Lipocine Inc. 10-Q

10-Q 1 tm2111651d1_10q.htm FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period ended March 31, 2021 ¨ 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: 00 1-36357 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&rsquo;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: x 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 (&sect;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 x 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 &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer,&rdquo; &ldquo;smaller reporting company,&rdquo; and &ldquo;emerging growth company&rdquo; in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company x 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 x Outstanding Shares As of May 5, 2021, the registrant had 88,290,650 shares of common stock outstanding. TABLE OF CONTENTS Page PART I&mdash;FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures About Market Risks 34 Item 4. Controls and Procedures 34 PART II&mdash;OTHER INFORMATION Item 1. Legal Proceedings 35 Item 1A. Risk Factors 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37 Item 3. Defaults Upon Senior Securities 37 Item 4. Mine Safety Disclosures 37 Item 5. Other Information 37 Item 6. Exhibits 38 2 PART I&mdash; FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 15,601,594 $ 19,217,382 Restricted cash - 5,000,000 Marketable investment securities 29,747,465 449,992 Accrued interest income 136,387 391 Prepaid and other current assets 458,423 661,258 Total current assets 45,943,869 25,329,023 Marketable investment securities 4,608,999 - Other assets 23,753 23,753 Total assets $ 50,576,621 $ 25,352,776 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 558,344 $ 1,597,220 Accrued expenses 1,504,907 1,653,178 Debt - current portion 3,333,333 3,333,333 Total current liabilities 5,396,584 6,583,731 Debt - non-current portion 1,442,437 2,257,075 Warrant liability 1,346,751 1,170,051 Total liabilities 8,185,772 10,010,857 Commitments and contingencies (notes 5, 7, 8 and 10) Stockholders' equity: Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized; zero issued and outstanding - - Common stock, par value $0.0001 per share, 100,000,000 shares authorized; 88,296,360 and 70,041,967 issued and 88,290,650 and 70,036,257 outstanding 8,830 7,005 Additional paid-in capital 217,845,280 187,407,634 Treasury stock at cost, 5,710 shares (40,712 ) (40,712 ) Accumulated other comprehensive loss (22,459 ) - Accumulated deficit (175,400,090 ) (172,032,008 ) Total stockholders' equity 42,390,849 15,341,919 Total liabilities and stockholders' equity $ 50,576,621 $ 25,352,776 See accompanying notes to unaudited condensed consolidated financial statements 3 LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Three Months Ended March 31, 2021 2020 Operating expenses: Research and development $ 1,580,540 $ 2,511,754 General and administrative 1,533,953 2,085,261 Total operating expenses 3,114,493 4,597,015 Operating loss (3,114,493 ) (4,597,015 ) Other income (expense): Interest and investment income 10,649 59,938 Interest expense (68,973 ) (133,345 ) Unrealized loss on warrant liability (195,065 ) (1,100,029 ) Total other expense, net (253,389 ) (1,173,436 ) Loss before income tax expense (3,367,882 ) (5,770,451 ) Income tax expense (200 ) (200 ) Net loss $ (3,368,082 ) $ (5,770,651 ) Basic loss per share attributable to common stock $ (0.04 ) $ (0.14 ) Weighted average common shares outstanding, basic 81,881,392 41,347,631 Diluted loss per share attributable to common stock $ (0.04 ) $ (0.14 ) Weighted average common shares outstanding, diluted 81,881,392 41,347,631 Comprehensive loss: Net loss $ (3,368,082 ) $ (5,770,651 ) Net unrealized gain (loss) on available-for-sale securities (22,459 ) 38 Comprehensive loss $ (3,390,541 ) $ (5,770,613 ) See accompanying notes to unaudited condensed consolidated financial statements 4 LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders&rsquo; Equity For the Three Months Ended March 31, 2021 and 2020 (Unaudited) Common Stock Treasury Stock Additional Accumulated Other Total Number of Shares Amount Number of Shares Amount Paid-In Capital Comprehensive Gain (Loss) Accumulated Deficit Stockholders' Equity Balances at December 31, 2019 37,649,465 $ 3,766 5,710 $ (40,712 ) $ 157,391,969 $ (38 ) $ (151,067,189 ) $ 6,287,796 Net loss - - - - - - (5,770,651 ) (5,770,651 ) Unrealized net gain on marketable investment securities - - - - 38 - 38 Stock-based compensation - - - - 321,913 - - 321,913 Common stock sold through equity offering 10,084,034 1,008 - - 5,652,132 - - 5,653,140 Common stock issued for warrant exercises 121,000 12 - - 60,488 - - 60,500 Balances at March 31, 2020 47,854,499 $ 4,786 5,710 $ (40,712 ) $ 163,426,502 $ - $ (156,837,840 ) $ 6,552,736 Balances at December 31, 2020 70,036,257 $ 7,005 5,710 $ (40,712 ) $ 187,407,634 $ - $ (172,032,008 ) $ 15,341,919 Net loss - - - - - - (3,368,082 ) (3,368,082 ) Unrealized net loss on marketable investment securities - - - - (22,459 ) - (22,459 ) Stock-based compensation - - - - 147,566 - - 147,566 Option exercises 4,584 - - - 6,693 - - 6,693 Common stock sold through equity offering 16,428,571 1,643 - - 26,838,814 - - 26,840,457 Common stock issued for warrant exercises 10,000 1 - - 4,999 - - 5,000 Settlement of warrant liability on warrant exercises - - - - 18,365 - - 18,365 Common stock sold through ATM offering 1,811,238 181 - - 3,421,209 - - 3,421,390 Balances at March 31, 2021 88,290,650 $ 8,830 5,710 $ (40,712 ) $ 217,845,280 $ (22,459 ) $ (175,400,090 ) $ 42,390,849 See accompanying notes to unaudited condensed consolidated financial statements 5 LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ (3,368,082 ) $ (5,770,651 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation expense - 799 Stock-based compensation expense 147,566 321,913 Non-cash interest expense 18,695 40,395 Non-cash loss on change in fair value of warrant liability 195,065 1,100,029 Amortization of premium (discount) on marketable investment securities 65,290 (10,219 ) Changes in operating assets and liabilities: Accrued interest income (135,996 ) 7,310 Prepaid and other current assets 202,835 172,517 Accounts payable (1,038,876 ) 472,668 Accrued expenses (148,271 ) 288,977 Cash used in operating activities (4,061,774 ) (3,376,262 ) Cash flows from investing activities: Purchases of marketable investment securities (34,444,221 ) (447,779 ) Maturities of marketable investment securities 450,000 4,350,000 Cash provided by (used in) investing activities (33,994,221 ) 3,902,221 Cash flows from financing activities: Debt repayments (833,333 ) (833,333 ) Net proceeds from common stock offering 26,840,457 5,653,140 Net proceeds from sale of common stock through ATM 3,421,390 - Proceeds from stock option exercises 6,693 - Net proceeds exercise of warrants 5,000 60,500 Cash provided by financing activities 29,440,207 4,880,307 Net increase (decrease) in cash and cash equivalents (8,615,788 ) 5,406,266 Cash and cash equivalents and restricted cash at beginning of period 24,217,382 14,728,523 Cash and cash equivalents and restricted cash at end of period $ 15,601,594 $ 20,134,789 Supplemental disclosure of cash flow information: Interest paid $ 50,278 $ 92,950 Supplemental disclosure of non-cash investing and financing activity: Settlement of warrant liability on warrant exercises $ 18,365 $ - Net unrealized gain or loss on available-for-sale securities 22,459 38 See accompanying notes to unaudited condensed consolidated financial statements 6 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. (&ldquo;Lipocine&rdquo; or the &ldquo;Company&rdquo;) in accordance with the rules and regulations of the United States Securities and Exchange Commission (&ldquo;SEC&rdquo;). 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 has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2021. 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, 20 20. 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. generally accepted accounting principles. Actual results could differ from these estimates. The Company believe s that its existing capital resources, together with interest thereon, will be sufficient to meet its projected operating requirements through at least March 31, 2022 which includes an on-going clinical study for LPCN 1144, compliance with regulatory requirements and on-going litigation activities. 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 pre-commercial and commercial activities for TLANDO and new clinical studies for LPCN 1144, TLANDO XR and LPCN 1148 .While the Company believes it has sufficient liquidity and capital resources to fund our projected operating requirements through at least March 31, 2022, the Company will need to raise additional capital at some point through the equity or debt markets or through out-licensing activities, before or after March 31, 2022, 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&rsquo;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&rsquo;s capital resources may be consumed more rapidly if it pursues additional clinical studies for LPCN 1144, TLANDO XR and LPCN 1148. Conversely, the Company&rsquo;s capital resources could last longer if it reduces expenses, reduces the number of activities currently contemplated under our operating plan, if it terminates, modifies the design or suspends on-going clinical studies, or if it terminates or settles any on-going litigation activities. ( 2) 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, 2021 and 2020: 7 Three Months Ended March 31, 2021 2020 Basic loss per share attributable to common stock: Numerator Net loss $ (3,368,082 ) $ (5,770,651 ) Denominator Weighted avg. common shares outstanding 81,881,392 41,347,631 Basic loss per share attributable to common stock $ (0.04 ) $ (0.14 ) Diluted loss per share attributable to common stock: Numerator Net loss $ (3,368,082 ) $ (5,770,651 ) Denominator Weighted avg. common shares outstanding 81,881,392 41,347,631 Diluted loss per share attributable to common stock $ (0.04 ) $ (0.14 ) The computation of diluted loss per share for the three months ended March 31, 2021 and 2020 does not include the following stock options and warrants to purchase shares or unvested restricted stock units in the computation of diluted loss per share because these instruments were antidilutive: March 31, 2021 2020 Stock options 3,849,790 2,936,485 Unvested restricted stock units - 661,307 Warrants 1,934,366 16,921,017 (3) Marketable Investment Securities The Company has classified its marketable investment securities as available-for-sale securities, all of which are debt securities. These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive income (loss) in stockholders&rsquo; equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at March 31, 2021 and December 31, 2020 were as follows: March 31, 2021 Amortized Cost Gross unrealized holding gains Gross unrealized holding losses Aggregate fair value Corporate bonds, notes and commercial paper $ 34,378,923 - (22,459 ) $ 34,356,464 $ 34,378,923 $ - $ (22,459 ) $ 34,356,464 December 31, 2020 Amortized Cost Gross unrealized holding gains Gross unrealized holding losses Aggregate fair value Commercial paper $ 449,992 - - $ 449,992 $ 449,992 $ - $ - $ 449,992 Maturities of debt securities classified as available-for-sale securities at March 31, 2021 are as follows: March 31, 2021 Amortized Cost Aggregate fair value Due within one year $ 29,758,925 $ 29,747,465 Due after one year through two years 4,619,998 4,608,999 $ 34,378,923 $ 34,356,464 There were no sales of marketable investment securities during the three months ended March 31, 2021 and 2020 and therefore no realized gains or losses. Additionally, $450,000 and $4.4 million of marketable investment securities matured during the three months ended March 31, 2021 and 2020, respectively. The Company determined there were no other-than-temporary impairments for the three months ended March 31, 2021 and 2020. ( 4) 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: &bull; Level 1 Inputs: Quoted prices for identical instruments in active markets. &bull; 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. &bull; Level 3 Inputs: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 8 All of the Company&rsquo;s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For accrued interest income, prepaid and other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020: Fair value measurements at reporting date using March 31, 2021 Level 1 inputs Level 2 inputs Level 3 inputs Assets: Cash equivalents - money market funds $ 14,843,941 $ 14,843,941 $ - $ - Commercial paper 13,981,235 - 13,981,235 - Corporate bonds and notes 20,375,229 20,375,229 $ 49,200,405 $ 14,843,941 $ 34,356,464 $ - Liabilities: Warrant liability $ 1,346,751 - - 1,346,751 $ 50,547,156 $ 14,843,941 $ 34,356,464 $ 1,346,751 Fair value measurements at reporting date using December 31, 2020 Level 1 inputs Level 2 inputs Level 3 inputs Assets: Cash equivalents - money market funds $ 18,399,585 $ 18,399,585 $ - $ - Commercial paper 449,992 - 449,992 - $ 18,849,577 $ 18,399,585 $ 449,992 $ - Liabilities: Warrant liability $ 1,170,051 - - 1,170,051 $ 20,019,628 $ 18,399,585 $ 449,992 $ 1,170,051 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. 9 Corporate bonds, notes, and commercial paper: The Company uses a third-party pricing service to value these investments. Corporate bonds, notes and commercial paper are classified within Level 2 of the fair value hierarchy because they are valued using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs. Warrant liability: The warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders&rsquo; 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, 2021, include (i) volatility of 95.44%, (ii) risk free interest rate of 0.63%, (iii) strike price of $0.50, (iv) fair value of common stock of $1.51, and (v) expected life of 3.6 years. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of December 31, 2020, include (i) volatility of 88.46%, (ii) risk free interest rate of 0.27%, (iii) strike price of $0.50, (iv) fair value of common stock of $1.36, and (v) expected life of 3.9 years. The Company&rsquo;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, 2021. (5) Loan and Security Agreements Silicon Valley Bank Loan On January 5, 2018, the Company entered into a Loan and Security Agreement (the &ldquo;Loan and Security Agreement&rdquo;) with Silicon Valley Bank (&ldquo;SVB&rdquo;) pursuant to which SVB agreed to lend the Company $10.0 million. The principal borrowed under the Loan and Security Agreement bears 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 (4.25% as of March 31, 2021), which interest is 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 matures on June 1, 2022. Previously, the Company only made monthly interest payments until December 31, 2018, following which the Company also made equal monthly payments of principal and interest until the signing of the Deferral Agreement. The Company will also be required to pay an additional final payment at maturity equal to $650,000 (the &ldquo;Final Payment Charge&rdquo;). The Final Payment Charge will be due on the scheduled maturity date and to date approximately $609,000 has been recognized as an increase to the principal balance with a corresponding charge to interest expense with the remaining final payment charge to be recognized over the term of the facility using the effective interest method. At its option, the Company may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest and the Final Payment Charge). In connection with the Loan and Security Agreement, the Company granted to SVB a security interest in substantially all of the Company&rsquo;s assets now owned or hereafter acquired, excluding intellectual property and certain other assets. In addition, as TLANDO was not approved by the United States Food and Drug Administration (&ldquo;FDA&rdquo;) prior to May 31, 2018, the Company maintained $5.0 million of cash collateral at SVB as required under the Loan and Security Agreement until such time as TLANDO is approved by the FDA. However on February 16, 2021, the Company amended the Loan and Security Agreement with SVB to, among other things, remove the financial trigger and financial trigger release event provisions requiring the Company to maintain a minimum cash collateral value and collateral pledge thereof. While any amounts are outstanding under the Loan and Security Agreement, the Company is subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against the Company and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities, including its cash. These events of default include, among other things, any failure by the Company to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility, the Company&rsquo;s insolvency, a material adverse change, and one or more judgments against the Company in an amount greater than $100,000 individually or in the aggregate. 10 Future maturities of principal payments on the Loan and Security Agreement at March 31, 2021, are as follows: Years Ending December 31, Amount (in thousands) 2021 2,500 2022 1,667 Thereafter &mdash;  $ 4,167 Other Effective June 15, 2020 and through December 31, 2020, the Company deferred Federal Insurance Contributions Act (&ldquo;FICA&rdquo;) taxes under the CARES Act Section 2302. Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022. As of March 31, 2021 the tax deferrals totaled $36,000 and are included in accrued liabilities. ( 6) Income Taxes The tax provision for interim periods is determined using an estimate of the Company&rsquo;s effective tax rate for the full year adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment. At March 31, 2021 and December 31, 2020, the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized. ( 7) Contractual Agreements (a) Abbott Products, Inc. On March 29, 2012, the Company terminated its collaborative agreement with Solvay Pharmaceuticals, Inc. (later acquired by Abbott Products, Inc.) for TLANDO. As part of the termination, the Company reacquired the rights to the intellectual property from Abbott. All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1.0 million in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. The Company did not incur any royalties during the three months ended March 31, 2021 and 2020. ( b) Contract Research and Development The Company has entered into agreements with various contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of the Company as well as a number of independent contractors and primarily clinical researchers who serve as advisors to the Company. The Company incurred expenses of $837,000 and $1.9 million, respectively, for the three months ended March 31, 2021 and 2020 under these agreements and has recorded these expenses in research and development expenses. ( 8) Leases On August 6, 2004, the Company assumed a non-cancelable operating lease for office space and laboratory facilities in Salt Lake City, Utah. On May 6, 2014, the Company modified and extended the lease through February 28, 2018 . On February 8, 2018, the Company extended the lease through February 28, 2019, on January 2, 2019, the Company extended the lease through February 29, 2020, on February 24, 2020, the Company extended the lease through February 28, 2021 and on March 3, 2021, the Company extended the lease through February 28, 2022. 11 Future minimum lease payments under non -cancelable operating leases as of March 31, 2021 are: Operating Year ending December 31: leases 2021 247,787 2022 55,064 Total minimum lease payments $ 302,851 The Company&rsquo;s rent expense was $83,000 for each of the three months ended March 31, 2021 and 2020. ( 9) Stockholders&rsquo; Equity ( a) Issuance of Common Stock On January 28, 2021, the Company completed a public offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended (&ldquo;January 2021 Offering&rdquo;). The gross proceeds from the January 2021 Offering were approximately $28.7 million, before deducting underwriter fees and other offering expenses of $1.9 million. In the January 2021 Offering, the Company sold 16,428,571 shares of its common stock. On February 27, 2020, the Company completed a registered direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended (&ldquo;February 2020 Offering&rdquo;). The gross proceeds from the February 2020 Offering were approximately $6.0 million, before deducting placement agent fees and other offering expenses of $347,000. In the February 2020 Offering, the Company sold 10,084,034 Class A Units at an offering price of $0.595 per unit, with each Class A Unit consisting of one share of its common stock and one-half of a common warrant to purchase one share of common stock at an exercise price of $0.53 per share of common stock. Additionally, the common stock warrants were immediately exercisable and expire on February 27, 2025. By their terms, however, the common stock warrants cannot be exercised at any time that the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving effect to such exercise. On November 18, 2019, the Company completed a public offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended (&ldquo;November 2019 Offering&rdquo;). The gross proceeds from the November 2019 Offering were approximately $6.0 million, before deducting placement agent fees and other offering expenses of $404,000. In the November 2019 Offering, the Company sold (i) 10,450,000 Class A Units, with each Class A Unit consisted of one share of its common stock and a common warrant to purchase one share of its common stock, and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of its common stock and a common warrant to purchase one share of its common stock, at a price of $0.50 per Class A Unit and $0.4999 per Class B Unit. The pre-funded warrants, which were exercised for common stock in December 2019, were issued in lieu of common stock in order to ensure the purchaser did not exceed certain beneficial ownership limitations. The pre-funded warrants were immediately exercisable at an exercise price of $.0001 per share, subject to adjustment. Additionally, the common stock warrants were immediately exercisable at an exercise price of $0.50 per share, subject to adjustment, and expire on November 17, 2024. By their terms, however, neither the pre-funded warrants nor the common stock warrants can be exercised at any time that the pre-funded warrant holder or the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving effect to such exercise. On the date of the November 2019 Offering, the Company allocated approximately $768,000 and $4.8 million to common stock/additional paid-in capital and warrant liability, respectively. On March 6, 2017, the Company entered into the Sales Agreement with Cantor Fitzgerald & Co. (&ldquo;Cantor&rdquo;) pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to the amount the Company registered on an effective registration statement pursuant to which the offering is being made. The Company currently has registered up to $50.0 million for sale under the Sales Agreement, pursuant to the Registration Statement on Form S-3 (File No. 333-250072) through Cantor as the Company&rsquo;s sales agent. Cantor may sell the Company&rsquo;s common stock by any method permitted by law deemed to be an &ldquo;at the market offering&rdquo; as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Capital Market or any other existing trade market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell these shares. The Company pays Cantor 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. In addition, the Company has also provided Cantor with customary indemnification rights. 12 The shares of the Company&rsquo;s common stock sold under the Sales Agreement are sold and issued pursuant to the Registration Statement on Form S-3 (File No. 333-250072) (the &ldquo;Form S-3&rdquo;), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and one or more prospectus supplements. The Company is not obligated to make any sales of its common stock under the Sales Agreement. The offering of common stock pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement as permitted therein. The Company and Cantor may each terminate the Sales Agreement at any time upon ten days&rsquo; prior notice. As of March 31, 2021, we had sold an aggregate of 15,023,073 shares at a weighted-average sales price of $2.19 per share under the ATM for aggregate gross proceeds of $32.9 million and net proceeds of $31.7 million, after deducting sales agent commission and discounts and our other offering costs. During the three months ended March 31, 2021, the Company sold 1,811,238 shares of our common stock pursuant to the current Registration Statement on Form S-3 (File No. 333-250072) at a weighted-average sales price of $1.95 per share, resulting in net proceeds of approximately $3.4 million under the Sales Agreement which is net of $112,000 in expenses. During the three months ended March 31, 2020, the Company did not sell any shares of our common stock pursuant to the prior Registration Statement on Form S-3 (File No. 333-220942). As of March 31, 2021, the Company had $41.2 million available for sale under the Sales Agreement. (b) Rights Agreement On November 13, 2015, the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, entered into a Rights Agreement. Also on November 12, 2015, the board of directors of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a &ldquo;Right&rdquo; and collectively, the &ldquo;Rights&rdquo;) for each outstanding share of common stock of the Company. The dividend was payable to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company at a price of $63.96 per one-thousandth share (the &ldquo;Purchase Price&rdquo;). The Rights will generally become exercisable upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company. Except in certain situations, a person or group of affiliated or associated persons becomes an &ldquo;Acquiring Person&rdquo; upon acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company. In general, in the event a person becomes an Acquiring Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right&rsquo;s then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with a market value of twice the Purchase Price. In addition, if after any person has become an Acquiring Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company&rsquo;s assets, or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such transaction would have a market value of twice the Purchase Price. The Company will be entitled to redeem the Rights at $0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the Rights Agreement, which is summarized in the Company's Current Report on Form 8-K dated November 13, 2015. The rights plan was originally set to expire on November 12, 2018; however, on November 5, 2018 our Board of Directors approved an Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 5, 2021, unless the rights are earlier redeemed or exchanged by the Company. 13 (c) Share-Based Payments The Company recognizes stock-based compensation expense for grants of stock option awards, restricted stock units and restricted stock under the Company&rsquo;s Incentive Plan to employees, nonemployees and nonemployee members of the Company&rsquo;s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award&rsquo;s requisite service period. In addition, the Company has granted performance-based stock option awards and restricted stock units, which vest based upon the Company satisfying certain performance conditions. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, the Company estimates that these options or units will vest, which is based on whether the Company considers the performance conditions to be probable of attainment. The Company&rsquo;s estimates of the number of performance-based options or units that will vest will be revised, if necessary, in subsequent periods. The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company&rsquo;s common stock price, (ii) the periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend yield on the Common Stock, and (iv) risk-free interest rates. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation cost that has been expensed in the statements of operations amounted to approximately $148,000 and $322,000, respectively, for the three months ended March 31, 2021 and 2020 and is allocated as follows: Three Months Ended March 31, 2021 2020 Research and development $ 66,887 $ 134,664 General and administrative 80,679 187,249 $ 147,566 $ 321,913 The Company issued 310,000 and 626,000 stock options, respectively, during the three months ended March 31, 2021 and 2020. Key assumptions used in the determination of the fair value of stock options granted are as follows: Expected Term : The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited historical experience of similar awards, the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (&ldquo;SAB&rdquo;) No. 107, Share-Based Payment, for awards with stated or implied service periods. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions, and that have the contractual term to satisfy the performance condition, the contractual term was used. Risk-Free Interest Rate : The risk-free interest rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term. Expected Dividend : The expected dividend assumption is based on management&rsquo;s current expectation about the Company&rsquo;s anticipated dividend policy. The Company does not anticipate declaring dividends in the foreseeable future. Expected Volatility : The volatility factor is based solely on the Company&rsquo;s trading history since March 2014. For options granted during the three months ended March 31, 2021 and 2020, the Company calculated the fair value of each option grant on the respective dates of grant using the following weighted average assumptions: 2021 2020 Expected term 5.85 years 5.85 years Risk-free interest rate 0.47 % 1.50 % Expected dividend yield 0.00 % 0.00 % Expected volatility 100.96 % 99.11 % FASB ASC 718, Stock Compensation , requires the Company to recognize compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. 14 As of March 31, 2021, there was $1.2 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company&rsquo;s stock option plan. That cost is expected to be recognized over a weighted average period of 2.45 years and will be adjusted for subsequent changes in estimated forfeitures. (d) Stock Option Plan In April 2014, the board of directors adopted the 2014 Stock and Incentive Plan (&quot;2014 Plan&quot;) subject to shareholder approval which was received in June 2014. The 2014 Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units, restricted stock and dividend equivalents. An aggregate of 1,000,000 shares were authorized for issuance under the 2014 Plan. Additionally, 271,906 remaining authorized shares under the 2011 Equity Incentive Plan (&quot;2011 Plan&quot;) were issuable under the 2014 Plan at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 1,271,906 to 2,471,906. Additionally, upon receiving shareholder approval in June 2018, the 2014 Plan was further amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 2,471,906 to 3,221,906. Finally, upon receiving shareholder approval in June 2020, the 2014 Plan was further amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 3,221,906 to 5,721,906. The board of directors, on an option-by-option basis, determines the number of shares, exercise price, term, and vesting period for options granted. Options granted generally have a ten-year contractual life. The Company issues shares of common stock upon the exercise of options with the source of those shares of common stock being either newly issued shares or shares held in treasury. An aggregate of 5,721,906 shares are authorized for issuance under the 2014 Plan, with 1,650,874 shares remaining available for grant as of March 31, 2021. A summary of stock option activity is as follows: Outstanding stock options Number of shares Weighted average exercise price Balance at December 31, 2020 3,564,458 $ 3.36 Options granted 310,000 1.47 Options exercised (4,584 ) 1.46 Options forfeited - - Options cancelled (20,084 ) 6.45 Balance at March 31, 2021 3,849,790 3.19 Options exercisable at March 31, 2021 2,354,983 4.49 15 The following table summarizes information about stock options outstanding and exercisable at March 31, 2021: Options outstanding Options exercisable Number outstanding Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value Number exercisable Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value 3,849,790 6.71 $ 3.19 $ 820,904 2,354,983 5.03 $ 4.49 $ 270,959 T he intrinsic value for stock options is defined as the difference between the current market value and the exercise price. There were 4,584 stock options exercised during the three months ended March 31, 2021 and no stock options exercised during the three months ended March 31, 2020. ( e) Common Stock Warrants The Company accounts for its common stock warrants under ASC 480, Distinguishing Liabilities from Equity , which requires any financial instrument, other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer&rsquo;s equity shares, or is indexed to such an obligation, and requires or may require the issuer to settle the obligation by transferring assets, to be classified as a liability. In accordance with ASC 480, the Company&rsquo;s outstanding warrants from the November 2019 Offering are classified as a liability. The liability is adjusted to fair value at each reporting period, with the changes in fair value recognized as gain (loss) on change in fair value of warranty liability in the Company&rsquo;s consolidated statements of operations. The warrants issued in the November 2019 Offering allow the warrant holder, if certain change in control events occur, the option to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a fundamental transaction. As of March 31, 2021, the Company had 1,094,030 common stock warrants outstanding from the November 2019 Offering to purchase an equal number of shares of common stock. The fair value of these warrants on March 31, 2021 and on December 31, 2020 was determined using the Black-Scholes option pricing model with the following Level 3 inputs (as defined in the November 2019 Offering): March 31, 2021 December 31, 2020 Expected life in years 3.63 3.88 Risk-free interest rate 0.63 % 0.27 % Dividend yield &mdash; &mdash; Volatility 95.44 % 88.46 % Stock price $ 1.51 $ 1.36 During the three months ended March 31, 2021, the Company recorded a non-cash loss of approximately $195,000 from the change in fair value of the November 2019 Offering warrants. During the three months ended March 31, 2020, the Company recorded a non-cash loss of approximately $1.1 million from the change in fair value of the November 2019 Offering warrants. The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs: Warrant Liability Balance at December 31, 2020 $ 1,170,051 Settlement of liability on warrant exercise (18,365 ) Change in fair value of common stock warrants 195,065 Balance at March 31, 2021 $ 1,346,751 16 Additionally, in the February 2020 Offering, the Company issued 5,042,017 common stock warrants, however, because these warrants do not provide the warrant holder the option to put the warrant back to the Company, the warrants are classified as equity. The following table summarizes the number of common stock warrants outstanding and the weighted average exercise price: Warrants Weighted Average Exercise Price Outstanding at December 31, 2020 1,944,366 $ 0.51 Issued - - Exercised (10,000 ) 0.50 Expired - - Cancelled - - Forfeited - - Balance at March 31, 2021 1,934,366 $ 0.51 During the three months ended March 31, 2021 and 2020, 10,000, and 121,000 common stock warrants to purchase one share of our common stock were exercised, respectively, resulting in proceeds of approximately $5,000 and $61,000, respectively, in the three months ended March 31, 2021 and 2020. The following table summarizes information about common stock warrants outstanding at March 31, 2021: Warrants outstanding Number exercisable Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value 1,934,366 3.75 $ 0.51 $ 1,928,500 (10 ) Commitments and Contingencies Litigation The Company is involved in various lawsuits, claims and other legal matters from time to time that arise in the ordinary course of conducting business. The Company records a liability when a particular contingency is probable and estimable. On April 2, 2019, the Company filed a lawsuit against Clarus in the United States District Court for the District of Delaware alleging that Clarus&rsquo;s JATENZO&reg; product infringes six of Lipocine&rsquo;s issued U.S. patents: 9,034,858; 9,205,057; 9,480,690; 9,757,390; 6,569,463; and 6,923,988. However on February 11, 2020, the Company voluntarily dismissed allegations of patent infringement for expired U.S. Patent Nos. 6,569,463 and 6,923,988 in an effort to streamline the issues and associated costs for dispute. Clarus has answered the complaint and asserted counterclaims of non-infringement and invalidity. The Company answered Clarus&rsquo;s counterclaims on April 29, 2019. The Court held a scheduling conference on August 15, 2019, a claim construction hearing on February 11, 2020 and a Summary Judgement Hearing on January 15, 2021. Originally the United States District Court for the District of Delaware had scheduled a five-day jury trial to begin on February 8, 2021, however, on December 28, 2020, the District Court postponed the jury trial due to the ongoing effects of the COVID-19 pandemic. The jury trial will be rescheduled once it becomes clear when jury trials will resume in the District of Delaware. 17 On November 14, 2019, the Company and certain of its officers were named as defendants in a purported shareholder class action lawsuit, Solomon Abady v. Lipocine Inc. et al ., 2:19-cv-00906-PMW, filed in the United District Court for the District of Utah. The complaint alleges that the defendants made false and/or misleading statements and/or failed to disclose that our filing of the NDA for TLANDO to the FDA contained deficiencies and as a result the defendants&rsquo; statements about our business and operations were false and misleading and/or lacked a reasonable basis in violation of federal securities laws. The lawsuit seeks certification as a class action (for a purported class of purchasers of the Company&rsquo;s securities from March 27, 2019 through November 8, 2019), compensatory damages in an unspecified amount, and unspecified equitable or injunctive relief. The Company has insurance that covers claims of this nature. The retention amount payable by the Company under our policy is $1.25 million. The Company filed a motion to dismiss the class action lawsuit on July 24, 2020. In response, the plaintiffs filed their response to the motion to dismiss the class action lawsuit on September 22, 2020 and the Company filed its reply to its motion to dismiss on October 22, 2020. The Company intends to vigorously defend itself against these allegations and has not recorded a liability related to this shareholder class action lawsuit as the outcome is not probable nor can an estimate be made of loss, if any. On March 13, 2020, the Company filed U.S. patent application serial number 16/818,779 (&ldquo;the Lipocine &lsquo;779 Application&rdquo;) with the United States Patent and Trademark Office (&ldquo;USPTO&rdquo;). On October 16 and November 3, 2020, Lipocine filed suggestions for interference with the USPTO requesting that a patent interference be declared between the Lipocine &lsquo;779 Application and US patent application serial number 16/656,178 to Clarus Therapeutics, Inc. (&ldquo;the Clarus &lsquo;178 Application&rdquo;). Pursuant to the Company&rsquo;s request, the Patent Trial and Appeal Board (&ldquo;PTAB&rdquo;) at the USPTO declared the interference on January 4, 2021 to ultimately determine, as between the Company and Clarus, who is entitled to the claimed subject matter. The interference number is 106,128, and the Company was initially declared Senior Party. A conference call with the PTAB was held on January 25, 2021 to discuss proposed motions. On February 1, 2021, the PTAB issued an order authorizing certain motions and setting the schedule for the preliminary motions phase. Briefing is presently ongoing. Beyond John Wajda, derivatively on behalf of Lipocine Inc. v. Mahesh Patel, et al. and Solomon Abady v. Lipocine Inc. et al ., 2:19-cv-00906-PM, management does not currently believe that any other matter, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations. Guarantees and Indemnifications In the ordinary course of business, the Company enters into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements, containing standard guarantee and / or indemnification provisions. Additionally, the Company has indemnified its directors and officers to the maximum extent permitted under the laws of the State of Delaware. ( 11) Agreement with Spriaso, LLC On July 23, 2013, the Company entered into an assignment/license and a services agreement with Spriaso, a related-party that is majority-owned by certain current and former directors of Lipocine Inc. and their affiliates. Under the license agreement, the Company assigned and transferred to Spriaso all of the Company&rsquo;s rights, title and interest in its intellectual property to develop products for the cough and cold field. In addition, Spriaso received all rights and obligations under the Company&rsquo;s product development agreement with a third-party. In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $10.0 million. Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside of the cough and cold field. Under the service agreement, the Company provided facilities and up to 10 percent of the services of certain employees to Spriaso for a period of 18 months which expired January 23, 2015. Effective January 23, 2015, the Company entered into an amended services agreement with Spriaso in which the Company agreed to continue providing up to 10 percent of the services of certain employees to Spriaso at a rate of $230/hour for a period of six months. The agreement was further amended on July 23, 2015, on January 23, 2016, on July 23, 2016, on January 23, 2017, on July 23, 2017 , on January 23, 2018, on July 23, 2018 and again on January 23, 2019 to extend the term of the agreement for an additional six months. The agreement was further amended on July 23, 2019 and again on July 23, 2020 to extend the term of the agreement for an additional twelve months. The agreement may be extended upon written agreement of Spriaso and the Company. The Company did not receive any reimbursements during the three months ended March 31, 2021 and 2020, respectively. Spriaso filed its first NDA and as an affiliated entity of the Company, it used up the one-time waiver for user fees for a small business submitting its first human drug application to the FDA. Spriaso is considered a variable interest entity under the FASB ASC Topic 810-10, Consolidations , however the Company is not the primary beneficiary and has therefore not consolidated Spriaso. 18 (1 2) Recent Accounting Pronouncements Accounting Pronouncements Issued Not Yet Adopted In 2016, the FASB issued Accounting Standards Update (&ldquo;ASU&rdquo;) 2016-13, Measurement of Credit Losses on Financial Instruments (&ldquo;ASU 2016-13&rdquo;). This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables, and requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The original effective date for ASU 2016-13 was for annual and interim periods beginning after December 15, 2019. However, in October 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses, Derivatives and Hedging, and Leases: Effective Dates , which deferred the effective date of ASU 2016-13 for certain entities, including those that are eligible to be smaller reporting companies . A company&rsquo;s determination about whether it is eligible for the deferral is a one-time assessment as of November 15, 2019 based on its most recent determination of its small reporting company eligibility as of the last business day of the most recently completed second quarter. Based on this determination, the Company qualifies as a smaller reporting entity and is therefore eligible for the deferral of adoption of ASU 2016-13, resulting in a new effective date of January 1, 2023. The Company has historically not had credit losses on financial instruments and is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements. ITEM 2. MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto and other financial information included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the management&rsquo;s discussion and analysis included in our Form 10-K, filed with the SEC on March 11, 2021 as well as the financial statements and related notes contained therein. As used in the discussion below, &ldquo;we,&rdquo; &ldquo;our,&rdquo; and &ldquo;us&rdquo; refers to Lipocine. Forward -Looking Statements This section and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements may refer to such matters as products, product benefits, pre-clinical and clinical development timelines, clinical and regulatory expectations and plans, expected responses to regulatory actions, anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance, expected research and development and other expenses, future expectations for liquidity and capital resources needs and similar matters. Such words as &ldquo;may&rdquo;, &ldquo;will&rdquo;, &ldquo;expect&rdquo;, &ldquo;continue&rdquo;, &ldquo;estimate&rdquo;, &ldquo;project&rdquo;, and &ldquo;intend&rdquo; and similar terms and expressions are intended to identify forward looking statements. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A (Risk Factors) of this Form 10-Q, or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the SEC on March 11, 2021. Except as required by applicable law, we assume no obligation to revise or update any forward-looking statements for any reason. Overview of Our Business We are a clinical-stage biopharmaceutical company focused on applying our oral drug delivery technology for the development of pharmaceutical products focusing on metabolic and endocrine disorders. Our proprietary delivery technologies are designed to improve patient compliance and safety through orally available treatment options. Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs. We have a portfolio of proprietary product candidates designed to produce favorable PK characteristics and facilitate lower dosing requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal interactions that limit bioavailability. 19 Our most advanced product candidate, TLANDO&trade;, is an oral TRT comprised of TU. On December 8, 2020, we received tentative approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT in adult males for conditions associated with a deficiency of endogenous testosterone, also known as hypogonadism. In granting tentative approval, the FDA concluded that TLANDO has met all required quality, safety and efficacy standards necessary for approval. However, TLANDO has not received final approval and is not eligible for final approval to market in the U.S. until the expiration of the exclusivity period previously granted to Clarus with respect to Jatenzo&reg;, which expires on March 27, 2022. We are currently reviewing the FDA&rsquo;s tentative approval of TLANDO and remain committed to taking appropriate actions with the goal of receiving final approval to permit the launch of TLANDO. The FDA has also required us to conduct certain post-marketing studies to (i) assess patient understanding of key risks relating to TLANDO and (ii) evaluate development of adrenal insufficiency with chronic TLANDO therapy. Additional pipeline candidates include LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU for the treatment of NASH which is currently in Phase 2 testing, TLANDO XR, a next generation oral TRT product comprised of testosterone tridecanoate (&ldquo;TT&rdquo;) with the potential for once daily dosing which has completed Phase 2 testing, LPCN 1148, an oral prodrug of bioidentical testosterone for the treatment of management of cirrhosis, and LPCN 1107, potentially the first oral HPC product indicated for the prevention of recurrent PTB, which has completed a dose finding Phase 2 clinical study and has been granted orphan drug designation by the FDA. LPCN 1144 is currently being tested in the LiFT Phase 2 clinical study, a paired-biopsy study in confirmed non-cirrhotic NASH subjects. Study enrollment has been completed and positive top-line primary endpoint results after 12 weeks of treatment were released in January 2021. Treatments with LPCN 1144 resulted in robust liver fat reduction, assessed by MRI-PDFF technique, and showed improvement of liver injury markers with no observed tolerability issues. To date, we have funded our operations primarily through the sale of equity securities, debt and convertible debt and through up-front payments, research funding and royalty and milestone payments from our license and collaboration arrangements. We have not generated any revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval of TLANDO or other products. We have incurred losses in most years since our inception. As of March 31, 2021, we had an accumulated deficit of $175.4 million. Income and losses fluctuate year to year, primarily depending on the nature and timing of research and development occurring on our product candidates. Our net loss was $3.4 million for the three months ended March 31, 2021, compared to $5.8 million for the three months ended March 31, 2020. Substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs, including on-going litigation, associated with our operations. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we: &bull; conduct any other post-approval clinical studies required in support of TLANDO; &bull; perform pre-commercialization and commercialization activities in support of TLANDO; &bull; conduct further development of our other product candidates, including LPCN 1144 and LPCN 1148; &bull; continue our research efforts; &bull; research new products or new uses for our existing products; &bull; maintain, expand and protect our intellectual property portfolio; and &bull; provide general and administrative support for our operations, including on-going litigation. To fund future long-term operations, including the potential commercialization of TLANDO or other products, we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including capital market conditions, regulatory requirements and outcomes related to TLANDO, regulatory requirements related to our other product development programs, the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs, our ability to license our products to third parties, the pursuit of various potential commercial activities and strategies associated with our development programs and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential license, partnering and collaboration agreements. We cannot be certain that anticipated additional financing will be available to us on favorable terms, in amounts sufficient to fund our operations (including the commercialization of TLANDO if we receive FDA approval), or at all. Although we have previously been successful in obtaining financing through public and private equity securities offerings and our license and collaboration agreements, there can be no assurance that we will be able to do so in the future. 20 Our Product Candidates Our current portfolio includes our most advanced product candidate, TLANDO, an oral TRT product candidate, which received tentative approval from the FDA on December 8, 2020. Additionally, we are in the process of establishing our pipeline of other clinical candidates including an oral androgen therapy for the treatment of non-cirrhotic NASH, LPCN 1144, a next-generation potential once daily oral TRT, TLANDO XR, an androgen therapy for the management of cirrhosis, LPCN 1148, an oral therapy for the prevention of PTB, LPCN 1107 and we continue to explore other product candidates targeting indications with a significant unmet need. These products are based on our proprietary Lip&rsquo;ral drug delivery technology platform. Lip&rsquo;ral technology is a patented technology based on lipidic compositions which form an optimal dispersed phase in the gastrointestinal environment for improved absorption of insoluble drugs. The drug loaded dispersed phase presents the solubilized drug efficiently at the absorption site (gastrointestinal tract membrane) thus improving the absorption process and making the drug less dependent on physiological variables such as dilution, gastro-intestinal pH and food effects for absorption. Lip&rsquo;ral based formulation enables improved solubilization and higher drug-loading capacity, which can lead to improved bioavailability, reduced dose, faster and more consistent absorption, reduced variability, reduced sensitivity to food effects, improved patient compliance, and targeted lymphatic delivery where appropriate. Our Development Pipeline TLANDO: An Oral Product Candidate for Testosterone Replacement Therapy Our most advanced product, TLANDO, is an oral formulation of the chemical, TU, which is an eleven carbon side chain attached to T. TU is an ester prodrug of T. An ester is chemically formed by bonding an acid and an alcohol. Upon the cleavage, or breaking, of the ester bond, T is formed. TU has been approved for use outside the United States for many years for delivery via intra-muscular injection and in oral dosage form and more recently TU has received regulatory approval in the United States for delivery via intra-muscular injection and in oral dosage form. We are using our proprietary technology to facilitate steady gastrointestinal solubilization and absorption of TU. Proof of concept was initially established in 2006, and subsequently TLANDO was licensed in 2009 to Solvay Pharmaceuticals, Inc. which was then acquired by Abbott. Following a portfolio review associated with the spin-off of AbbVie by Abbott in 2011, the rights to TLANDO were reacquired by us. All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales. Such royalties are limited to $1 million in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate amount. If generic versions of any such product are introduced, then royalties are reduced by 50%. NDA PDUFA Outcome On December 8, 2020 we received tentative approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT in adult males for conditions associated with a deficiency of endogenous testosterone, also known as hypogonadism. In granting tentative approval, the FDA concluded that TLANDO has met all required quality, safety and efficacy standards necessary for approval. However, TLANDO has not received final approval and is not eligible for final approval to market in the U.S. until the expiration of the exclusivity period previously granted to Clarus with respect to Jatenzo&reg;, which expires on March 27, 2022. We are currently reviewing the FDA&rsquo;s tentative approval of TLANDO and remain committed to taking appropriate actions with the goal of receiving final approval to permit the launch of TLANDO. Under the Pediatric Research Equity Act (&ldquo;PREA&rdquo;), if TLANDO receives full approval, we will need to address the PREA requirement to assess the safety and effectiveness of TLANDO in pediatric patients. The FDA has also required us to conduct certain post-marketing studies including: (i) conduct an appropriately designed label comprehension and knowledge study that assesses patient understanding of key risk messages in the Medication Guide for TLANDO and (ii) conduct an appropriately designed one-year trial to evaluate development of adrenal insufficiency with chronic TLANDO therapy. The timetables for these post-marketing requirements will be established at the time of full approval of TLANDO. We are actively pursuing and currently evaluating commercial alternatives with TLANDO, should it receive FDA approval, including out-licensing TLANDO to a third-party, launching TLANDO on our own, or launching TLANDO on our own with the assistance from a &ldquo;risk share&rdquo; partner. Recent Competition Update On March 27, 2019, Clarus&rsquo; product JATENZO&reg;, an oral TU product, was approved by the FDA and also received three years of data exclusivity. On February 10, 2020, Clarus announced that JATENZO&reg; has been launched and is commercially available. Based on the FDA&rsquo;s tentative approval of TLANDO, we will not be able to begin marketing TLANDO until March 27, 2022, the expiration of the exclusivity period granted to Clarus with respect to JATENZO&reg;. 21 Additionally, our competitors may introduce other T-replacement therapies. For example, on January 5, 2021 Marius submitted a NDA to the FDA seeking approval of KYZATREX&reg;, its novel oral TU soft gelatin capsule for the treatment of primary and secondary hypogonadism in adult men. According to Marius, it has been assigned a PDUFA date of October 31, 2021 for KYZATREX&reg;. We are also aware of other pharmaceutical companies that have T-replacement therapies or testosterone therapies in development that may be approved for marketing in the United States or outside of the United States. Based on publicly available information, we believe that several other T-replacement therapies that would be competitive with TLANDO are in varying stages of development, some of which may be approved, marketed and/or commercialized prior to TLANDO. These therapies include T-gels, oral-T, an aromatase inhibitor, a new class of drugs called Selective Androgen Receptor Modulators and hydroalcoholic gel formulations of DHT. LPCN 1144: An Oral Prodrug of Bioidentical Testosterone Product Candidate for the Treatment of NASH We are currently evaluating LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU, for the treatment of non-cirrhotic NASH. NASH is a more advanced state of NAFLD and can progress to a cirrhotic liver and eventually hepatocellular carcinoma/ liver cancer. Twenty to thirty percent of the U.S. population is estimated to suffer from NAFLD and fifteen to twenty percent of this group progress to NASH, which is a substantially large population that lacks effective therapy. Currently, there are no FDA approved treatments for NASH, a silent killer that affects approximately 30 million Americans. Approximately 50% of NASH patients are in adult males. NAFLD/NASH is becoming more common due to its strong correlation with obesity and metabolic syndrome, including components of metabolic syndrome such as diabetes, cardiovascular disease and high blood pressure. In men, especially with comorbidities associated with NAFLD/NASH, testosterone deficiency has been associated with an increased accumulation of visceral adipose tissue and insulin resistance, which could be factors contributing to NAFLD/NASH. There is currently no approved therapy for the treatment of NASH although there are several drug candidates currently under development with many having clinical failures to date. History of Liver Disease The liver is the largest internal organ in the human body and its proper function is indispensable for many critical metabolic functions, including the regulation of lipid and sugar metabolism, the production of important proteins, including those involved in blood clotting, and purification of blood. There are over 100 described diseases of the liver, and because of its many functions, these can be highly debilitating and life-threatening unless effectively treated. Liver diseases can result from injury to the liver caused by a variety of insults, including HCV, HBV, obesity, chronic excessive alcohol use or autoimmune diseases. Regardless of the underlying cause of the disease, there are important similarities in the disease progression including increased inflammatory activity and excessive liver cell apoptosis, which if unresolved leads to fibrosis. Fibrosis, if allowed to progress, will lead to cirrhosis, or excessive scarring of the liver, and eventually reduced liver function. Some patients with liver cirrhosis have a partially functioning liver and may appear asymptomatic for long periods of time, which is referred to as decompensated liver disease. Decompensated liver disease is when the liver is unable to perform its normal functions. Many people with active liver disease remain undiagnosed largely because liver disease patients are often asymptomatic for many years. Markers of Liver Cell Death ALT is an enzyme that is produced in liver cells and is naturally found in the blood of healthy individuals. In liver disease, liver cells are damaged and as a consequence, ALT is released into the blood, increasing ALT levels above the normal range. Physicians routinely test blood levels of ALT to monitor the health of a patient's liver. ALT level is a clinically important biochemical marker of the severity of liver inflammation and ongoing liver disease. Elevated levels of ALT represent general markers of liver cell death and inflammation without regard to any specific mechanism. AST is a second enzyme found in the blood that is produced in the liver and routinely measured by physicians along with ALT. As with ALT, AST is often elevated in liver disease and, like ALT, is considered an overall marker of liver inflammation. 22 Relationship between Hypogonadism and NAFLD Preclinical and clinical studies in the NAFLD/NASH literature have shown the prevalence of testosterone deficiency across the NAFLD/NASH histological spectrum wherein low testosterone was independently associated with NAFLD/NASH with an inverse relationship between testosterone and NAFLD/NASH symptom severity. A recent NIDDK report suggests that 75% of biopsy confirmed NASH subjects have less than 372 ng/dL of total testosterone and that the degree of fibrosis severity is inversely related to free testosterone levels; thus, providing a good rationale for testing LPCN 1144 in adult NASH patients regardless of their hypogonadal status. We have received clearance from the FDA to clinically investigate LPCN 1144 in an expanded target population of adult male NASH patients. Specifically, the FDA waived the limitation of only testing LPCN 1144 in NASH subjects with total testosterone levels below 300 ng/dL (threshold for hypogonadism). Post hoc analyses of our existing clinical trials in subjects with comorbidities typically associated with NASH comorbidities indicate that testosterone therapy significantly and consistently reduced elevated levels of key serum biomarkers (liver function enzymes and serum triglyceride) generally associated with NAFLD/NASH. Current Status We have initiated the LiFT Phase 2 clinical study in confirmed non-cirrhotic NASH subjects. The LiFT clinical study is a prospective, multi-center, randomized, double-blind, placebo-controlled multiple-arm study in biopsy-confirmed hypogonadal or eugonadal male NASH subjects with grade F1/F3 fibrosis and a NAFLD Activity Score &ge; 4 with a 36-week treatment period. The LiFT clinical study enrolled 56 biopsy confirmed NASH male subjects. Subjects were randomized 1:1:1 to one of three arms (Treatment A is a twice daily oral dose of 142 mg testosterone equivalent, Treatment B is a twice daily oral dose of 142 mg testosterone equivalent formulated with 217 mg of d-alpha tocopherol equivalent, and the third arm is twice daily matching placebo). We currently expect 36-week biopsy data in August 2021. The primary endpoint of the LiFT clinical study is change in hepatic fat fraction via MRI-PDFF and exploratory liver fat/marker end points post 12 weeks of treatment. Additionally, key secondary endpoints post 36 weeks of treatment include assessment of histological change for NASH resolution and/or fibrosis improvement as well as liver fat data. Other important endpoints include the following: change in liver injury markers, anthropomorphic measurements, lipids, insulin resistance and inflammatory/fibrosis markers; as well as patient reported outcomes. Additionally, subjects will have access to LPCN 1144 through an open label extension study. The extension study will enable the collection of additional data on LPCN 1144 for up to a total of 72 weeks of therapy. Treatments with LPCN 1144 post 12 weeks of treatment resulted in robust liver fat reduction, assessed by MRI-PDFF, and showed improvement of liver injury markers with no observed tolerability issues. Inclusion of d-alpha tocopherol formulated with the testosterone prodrug resulted in additional liver benefits, notably improved key liver markers without compromising tolerability. Key results are presented in the following tables: Table 1. Mean absolute liver fat using MRI-PDFF in all subjects (n=56)* at Week 12. Treatment Change from baseline (CBL) Placebo-adjusted CBL % p-value % p value A (n = 18) -7.7 <0.0001 -6.1 0.0001 B (n = 19) -9.2 <0.0001 -7.5 <0.0001 Placebo (n = 19) -1.7 NS n/a n/a * Missing data was obtained using Multiple Imputation NS: Not significant (p > 0.05) 23 Table 2. Mean relative liver fat using MRI-PDFF at Week 12 in subjects (n=52) with liver fat &ge; 5% at baseline.* Treatment Change from baseline (CBL) Placebo-adjusted CBL % p value % p value A (n = 17) -40.0 <0.0001 -30.0 0.0002 B (n = 17) -46.9 <0.0001 -37.0 <0.0001 Placebo (n = 18) -9.9 NS n/a n/a * Based on available data. Table 3. Responders with > 30% Relative Reduction in Liver Fat at Week 12, Intent to Treat Dataset (n=56)*. Treatment Responder (% of subjects) p value vs Placebo A (n = 18) 66.7 0.0058 B (n = 19) 63.2 0.0026 Placebo (n = 19) 15.8 * Subjects with missing data are considered non-responders Table 4. Average changes in key serum liver injury markers ALT and AST at Week 12 (n=52)*. ALT (U/L) AST (U/L) Treatment Absolute Placebo-Adjusted Absolute Absolute Placebo-Adjusted Absolute CBL p value vs BL CBL p value vs Placebo CBL p value vs BL CBL p value vs Placebo A (n = 16) -9.4 0.0054 -11.1 0.0164 -4.9 0.0402 -7.7 0.0216 B (n = 19) -22.4 <0.0001 -24.1 <0.0001 -10.4 <0.0001 -13.2 0.0001 Placebo (n = 17) 1.8 NS n/a n/a 2.8 NS n/a n/a * All available data During the 12 weeks of treatment, the observed rate and severity of Treatment Emergent Adverse Events (&ldquo;TEAEs&rdquo;) in both the LPCN 1144 treatment arms were comparable to the placebo arm. Three subjects in the placebo group and one subject in the combined treatment arms discontinued study drug due to TEAEs. We currently expect 36-week biopsy data in August 2021. Previous to the LiFT clinical study, we completed a 16-week POC liver imaging clinical study to assess liver fat changes in hypogonadal men at risk of developing NASH using MRI-PDFF technique. Treatment results from the POC liver imaging study demonstrated that 48% of the treated NAFLD subjects, defined as baseline liver fat of at least 5%, had NAFLD resolution, defined as liver fat <5% post treatment. Additionally, 100% of the subjects experiencing NAFLD resolution had at least a 35% relative liver fat reduction from baseline with a relative mean liver fat reduction of 55% in this group. TLANDO XR: A Next-Generation Long-Acting Oral Product Candidate for TRT TLANDO XR is a next-generation, novel ester prodrug of testosterone comprised of TT which uses the Lip&rsquo;ral technology to enhance solubility and improve systemic absorption. We completed a Phase 2b dose finding study in hypogonadal men in the third quarter of 2016. The primary objectives of the Phase 2b clinical study were to determine the starting Phase 3 dose of TLANDO XR along with safety and tolerability of TLANDO XR and its metabolites following oral administration of single and multiple doses in hypogonadal men. The Phase 2b clinical trial was a randomized, open label, two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups. Each of the 12 subjects in a group received treatment for 14 days. Results of the Phase 2b study suggest that the primary objectives were met, including identifying the dose expected to be tested in a Phase 3 study. Good dose-response relationship was observed over the tested dose range in the Phase 2b study. Additionally, the target Phase 3 dose met primary and secondary end points. Overall, TLANDO XR was well tolerated with no drug-related severe or serious adverse events reported in the Phase 2b study. 24 Additionally in October 2014, we completed a Phase 2a proof -of-concept (&ldquo;POC&rdquo;) study in hypogonadal men. The Phase 2a open-label, dose-escalating single and multiple dose study enrolled 12 males. Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with TLANDO XR in hypogonadal men and a good dose response. Additionally, the study confirmed that steady state is achieved by day 14 with consistent inter-day performance observed on day 14, 21 and 28. No subjects exceeded Cmax of 1500 ng/dL at any time during the 28-day dosing period on multi-dose exposure. Overall, TLANDO XR was well tolerated with no serious AE&rsquo;s reported. We have also completed a preclinical toxicology study with TLANDO XR in dogs. In February 2018 we had a meeting with the FDA to discuss these pre-clinical results and to discuss the Phase 3 clinical study and path forward for TLANDO XR. Based on the results of the FDA meeting and additional pre-clinical trials conducted after the FDA meeting, we have proposed a Phase 3 protocol for TLANDO XR and have solicited FDA feedback. Based on initial FDA feedback, we expect the Phase 3 clinical trial design to follow the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (&ldquo;ICH&rdquo;) guidelines and will include a three-month efficacy treatment period and a one-year safety component for up to 100 subjects. We continue to refine the Phase 3 protocol and plan to request FDA approval of the protocol once it is finalized. Additionally, the FDA previously requested that a food effect study needs to be completed, and that ambulatory blood pressure monitoring (&ldquo;ABPM&rdquo;) be included as part of the Phase 3 clinical study. We anticipate the next steps in developing TLANDO XR will be to scale up the formulation and conduct a food effect study with TLANDO XR. We are also exploring the possibility of licensing TLANDO XR to a third party, although no licensing agreement has been entered into by us. LPCN 1148: An Oral Prodrug of Bioidentical Testosterone Product Candidate for the Management of Cirrhosis Cirrhosis is end-stage NAFLD for which there is no FDA approved drug treatment. Liver cirrhosis is estimated to affect in excess of 600,000 Americans, with men affected at twice the rate of women, and results in approximately 45,000 deaths every year. Due to a lack of available organs, only a third of waitlisted patients are getting liver transplants, and patients that do receive a transplant are increasingly being described as frail. Low testosterone affects up to 90% of cirrhotic men, and is a predictor of mortality and increased adverse events including ascites, hepatic encephalopathy, and clinically significant portal hypertension. We are targeting LPCN 1148 for the management of patients with liver cirrhosis. We believe LPCN 1148 will address current unmet needs for patients with liver cirrhosis including improvement in the quality of life of patients while on the liver transplant waiting list, allow patients to stay on the liver transplant waiting list longer, and improvement in post liver transplant survival, including outcomes and costs. We are currently formulating plans to conduct a Phase 2 POC study in male cirrhotic subjects through consultations with the FDA and key opinion leaders to evaluate the therapeutic potential of LPCN 1148 for the management of cirrhotic subjects. On May 5, 2020 the FDA accepted our IND to initiate a Phase 2 POC study to evaluate the therapeutic potential of LPCN 1148 for the management of liver cirrhosis in adult male cirrhotic patients. The planned Phase 2 POC study is a prospective, multi-center, randomized, placebo-controlled study in approximately 50 to 60 male cirrhotic patients that are on the liver transplant list. Subjects will be randomized 1:1 to one of two arms. The treatment arm is an oral dose of a testosterone ester and the second arm is matching placebo. The primary endpoint is change in skeletal muscle index at week 24 with key secondary endpoints including change in liver frailty index and clinically significant worsening in mortality. Total treatment is expected to be 52 weeks. We currently expect the first subject will be dosed in the second half of 2021. LPCN 1107: An Oral Product Candidate for the Prevention of Preterm Birth We believe LPCN 1107 has the potential to become the first oral HPC product indicated for the reduction of risk of PTB (delivery less than 37 weeks) in women with singleton pregnancy who have a history of singleton spontaneous PTB. Prevention of PTB is a significant unmet need as approximately 11.7% of all U.S. pregnancies result in PTB, a leading cause of neonatal mortality and morbidity. 25 We have completed a multi-dose PK dose selection study in pregnant women. The objective of the multi-dose PK selection study was to assess HPC blood levels in order to identify the appropriate LPCN 1107 Phase 3 dose. The multi-dose PK dose selection study was an open-label, four-period, four-treatment, randomized, single and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the IM HPC (Makena&reg;). The study enrolled 12 healthy pregnant women (average age of 27 years) with a gestational age of approximately 16 to 19 weeks. Subjects received three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID) in a randomized, crossover manner during the first three treatment periods and then received five weekly injections of HPC during the fourth treatment period. During each of the LPCN 1107 treatment periods, subjects received a single dose of LPCN 1107 on Day 1 followed by twice daily administration from Day 2 to Day 8. Following completion of the three LPCN 1107 treatment periods and a washout period, all subjects received five weekly injections of HPC. Results from this study demonstrated that average steady state HPC levels (Cavg0-24) were comparable or higher for all three LPCN 1107 doses than for injectable HPC. Additionally, HPC levels as a function of daily dose were linear for the three LPCN 1107 doses. Also, unlike the injectable HPC, steady state exposure was achieved for all three LPCN 1107 doses within seven days. We have also completed a proof-of-concept Phase 1b clinical study of LPCN 1107 in healthy pregnant women in January 2015 and a POC Phase 1a clinical study of LPCN 1107 in healthy non-pregnant women in May 2014. These studies were designed to determine the PK and bioavailability of LPCN 1107 relative to an IM HPC, as well as safety and tolerability. A traditional PK/PD based Phase 2 clinical study in the intended patient population is not expected to be required prior to entering into Phase 3. Therefore, based on the results of our multi-dose PK study we had an End-of-Phase 2 meeting and subsequent guidance meetings with the FDA to define a pivotal Phase 2b/3 development plan for LPCN 1107. However, these discussions will need to be updated based on recent developments with Covis&rsquo; Makena&reg;. We plan to resume our interactions with the FDA to discuss our pivotal Phase 2b/3 clinical trial design and better understand next steps to advance LPCN 1107. Additionally, a pivotal Phase 2b/3 study will not occur until the results from a planned food-effect study with LPCN 1107 are reviewed by the FDA, though manufacturing scale-up work for LPCN 1107 has been completed. We do not anticipate the initiation of a pivotal Phase 2b/3 study with LPCN 1107 to occur in 2021 until the required food effect study is complete. We currently intend to proceed with plans to conduct the required food effect clinical study. We are exploring the possibility of licensing LPCN 1107 to a third party, although no licensing agreement has been entered into by the Company. No assurance can be given that any license agreement will be completed, or, if an agreement is completed, that such an agreement would be on acceptable terms. The FDA has granted orphan drug designation to LPCN 1107 based on a major contribution to patient care. Orphan designation qualifies Lipocine for various development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user fee when we file our NDA. Recent Competition Update On October 5, 2020, the FDA&rsquo;s CDER proposed that Makena be withdrawn from the market because the PROLONG trial failed to verify the clinical benefit of Makena and concluded that the available evidence does not show Makena is effective for its approved use. CDER issued AMAG, the NDA holder at the time, an NOOH to withdraw approval of Makena, for which AMAG Pharmaceuticals responded by requesting a hearing and providing detail on the company&rsquo;s position, recognizing clinicians&rsquo; decade-long use of Makena&rsquo;s treatment and the public health implications of withdrawing approval. The FDA Commissioner has not determined whether it will hold a public hearing, and if one is granted, the process is expected to take months. During this time, Makena and the approved generics of Makena will remain on the market until the FDA makes a final decision about these products. Currently, Makena and the approved generics of Makena are the only products approved for the prevention of recurrent preterm birth. The FDA also indicated that it intends to hold a meeting with experts in obstetrics, neonatal care, and clinical trial design to discuss how to facilitate development of effective and safe therapies to treat preterm birth. Financial Operations Overview Revenue To date, we have not generated any revenues from product sales and do not expect to do so until one of our product candidates receives approval from the FDA. Revenues to date have been generated substantially from license fees, royalty and milestone payments and research support from our licensees. Since our inception through March 31, 2021, we have generated $28.1 million in revenue under our various license and collaboration arrangements and from government grants. We may never generate revenues from TLANDO or any of our other clinical or preclinical development programs or licensed products as we may never succeed in obtaining regulatory approval or commercializing any of these product candidates. 26 Research and Development Expenses Research and development expenses consist primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid to external service providers such as contract research organizations and contract manufacturing organizations, contractual obligations for clinical development, clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug supplies, and expenses associated with regulatory submissions. Research and development expenses also include an allocation of indirect costs, such as those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct labor hours for research and development personnel to total direct labor hours for all personnel. We expense research and development expenses as incurred. Since our inception, we have spent approximately $ 122.4 million in research and development expenses through March 31, 2021. On December 8, 2020 we received tentative approval from the FDA regarding our NDA filed in February 2020 for TLANDO as a TRT in adult males for conditions associated with a deficiency of endogenous testosterone, also known as hypogonadism. In granting tentative approval, the FDA concluded that TLANDO has met all required quality, safety and efficacy standards necessary for approval. However, TLANDO has not received final approval and is not eligible for final approval to market in the U.S. until the expiration of the exclusivity period previously granted to Clarus with respect to Jatenzo&reg;, which expires on March 27, 2022. As a result, we are uncertain as to whether we will incur additional research and developments costs for TLANDO. Any further expenditures, if needed, are subject to numerous uncertainties regarding timing and cost to completion. We expect to continue to incur significant costs as we develop our other product candidates, including the ongoing LiFT Phase 2 clinical study with LPCN 1144. In general, the cost of clinical trials may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others: &bull; the number of sites included in the trials; &bull; the length of time required to enroll suitable subjects; &bull; the duration of subject follow-ups; &bull; the length of time required to collect, analyze and report trial results; &bull; the cost, timing and outcome of regulatory review; and &bull; potential changes by the FDA in clinical trial and NDA filing requirements for testosterone replacement therapies. We have also incurred significant manufacturing costs to prepare launch supplies for TLANDO and additional expenditures will be required to prepare for a commercial launch of TLANDO, should it be approved. However, future expenditures are subject to numerous uncertainties regarding timing and cost to completion, including, among others: &bull; the timing and outcome of regulatory filings and FDA reviews and actions for TLANDO; &bull; our dependence on third-party manufacturers for the production of satisfactory finished product for registration and launch should regulatory approval be obtained; &bull; the potential for future license or co-promote arrangements for TLANDO, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our future plans and capital requirements; and &bull; the effect on our product development activities of actions taken by the FDA or other regulatory authorities. A change of outcome for any of these variables with respect to the development of TLANDO and our other product development candidates could mean a substantial change in the costs and timing associated with these efforts, will require us to raise additional capital, and may require us to reduce operations. Given the stage of clinical development and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process, we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and other product candidates. Clinical development timelines, the probability of success and development costs can differ materially from expectations and results from our clinical trials may not be favorable. If we are successful in progressing LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 or other product candidates into later stage development, we will require additional capital. The amount and timing of our future research and development expenses for these product candidates will depend on the preclinical and clinical success of both our current development activities and potential development of new product candidates, as well as ongoing assessments of the commercial potential of such activities. 27 Summary of Research and Development Expense We are conducting on-going clinical and regulatory activities with most of our product candidates. Additionally, we incur costs for our other research programs. The following table summarizes our research and development expenses: Three Months Ended March 31, 2021 2020 External service provider costs: TLANDO $ 86,724 $ 84,932 LPCN 1144 763,230 1,729,553 TLANDO XR - 70,408 LPCN 1107 1,000 1,000 Total external service provider costs 850,954 1,885,893 Internal personnel costs 570,266 492,372 Other research and development costs 159,320 133,489 Total research and development $ 1,580,540 $ 2,511,754 We expect research and development expenses to increase in the future as we complete on-going clinical studies, including the LiFT Phase 2 clinical study with LPCN 1144, as we conduct future clinical studies, including when and if we conduct Phase 2 clinical studies with LPCN 1148 and Phase 3 clinical studies with TLANDO XR and LPCN 1107, and as we manufacture commercial supplies of TLANDO pre-approval. However, if we are unable to raise additional capital, we may need to reduce research and development expenses in order to extend our ability to continue as a going concern. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development, marketing, sales and support functions. Other general and administrative expenses include rent and utilities, travel expenses, professional fees for auditing, tax and legal services, litigation settlement and market research and market analytics. General and administrative expenses also include expenses for the cost of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims, including our on-going patent interference and patent infringement lawsuits against Clarus. We expect that general and administrative expenses will increase in the future as we incur additional legal fees in the on-going court cases with Clarus. Additional areas that may see increases as we mature as a public company include legal and consulting fees, accounting and audit fees, director fees, increased directors&rsquo; and officers&rsquo; insurance premiums, fees for investor relations services and enhanced business and accounting systems, litigation costs, professional fees and other costs. If TLANDO is approved by the FDA, we expect we will incur significant additional expenses relating to the commercialization of TLANDO, including, among other things, expenses relating to building out sales and marketing teams, manufacturing expenses, expenses relating to licensing TLANDO to third parties, and other expenses. However, if we are unable to raise additional capital, we may need to reduce general and administrative expenses in order to extend our ability to continue as a going concern. If we are unable to raise additional capital, we may be unable to effectively commercialize TLANDO after receiving FDA approval. Other Expense (Income), Net Other expense (income), net consists primarily of interest income earned on our cash, cash equivalents and marketable investment securities and interest expense incurred on our outstanding Loan and Security Agreement and losses (gains) on our warrant liability. 28 Results of Operations Comparison of the Three Months Ended March 31, 2021 and 2020 The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Research and development expenses $ 1,580,540 $ 2,511,754 General and administrative expenses 1,533,953 2,085,261 Interest and investment income 10,649 59,938 Interest expense 68,973 133,345 Unrealized loss on warrant liability 195,065 1,100,029 Income tax expense 200 200 Research and Development Expenses The decrease in research and development expenses during the three months ended March 31, 2021 was primarily due to a $966,000 decrease in contract research organization expense and outside consulting costs related to the LPCN 1144 LiFT Phase 2 clinical study in NASH subjects, and a $70,000 decrease in raw materials costs related to TLANDO XR, offset by a $78,000 increase in personnel expense as well as increases in other R&D expenses of $26,000. General and Administrative Expenses The decrease in general and administrative expenses during the three months ended March 31, 2021 was primarily due to a $608,000 decrease in legal costs due to less activity in 2021 as compared to 2020 with the following activities: lawsuit filed against Clarus Therapeutics Inc. for patent infringement in April 2019 and the on-going class action lawsuit defense; in addition to a $15,000 decrease in personnel costs. These decreases were offset by a $50,000 increase in corporate insurance expenses and a $22,000 increase in other general and administrative expenses. Interest and Investment Income The decrease in interest and investment income during the three months ended March 31, 2021 was due to lower interest rates in 2021 compared to 2020. Interest Expense The decrease in interest expense during the three months ended March 31, 2021 was due to a decrease in interest expense on our Loan and Security Agreement with SVB, as a result of lower principal balances and lower interest rates in 2021 compared to 2020. Loss on Warrant Liability We recorded a loss of $195,000 and $1.1 million, respectively, on warrant liability during the three months ended March 31, 2021 and 2020 related to the change in the fair value of outstanding common stock warrants issued in the November 2019 Offering. The loss in 2021 and 2020 was mainly attributable to an increase in the value of warrants outstanding as of March 31, as compared to December 31, in both 2021 and 2020 due to an increase in our stock price. There were 10,000 and 121,000 common stock warrants from the November 2019 Offering exercised during the three months ended March 31, 2021 and March 31, 2020, respectively. The warrants are classified as a liability due to a provision contained within the warrant agreement which allows the warrant holder the option to elect to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a change of control. The warrant liability will continue to fluctuate in the future based on inputs to the Black-Scholes model including our current stock price, the remaining life of the warrants, the volatility of our stock price, the risk-free interest rate and the number of common stock warrants outstanding. Liquidity and Capital Resources Since our inception, our operations have been primarily financed through sales of our equity securities, debt and payments received under our license and collaboration arrangements. We have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities. We have incurred operating losses in most years since our inception and we expect to continue to incur operating losses into the foreseeable future as we evaluate our options related to TLANDO should it receive final approval and as we advance clinical development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and any other product candidate, including continued research efforts. 29 As of March 31, 2021, we had $50.0 million of unrestricted cash, cash equivalents and marketable investment securities compared to $19.7 million at December 31, 2020. Additionally, as of December 31, 2020 we had $5.0 million of restricted cash, which was required to be maintained as cash collateral under the SVB Loan and Security Agreement until TLANDO is approved by the FDA. However on February 16, 2021, we amended the Loan and Security Agreement with SVB (as defined below) to, among other things, remove the cash collateral requirement. On January 28, 2021, we completed a public offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended (&ldquo;January 2021 Offering&rdquo;). The gross proceeds from the January 2021 Offering were approximately $28.7 million, before deducting underwriter fees and other offering expenses of $1.9 million. In the January 2021 Offering, we sold 16,428,571 shares of our common stock. On April 21, 2020, we entered into a loan (the &ldquo;Loan&rdquo;) from SVB in the aggregate amount of $234,000, pursuant to the Paycheck Protection Program (the &ldquo;PPP&rdquo;) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a note dated April 21, 2020, originally matured on April 21, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 21, 2020. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. On November 2, 2020, we were notified by the Small Business Administration that our PPP Loan had been forgiven. On February 27, 2020, we completed a registered direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended (&ldquo;February 2020 Offering&rdquo;). The gross proceeds from the February 2020 Offering were approximately $6.0 million, before deducting placement agent fees and other offering expenses of $347,000. In the February 2020 Offering, the Company sold 10,084,034 Class A Units, with each Class A Unit consisting of one share of common stock and a one-half of one common warrant to purchase one share of common stock, at a price of $0.595 per Class A Unit. The common stock warrants were immediately exercisable at an exercise price of $0.53 per share, subject to adjustment, and expire on February 27, 2025. By their terms, however, the common stock warrants cannot be exercised at any time that the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving effect to such exercise. On November 18, 2019, we completed the November 2019 Offering. The gross proceeds from the November 2019 Offering were approximately $6.0 million, before deducting placement agent fees and other offering expenses of $404,000. In the November 2019 Offering, the Company sold (i) 10,450,000 Class A Units, with each Class A Unit consisting of one share of common stock and a common warrant to purchase one share of common stock, and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of common stock and one common warrant to purchase one share of common stock, at a price of $0.50 per Class A Unit and $0.4999 per Class B Unit. The pre-funded warrants, which were exercised for common stock in December 2019, were issued in lieu of common stock in order to ensure the purchaser did not exceed certain beneficial ownership limitations. The pre-funded warrants were immediately exercisable at an exercise price of $.0001 per share, subject to adjustment. Additionally, the common stock warrants were immediately exercisable at an exercise price of $0.50 per share, subject to adjustment, and expire on November 17, 2024. By their terms, however, neither the pre-funded warrants nor the common stock warrants can be exercised at any time that the pre-funded warrant holder or the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving effect to such exercise. On January 5, 2018, we entered into the Loan and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan and Security Agreement bears interest at a rate equal to the Prime Rate, as reported in 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 is payable monthly. Additionally on April 1, 2020, we entered into a Deferral Agreement with SVB. Under the Deferral Agreement, principal repayments were deferred by six months and we were only required to make monthly interest payments during the deferral period. The Loan matures on June 1, 2022. Previously, we were only required to make monthly interest payments until December 31, 2018, following which we also made equal monthly payments of principal and interest until the signing of the Deferral Agreement. We will also be required to pay an additional final payment at maturity equal to $650,000 (the &ldquo;Final Payment Charge&rdquo;). At our option, we may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest and the Final Payment Charge). In connection with the Loan and Security Agreement, we granted to SVB a security interest in substantially all of our assets now owned or hereafter acquired, excluding intellectual property and certain other assets. In addition, as TLANDO was not approved by the FDA by May 31, 2018, we were required to maintain $5.0 million of cash collateral at SVB until such time as TLANDO is approved by the FDA. However on February 16, 2021, we amended the Loan and Security Agreement with SVB to, among other things, remove the financial trigger and financial trigger release event provisions requiring us to maintain a minimum cash collateral value and collateral pledge thereof. While any amounts are outstanding under the Loan and Security Agreement, we are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities, including our cash. These events of default include, among other things, any failure by us to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility, the Company&rsquo;s insolvency, a material adverse change, and one or more judgments against us in an amount greater than $100,000 individually or in the aggregate. 30 On March 6, 2017, we entered into the Sales Agreement with Cantor pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to the amount we have registered on an effective registration statement pursuant to which the offering is being made. We currently have registered up to $50.0 million for sale under the Sales Agreement, pursuant to our Registration Statement on Form S-3 (File No. 333-250072), through Cantor as our sales agent. Cantor may sell our common stock by any method permitted by law deemed to be an &ldquo;at the market offering&rdquo; as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the NASDAQ Capital Market or any other existing trade market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell these shares. We pay Cantor 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. We have also provided Cantor with customary indemnification rights. The shares of our common stock sold under the Sales Agreement are sold and issued pursuant to our Registration Statement on Form S-3 (File No. 333-250072) (the &ldquo;Form S-3&rdquo;), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and one or more prospectus supplements. We are not obligated to make any sales of our common stock under the 2020 Sales Agreement. The offering of our common stock pursuant to the 2020 Sales Agreement will terminate upon the termination of the 2020 Sales Agreement as permitted therein. We and Cantor may each terminate the 2020 Sales Agreement at any time upon ten days&rsquo; prior notice. During the three months ended March 31, 2021, we sold 1,811,238 shares of our common stock pursuant to our current Registration Statement on Form S-3 (File No. 333-250072), resulting in net proceeds of approximately $3.4 million under the Sales Agreement which is net of $112,000 in expenses consisting of commissions paid to Cantor in connection with these sales and other offering and accounting costs. As of March 31, 2021, we had $41.2 million available for sale under the Sales Agreement. We believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected operating requirements through at least March 31, 2022 which includes an on-going clinical study for LPCN 1144, compliance with regulatory requirements, and on-going litigation activities. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect if additional activities are performed by us including pre-commercial and commercial activities for TLANDO and new clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107. While we believe we have sufficient liquidity and capital resources to fund our projected operating requirements through at least March 31, 2022, we will need to raise additional capital at some point through the equity or debt markets or through out-licensing activities, either before or after March 31, 2022, to support our operations, including, if FDA approval is received, potential commercialization activities for TLANDO. If we are unsuccessful in raising additional capital, our ability to continue as a going concern will be limited. Further, our operating plan may change, and we 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, our capital resources may be consumed more rapidly if we pursue additional clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107. Conversely, our capital resources could last longer if we reduce expenses, reduce the number of activities currently contemplated under our operating plan or if we terminate or suspend on-going clinical studies or intellectual property litigation, or if we terminate or settle any on-going litigation activities. We can raise capital pursuant to the Sales Agreement when not restricted due to terms of previous financings but may choose not to issue common stock if our market price is too low to justify such sales in our discretion. There are numerous risks and uncertainties associated with the development and, subject to approval by the FDA, commercialization of our product candidates. There are numerous risks and uncertainties impacting our ability to enter into collaborations with third parties to participate in the development and potential commercialization of our product candidates. We are unable to precisely estimate the amounts of increased capital outlays and operating expenditures associated with our anticipated or unanticipated clinical studies and ongoing development and pre-commercialization efforts. All of these factors affect our need for additional capital resources. To fund future operations, we will need to ultimately raise additional capital and our requirements will depend on many factors, including the following: &bull; further clinical development requirements or other requirements of the FDA related to approval of TLANDO; 31 &bull; the cost and timing of pre-commercialization and commercialization activities in support of TLANDO; &bull; the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities for all of our product candidates, including LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107; &bull; the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop; &bull; the cost and timing of establishing sales, marketing and distribution capabilities, if any; &bull; the terms and timing of any collaborative, licensing and other arrangements that we may establish; &bull; the number and characteristics of product candidates that we pursue; &bull; the cost, timing and outcomes of regulatory approvals; &bull; the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products; &bull; the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; &bull; the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions; and &bull; the extent to which we grow significantly in the number of employees or the scope of our operations. Funding may not be available to us on favorable terms, or at all. Also, market conditions may prevent us from accessing the debt and equity capital markets, including sales of our common stock through the Sales Agreement. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or, if any of our product candidates receive approval from the FDA, commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, including the Sales Agreement, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. These arrangements may not be available to us or available on terms favorable to us. To the extent that we raise additional capital through marketing and distribution arrangements, other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences, warrants or other terms that adversely affect our stockholders&rsquo; rights or further complicate raising additional capital in the future. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable, for any reason, to raise needed capital, we will have to reduce costs, delay research and development programs, liquidate assets, dispose of rights, commercialize products or product candidates earlier than planned or on less favorable terms than desired or reduce or cease operations. Sources and Uses of Cash The following table provides a summary of our cash flows for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Cash used in operating activities $ (4,061,774 ) $ (3,376,262 ) Cash provided by (used in) investing (33,994,221 ) 3,902,221 Cash provided by financing activities 29,440,207 4,880,307 Net Cash From Operating Activities During the three months ended March 31, 2021 and 2020, net cash used in operating activities was $4.1 million and $3.4 million, respectively. Net cash used in operating activities during the three months March 31, 2021 and 2020 was primarily attributable to cash outlays to support ongoing operations, including research and development expenses and general and administrative expenses. During 2021 and 2020, we were performing activities related to the LPCN 1144 LiFT Phase 2 paired biopsy clinical study. During 2020, we also were performing activities around the submission of the TLANDO NDA. 32 Net Cash From Investing Activities During the three months ended March 31, 2021 and 2020, net cash used in investing activities was $34.0 million compared to net cash provided by of $3.9 million, respectively. Net cash used in investing activities during the three months ended March 31, 2021 was primarily the result of purchasing marketable investment securities, net, of $34.4 million. Net cash provided by investing activities during the three months ended March 31, 2020 was primarily the result of utilizing marketable investment securities, net, of $3.9 million to fund operations. There were no capital expenditures for the three months ended March 31, 2021 and 2020. Net Cash From Financing Activities During the three months ended March 31, 2021 and 2020 net cash provided by financing activities was $29.4 million and $4.9 million, respectively. Net cash provided by financing activities during the three months ended March 31, 2021 was attributable to the net proceeds from the sale of 16,428,571 shares of common stock pursuant to January 2021 Offering resulting in net proceeds of $26.8 million and $3.4 million in proceeds from the sale of 1,811,238 shares of common stock pursuant to the ATM, offset by $833,000 in debt principal repayments under the SVB Loan and Security Agreement. Net cash provided by financing activities during the three months ended March 31, 2020 was primarily attributable to the net proceeds from the sale of 10,084,034 shares of common stock pursuant to February 2020 Offering resulting in net proceeds of $5.7 million offset by $833,000 in debt principal repayments under the SVB Loan and Security Agreement. Contractual Commitments and Contingencies Long-Term Debt Obligations and Interest on Debt On January 5, 2018, we entered into a Loan and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million. The principal borrowed under the Loan and Security Agreement bears interest at a rate equal to the Prime Rate plus one percent per annum, which interest is payable monthly. The loan matures on June 1, 2022 and we are required to make equal monthly payments of principal and interest for the remaining term of the loan beginning on November 1, 2020 although there was a principal deferment period of six months beginning on April 1, 2020 due to COVID-19. We will also be required to pay the Final Payment Charge at maturity. On April 21, 2020, we were granted a Loan from SVB in the aggregate amount of $234,000, pursuant to the PPP under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated April 21, 2020, originally matured on April 21, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 21, 2020. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. On November 2, 2020, we were notified by the Small Business Administration that our PPP Loan had been forgiven. Purchase Obligations We enter into contracts and issue purchase orders in the normal course of business with clinical research organizations for clinical trials and clinical and commercial supply manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating purposes. T hese contracts generally provide for termination on notice and are cancellable obligations. Operating Leases In August 2004, we entered into an agreement to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters. On March 3, 2021, we modified and extended the lease through February 28, 2022. Critical Accounting Policies and Significant Judgments and Estimates Our management&rsquo;s discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three months ended March 31, 2021, as compared to those disclosed in &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates&rdquo; in our Form 10-K filed March 11, 2021. 33 New Accounting Standards Refer to Note 12, in &ldquo;Notes to Unaudited Condensed Consolidated Financial Statements&rdquo; for a discussion of accounting standards not yet adopted. Off-Balance Sheet Arrangements None. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Interest Rate Risk . Our interest rate risk exposure results from our investment portfolio. Our primary objectives in managing our investment portfolio are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The securities we hold in our investment portfolio are subject to interest rate risk. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings. After a review of our marketable investment securities, we believe that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair value of our marketable investment securities would be insignificant to the consolidated financial statements. Currently, we do not hedge these interest rate exposures. We have established policies and procedures to manage exposure to fluctuations in interest rates. We place our investments with high quality issuers and limit the amount of credit exposure to any one issuer and do not use derivative financial instruments in our investment portfolio. We invest in highly liquid, investment-grade securities and money market funds of various issues, types and maturities. These securities are classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as accumulated other comprehensive income as a separate component in stockholders' deficit unless a loss is deemed other than temporary, in which case the loss is recognized in earnings. Additionally in January 2018, we entered into the Loan and Security Agreement with SVB for $10.0 million. A one percent increase in the prime rate would result in a $ 26,000 increase in interest expense, while a one percent decrease in the prime rate would result in a $30,000 decrease in interest expense. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain &quot;disclosure controls and procedures&quot; within the meaning of Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures, or Disclosure Controls, are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Our Disclosure Controls include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated the effectiveness of the design and operation of our Disclosure Controls, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our Disclosure Controls were effective as of March 31, 2021. 34 Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting . PART II&mdash;OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 2, 2019, we filed a lawsuit against Clarus in the United States District Court for the District of Delaware alleging that Clarus&rsquo;s JATENZO&reg; product infringes six of Lipocine&rsquo;s issued U.S. patents: 9,034,858; 9,205,057; 9,480,690; 9,757,390; 6,569,463; and 6,923,988. However on February 11, 2020, we voluntarily dismissed allegations of patent infringement for expired U.S. Patent Nos. 6,569,463 and 6,923,988 in an effort to streamline the issues and associated costs for dispute. Clarus has answered the complaint and asserted counterclaims of non-infringement and invalidity. We answered Clarus&rsquo;s counterclaims on April 29, 2019. The Court held a scheduling conference on August 15, 2019, a claim construction hearing on February 11, 2020 and a summary judgment hearing on January 15, 2021. Originally the United States District Court for the District of Delaware had scheduled a five-day jury trial to begin on February 8, 2021, however, on December 28, 2020, the District Court postponed the jury trial due to the ongoing effects of the COVID-19 pandemic. The jury trial will be rescheduled once it becomes clear when jury trials will resume in the District of Delaware. On November 14, 2019, we and certain of our officers were named as defendants in a purported shareholder class action lawsuit, Solomon Abady v. Lipocine Inc. et al ., 2:19-cv-00906-PMW, filed in the United District Court for the District of Utah. The complaint alleges that the defendants made false and/or misleading statements and/or failed to disclose that our filing of the NDA for TLANDO to the FDA contained deficiencies and as a result the defendants&rsquo; statements about our business and operations were false and misleading and/or lacked a reasonable basis in violation of federal securities laws. The lawsuit seeks certification as a class action (for a purported class of purchasers of the Company&rsquo;s securities from March 27, 2019 through November 8, 2019), compensatory damages in an unspecified amount, and unspecified equitable or injunctive relief. We have insurance that covers claims of this nature. The retention amount payable by us under our policy is $1.25 million. We filed a motion to dismiss this class action lawsuit on July 24, 2020. In response, the plaintiffs filed their response to the motion to dismiss the class action lawsuit on September 22, 2020 and we filed our reply to our motion to dismiss on October 22, 2020. We intend to vigorously defend ourselves against these allegations and have not recorded a liability related to this shareholder class action lawsuit as the outcome is not probable nor can an estimate be made of loss, if any. On March 13, 2020, we filed U.S. patent application serial number 16/818,779 (&ldquo;the Lipocine &lsquo;779 Application&rdquo;) with the United States Patent and Trademark Office (&ldquo;USPTO&rdquo;). On October 16 and November 3, 2020, we filed suggestions for interference with the USPTO requesting that a patent interference be declared between the Lipocine &lsquo;779 Application and US patent application serial number 16/656,178 to Clarus Therapeutics, Inc. (&ldquo;the Clarus &lsquo;178 Application&rdquo;). Pursuant to our request, the Patent Trial and Appeal Board (&ldquo;PTAB&rdquo;) at the USPTO declared the interference on January 4, 2021 to ultimately determine, as between us and Clarus, who is entitled to the claimed subject matter. The interference number is 106,128, and we were initially declared Senior Party. A conference call with the PTAB was held on January 25, 2021 to discuss proposed motions. On February 1, 2021, the PTAB issued an order authorizing certain motions and setting the schedule for the preliminary motions phase. Briefing is presently ongoing. ITEM 1A. RISK FACTORS In addition to the other information set forth in this Report, consider the risk factors discussed in Part 1, &quot;Item 1A. Risk Factors&quot; in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 11, 2021, and the risk factors discussed in Item 1A of this Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be not material also may materially adversely affect the Company's business, financial condition and or operating results. The following are the risk factors that have materially changed from our risk factors included in our Form 10-K for the year ended December 31, 2020 filed with the SEC on March 11, 2021: 35 Risks Relating to Our Business and Industry We will need to grow our Company, and we may encounter difficulties in managing this growth, which could disrupt our operations. As of March 31, 2021, we had 13 employees. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects. If our management is unable to effectively manage our future growth, our expenses may increase more than expected, our ability to generate revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. Risks Related to Ownership of Our Common Stock The value of our warrants outstanding from the November 2019 Offering is subject to potentially material increases and decreases based on fluctuations in the price of our common stock. In November 2019, we completed a public offering of common stock and warrants to purchase common stock (the &ldquo;November 2019 Offering&rdquo;). Gross proceeds from the November 2019 Offering were approximately $6.0 million. In the November 2019 Offering, the Company sold (i) 10,450,000 Class A Units, with each Class A Unit consisting of one share of common stock and a common stock warrant to purchase one share of common stock, and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of a common stock and one common stock warrant to purchase one share of common stock at a price of $0.50 per Class A Unit and $0.4999 per Class B Unit. The pre-funded warrants were issued in lieu of common stock in order to ensure the purchaser did not exceed certain beneficial ownership limitations. The pre-funded warrants were immediately exercisable at an exercise price of $.0001 per share, subject to adjustment. Additionally, the common stock warrants were immediately exercisable at an exercise price of $0.50 per share and expire on November 17, 2024. We account for the common stock warrants as a derivative instrument, and changes in the fair value of the warrants are included under other income (expense) in the Company&rsquo;s statements of operations for each reporting period. At March 31, 2021, the aggregate fair value of the warrant liability included in the Company&rsquo;s consolidated balance sheet was $1.3 million. We use the Black-Scholes option pricing model to determine the fair value of the warrants. As a result, the option-pricing model requires the input of several assumptions, including the stock price volatility, share price and risk-free interest rate. Changes in these assumptions can materially affect the fair value estimate. While the liability may only result from a change of control at that point in time, we ultimately may incur amounts significantly different than the carrying value. Our management and directors will be able to exert influence over our affairs. As of March 31, 2021, our executive officers and directors beneficially owned approximately 4.9% of our common stock. These stockholders, if they act together, may be able to influence our management and affairs and all matters requiring stockholder approval, including significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might affect the market price of our common stock. The market price of our common stock has been volatile over the past year and may continue to be volatile. The market price and trading volume of our common stock has been volatile over the past year and it may continue to be volatile. Over the past year, our common stock has traded as low as $ 1.38 and as high as $2.28 per share. We cannot predict the price at which our common stock will trade in the future and it may decline. The price at which our common stock trades may fluctuate significantly and may be influenced by many factors, including our financial results; developments generally affecting our industry; general economic, industry and market conditions; the depth and liquidity of the market for our common stock; investor perceptions of our business; reports by industry analysts; announcements by other market participants, including, among others, investors, our competitors, and our customers; regulatory action affecting our business; and the impact of other &ldquo;Risk Factors&rdquo; discussed in our Annual Report. In addition, changes in the trading price of our common stock may be inconsistent with our operating results and outlook. The volatility of the market price of our common stock may adversely affect investors&rsquo; ability to purchase or sell shares of our common stock. 36 Risks Relating to Our Financial Position and Capital Requirements We have incurred significant operating losses in most years since our inception and anticipate that we will incur continued losses for the foreseeable future. We have focused a significant portion of our efforts on developing TLANDO and more recently on LPCN 1144. We have funded our operations to date through sales of our equity securities, debt and payments received under our license and collaboration arrangements. We have incurred losses in most years since our inception. As of March 31, 2021, we had an accumulated deficit of $175.4 million. Substantially all of our operating losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. These losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders&rsquo; equity and working capital. We expect our research and development expenses to significantly increase in connection with clinical trials associated with LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107, if initiated. In addition, if we eventually obtain final marketing approval for TLANDO, we may incur significant sales, marketing and commercialization expenses. As a result, we expect to continue to incur significant operating losses for the foreseeable future as we evaluate our options with TLANDO and further clinical development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and our other programs and continued research efforts. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. We have limited shares available for issuance to raise capital to fund our operations and grant stock-based incentive awards to employees, directors, and consultants. If we are unable to increase the number of shares of common stock available for issuance, our business will be adversely affected. Currently, we have 100,000,000 authorized shares of common stock. As of March 31, 2021, we had 88,290,650 shares of common stock outstanding. After taking into account the 3,849,790 shares reserved for issuance upon the exercise of outstanding options as of March 31, 2021, and exercise of outstanding warrants, we have a limited number of shares available for issuance. If we are not able to increase the number of shares of common stock available for issuance, including, for example, through an amendment to our certificate of incorporation or a reverse stock split, we will have limited shares available for issuance to raise capital to fund our operations, make grants of stock-based incentive awards, or take such other actions requiring available capital stock needed to operate our business. Further delays in securing, or the failure to secure, shareholder approval such actions, if needed, may prevent us from executing a capital raising transaction, which may have a material adverse effect on our business and financial condition. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES None. ITEM 5. OTHER INFORMATION None. 37 ITEM 6. EXHIBITS I NDEX TO EXHIBI TS Incorporation By Reference Exhibit Number Exhibit Description Form SEC File No. Exhibit Filing Date 10.1 First Amendment to Loan and Security Agreement, dated February 16, 2021, made by and among Lipocine Inc., Lipocine Operating Inc. and Silicon Valley Bank 8-K 001-36357 10.1 2/18/21 31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (1) 32.2* Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 (1) 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Labels Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith (1) This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. 38 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lipocine Inc. (Registrant) Dated: May 6, 2021 /s/ Mahesh V. Patel Mahesh V. Patel, President and Chief Executive Officer (Principal Executive Officer) Dated: May 6, 2021 /s/ Morgan R. Brown Morgan R. Brown, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 39