Cuts and Jobs Act of 2017, NOL’s generated in 2018 and subsequent years have an unlimited carryforward therefore the 2023, 2022, 2020, 2019 and 2018 NOL of $52.5 million can be carried forward indefinitely. The research and development credits will begin toexpire in 2033 through 2043. We have orphan drug credit carry forwards of approximately $1.3 million which will expire if unused through 2043.

We also have state NOL and research and development credit carry forwards ofapproximately $128.9 million and $1.7 million, respectively. The Company’s state NOL of $31.2 million will expire between 2024 and 2029, and $97.7 million will expire in 2030 through 2037. The state research and development credits expire in 2024 through 2038.

The Company’s federal and state income tax returns for December 31, 2020 through 2023 are open tax years.

A reconciliation of the beginning and ending amount of total unrecognized tax contingencies, excluding interest and penalties, for the years ended December 31, 2023 and 2022 are as follows:

(8) **Leases **

The Company has a non-cancelable operating lease for office space and laboratory facilities in Salt Lake City, Utah. On January 24, 2024, the term of the lease has been extended through February 28, 2025.

Future minimum lease payments under the non-cancelable operating lease as of December 31, 2023 are:

The Company’s rent expense was $355,000 and $341,000 for the years ended December 31, 2023 and 2022, respectively.

(9) **Stockholders’ Equity **

On May 1, 2023, at the 2023 annual meeting of the stockholders, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio not less than 1-for-5 and not more than 1-for-20, with the exact ration to be set within that range at the discretion of the Board without further approval or authorization from stockholders.

On May 10, 2023, the Company’s Board approved areverse stock split of 1-for-17. The Company filed the Amendment to its Certificate of Incorporation with the Secretary of the State of Delaware on May 10, 2023, and the Amendment became effective at 5:00 pm Eastern Time on 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.

All common stock share data and per share price data of the Company reflect the reverse stock split effective May 11, 2023.

On June 8, 2022, at the 2022 annual meeting of the stockholders, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.0001, from 100,000,000 shares to 200,000,000 shares. The Company filed the amendment to the Restated Certificate with the Secretary of State of the State of Delaware on June 28, 2022. The amendment to the Restated Certificate became effective upon filing with the Secretary of State of the State of Delaware.

On March 6, 2017, the Company entered into a sales agreement (“Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to the amount the Company registered on an effective registration statement pursuant to which the offering is being made. The Company currently has registered up to $50.0 million for sale under the Sales Agreement, pursuant to the Registration Statement on Form S-3 (File No. 333-250072) through Cantor as the Company’s sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the NASDAQ Capital Market or any other existing trade market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell these shares. The Company pays Cantor 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. In addition, the Company has also provided Cantor with customary indemnification rights.

The Company is not obligated to make any sales of its common stock under the Sales Agreement. The offering of common stock pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement as permitted therein. The Company and Cantor may each terminate the Sales Agreement at any time upon ten days’ prior notice.

As of December 31, 2023, we had sold an aggregate of 964,711 shares at a weighted-average sales price of $34.52 per share under the At the Market Offering (the “ATM Offering”) for aggregate gross proceeds of $33.3 million and net proceeds of $32.1 million, after deducting sales agent commission and discounts and our other offering costs. During the year ended December 31, 2023, the Company sold 81,000 shares of its common stock pursuant to the ATM offering at a weighted-average sales price of $5.36 per share, resulting in net proceeds of approximately $405,000 under the Sales Agreement which is net of approximately $24,000 in expenses. During the year ended December 31, 2022, the Company did not sell any shares of its common stock pursuant to the ATM Offering. As of December 31, 2023, the Company had $40.8 million available for sale under the Sales Agreement. However, as of November 22, 2023, the Company is now subject to General Instruction I.B.6 of Form S-3 which limits the amounts that we may sell under the registration statement. As a result of such limitations, the Company has currently registered the offer and sale of shares of the Company’s common stock pursuant to the Sales Agreement having an aggregate offering price of up to $5.3 million.

On March 7, 2023, the Board of the Company declared a dividend of one one-thousandth (1/1,000 th) of a share of Series B Preferred Stock, par value $0.0001 per share (“Series B Preferred Stock”), for each outstanding share of common stock of the Company, to stockholders of record on March 24, 2023. The Certificate of Designation of Series B Preferred Stock (the “Certificate of Designation”) was filed with the Delaware Secretary of State and became effective on March 10, 2023.

The dividend was based on the number of shares of outstanding common stock on March 24, 2023, and resulted in 88,511 Series B Preferred shares being issued. Each whole share of Series B Preferred Stock entitled the holder thereof to 1,000,000 votes per share, and each fraction of a share of Series B Preferred Stock had a ratable number of votes. Thus, each one-thousandth of a share of Series B Preferred Stock was entitled to 1,000 votes. The outstanding shares of Series B Preferred Stock were entitled to vote together with the outstanding shares of common stock as a single class exclusively with respect to any proposal to adopt an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of the outstanding shares of Common Stock at a ratio determined in accordance with the terms of such amendment (the “Reverse Stock Split”), and (ii) any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split (the “Adjournment Proposal”) in conjunction with the Company’s 2023 annual meeting of stockholders.

All shares of Series B Preferred Stock that were not present in person or by proxy at the 2023 annual meeting as of immediately prior to the opening of the polls (the “Initial Redemption Time”) were automatically redeemed by the Company without further action on the part of the Company or the holder of shares of Series B Preferred Stock (the “Initial Redemption”). The remaining shares of Series B Preferred Stock that were not redeemed pursuant to the Initial Redemption were redeemed automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing the Reverse Stock Split (the “Subsequent Redemption”).

Each “beneficial owner” (as such terms are defined in the Certificate of Designation with respect to the Series B Preferred Stock) of shares of Series B Preferred Stock redeemed in the redemptions described above has the right to receive an amount equal to $0.01 in cash for each ten whole shares of Series B Preferred Stock that were “beneficially owned” by the beneficial owner as of immediately prior to the applicable redemption time and redeemed pursuant to such redemption, payable upon receipt by the Company of a written request submitted by the applicable beneficial owner to the corporate secretary of the Company following the applicable redemption time.

The Series B Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series B Preferred Stock had no stated maturity and was not subject to any sinking fund. The Series B Preferred Stock was not subject to any restriction on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.

The Company was not solely in control of the redemption of the shares of Series B Preferred Stock prior to the annual meeting of stockholders since the holders had the option of deciding whether to vote in respect of the above-described Reverse Stock Split, which determined whether a given holder’s shares of Series B Preferred Stock was redeemed in the Initial Redemption or the Subsequent Redemption. Since the redemption of the Series B Preferred Stock was not solely in the control of the Company, the shares of Series B Preferred Stock were classified within the mezzanine equity in the Company’s unaudited consolidated statement of stockholder’s equity. Upon issuance, the shares of Series B Preferred Stock were measured at redemption value. As of June 30, 2023, all shares of Series B Preferred Stock had been redeemed by the Company.

The foregoing description of the Series B Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designation, which is filed as Exhibit 3.2 to the Form 8-K filed with the SEC on March 10, 2023.

On November 13, 2015, the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, entered into a Rights Agreement. Also on November 12, 2015, the board of directors of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right” and collectively, the “Rights”) for each outstanding share of common stock of the Company. The dividend was payable to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company at a price of $63.96 per one-thousandth share (the “Purchase Price”). The Rights will generally become exercisable upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an

Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company. Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company.

In general, in the event a person becomes an Acquiring Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with a market value of twice the Purchase Price. In addition, if after any person has become an Acquiring Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets, or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such transaction would have a market value of twice the Purchase Price.

The Company will be entitled to redeem the Rights at $0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the Rights Agreement, which is summarized in the Company’s Current Report on Form 8-K dated November 13, 2015. The rights plan was originally set to expire on November 12, 2018; however, on November 5, 2018 our Board of Directors approved an Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 5, 2021 and again on November 1, 2021, the Company adopted a Second Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 1, 2024, unless the rights are earlier redeemed or exchanged by the Company.

In April 2014, the board of directors adopted the 2014 Stock and Incentive Plan (“2014 Plan”) subject to shareholder approval which was received in June 2014. The 2014 Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units, restricted stock and dividend equivalents. An aggregate of 58,823 shares were authorized for issuance under the 2014 Plan. Additionally,15,994 remaining authorized shares under the 2011 Equity Incentive Plan (“2011 Plan”) were issuable under the 2014 Plan at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 74,817 to 145,405. Additionally, upon receiving shareholder approval in June 2018, the 2014 Plan was further amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 145,405 to 189,522. Finally, upon receiving shareholder approval in June 2020, the 2014 Plan was further amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 189,522 to 336,582. The board of directors, on an option-by-option basis, determines the number of shares, exercise price, term, and vesting period for options granted. Options granted generally have aten-year contractual life. The Company issues shares of common stock upon the exercise of options with the source of those shares of common stock being either newly issued shares or shares held in treasury. An aggregate of 336,582 shares are authorized for issuance under the 2014 Plan, with 48,422 shares remaining available for grant as of December 31, 2023.

A summary of stock option activity is as follows:

The following table summarizes information about stock options outstanding and exercisable at December 31, 2023:

The intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The total intrinsic value of stock options exercised during the years ended December 31, 2023 and 2022, was $0 and $173,000, respectively. There were 0 and 12,947 stock options exercised during the years ended December 31, 2023 and 2022, respectively.

The Company accounts for its common stock warrants under ASC 480,Distinguishing Liabilities from Equity, which requires any financial instrument, other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer’s equity shares, or is indexed to such an obligation, and requires or may require the issuer to settle the obligation by transferring assets, to be classified as a liability. In accordance with ASC 480, the Company’s outstanding warrants from the November 2019 Offering are classified as a liability. The liability is adjusted to fair value at each reporting period, with the changes in fair value recognized as gain (loss) on change in fair value of warranty liability in the Company’s consolidated statements of operations. The warrants issued in the November 2019 Offering allow the warrant holder, if certain change in control events occur, the option to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a fundamental transaction.

As of December 31, 2023 and 2022, the Company had 64,362 warrants outstanding from the November 2019 Offering to purchase an equal number of shares of common stock. The fair value of these warrants on November 18, 2019 (closing date of November 2019 Offering) and December 31, 2023 and 2022 was determined using the Black-Scholes option pricing model with the following Level 3 inputs (as defined in the November 2019 Offering):

During the years ended December 31, 2023 and 2022, the Company recorded a non-cash gain of $213,000 and $566,000, respectively, from the change in fair value of the November 2019 Offering warrants. The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs:

Additionally, in the February 2020 Offering, the Company issued 296,593 common stock warrants. However, because these warrants do not provide the warrant holder the option to put the warrant back to the Company, the warrants are classified as equity. As of December 31, 2023, there were 49,433 warrants outstanding that were issued in the February 2020 Offering.

The following table summarizes the number of common stock warrants outstanding and the weighted average exercise price:

During the years ended December 31, 2023 and 2022, zero common stock warrants to purchase one share of our common stock were exercised.

The following table summarizes information about common stock warrants outstanding at December 31, 2023:

(10) **401(k) Plan **

On January 1, 2002, the Company adopted a tax qualified employee savings and retirement plan (the “401(k) Plan”) covering eligible employees. Pursuant to the 401(k) Plan, employees may elect to reduce current compensation by a percentage of eligible compensation, not to exceed legal limits, and contribute the amount of such reduction to the 401(k) Plan. Beginning April 1, 2014, the 401(k) Plan was amended to require matching contributions to the 401(k) Plan by the Company on behalf of the participants of 100 percent Company match on up to four percent of an employee’s compensation computed on a per pay period basis. The Company contributed $102,000 and $94,000, respectively, to the 401(k) Plan during the years ended December 31, 2023 and 2022.

(11) **Commitments and Contingencies **

Litigation

The Company is involved in various lawsuits, claims and other legal matters from time to time that arise in the ordinary course of conducting business. The Company records a liability when a particular contingency is probable and estimable.

On April 2, 2019, the Company filed a lawsuit against Clarus in the United States District Court for the District of Delaware alleging that Clarus’s JATENZO® product infringes six of Lipocine’s issued U.S. patents: 9,034,858; 9,205,057; 9,480,690; 9,757,390; 6,569,463; and 6,923,988. However, on February 11, 2020, the Company voluntarily dismissed allegations of patent infringement for expired U.S. Patent Nos. 6,569,463 and 6,923,988 in an effort to streamline the issues and associated costs for dispute. Clarus answered the complaint and asserted counterclaims of non-infringement and invalidity. The Company answered Clarus’s counterclaims on April 29, 2019. The Court held a scheduling conference on August 15, 2019, a claim construction hearing on February 11, 2020, and a summary judgment hearing on January 15, 2021. In May 2021, the Court granted Clarus’ motion for Summary Judgment, finding the asserted claims of Lipocine’s U.S. patents 9,034,858; 9,205,057; 9,480,690; and 9,757,390 invalid for failure to satisfy the written description requirement of 35 U.S.C. § 112. Clarus still had remaining claims before the Court. On July 13, 2021, the Company entered into the Global Agreement with Clarus which resolved all outstanding claims of this litigation as well as the on-going United States Patent and Trademark Office (“USPTO”) Interference No. 106,128 between the parties. Under the terms of the Global Agreement, the Company agreed to pay Clarus $4.0 million payable as follows: $2.5 million immediately, $1.0 million on July 13, 2022 and $500,000 on July 13, 2023. On April 29, 2022, the Company agreed to an amendment to Section 3.1 of the Global Agreement, pursuant to which the Company agreed to pay Clarus $1,250,000 in May 2022, with no additional payments required thereafter. No future royalties are owing from either party. On July 15, 2021, the Court dismissed with prejudice the Company’s claims and Clarus’ counterclaims.

On November 14, 2019, the Company and certain of our officers were named as defendants in a purported shareholder class action lawsuit,Solomon Abady v. Lipocine Inc. et al., 2:19-cv-00906-PMW, filed in the United District Court for the District of Utah. The complaint alleges that the defendants made false and/or misleading statements and/or failed to disclose that the Company’s filing of the NDA for TLANDO to the FDA contained deficiencies and as a result the defendants’ statements about our business and operations were false and misleading and/or lacked a reasonable basis in violation of federal securities laws. The lawsuit seeks certification as a class action (for a purported class of purchasers of the Company’s securities from March 27, 2019 through November 8, 2019), compensatory damages in an unspecified amount, and unspecified equitable or injunctive relief. The Company has insurance that covers claims of this nature. On April 14, 2023, a judgment was issued ordering the case dismissed with prejudice and closure of the action.

Management does not currently believe that any other matter, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.

Guarantees and Indemnifications

In the ordinary course of business, the Company enters into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements, containing standard guarantee and / or indemnifications provisions. Additionally, the Company has indemnified its directors and officers to the maximum extent permitted under the laws of the State of Delaware.

(12) **Agreement with Spriaso, LLC **

The Company has a license and a services agreement with Spriaso, a related-party that is majority-owned by certain current and former directors of Lipocine Inc. and their affiliates. Under the license agreement, the Company assigned and transferred to Spriaso all of the Company’s rights, title and interest in its intellectual property to develop products for the cough and cold field. In addition, Spriaso received all rights and obligations under the Company’s product development agreement with a third-party. In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $10.0 million. Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside of the cough and cold field. The Company also agreed to continue providing up to 10 percent of the services of certain employees to Spriaso for a period of time. The agreement to provide services expired in 2021; however, it may be extended upon written agreement of Spriaso and the Company. The Company did not receive any reimbursements from Spriaso for the years ended December 31, 2023 and 2022, respectively. Additionally, during the years ended December 31, 2023 and 2022, the Company received $110,000 and $0, respectively, in royalty revenue from Spriaso. Spriaso filed its first NDA and as an affiliated entity of the Company, it used up the one-time waiver for user fees for a small business submitting its first human drug application to the FDA. Spriaso is considered a variable interest entity under the FASB ASC Topic 810-10,Consolidations, however the Company is not the primary beneficiary and has therefore not consolidated Spriaso.

(13) Subsequent Events

On January 12, 2024, the Company entered into a License Agreement with Verity Pharmaceuticals, Inc. for the commercialization of TLANDO® in the U.S. and for the development and commercialization rights to TLANDO XR in Canada as described in Note 4(c).