INTENSITY THERAPEUTICS INC

NOTES TO FINANCIAL STATEMENTS

Note 1. Description of Business

Intensity Therapeutics, Inc. (“the Company”) is a biotechnology company whose treatment approach addresses both the regional and systemic nature of a patient’s cancer. The Company’s DfuseRx SM technology platform has identified a lead drug, INT230-6. The Company is based in Connecticut and was incorporated in Delaware in December 2012.

As a result of its initial public offering (the “IPO”) that priced on June 29, 2023, the Company began trading on the Nasdaq Capital Market under the symbol “INTS” on June 30, 2023. The IPO closed on July 5, 2023 at the IPO price of $5.00 per share, at which time the Company issued 3,900,000 shares of our common stock for gross proceeds of $19.5 million. After deducting offering expenses of $2.0 million, the Company received net proceeds received of $17.5 million. On July 7, 2023, the Company sold the full over-allotment shares at the IPO price of $5.00 per share, resulting in the issuance of 585,000 shares of our common stock for gross proceeds of $2.9 million. After deducting offering expenses of $0.2 million, the Company received an additional $2.7 million in net cash proceeds. The Company has begun to use and will continue to use the net proceeds from the IPO to initiate clinical studies, conduct manufacturing suitable for phase 3 studies, submit regulatory filings to the United States Food & Drug Administration (“FDA”) and for general and corporate purposes.

In April 2023, the Company effected a two-for-one reverse stock split (the “Reverse Stock Split”). All owners received one issued and outstanding share of the Company’s common stock in exchange for two outstanding shares of the Company’s common stock. All fractional shares created by the two-for-one exchange were paid in cash. The conversion price of Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock were adjusted to reflect the Reverse Stock Split by doubling the original conversion price. The Reverse Stock Split has no impact on the par value per share of the Company’s common stock, Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock, all of which remain at $.0001. All holders of options and warrants had the exercise price doubled and the number of shares issuable upon exercise reduced by half. All current and prior period amounts related to shares, share prices and loss per share, presented in the Company’s financial statements and the accompanying notes have been restated for the Reverse Stock Split. All preferred stock and convertible notes were converted into common stock on the IPO date.

Note 2. Liquidity and Plan of Operation

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.

The Company is a research and development company and has not generated any revenue from its product candidates. The Company has experienced net losses and negative cash flows from operations each year since its inception. Through December 31, 2023, the Company has an accumulated deficit of $50.5 million. The Company’s operations have been financed primarily through the sale of equity securities and convertible notes. The Company’s net loss for the year ended December 31, 2023 was $10.5 million. The Company expects to incur significant expenses to complete development of its product candidates. The Company may never be able to obtain regulatory approval for the marketing of any of its product candidates in the United States or internationally and there can be no assurance that the Company will generate revenues or ever achieve profitability. The Company does not expect to receive significant product revenue in the near term. The Company, therefore, expects to continue to incur substantial losses for the foreseeable future.

Cash, cash equivalents and marketable debt securities totaled $14.8 million as of December 31, 2023. Until such time the Company can generate substantial product revenue, the Company expects to finance its operations through a combination of equity offerings and convertible debt financings. The Company does not have any committed external source of funds. To the extent that the Company can raise additional capital through the sale of equity or convertible debt securities, the ownership interest of the Company stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of the common stockholders. If the Company is unable to raise additional funds through equity or debt financings when needed, the Company may be required to delay, limit, reduce or terminate its research and product development.

Based on the cash, cash equivalents, and marketable debt securities as of December 31, 2023, the Company believes that it has cash through the end of the first quarter of 2025 for its current operations. As a result, the Company believes there is substantial doubt about its ability to continue as a going concern.

Note 3. Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and reflect the operations of the Company. The Company neither owns nor controls any subsidiary companies.

Financial impact of events beyond our control

Our financial condition and results of operations may be impacted by factors we may not be able to control, such as the COVID-19 or other pandemic, global supply chain disruptions, global trade disputes and/or political instability. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. Additionally, rising inflation rates may affect us by increasing operating expenses, such as employee-related costs and clinical trial expenses, negatively impacting our results of operations.

The Company’s financial results for the year ended December 31, 2023 were not significantly impacted by COVID-19 or other factors beyond our control, such as those described above. However, the Company cannot predict the impact of any of these factors on future results or the Company’s ability to raise capital due to a variety of factors, including but not limited to the continued good health of Company employees, the ability of service providers and suppliers to continue to operate and deliver, the ability of the Company to maintain operations, and any government and/or public actions taken in response to these factors.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Certain accounting principles require subjective and complex judgments to be used in the preparation of financial statements. Accordingly, a different financial presentation could result depending on the judgments, estimates, or assumptions that are used.

The Company utilizes significant estimates and assumptions in valuing its stock-based awards and accruals of research and development expenses. An additional significant estimate is that these financial statements are based on the assumption of the Company continuing as a going concern.

Concentration of credit risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist entirely of cash and investments in U.S. Treasury bills. These financial instruments are held at two U.S. financial institutions. The cash accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to regulatory limits. During the years ended December 31, 2023 and 2022, the Company’s cash balances exceeded the FDIC insurance limit. The investments in the U.S. Securities money market fund and U.S. Treasury bills are not FDIC insured but are backed by the U.S. government. U.S. Treasury bills are subject to market risk if they are sold prior to maturity. The Company has not experienced any losses in such accounts. Although the Company believes that the financial institutions with whom the Company does business will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so beyond amounts guaranteed by the FDIC.

Cash and cash equivalents

The Company considers all liquid investments acquired with a maturity of three months or less to be cash equivalents.

Marketable debt securities

Investments in U.S. Treasury bills purchased with a maturity over three months but less than twelve months are classified separately from cash and cash equivalents in current assets. Investments in U.S. Treasury bills are classified as available for sale. Under the classification of available for sale, securities are reported at fair value. Unrealized gains or losses would be included in accumulated other comprehensive income within the equity section of the Balance Sheet. At December 31, 2023, there wereno unrealized gains or losses and all accrued interest was recognized as Interest income in the Statement of Operations.

Fair value measurement

The Company reports its investments at fair value. Fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction costs. A fair value hierarchy provides for prioritizing inputs to valuation techniques used to measure fair value into three levels:

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 or Level 2 assets or liabilities.

As of December 31, 2023, the Company invested $6.2 million in U.S. Treasury Bills, included in marketable debt securities. U.S. Treasury bills are valued at market prices obtained from independent vendor services, which we believe to be reliable. In some cases, the pricing vendor may provide prices quoted by a single broker or market maker. U.S. Treasury Bills are categorized in Level 2 of the fair value hierarchy. As of December 31, 2022, there wereno investments in U.S. Treasury Bills.

The Company’s financial instruments, including cash equivalents and current liabilities are carried at cost, which approximates fair value due to the short-term nature of these instruments.

Stock-based compensation

The Company accounts for stock-based compensation to employees and non-employees, which consists of stock option grants, through the Statements of Operations based on their fair values at the date of grant.

The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award. Forfeitures are recognized as they occur.

The Company had been a private company and lacked company-specific historical and implied volatility information for its shares. Therefore, the Company estimated its expected share price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.

Research and development and patent costs

The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants, contract research organizations (“CRO”), and contract manufacturing organizations (“CMO”) in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

Research and development costs are expensed in the period in which they are incurred. External costs consist primarily of payments to outside consultants, third-party CROs, CMOs, clinical trial sites and central laboratories in connection with the Company’s clinical manufacturing and clinical development activities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers or its estimate of the level of service that has been performed at each reporting date. The Company tracks external costs based on research and development initiative, including preclinical, individual clinical study, and manufacturing activities. Internal costs consist primarily of employee-related costs and costs related to compliance with regulatory requirements. The Company does not track internal costs by program because these costs are deployed across multiple programs and, as such, are not separately classified.

The Company makes estimates of accrued expenses as of each balance sheet date based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. The significant estimates in its accrued research and development expenses include the costs incurred for services performed by vendors in connection with research and development activities for which the Company has not yet been invoiced.

In mid-2024, the Company intends on initiating a Phase 3 open-label, randomized study for certain soft tissue sarcoma subtypes. In connection with this study, the Company recorded an advance payment of $1.7 million, which will be applied to invoices at the end of the study and is included in Other Assets in the Balance Sheet as of December 31, 2023, as the Phase 3 study is expected to span several years.

Income taxes

The Company accounts for income taxes through the use of the asset-and-liability method whereby deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company utilizes a valuation allowance to reduce deferred tax assets to their estimated realizable value.

The Company accounts for uncertain tax positions. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31, 2023, the Company does not have any significant uncertain tax positions.

There are no estimated interest costs and penalties provided for in the Company’s financial statements for the year ended December 31, 2023. If at any time the Company should record interest and penalties in connection with income taxes, the interest and penalties will be expensed within the income tax line.

Leases

The Company determines if an arrangement contains a lease at contract inception. With the exception of short-term leases (leases with terms less than 12 months), all leases with contractual fixed costs are recorded on the balance sheet on the commencement date as a right-of-use (ROU) asset and a lease liability. Lease liabilities to be paid over the next twelve months are classified as current lease liability and all other lease obligations are classified as long-term lease liability. Lease liabilities are initially measured at the present value of the future minimum lease payments and subsequently increased to reflect the interest accrued and reduced by the lease payments made. The Company’s building leases require a pro-rata share of operating expenses and real estate taxes, which are variable in nature and excluded from the measurement of lease liabilities. ROU assets are initially measured at the present value of the future minimum lease payments adjusted for any prior lease prepayments, lease incentives and initial direct costs. Certain leases contain escalation, renewal and/or termination options that are factored into the ROU asset as appropriate. Operating leases result in a straight-line rent expense over the expected lease term.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of future lease payments, if the rate implicit in the lease is not readily determinable. Consideration is given to publicly available data for instruments with similar characteristics when calculating incremental borrowing rates. This incremental borrowing rate estimate is based on a synthetic credit rating derived from the market capitalization of similar companies, the treasury yield curve, and corporate yield spreads.

Basic and dilutive loss per share

Basic net loss per share is determined using the weighted average number of shares of common stock outstanding during each period. Dilutive net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, convertible notes, stock options, and stock warrants, which would result in the issuance of incremental shares of common stock. The computation of diluted net loss per share does not include the conversion of securities that would have an anti-dilutive effect. Potential shares of common stock issuable upon conversion of preferred stock, exercise of stock options, and exercise of warrants that are excluded from the computation of diluted weighted average shares outstanding listed in the table below because they are anti-dilutive. The basic and diluted computation of net loss per share for the Company are the same because the effects of the Company’s convertible securities would be anti-dilutive. All common and preferred stock participate equally in dividends and the distribution of earnings if and when declared by the Board of Directors, on the Company’s common stock for the year ended December 31, 2023. For purposes of computing earnings per share, all series of preferred stock are considered participating securities. Therefore, the Company must calculate basic and diluted earnings per share using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. As the preferred stockholders have no obligation to fund losses, no portion of net loss was allocated to the participating securities for the year ended December 31, 2022. There were no preferred shares outstanding at December 31, 2023.

As of December 31, 2023 and 2022, the following shares of common stock underlying preferred stock, options, and warrants were excluded from the computation of diluted weighted average shares outstanding. In accordance with the Reverse Stock Split in April 2023 (see Note 1), the number of shares of common stock underlying the preferred stock, options and warrants are now half, and the below information gives effect to this Reverse Stock Split:

As of December 31, 2022, the shares that would be issued from the convertible notes outstanding are also excluded from diluted weighted average shares outstanding, since the conversion rate is dependent upon qualified liquidity events. All convertible notes were converted into shares of common stock on June 29, 2023.

Stock issuance costs

The Company incurred costs related to the sale of its common stock in its IPO and the subsequent sale of common stock in the over-allotment. These costs included underwriter commissions and fees, legal fees, accounting fees, and printing costs. These costs were recorded as a deduction to Additional Paid in Capital.

Recently issued pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on its financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

Note 4. Cash and Cash Equivalents

Cash and cash equivalents consisted of the following (in thousands):

Note 5. Marketable Debt Securities

Marketable debt securities as of December 31, 2023 consisted entirely of U.S. Treasury bills purchased with maturities over three months but less than twelve months. There wereno marketable debt securities as of December 31, 2022.

Note 6. Prepaid Expenses

Prepaid expenses consisted of the following (in thousands):

Note 7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

Note 8. Convertible Notes

Prior to the IPO, the Company entered into a series of interest-bearing convertible notes as described below.

In September 2021, the Company entered into a convertible note agreement with a shareholder for aggregate principal of $2.0 million, as amended in November 2022 (the “2021 Convertible Note”). The outstanding principal balance and accrued interest on the note automatically converted upon the IPO at a discount of 35% to the conversion price of $11.50 per share in accordance with the note agreement. The 2021 Convertible Note had accrued interest at 3% per annum.

In November 2022, the Company entered into convertible note agreements with shareholders for an aggregate $2.3 million with three holders (the “2022 Convertible Notes”). The outstanding principal balance and accrued interest on these notes automatically converted upon the IPO at a discount of 30% to the conversion price of $11.50 per share in accordance with the note agreement. The 2022 Convertible Notes had accrued interest at 10% per annum.

In March through May 2023, the Company entered into convertible note agreements for an aggregate $0.2 million with four holders (the “2023 Convertible Notes”). The outstanding principal balances and accrued interest on these notes automatically converted upon the IPO at a discount of 30% to the conversion price of $11.50 per share in accordance with the note agreement. The 2023 Convertible Notes had accrued interest at 10% per annum.

Convertible notes consisted of the following as of December 31, 2023 and 2022 (in thousands):

As of December 31, 2022, the Company classified the convertible notes as a current liability since the Company anticipated that these notes would automatically convert into shares of common stock within one year.

Upon the IPO, all convertible note principal and accrued interest of $4.5 million and $0.2 million, respectively, converted into an aggregate of 1,399,716 shares of common stock, pursuant to the conversion terms in each respective note. The Company recorded a non-operating loss on debt extinguishment of $2.3 million in the statement of operations, which is equal to the aggregate discounts on the IPO price specified in each convertible note agreement. In addition, upon the IPO, the remaining $0.2 million balance of unamortized discount on 2022 Convertible Notes was recognized and recorded in Interest Expense on the Statement of Operations.

Note 9. Stockholders’ Equity

Initial public offering

On June 29, 2023, as described in Note 1, the Company priced its IPO, issuing 3,900,000 shares of common stock at the IPO price of $5.00 per share. On July 7, 2023, the Company sold the full over-allotment of the IPO shares and issued 585,000 shares of common stock at the IPO price of $5.00 per share.

On June 29, 2023, pursuant to the IPO,

•all Series A, B and C Preferred Stock was converted into 4,124,851 shares of common stock at conversion prices equal to $4.00, $9.00 and $11.50, respectively..

•Series B and Series C Preferred Stock received an additional 100,189 and 164,518 shares of common stock, respectively, pursuant to the terms of their security agreements, since the IPO price was less than the original issue price. The additional shares have been recorded as a deemed dividend on the Statement of Operations and Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficiency).

•All voting, dividend, redemption and liquidation preference rights, specific to the Series A, B, and C Preferred Stock were extinguished.

•All Convertible Notes and related accrued interest were converted into 1,399,716 shares of common stock, as described in Note 8.

Authorized shares

Pursuant to the sixth amended and restated Certificate of Incorporation, dated June 30, 2023, the total number of shares of all classes of stock which the Company shall have authority to issue is (i)135,000,000 shares of common stock and (ii)15,000,000 shares of preferred stock.

Note 10. Stock Based Compensation

The Company has a 2013 Stock Option Plan (the “2013 Plan”), which is administered by our Compensation Committee. Under the 2013 Plan, stock options to purchase shares of common stock could be granted to eligible employees, officers, directors and consultants of the Company.

In 2021, the Company replaced the 2013 Plan with the 2021 Stock Incentive Plan (the “2021 Plan”), authorizing the granting of equity awards for the issuance of up to 3,000,000 shares of common stock. Upon adoption of the 2021 Plan, no more shares would be issued under the 2013 Plan. Starting on January 1, 2022, the shares authorized under the 2021 Plan shall have an annual increase of the lessor of (a)3.5% of the aggregate number of shares of Common Stock outstanding on the final day of the preceding calendar year, or (b) such smaller amount as determined by the Board. On January 1, 2023, an additional 238,700 shares were authorized under the 2021 Plan. As of December 31, 2023,2,837,700 shares were available for issuance under the 2021 Plan.

The Company recorded total stock-based compensation in its Statements of Operations as follows (in thousands):

Stock options

The following table summarizes the range of assumptions used to estimate the fair value of stock options issued in 2023 and 2022:

For the years ended December 31, 2023 and 2022, a dividend yield of 0% was used because the Company has not historically paid and does not intend to pay a dividend on Common Stock in the foreseeable future. The expected stock price volatility assumption was estimated based on the historical volatilities for industry peers, as the Company had no active market for its stock prior to the IPO and limited history for issuance price of its stock. The risk-free rate assumption is determined using the yield currently available on U.S. Treasury zero coupon issues with a remaining term commensurate with the expected term of the award. The expected term of the option represents the period the options are expected to be outstanding.

The following table summarizes the activity for stock options for the year ended December 31, 2023:

All options expire 10 years from date of grant. Options outstanding begin to expire in August 2024. Options that were granted to employees and consultants have vesting periods that vary by award to recipient and range from immediate vesting to a period of up to 4 years.

The weighted average grant date fair value of stock options issued was $4.21 and $2.96 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, total unrecognized compensation cost related to options was approximately $1,848,000 and is expected to be recognized over the remaining weighted average service period of 2.2 years.

Warrants

The following table summarizes the range of assumptions used to estimate the fair value of warrants issued in 2023 and 2022:

For the years ended December 31, 2023 and 2022, a dividend yield of 0% was used because the Company has not historically paid and does not intend to pay a dividend on Common Stock in the foreseeable future. The expected stock price volatility assumption was estimated based on the historical volatilities for industry peers, as the Company had no active market for its stock prior to the IPO and limited history for issuance price of its stock. The risk-free rate assumption is determined using the yield currently available on U.S. Treasury zero coupon issues with a remaining term commensurate with the expected term of the award. The expected term of the option represents the period the options are expected to be outstanding.

The following table summarizes the activity for warrants for the year ended December 31, 2023:

All warrants outstanding are exercisable for purchase of common stock. In connection with the IPO,313,950 warrants were issued to the Company’s underwriters during the year ended December 31, 2023.

At December 31, 2023, total unrecognized compensation cost related to warrants was approximately $282,000 and is expected to be recognized over the remaining weighted average service period of 1.4 years.

Note 11. Leases

In January 2017, the Company entered into a lease for approximately 2,500 square feet of office space in Westport, Connecticut, (the “Westport Lease”), which was subsequently extended and increased to approximately 4,000 square feet. In June 2023, the Westport Lease was terminated.

In July 2023, the Company signed a 5.5-year lease for approximately 2,700 square feet of office space in Shelton, Connecticut, (the “Shelton Lease”). The Company has a one-time option to cancel the Shelton Lease after 36 months if it provides written notice before the end of month 30. A payment of approximately $47,000 would be due at the end of month 36 if the Company exercises this option. This option is not reasonably certain to occur.

Rent expense for the years ended December 31, 2023 and 2022 was $63,000 and $120,000, respectively. Cash paid for operating leases for the years ended December 31, 2023 and 2022 was approximately $49,000 and $192,000, respectively, all of which pertained to the Shelton Lease. Cash paid for the Westport Lease will commence in 2024.

The following table summarizes the balance sheet classification of the operating lease asset and related lease liabilities as of December 31, 2023 for the Shelton Lease and as of December 31, 2022 for the Westport Lease (in thousands):

The following variables were used to determine the right-of-use asset and the operating lease liabilities at December 31, 2022 and 2021:

Future minimum lease payments under the lease agreement as of December 31, 2023 were as follows (in thousands):

Note 12. Other Uncertainties

The Company holds one of its patents in Russia. The payment for this patent is paid until September 15, 2024. If subsequent payments to Russia are restricted, the Company may lose this patent in Russia. The Company has no other significant business activities in Belarus, Russia or the Ukraine. The Company also holds a patent in Israel which is currently involved in military action.

Note 13. Related Parties

Beginning in February 2022, a minority stockholder was engaged as a consultant to serve as the Company’s chief medical officer. Under the consulting agreement, the Company recorded approximately $6,200 and $96,000 of research and development expense for the years ended December 31, 2023 and 2022, respectively.

The Company sublet a portion of its Westport Lease to a minority stockholder, and recognized sublease income of approximately $23,000 and $68,000 for the years ended December 31, 2023 and 2022. Sublease income is recorded as a reduction of general and administrative expenses in the Statement of Operations. The sublease ended in April 2023.

As of December 31, 2023 and 2022, the Company held a $36,000 deposit related to a service agreement with a minority stockholder, and is recorded in other long-term liabilities on the balance sheet. The deposit will be returned to the minority stockholder at the completion of the service agreement.

In October 2023, the Company issued 80,000 warrants for consulting services to be rendered by the two shareholders, which will vest over the subsequent twelve months. These warrants are valued at $198,000 and will be expensed to general and administrative expense over the subsequent twelve month period.

Note 14. Income Taxes

The components of the Company’s provision for income taxes and income taxes computed using the U.S. federal statutory corporate tax rate were as follows (in thousands):

The components of the net deferred tax assets are as follows (in thousands):

As of December 31, 2023, the Company has U.S. federal and state net operating loss carryforwards of $32.0 million and $31.9 million, respectively, which may be used to offset future taxable income, if any. As of December 31, 2022, the Company had U.S. federal and state net operating loss carryforwards of $28.1 million and $28.0 million, respectively, which may be used to offset future taxable income, if any. The Company’s U.S. federal and state net operating loss carryforwards begin to expire in 2033 and the U.S. federal net operating losses generated between 2018 and 2022 can be carried forward indefinitely. Federal loss carryforwards of $7.0 million expire between the years 2033 and 2037, and the remainder have no expiration date.

As of December 31, 2023 and 2022, the Company has U.S. federal and state credit carryforwards of $0.4 million and $0.2 million, respectively, which may be used to offset future taxable income, if any. The Company’s U.S. federal and state credit carryforwards begin to expire in 2033. The Company’s ability to utilize these net operating loss carryforwards and tax credit carryforwards may be limited if the Company experiences an ownership change pursuant to Internal Revenue Code Section 382 and 383. An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period. The Company has not completed an analysis under Section 382 of the Code.

A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. The Company provides a valuation allowance to offset deferred tax assets for net operating losses incurred during the year and for other deferred tax assets where, in the Company’s opinion, it is more likely than not that the financial statement benefit of these losses will not be realized.

The Company’s policy is to classify interest and penalties, if any, as components of the income tax provision in the statement of operations. The Company hasnot recorded any unrecognized tax benefit, interest or penalty in the years ended December 31, 2023 and 2022.

The Company is subject to income tax in the U.S. Federal and Connecticut jurisdictions.