UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For Quarterly Period ended March 31, 2023

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

For the transition period from _________ to _______ .

Commission File Number: 001-36357

LIPOCINE INC.

(Exact name of registrant as specified in its charter)

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

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

801-994-7383

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

Outstanding Shares

As of May 9, 2023, the registrant had 88,510,791 shares of common stock outstanding.

TABLE OF CONTENTS

			Page

PART I—FINANCIAL INFORMATION

	Item 1.	Financial Statements	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	38

	Item 4.	Controls and Procedures	39

PART II—OTHER INFORMATION

	Item 1.	Legal Proceedings	39

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

	Item 3.	Defaults Upon Senior Securities	41

	Item 4.	Mine Safety Disclosures	41

	Item 5.	Other Information	41

	Item 6.	Exhibits	42

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	4,769,180		$	3,148,496
Marketable investment securities		24,100,430			29,381,410
Accrued interest income		39,060			80,427
Contract asset - current portion		579,428			579,428
Prepaid and other current assets		1,126,731			945,319

Total current assets		30,614,829			34,135,080

Contract asset - non-current portion		3,252,500			3,252,500
Property and equipment, net of accumulated depreciation of $1,158,349 and $1,153,530 respectively		130,770			131,589
Other assets		23,753			23,753

Total assets	$	34,021,852		$	37,542,922

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	796,476		$	600,388
Accrued expenses		1,133,626			1,077,738

Total current liabilities		1,930,102			1,678,126

Warrant liability		131,722			229,856

Total liabilities		2,061,824			1,907,982

Commitments and contingencies (notes 6, 8, 9 and 11)		-			-

Mezzanine equity:
Preferred stock, par value $0.0001 per share ($0.001 per share redemption value), 10,000,000 shares authorized; 88,511 and zero issued and outstanding at March 31, 2023 and December 31, 2022, respectively		9			-

Stockholders’ equity:
Common stock, par value $0.0001 per share, 200,000,000 shares authorized; 88,516,501 issued and 88,510,791 outstanding		8,852			8,852
Additional paid-in capital		219,284,000			219,112,164
Treasury stock at cost, 5,710 shares		(40,712	)		(40,712	)
Accumulated other comprehensive loss		3,241			(20,321	)
Accumulated deficit		(187,295,362	)		(183,425,043	)

Total stockholders’ equity		31,960,028			35,634,940

Total liabilities and stockholders’ equity	$	34,021,852		$	37,542,922

See accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	2023			2022
	Three Months Ended March 31,
	2023			2022

Revenues:	$	54,990		$	-

Operating expenses:
Research and development		3,106,310			1,887,953
General and administrative		1,287,313			1,243,687
Total operating expenses		4,393,623			3,131,640

Operating loss		(4,338,633	)		(3,131,640	)

Other income (expense):
Interest and investment income		370,469			41,576
Interest expense		-			(19,529	)
Unrealized gain (loss) on warrant liability		98,134			(377,988	)
Total other income (expense), net		468,603			(355,941	)

Loss before income tax expense		(3,870,030	)		(3,487,581	)

Income tax expense		(200	)		(200	)

Net loss		(3,870,230	)		(3,487,781	)

Issuance of Series B preferred stock dividend		(89	)		-
Net loss attributable to common shareholders	$	(3,870,319	)	$	(3,487,781	)

Basic loss per share attributable to common stock	$	(0.04	)	$	(0.04	)

Weighted average common shares outstanding, basic		88,510,791			88,309,628

Diluted loss per share attributable to common stock	$	(0.04	)	$	(0.04	)

Weighted average common shares outstanding, diluted		88,510,791			88,309,628

Comprehensive loss:
Net loss	$	(3,870,319	)	$	(3,487,781	)
Net unrealized gain (loss) on available-for-sale securities		23,562			(49,400	)

Comprehensive loss	$	(3,846,757	)	$	(3,537,181	)

See accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2023 and 2022

(Unaudited)


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

Balances at December 31, 2021		-	$	-		88,290,650	$	8,829		5,710	$	(40,712	)	$	218,286,324	$	(18,016	)	$	(172,666,407	)	$	45,570,018

Net loss		-		-		-		-		-		-			-		-			(3,487,781	)		(3,487,781	)

Unrealized net loss on marketable investment securities		-		-		-		-		-		-			-		(49,400	)		-			(49,400	)

Stock-based compensation		-		-		-		-		-		-			171,028		-			-			171,028

Option exercises		-		-		208,274		21		-		-			205,967		-			-			205,988

Balances at March 31, 2022		-	$	-		88,498,924	$	8,850		5,710	$	(40,712	)	$	218,663,319	$	(67,416	)	$	(176,154,188	)	$	42,409,853
Balances		-	$	-		88,498,924	$	8,850		5,710	$	(40,712	)	$	218,663,319	$	(67,416	)	$	(176,154,188	)	$	42,409,853

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

Balances at December 31, 2022		-	$	-		88,510,791	$	8,852		5,710	$	(40,712	)	$	219,112,164		$	(20,321	)	$	(183,425,043	)	$	35,634,940
Balance		-	$	-		88,510,791	$	8,852		5,710	$	(40,712	)	$	219,112,164		$	(20,321	)	$	(183,425,043	)	$	35,634,940

Net loss		-		-		-		-		-		-			-			-			(3,870,230	)		(3,870,230	)

Unrealized net gain on marketable investment		-		-		-		-		-		-			-			23,562			-			23,562
securities

Unrealized net gain loss on marketable investment securities		-		-		-		-		-		-			-			23,562			-			23,562
Stock-based compensation		-		-		-		-		-		-			177,772			-			-			177,772

Issuance of Series B referred stock dividend		88,511		9		-		-		-		-			80			-			(89	)		-

Costs associated with ATM offering		-		-		-		-		-		-			(6,016	)		-			-			(6,016	)

Balances at March 31, 2023		88,511	$	9		88,510,791	$	8,852		5,710	$	(40,712	)	$	219,284,000		$	3,241		$	(187,295,362	)	$	31,960,028
Balance		88,511	$	9		88,510,791	$	8,852		5,710	$	(40,712	)	$	219,284,000		$	3,241		$	(187,295,362	)	$	31,960,028

See accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31, 2023
	2023			2022

Cash flows from operating activities:

Net loss	$	(3,870,230	)	$	(3,487,781	)

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation expense		4,819			1,719
Stock-based compensation expense		177,772			171,028
Non-cash interest expense		-			4,674
Non-cash (gain) loss on change in fair value of warrant liability		(98,134	)		377,989
Amortization of premium (discounts) on marketable investment securities		(254,215	)		51,282

Changes in operating assets and liabilities:
Accrued interest income		41,367			127,159
Prepaid and other current assets		(181,412	)		136,540
Accounts payable		196,088			(819,455	)
Accrued expenses		55,888			(448,557	)

Cash used in operating activities		(3,928,057	)		(3,885,402	)

Cash flows from investing activities:
Purchase of property and equipment		(4,000	)		(26,797	)
Purchases of marketable investment securities		(6,441,243	)		(17,906,250	)
Maturities of marketable investment securities		12,000,000			25,228,474

Cash provided by investing activities		5,554,757			7,295,427

Cash flows from financing activities:

Debt repayments		-			(833,334	)
Costs associated with At the Market Offering		(6,016	)		-
Proceeds from stock option exercises		-			205,988

Cash provided used in financing activities		(6,016	)		(627,346	)

Net increase in cash and cash equivalents		1,620,684			2,782,679

Cash and cash equivalents at beginning of period		3,148,496			2,950,552

Cash and cash equivalents at end of period	$	4,769,180		$	5,733,231

Supplemental disclosure of cash flow information:
Interest paid	$	-		$	14,855
Income taxes paid	$	456			-

Supplemental disclosure of non-cash investing and financing activity:
Net unrealized gain (loss) on available-for-sale securities	$	23,562		$	(49,400	)
Accrued final payment charge on debt	$	-		$	4,674
Issuance of Series B preferred stock dividend	$	89		$	-

See accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Lipocine Inc. (“Lipocine” or the “Company”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries, collectively referred to as the Company. In management’s opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2023.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022.

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

The Company believes that its existing capital resources, together with interest thereon, will be sufficient to meet its projected operating requirements through at least May 11, 2024 which includes an on-going clinical study for LPCN 1148 in the management of decompensated cirrhosis, a pilot pharmacokinetic (“PK”) bridge study for LPCN 1154 in Postpartum Depression (“PPD”), and compliance with regulatory requirements. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital resources sooner than it currently expects if additional activities are performed by the Company including clinical studies for LPCN 1148, LPCN 1154, LPCN 1144 for non-cirrhotic non-alcoholic steatohepatitis (“NASH”), LPCN 1111 an oral TRT product with the potential for once daily dosing, LPCN 1107 for the prevention of recurrent preterm birth, and LPCN 2101 for epilepsy. While the Company believes it has sufficient liquidity and capital resources to fund our projected operating requirements through at least May 11, 2024, the Company will need to raise additional capital at some point through the equity or debt markets or via out-licensing activities to support its operations. If the Company is unsuccessful in raising additional capital, its ability to continue as a going concern will become a risk. Further, the Company’s operating plan may change, and the Company may need additional funds to meet operational needs and capital requirements for product development, regulatory compliance and clinical trial activities sooner than planned. In addition, the Company’s capital resources may be consumed more rapidly if it pursues additional clinical studies for LPCN 1148, LPCN 1144, LPCN 1111, LPCN 1107, LPCN 1154 and LPCN 2101. Conversely, the Company’s capital resources could last longer if the Company reduces expenses, reduces the number of activities currently contemplated under its operating plan, or terminates, modifies the design or suspends on-going clinical studies.

(2) Revenue

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

See Note 8 for a description of the license agreement with Antares Pharma, Inc. (“Antares”). See Note 12 for a description of the agreement with Spriaso, a related party.

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

Royalties. Royalties revenue consists of sales-based and minimum royalties earned under license agreements for our products. Sales-based royalties revenue represents variable consideration under 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 due based on the terms of the contract. The contract asset as of March 31, 2023 is related to the Antares License Agreement. The contract asset was reduced by approximately $218,000 for royalty payments received during 2022. These royalties were received from Antares under the terms of our license agreement based on net sales of TLANDO. Based on the terms of the license agreement and sales estimates for the first quarter of 2023 provided by Antares, the Company estimates that it will not receive a royalty payment on estimated first quarter 2023 net sales of TLANDO under this 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 revenue of approximately $55,000 and $0 for the three months ended March 31, 2023, and March 31, 2022, respectively. The revenue recognized in 2023 was 100% from one major related-party partner, Spriaso.

(3) Earnings (Loss) per Share

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

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
Basic loss per share attributable to common stock:
Numerator
Net loss	$	(3,870,230	)	$	(3,487,781	)

Denominator
Weighted avg. common shares outstanding		88,510,791			88,309,628

Basic loss per share attributable to common stock	$	(0.04	)	$	(0.04	)

Diluted loss per share attributable to common stock:
Numerator
Net loss	$	(3,870,230	)	$	(3,487,781	)
Effect of dilutive securities on net loss:
Common stock warrants		98,134			-
Total net loss for purpose of calculating diluted net loss per common share	$	(3,968,364	)	$	(3,487,781	)
Denominator
Weighted avg. common shares outstanding		88,510,791			88,309,628
Weighted average effect of dilutive securities:
Common stock warrants		-			-
Total shares for purpose of calculating diluted net loss per common share		88,510,791			88,309,628

Diluted loss per share attributable to common stock	$	(0.04	)	$	(0.04	)

The computation of diluted loss per share for the three months ended March 31, 2023 and 2022 does not include the following stock options and warrants to purchase shares of common stock in the computation of diluted loss per share because these instruments were antidilutive:

	March 31,
	2023		2022
Stock options		4,466,431		4,229,739
Warrants		840,336		1,934,366

(4) Marketable Investment Securities

The Company has classified its marketable investment securities as available-for-sale securities, all of which are debt securities. These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive income (loss) in stockholders’ equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security as of March 31, 2023, and December 31, 2022, were as follows:

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


Government treasury bills	$	1,995,817	$	-	$	(2,747	)	$	1,993,070
Corporate bonds, notes and commercial paper		13,470,151		-		(8,228	)		13,461,923
U.S. government agency securities		8,631,221		14,216		-			8,645,437

	$	24,097,189	$	14,216	$	(10,975	)	$	24,100,430

December 31, 2022	Amortized Cost		Gross unrealized holding gains		Gross unrealized holding losses			Aggregate fair value

Government treasury bills	$	5,973,087	$	-	$	(14,087	)	$	5,959,000
Commercial paper		20,052,505		-		(10,885	)		20,041,620
U.S. government agency securities		3,376,139		4,651		-			3,380,790

	$	29,401,731	$	4,651	$	(24,972	)	$	29,381,410

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

March 31, 2023

Amortized

Cost

Aggregate

fair value

Due within one year

24,097,189

24,100,430

24,097,189

24,100,430

There were no sales of marketable investment securities during the three months ended March 31, 2023, and 2022 and therefore no realized gains or losses. Additionally, $12.0 million and $25.2 million of marketable investment securities matured during the three months ended March 31, 2023 and March 31, 2022, respectively. The Company determined there were no other-than-temporary impairments for the three months ended March 31, 2023, and March 31, 2022.

(5) Fair Value

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

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

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

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

All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For accrued interest income, prepaid and other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

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

Assets:
Cash equivalents - money market funds	$	4,353,929	$	4,353,929	$	-	$	-
Government treasury bills		1,993,070		1,993,070		-		-
Commercial paper		11,129,370		-		11,129,370		-
Corporate bonds and notes		2,332,553		-		2,332,553		-
US. Government agency securities		8,645,437		-		8,645,437		-

	$	28,454,359	$	6,346,999	$	22,107,360	$	-

Liabilities:
Warrant liability	$	131,722	$	-	$	-	$	131,722
	$	28,586,081	$	6,346,999	$	22,107,360	$	131,722

			Fair value measurements at reporting date using
	December 31, 2022		Level 1 inputs		Level 2 inputs		Level 3 inputs

Assets:
Cash equivalents - money market funds	$	2,694,434	$	2,694,434	$	-	$	-
Government treasury bills		5,959,000		5,959,000		-		-
Commercial paper		14,586,930		-		14,586,930		-
Corporate bonds and notes		5,454,690		-		5,454,690		-
U.S. government agency securities		3,380,790		-		3,380,790		-

	$	32,075,844	$	8,653,434	$	23,422,410	$	-

Liabilities:
Warrant liability	$	229,856	$	-	$	-	$	229,856
	$	32,305,700	$	8,653,434	$	23,422,410	$	229,856

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

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

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

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

Warrant liability: The warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of March 31, 2023, include (i) volatility of 100%, (ii) risk free interest rate of 4.34%, (iii) strike price of $0.50, (iv) fair value of common stock of $0.32, and (v) expected life of 1.6 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 $0.50, (iv) fair value of common stock of $0.40, 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 three months ended March 31, 2023.

(6) Loan and Security Agreements

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 and was paid in full on

SEC Form 10-Q filed by Lipocine Inc.