INTENSITY THERAPEUTICS, INC. 10-Q

Item 1. Financial Statements (Unaudited). INTENSITY THERAPEUTICS, INC. Condensed Balance Sheets (Unaudited) June 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 135,765 $ 1,311,877 Stock subscriptions receivable 17,765,000 - Other current assets 159,460 138,459 Total current assets 18,060,225 1,450,336 Right-of-use asset, net - 139,089 Other assets 167,738 167,738 Total assets $ 18,227,963 $ 1,757,163 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 1,581,812 $ 603,176 Accrued expenses 1,476,633 1,723,400 Current lease liability - 143,221 Convertible note and accrued interest - 4,348,548 Total current liabilities 3,058,445 6,818,345 Related party deposit 36,000 36,000 Total liabilities 3,094,445 6,854,345 Series A redeemable convertible preferred stock, par value $. 0001 . Authorized, issued, and outstanding shares of none and 5,000,000 as of June 30, 2023 and December 31, 2022, respectively. - 10,000,000 STOCKHOLDERS’ EQUITY (DEFICIENCY) Authorized preferred stock is 15,000,000 shares as of June 30, 2023. None issued or outstanding as of June 30, 2023. Series B convertible preferred stocks, par value $ .0001 . Authorized, issued, and outstanding shares of none and 1,449,113 as of June 30, 2023 and December 31, 2022, respectively. - 145 Series C convertible preferred stocks, par value $ .0001 . Authorized, issued, and outstanding shares of none and 1,800,606 as of June 30, 2023 and December 31, 2022, respectively. - 180 Common stock, par value $.0001. Authorized shares of 135,000,000 and 50,000,000 as of June 30, 2023 and December 31, 2022, respectively. Issued and outstanding shares of 13,099,377 and 3,410,103 as of June 30, 2023 and December 31, 2022, respectively. 1,310 341 Additional paid in capital 58,822,229 23,555,160 Accumulated deficit ( 43,690,021 ) ( 38,653,008 ) Total stockholders’ equity (deficiency) 15,133,518 ( 15,097,182 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficiency) $ 18,227,963 $ 1,757,163 The accompanying notes are an integral part of these financial statements. 1 INTENSITY THERAPEUTICS, INC. Condensed Statements of Operations (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Operating expenses: Research and development costs $ 859,212 $ 1,385,966 $ 1,632,986 $ 3,080,466 General and administrative costs 362,490 543,830 842,846 1,227,853 Total operating expenses 1,221,702 1,929,796 2,475,832 4,308,319 Loss from operations ( 1,221,702 ) ( 1,929,796 ) ( 2,475,832 ) ( 4,308,319 ) Other income (expense): Interest income 171 213 487 856 Interest expense ( 221,779 ) ( 14,959 ) ( 305,161 ) ( 29,754 ) Loss on debt conversion ( 2,261,581 ) - ( 2,261,581 ) - Other 4,349 16,900 5,074 40,528 Net loss $ ( 3,700,542 ) $ ( 1,927,642 ) $ ( 5,037,013 ) $ ( 4,296,689 ) Loss per share Loss per share, basic and diluted $ ( 1.05 ) $ ( 0.57 ) $ ( 1.45 ) $ ( 1.26 ) Weighted average number of shares of common stock, basic and diluted. 3,516,579 3,410,103 3,463,635 3,410,103 The accompanying notes are an integral part of these financial statements. 2 Intensity Therapeutics Inc. Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficiency) Six Months and Three Months Ended June 30, 2023 and 2022 (unaudited) Series A Redeemable Convertible Preferred Stock Series B Convertible Preferred Series C Convertible Preferred Common Stock Additional Paid in Accumulated Stockholders’ Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit (Deficiency) Balances at December 31, 2022 5,000,000 $ 10,000,000 1,449,113 $ 145 1,800,606 $ 180 3,410,103 $ 341 $ 23,555,160 $ ( 38,653,008 ) $ ( 15,097,182 ) Stock-based compensation expense 624,253 624,253 Warrants issued to convertible note holders 159,262 159,262 Warrants issued to underwriters in connection with public offering 1,017,146 1,017,146 Issuance of common stock in public offering for cash, net of $ 3,031,484 issuance costs 3,900,000 390 16,468,126 16,468,516 Issuance of preferred stock for anti-dilution clauses 100,189 10 164,518 16 ( 26 ) - Conversion of preferred stock into common stock ( 5,000,000 ) ( 10,000,000 ) ( 1,549,302 ) ( 155 ) ( 1,965,124 ) ( 196 ) 4,389,558 439 9,999,868 9,999,956 Conversion of convertible notes into common stock 1,399,716 140 6,998,440 6,998,580 Net loss $ ( 5,037,013 ) ( 5,037,013 ) Balances at June 30, 2023 - $ - - $ 0 - $ 0 13,099,377 $ 1,310 $ 58,822,229 $ ( 43,690,021 ) $ 15,133,518 Balances at March 31, 2023 5,000,000 $ 10,000,000 1,449,113 $ 145 1,800,606 $ 180 3,410,103 $ 341 $ 24,026,549 $ ( 39,989,479 ) $ ( 15,962,264 ) Stock-based compensation expense 312,126 312,126 Warrants issued to underwriters in connection with public offering 1,017,146 1,017,146 Issuance of common stock in public offering for cash, net of $ 3,031,484 issuance costs 3,900,000 390 16,468,126 16,468,516 Issuance of preferred stock for anti-dilution clauses 100,189 10 164,518 16 ( 26 ) - Conversion of preferred stock into common stock ( 5,000,000 ) ( 10,000,000 ) ( 1,549,302 ) ( 155 ) ( 1,965,124 ) ( 196 ) 4,389,558 439 9,999,868 9,999,956 Conversion of convertible notes into common stock 1,399,716 140 6,998,440 6,998,580 Net loss ( 3,700,542 ) ( 3,700,542 ) Balances at June 30, 2023 - $ - - $ 0 - $ 0 13,099,377 $ 1,310 $ 58,822,229 $ ( 43,690,021 ) $ 15,133,518 Balances at December 31, 2021 5,000,000 10,000,000 1,449,113 $ 145 1,800,606 $ 180 3,410,103 $ 341 $ 22,386,341 $ ( 31,071,111 ) $ ( 8,684,104 ) Stock-based compensation expense 500,622 500,622 Net loss $ ( 4,296,689 ) ( 4,296,689 ) Balances at June 30, 2022 5,000,000 $ 10,000,000 1,449,113 $ 145 1,800,606 $ 180 3,410,103 $ 341 $ 22,886,963 $ ( 35,367,800 ) $ ( 12,480,171 ) Balances at March 31, 2022 5,000,000 10,000,000 1,449,113 145 1,800,606 180 3,410,103 341 $ 22,663,443 $ ( 33,440,158 ) $ ( 10,776,049 ) Stock-based compensation expense 223,520 223,520 Net loss $ ( 1,927,642 ) ( 1,927,642 ) Balances at June 30, 2022 5,000,000 $ 10,000,000 1,449,113 $ 145 1,800,606 $ 180 3,410,103 $ 341 $ 22,886,963 $ ( 35,367,800 ) $ ( 12,480,171 ) The accompanying notes are an integral part of these financial statements. 3 INTENSITY THERAPEUTICS, INC. Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 5,037,013 ) $ ( 4,296,689 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of discount on convertible notes 159,262 - Amortization of right-of-use asset 139,089 88,628 Stock-based compensation expense 624,253 500,622 Loss on debt conversion 2,261,581 - Changes in operating assets and liabilities, net: Other current assets ( 21,001 ) 36,121 Accounts payable 978,636 290,834 Accrued expenses ( 246,767 ) 623,496 Accrued interest on convertible note 145,899 29,754 Change in lease liabilities ( 143,221 ) ( 89,756 ) Net cash used in operating activities ( 1,139,282 ) ( 2,816,990 ) Cash flows from investing activities: Net cash provided by investing activities - - Cash flows from financing activities: Proceeds from sale of convertible note 242,552 - Payout of fractional shares on reverse split ( 44 ) - Stock issuance costs on initial public offering ( 279,338 ) - Net cash provided by financing activities ( 36,830 ) - Net decrease in cash and cash equivalents ( 1,176,112 ) ( 2,816,990 ) Cash and cash equivalents at beginning of period 1,311,877 4,539,229 Cash and cash equivalents at end of period $ 135,765 $ 1,722,239 Supplemental disclosure of non-cash operating activities: The Company has recorded a Subscription receivable from the sale of 3.9 million shares of common stock on June 29, 2023, net of expenses. $ 17,765,000 - Supplemental disclosure of non-cash financing activities: Conversion of convertible notes and accrued interest into common stock $ 4,736,999 - Warrants issued in relation to issuance of convertible notes $ 159,262 - Warrants issued to underwriter in connection with stock issuance $ 1,017,146 - The accompanying notes are an integral part of these financial statements. 4 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note A — Nature of Business Intensity Therapeutics, Inc. (“the Company”) is a Connecticut based company that incorporated in Delaware in December 2012. 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. On April 27, 2023, the Company effected a two-for-one reverse stock split (“Reverse Stock Split”). All owners of record as of April 27, 2023 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 will be paid in cash. The conversion price of Series A redeemable convertible preferred stock, Series B convertible preferred stock, and Series C convertible preferred stock 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. As a result of its initial public offering (“IPO”), the Company began trading on the Nasdaq Capital Market under the symbol “INTS” on June 30, 2023 and on July 5, 2023 the Company received $ 17,765,000 in net cash proceeds after deducting the underwriter’s discounts, commissions, and legal expenses. These shares were formally issued on July 5, 2023 at the time that the net proceeds were transferred to the Company. The Company intends to use the net proceeds from the IPO to complete pre-clinical and clinical studies, submit regulatory filings to the United States Food & Drug Administration (“FDA”) and for general and corporate purposes. Note B — Liquidity and Plan of Operation The accompanying unaudited condensed 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 development stage company and has not generated any revenue from its product candidates. The Company, therefore, has experienced net losses and negative cash flows from operations each year since its inception. Through June 30, 2023, the Company has an accumulated deficit of approximately $ 43.7 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 six months ended June 30, 2023 was approximately $ 5.0 million. To date, the Company has not obtained regulatory approval for any of its product candidates. 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 and cash equivalents at June 30, 2023 totaled approximately $ 136,000 . The Company received net cash proceeds of our IPO of $ 17,765,000 on July 5, 2023 and net cash proceeds from the subsequent sale of the underwriter’s overallotment of $ 2,691,000 on July 7, 2023 for a total of $ 20,456,000 in net cash proceeds. Until such time, if ever, as the Company can generate substantial product revenue, the Company expects to finance its operational needs 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 a 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. 5 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note B — Liquidity and Plan of Operation (continued) Based on the cash proceeds received in July 2023, the Company expects its cash and cash equivalents to be sufficient to fund operations for a period of 12 months from the date that these financial statements are issued. Note C — Summary of Significant Accounting Policies and Accounts [1] Basis of presentation: The accompanying condensed financial statements include the accounts of Intensity Therapeutics, Inc. The condensed financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s prospectus filed with the Securities and Exchange Commission on June 29, 2023. [2] Use of estimates: The preparation of financial statements in conformity with U.S. 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. An additional significant estimate is that these financial statements are based on the assumption of the Company continuing as a going concern. See Note B with regard to the Company’s ability to continue as a going concern. [3] Concentration of credit risk: The Company’s financial instruments that are exposed to concentrations of credit risk consist entirely of cash. 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 six months ended June 30, 2023, the Company’s cash balances exceeded the FDIC insurance limit. 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. [4] Cash and cash equivalents: The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. 6 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note C — Summary of Significant Accounting Policies and Accounts (continued) [5] 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: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company. Level 3 Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability. 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. 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. [6] Stock-based compensation: The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of Accounting Standards Codification (“ASC”) ASC Topic 718, “Compensation — Stock Compensation”. Stock compensation to employees and non-employees consists of stock option grants that were recognized in 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. [7] Research and development and patent costs: Research and development costs are charged to operations as they are incurred. Legal fees and other direct costs incurred in obtaining and protecting patents are also expensed as incurred, due to the uncertainty with respect to future cash flows resulting from the patents and are included as part of general and administrative expenses in the Company’s Statements of Operations. 7 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note C — Summary of Significant Accounting Policies and Accounts (continued) [8] Income taxes: The Company accounts for income taxes in accordance with Accounting Standards Codification (ASC) 740, “Income Taxes”. ASC 740 prescribes 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 in accordance with the provisions of ASC 740. 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. At June 30, 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 six months ended June 30, 2023. If at any time the Company should record interest and penalties in connection with an uncertain tax position, the interest and penalties will be expensed within the income tax line. The Company’s income tax returns are subject to Federal, state and local income tax examination by the authorities for the last three tax years. [9] 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 pre-payments, 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. 8 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note C — Summary of Significant Accounting Policies and Accounts (continued) [10] 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, 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 common shares 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 three and six months ended June 30, 2022. 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 shareholders have no obligation to fund losses no portion of net loss was allocated to the participating securities for the three months or six months ended June 30, 2022. There were no preferred shares outstanding at June 30, 2023. At June 30, 2023 and 2022, the following common shares underlying preferred stock, options, and warrants were excluded from the computation of diluted weighted average shares outstanding. In accordance with the Reverse Stock Split on April 27, 2023 (see Note A), 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: June 30, June 30, 2023 2022 Preferred stock Series A outstanding - 2,499,999 Preferred stock Series B outstanding - 724,552 Preferred stock Series C outstanding - 900,300 Options outstanding 1,044,250 911,250 Warrants outstanding 660,750 323,250 1,705,000 5,359,351 As of June 30, 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 common shares prior to June 30, 2023. [11] 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. [12] Reclassifications: Certain prior year amounts have been reclassified to conform to current year presentation. 9 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note D — Other Current Assets Other current assets at June 30, 2023 and December 31, 2022 include: June 30, 2023 December 31, 2022 Prepaid insurance $ 54,241 $ 29,359 Prepaid rent - 16,200 Advances to vendors 21,488 14,685 Tax credit receivable 8,785 15,903 Receivable with related party 69,365 46,401 Other current assets 5,581 15,911 $ 159,460 $ 138,459 Note E — Other Assets Other assets at June 30, 2023 and December 31, 2022 include: June 30, 2023 December 31, 2022 Deposit with vendor $ 150,000 $ 150,000 Deposit with landlord 17,738 17,738 $ 167,738 $ 167,738 Note F — Accrued Expenses Accrued expenses at June 30, 2023 and December 31, 2022 include: June 30, 2023 December 31, 2022 Accrued vacation, wages, and related payroll taxes $ 422,525 $ 328,527 Patient costs incurred but not yet invoiced 1,050,914 1,392,604 Accrued other 3,194 2,269 $ 1,476,633 $ 1,723,400 10 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note G — Convertible Notes On September 20, 2021, the Company entered into a convertible debt agreement (the “2021 Convertible Note”) with a shareholder for aggregate principal of $ 2,000,000 due October 1, 2025 , as amended on November 29, 2022, with the following conversion terms. The outstanding principal balance together with the unpaid and accrued interest of the note would be automatically converted upon the earlier of (i) an IPO in excess of $7,000,000 gross proceeds, (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non-IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of October 1, 2025. If an IPO, sale event or Non-IPO financing occurred between September 20, 2021 through September 19, 2022 a conversion price discount of 25% would be assessed, if between September 20, 2022 through March 19, 2023 a conversion price discount of 30% would be assessed, if between March 20, 2023 through October 1, 2025 a conversion price discount of 35% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. The 2021 Convertible Note accrues interest at 3 % per annum, convertible to shares as previously described herein. On November 29, 2022 this agreement was amended so that the interest rate changes to 6 % per annum after October 1, 2023. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holder may declare all outstanding principal and interest payable to be immediately due and payable. On November 21, 2022, the Company entered into two convertible debt agreements (the “November 21, 2022 Convertible Notes”) with shareholders for $ 250,000 and $ 500,000 . The outstanding principal balance together with the unpaid and accrued interest of the note would be automatically converted upon the earlier of (i) an IPO of no less than $7,000,000 gross proceeds, as amended (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non-IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of November 21, 2024. If an IPO, sale event or Non-IPO financing occurred prior to November 21, 2024 a conversion price discount of 30% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. The November 21, 2022 Convertible Notes accrue interest at 10 % per annum, convertible to shares as previously described herein. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holders may declare all outstanding principal and interest payable to be immediately due and payable. On November 29, 2022, the Company entered into a convertible debt agreement (the “November 29, 2022 Convertible Note”) for $ 1,500,000 with a holder. The outstanding principal balance together with the unpaid and accrued interest of the note would be automatically converted upon the earlier of (i) an IPO of no less than $7,000,000 gross proceeds, as amended (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non- IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of October 1, 2025. If an IPO, sale event or Non-IPO financing occurred prior to October 1, 2025 a conversion price discount of 30% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. The November 29, 2022 Convertible Note accrues interest at 10 % per annum, convertible to shares as previously described herein. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holder may declare all outstanding principal and interest payable to be immediately due and payable. 11 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note G — Convertible Notes (continued) On March 16, 2023, the Company entered into a convertible debt agreement (the “March 16, 2023 Convertible Note”) for $ 50,000 with a holder. On March 30, 2023 the Company entered into a convertible note debt agreement (the “March 30, 2023 Convertible Note”) for $ 155,000 with a holder. The outstanding principal balances together with the unpaid and accrued interest of these notes would be automatically converted upon the earlier of (i) an IPO of no less than $7,000,000 gross proceeds (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non- IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of March 16, 2026 for the March 16, 2023 Convertible Note and March 30, 2026 for the March 30, 2023 Convertible Note. If an IPO, sale event or Non-IPO financing occurred prior to March 16, 2026 for the March 16, 2023 Convertible Note or prior to March 30, 2026 for the March 30, 2023 Convertible Note, a conversion price discount of 30% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. These notes accrue interest at 10 % per annum, convertible to shares as previously described herein. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holder may declare all outstanding principal and interest payable to be immediately due and payable. On April 1, 2023, the Company entered into a convertible debt agreement (the “April 1, 2023 Convertible Note”) for $ 12,552 with our landlord in exchange for services. The outstanding principal balances together with the unpaid and accrued interest of these notes would be automatically converted upon the earlier of (i) an IPO of no less than $7,000,000 gross proceeds (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non- IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of April 1, 2026. If an IPO, sale event or Non-IPO financing occurred prior to April 1, 2026, a conversion price discount of 30% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. This note accrues interest at 10 % per annum, convertible to shares as previously described herein. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holder may declare all outstanding principal and interest payable to be immediately due and payable. On May 11, 2023, the Company entered into a convertible debt agreement (the “May 11, 2023 Convertible Note”) for $ 25,000 with a holder. The outstanding principal balances together with the unpaid and accrued interest of these notes would be automatically converted upon the earlier of (i) an IPO of no less than $7,000,000 gross proceeds (ii) a sale event of all or substantially all of the company’s assets or a majority of its equity securities, (iii) Non- IPO financing by selling preferred stock in an equity offering other than an IPO or (iv) maturity date of May 11, 2026. If an IPO, sale event or Non-IPO financing occurred prior to May 11, 2026, a conversion price discount of 30% would be assessed. Otherwise at the maturity date a conversion price of $ 11.50 per share would be assessed. These note accrues interest at 10 % per annum, convertible to shares as previously described herein. The occurrence of any of the following would constitute an event of default: a) failure to pay when due any principal payment; b) voluntary bankruptcy or insolvency proceedings; c) involuntary bankruptcy or insolvency proceedings; d) judgements in excess of $ 500,000 ; or e) defaults under other indebtedness. Under these occurrences, the holder may declare all outstanding principal and interest payable to be immediately due and payable. All of the convertible notes had a contingent beneficial conversion feature. The value of this beneficial conversion feature had not yet been determined at December 31, 2022 since an IPO price had not been determined or an equity event had not occurred. A loss of $ 2,261,581 was recorded on the Statement of Operations for the three months and six months ended June 30, 2023 for the discount given to the convertible debt holders. 12 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note G — Convertible Notes (continued) The balance at December 31, 2022 consists of : Principal Accrued Interest Total Convertible note dated September 20, 2021 $ 2,000,000 $ 76,767 $ 2,076,767 Convertible notes dated November 21, 2022 750,000 8,219 758,219 Convertible note dated November 29, 2022 1,500,000 13,562 1,513,562 $ 4,250,000 $ 98,548 $ 4,348,548 There was no balance in Convertible notes as of June 30, 2023 since all principal and accrued interest of $ 4,492,552 and $ 244,447 , respectively was converted into 1,399,716 shares of common stock at the IPO. At December 31, 2022 the Company classified the convertible notes as a current liability since the Company anticipated that these notes will automatically convert into common shares within one year of the balance sheet date. The unamortized discount was amortized over the life of the convertible notes. The unamortized balance at the time of the conversion into common shares of approximately $ 117,700 is included in interest expense in the Statement of Operations. Note H — Stockholders’ Equity On June 29, 2023, as described in Note A, the Company had it’s IPO. At the time of the IPO, all preferred stock was converted into common shares at conversion prices that reflected the reverse split. All convertible notes and related accrued interest were converted into common stock, as described in Note G. The Company issued an additional 100,189 common stock shares to Series B preferred stockholders and an additional 164,518 common stock shares to Series C stockholders due to the anti-dilution provision of their shareholder agreements. Note I — Common Stock Warrants The following table summarizes information about common stock warrants at June 30, 2023 and 2022: Number of Shares Underlying Warrants Weighted Average Exercise Price Outstanding at January 1, 2022 323,250 $ 6.01 Issued - - Forfeited - - Outstanding March 31, 2022 323,250 6.01 Issued - - Forfeited - - Outstanding June 30, 2022 323,250 $ 6.01 Outstanding January 1, 2023 357,750 $ 6.00 Issued 30,000 12.50 Forfeited - - Outstanding March 31, 2023 387,750 6.51 Issued 273,000 6.00 Forfeited - - Outstanding June 30, 2023 660,750 $ 6.30 Exercisable June 30, 2023 347,375 $ 6.15 13 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note I — Common Stock Warrants (continued) The following table summarizes the assumptions used to estimate the fair value of 30,000 stock warrants granted on January 1, 2023 at the date of grant: Stock price $ 4.50 Exercise price $ 6.25 Expected volatility 103.85 % Risk free interest rates 3.59 % Expected term 23 months 30,000 warrants were granted on January 1, 2023 to two holders of convertible notes. The value of the warrants is $ 159,262 . The value of the warrants is recorded as a discount to the convertible notes and was being amortized over the life of the convertible notes. The amortization appears on the Statement of Operations as interest expense. The following table summarizes the assumptions used to estimate the fair value of stock warrants granted on June 30, 2023 as part of the IPO: Stock price $ 5.00 Exercise price $ 6.00 Expected volatility 101.46 % Risk free interest rates 3.97 % Expected term 5 years 273,000 warrants were granted to the underwriters of the IPO. The value of these warrants is approximately $ 1,017,000 . The value of the warrants is recorded as both an increase and decrease to Additional Paid in Capital on the Balance Sheet since they are costs related to the issuance of the IPO shares. These warrants are exercisable beginning on January 5, 2024. There was no stock compensation expense recorded on these warrants. The Company recognized stock-based compensation expense related to warrants in its condensed Statements of Operations as follows (approximately): Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Research and Development $ 68,000 $ 3,000 $ 136,000 $ 7,000 General and Administrative 4,000 25,000 8,000 100,000 Total $ 72,000 $ 28,000 $ 144,000 $ 107,000 At June 30, 2023, total unrecognized compensation cost related to warrants was approximately $ 235,000 and is expected to be recognized over the remaining weighted average service period of 1.7 years. The aggregate intrinsic value of outstanding warrants is calculated as the difference between the exercise price of the stock warrants and the fair value of the Company’s common stock for those stock warrants that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of outstanding warrants was approximately $ 492,000 at June 30, 2023. 14 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note J — Stock Based Compensation The Company had a stock option plan, the 2013 Plan, which is administered by the Committee. Under the 2013 Plan, stock options to purchase a total of 4,500,000 shares of common stock could be granted to eligible employees, officers, directors and consultants of the Company. In 2020, the Company amended its 2013 Stock Option Plan (the “2013 Plan”) to increase the number of authorized shares available under the 2013 Plan from 1,800,000 to 4,500,000 . On November 12, 2021, the Company replaced the 2013 Plan with the terms of the 2021 Stock Incentive Plan (the “2021 Plan”). Prior to the start of the 2021 Plan, there were 2,677,500 available shares under the 2013 Plan. Under the terms of the 2021 Plan, no more shares would be issued under the 2013 Plan, and 3,000,000 shares became available under the new 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. The following table summarizes information about common stock options at June 30, 2023 and 2022 : Number of Shares Underlying Options Weighted Average Exercise Price Outstanding at January 1, 2022 911,250 $ 8.57 Issued - - Forfeited - - Outstanding March 31, 2022 911,250 8.57 Issued - - Forfeited - - Outstanding June 30, 2022 911,250 $ 8.57 Outstanding January 1, 2023 1,044,250 $ 8.48 Issued - - Forfeited - - Outstanding March 31, 2023 1,044,250 8.48 Issued - - Forfeited - - Outstanding June 30, 2023 1,044,250 $ 8.48 Exercisable June 30, 2023 711,875 $ 7.63 The aggregate intrinsic value of outstanding options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of options outstanding was approximately $ 593,000 at June 30, 2023. Employee option vesting is based on the employee’s continued service with the Company. The 2013 Plan and the 2021 Plan provide an immediate vesting of outstanding options in the event of a change of control, such as an acquisition, notwithstanding any other provision of the 2013 Plan or 2021 Plan. 15 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note J — Stock Based Compensation (continued) There were no stock options issued during the six months ended June 30, 2023 and 2022. At June 30, 2023, total unrecognized compensation cost related to options was approximately $ 1,543,000 and is expected to be recognized over the remaining weighted average service period of 1.7 years. The Company recorded stock-based compensation related to stock options in its condensed Statements of Operations as follows (approximately) : Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Research and Development $ 162,000 $ 152,000 $ 329,000 $ 307,000 General and Administrative 78,000 44,000 152,000 87,000 Total $ 240,000 $ 196,000 $ 481,000 $ 394,000 All options expire ten years from date of grant. Options outstanding begin to expire in August 2023. 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. Note K — Leases In January 2017, the Company entered into a lease for 2,534 square feet of office space at its current location. The lease commenced in May 2017. The initial lease term was two years . In November 2018, the Company exercised the option to extend the lease for an additional three years . In July 2020, the Company amended this lease to increase office space by an additional 1,653 square feet in the same building. The amended lease that includes the space included in the original lease has monthly rent as follows: Year 1 (October 2020 through September 2021) $15,502 per month ($44.43 per square foot) Year 2 (October 2021 through September 2022) $15,851 per month ($45.43 per square foot) Year 3 (October 2022 through September 2023) $16,200 per month ($46.43 per square foot) The Company has an option to extend this amended lease for an additional 3 years at the following amounts: Year 4: (October 2023 through September 2024) $16,338 per month ($46.83 per square foot) Year 5: (October 2024 through September 2025) $16,476 per month ($47.22 per square foot) Year 6: (October 2025 through September 2026) $16,825 per month ($48.22 per square foot) 16 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note K — Leases (continued) The Company had until March 31, 2023 to exercise this option to extend. On February 27, 2023, the Company informed the landlord that it will not exercise its option to extend the amended lease. On March 27, 2023, the Company modified the lease to reduce the office space as of April 30, 2023 and to further reduce the office space as of May 31, 2023. These two modifications reduced the operating lease asset and liability. The amended lease was set to expire on September 30, 2023. On April 17, 2023 another modification was made to the lease that terminated the lease as of June 30, 2023. The Company also pays a pro-rata share of operating expenses and real estate taxes. The following variables were used to determine the right-of-use asset and the operating lease liabilities as of commencement date: Weighted average remaining lease term 1.25 years and Weighted average operating lease discount rate 3.92 %. On July 7, 2023 the Company signed a 5.5 year lease for 2,686 square feet of office space in Shelton, Connecticut. The initial base rent payments are zero for the first six months, $ 2,910 per month for the next six months, and gradually increase to $ 3,275 per month for the last twelve months. This lease commences in July 2023. The right-of-use asset and lease liability related to this lease will be recorded in July 2023. The following table summarizes the balance sheet classification of the operating lease asset and related lease liabilities at June 30, 2023 and December 31, 2022: 2023 2022 Operating lease right-of-use assets $ - $ 139,089 Current portion of operating lease liabilities $ - $ 143,221 Long-term operating lease liabilities - - $ - $ 143,221 There are no future rental payments under operating leases as of June 30, 2023. Note L — 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. 17 INTENSITY THERAPEUTICS, INC. Notes to Unaudited Condensed Financial Statements Note M — Related Parties At June 30, 2023 and December 31, 2022, the Company was holding a $ 36,000 deposit related to the PSA. This account is entitled “Related party deposit” on the balance sheet. This deposit will be returned to the minority stockholder at the end of the PSA once all charges have been settled. At June 30, 2023 and December 31, 2022, the Company had a receivable of approximately $ 69,400 and $ 46,400 , respectively, related to this agreement. This receivable is included in “Other current assets” on the balance sheet. In February 2022, a minority stockholder became a consultant to the Company. Services provided include acting as the Company’s Chief Medical Officer. Although the terms of this agreement have not been finalized, the Company has accrued approximately $ 100,000 and $ 95,900 at June 30, 2023 and December 31, 2022, respectively as an estimate of its liability. This liability is included in accounts payable. Expenses related to this consulting agreement were approximately $ 4,000 and $ 65,900 for the six months ended June 30, 2023 and 2022, respectively and approximately ($ 11,000 ) and $ 60,000 for the three months ended June 30, 2023 and 2022, respectively. Sublease income from the related party was approximately $ 23,000 and $ 33,700 for the six months ended June 30, 2023 and 2022 and approximately $ 5,700 and $ 16,900 for the three months ended June 30, 2023 and 2033. Sublease income is recorded as a reduction of general and administrative expenses in the Statement of Operations. Note N — Income Taxes The Company recorded Federal research & development credits, of approximately $ 5,100 and $ 40,500 for the six months ended June 30, 2023 and 2022, respectively. These amounts are included in Other Income in the Statements of Operations. Other current assets include a tax credit that is the Federal refundable research and development tax credit. The Net operating loss generated for the six months ended June 30, 2023 was approximately $ 3.7 million after adjusting for differences related to taxable expenses. At June 30, 2023, aside from the Federal research and development tax credits used to offset Social Security taxes, the Company had Federal General Business Credit carryforwards of approximately $ 439,400 which are available to offset future taxable income expiring at various times beginning in 2033 . At June 30, 2023, the Company has Connecticut research and development tax credit carryforwards of approximately $ 196,600 which are available to offset future Connecticut taxable income. Note O — Retirement Plan – Defined Contribution The Company maintains a defined contribution plan for all employees age 21 and older who have completed one month of service. This 401K plan began for payrolls after July 1, 2017. The Company makes a matching contribution equal to 100 % of an employee’s contribution, up to 3 % of an employee’s eligible earnings. The Company match is vested after one year of service. Retirement expense for this plan was approximately $ 10,000 and $ 23,000 for the six months ended June 30, 2023 and 2022, respectively and approximately $ 5,000 and $ 10,000 for the three months ended June 30, 2023 and 2022, respectively. 18