Lipocine Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) September 30, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 4,517,105 $ 19,217,382 Restricted cash - 5,000,000 Marketable investment securities 34,145,380 449,992 Accrued interest income 159,230 391 Prepaid and other current assets 1,543,641 661,258 Total current assets 40,365,356 25,329,023 Other assets 23,753 23,753 Total assets $ 40,389,109 $ 25,352,776 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 725,552 $ 1,597,220 Accrued expenses 1,571,012 1,653,178 Debt - current portion 3,135,979 3,333,333 Litigation settlement liability - current portion 1,000,000 - Total current liabilities 6,432,543 6,583,731 Debt - non-current portion - 2,257,075 Warrant liability 645,478 1,170,051 Litigation settlement liability - non-current portion 500,000 - Total liabilities 7,578,021 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 218,136,818 187,407,634 Treasury stock at cost, 5,710 shares ( 40,712 ) ( 40,712 ) Accumulated other comprehensive loss ( 3,420 ) - Accumulated deficit ( 185,290,428 ) ( 172,032,008 ) Total stockholders’ equity 32,811,088 15,341,919 Total liabilities and stockholders’ equity $ 40,389,109 $ 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues: License revenue $ 54,994 $ - $ 54,994 $ - Total revenues 54,994 - 54,994 - Operating expenses: Research and development $ 2,366,521 $ 2,487,861 $ 5,411,748 $ 7,268,599 General and administrative 1,222,146 1,887,195 4,281,690 5,925,991 Total operating expenses 3,588,667 4,375,056 9,693,438 13,194,590 Operating loss ( 3,533,673 ) ( 4,375,056 ) ( 9,638,444 ) ( 13,194,590 ) Other income (expense): Interest and investment income 17,264 5,614 45,257 72,729 Interest expense ( 44,839 ) ( 84,293 ) ( 171,241 ) ( 305,485 ) Unrealized gain (loss) on warrant liability 479,951 140,477 506,208 ( 3,025,997 ) Litigation settlement - - ( 4,000,000 ) - Total other income (expense), net 452,376 61,798 ( 3,619,776 ) ( 3,258,753 ) Loss before income tax expense ( 3,081,297 ) ( 4,313,258 ) ( 13,258,220 ) ( 16,453,343 ) Income tax expense - - ( 200 ) ( 200 ) Net loss $ ( 3,081,297 ) $ ( 4,313,258 ) $ ( 13,258,420 ) $ ( 16,453,543 ) Basic loss per share attributable to common stock $ ( 0.03 ) $ ( 0.07 ) $ ( 0.15 ) $ ( 0.32 ) Weighted average common shares outstanding, basic 88,290,650 64,833,714 86,477,640 52,030,431 Diluted loss per share attributable to common stock $ ( 0.03 ) $ ( 0.07 ) $ ( 0.15 ) $ ( 0.32 ) Weighted average common shares outstanding, diluted 88,290,650 64,833,714 86,477,640 52,030,431 Comprehensive loss: Net loss $ ( 3,081,297 ) $ ( 4,313,258 ) $ ( 13,258,420 ) $ ( 16,453,543 ) Net unrealized gain (loss) on available-for-sale securities ( 3,234 ) 579 ( 3,420 ) 513 Comprehensive loss $ ( 3,084,531 ) $ ( 4,312,679 ) $ ( 13,261,840 ) $ ( 16,453,030 ) See accompanying notes to unaudited condensed consolidated financial statements 4 LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders’ Equity For the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) Common Stock Treasury Stock Additional Accumulated Other Total Number of Shares Amount Number of Shares Amount Paid-In Capital Comprehensive Loss Accumulated Deficit Stockholders’ Equity Balances at June 30, 2020 61,377,306 $ 6,138 5,710 $ ( 40,712 ) $ 176,327,120 $ ( 104 ) $ ( 163,207,474 ) $ 13,084,968 Net loss - - - - - - ( 4,313,258 ) ( 4,313,258 ) Unrealized net gain on marketable investment securities - - - - - 579 - 579 Stock-based compensation - - - - 351,623 - - 351,623 Option exercises Option exercises , shares Costs associated with ATM offering Vesting of restricted stock units Vesting of restricted stock units , shares Common stock sold through equity offering Common stock sold through equity offering , shares Common stock issued for warrant exercises 1,478,844 148 - - 760,570 - - 760,718 Settlement of warrant liability on warrant exercises - - - - 721,976 - - 721,976 Common stock sold through ATM offering 2,830,000 283 - - 3,901,412 - - 3,901,695 Balances at September 30, 2020 65,686,150 $ 6,569 5,710 $ ( 40,712 ) $ 182,062,701 $ 475 $ ( 167,520,732 ) $ 14,508,301 Common Stock Treasury Stock Additional Accumulated Other Total Number of Shares Amount Number of Shares Amount Paid-In Capital Comprehensive 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 - - - - - - ( 16,453,543 ) ( 16,453,543 ) Unrealized net gain on marketable investment securities - - - - - 513 - 513 Stock-based compensation - - - - 1,138,594 - - 1,138,594 Vesting of restricted stock units 25,000 2 - - ( 2 ) - - - Common stock sold through equity offering 10,084,034 1,008 - - 5,652,132 - - 5,653,140 Common stock issued for warrant exercises 15,097,651 1,510 - - 7,673,366 - - 7,674,876 Settlement of warrant liability on warrant exercises - - - - 6,313,338 - - 6,313,338 Common stock sold through ATM offering 2,830,000 283 - - 3,893,304 - - 3,893,587 Balances at September 30, 2020 65,686,150 $ 6,569 5,710 $ ( 40,712 ) $ 182,062,701 $ 475 $ ( 167,520,732 ) $ 14,508,301 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 June 30, 2021 88,290,650 $ 8,830 5,710 $ ( 40,712 ) $ 217,986,752 $ ( 186 ) $ ( 182,209,131 ) $ 35,745,553 Net loss - - - - - - ( 3,081,297 ) ( 3,081,297 ) Unrealized net loss on marketable investment securities - - - - - ( 3,234 ) - ( 3,234 ) Stock-based compensation - - - - 154,998 - - 154,998 Costs associated with ATM offering - - - - ( 4,932 ) - - ( 4,932 ) Balances at September 30, 2021 88,290,650 $ 8,830 5,710 $ ( 40,712 ) $ 218,136,818 $ ( 3,420 ) $ ( 185,290,428 ) $ 32,811,088 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, 2020 70,036,257 $ 7,005 5,710 $ ( 40,712 ) $ 187,407,634 $ - $ ( 172,032,008 ) $ 15,341,919 Net loss - - - - - - ( 13,258,420 ) ( 13,258,420 ) Unrealized net loss on marketable investment securities - - - - - ( 3,420 ) - ( 3,420 ) Stock-based compensation - - - - 449,311 - - 449,311 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 - - 3,411,002 - - 3,411,183 Balances at September 30, 2021 88,290,650 $ 8,830 5,710 $ ( 40,712 ) $ 218,136,818 $ ( 3,420 ) $ ( 185,290,428 ) $ 32,811,088 See accompanying notes to unaudited condensed consolidated financial statements 5 LIPOCINE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 13,258,420 ) $ ( 16,453,543 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation expense - 2,397 Stock-based compensation expense 449,311 1,138,594 Non-cash interest expense 45,571 87,134 Non-cash loss (gain) on change in fair value of warrant liability ( 506,208 ) 3,025,997 Amortization of premium (discount) on marketable investment securities 358,959 ( 5,946 ) Changes in operating assets and liabilities: Accrued interest income ( 158,839 ) 5,306 Prepaid and other current assets ( 882,383 ) ( 369,688 ) Accounts payable ( 871,668 ) ( 134,512 ) Accrued expenses ( 82,166 ) 1,085,192 Litigation settlement liability 1,500,000 - Cash used in operating activities ( 13,405,843 ) ( 11,619,069 ) Cash flows from investing activities: Purchases of marketable investment securities ( 37,307,767 ) ( 6,315,297 ) Maturities of marketable investment securities 3,250,000 4,800,000 Cash used in investing activities ( 34,057,767 ) ( 1,515,297 ) Cash flows from financing activities: Debt repayments ( 2,500,000 ) ( 1,111,111 ) Proceeds from debt - 233,537 Net proceeds from common stock offering 26,840,457 5,653,140 Net proceeds from ATM 3,411,183 3,893,587 Proceeds from stock option exercises 6,693 - Net proceeds from exercise of warrants 5,000 7,674,876 Cash provided by financing activities 27,763,333 16,344,029 Net increase (decrease) in cash, cash equivalents, and restricted cash ( 19,700,277 ) 3,209,663 Cash, cash equivalents, and restricted cash at beginning of period 24,217,382 14,728,523 Cash, cash equivalents, and restricted cash at end of period $ 4,517,105 $ 17,938,186 Supplemental disclosure of cash flow information: Interest paid $ 125,670 $ 217,319 Income taxes paid 200 200 Supplemental disclosure of non-cash investing and financing activity: Settlement of warrant liability on warrant exercises $ 18,365 $ 6,313,338 Net unrealized gain (loss) on available-for-sale securities ( 3,420 ) 513 Accrued final payment charge on debt 45,571 87,134 Other accrued interest - 1,032 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. (“Lipocine” or the “Company”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries, collectively referred to as the Company. In management’s opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. generally accepted accounting principles has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the three and nine months ended September 30, 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, 2020. 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 believes that its existing capital resources, together with interest thereon, will be sufficient to meet its projected operating requirements through at least September 30, 2022 which includes planned and on-going clinical studies for LPCN 1144 and LPCN 1148, future clinical studies for LPCN 1107 and LPCN 1154 and compliance with regulatory requirements. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital resources sooner than it currently expects if additional activities are performed by the Company including new clinical studies for LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1154 and LPCN 1107. While the Company believes it has sufficient liquidity and capital resources to fund our projected operating requirements through at least September 30, 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 September 30, 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’s operating plan may change, and the Company may need additional funds to meet operational needs and capital requirements for product development, regulatory compliance and clinical trial activities sooner than planned. In addition, the Company’s capital resources may be consumed more rapidly if it pursues additional clinical studies for LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1154 and LPCN 1107. Conversely, the Company’s capital resources could last longer if it reduces expenses, reduces the number of activities currently contemplated under our operating plan or if it terminates, modifies the design or suspends on-going clinical studies or if the Company receives more revenue under the license agreement (the “Antares License Agreement”) with Antares Pharma, Inc. (“Antares”) than planned. (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. 7 The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2021 and 2020: Schedule of Computation of Basic and Diluted Earnings (loss) Per Share of Common Stock Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Basic loss per share attributable to common stock: Numerator Net loss $ ( 3,081,297 ) $ ( 4,313,258 ) $ ( 13,258,420 ) $ ( 16,453,543 ) Denominator Weighted avg. common shares outstanding 88,290,650 64,833,714 86,477,640 52,030,431 Basic loss per share attributable to common stock $ ( 0.03 ) $ ( 0.07 ) $ ( 0.15 ) $ ( 0.32 ) Diluted loss per share attributable to common stock: Numerator Net loss $ ( 3,081,297 ) $ ( 4,313,258 ) $ ( 13,258,420 ) $ ( 16,453,543 ) Denominator Weighted avg. common shares outstanding 88,290,650 64,833,714 86,477,640 52,030,431 Diluted loss per share attributable to common stock $ ( 0.03 ) $ ( 0.07 ) $ ( 0.15 ) $ ( 0.32 ) The computation of diluted loss per share for the nine months ended September 30, 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: Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share September 30, 2021 2020 Stock options 3,913,705 2,958,485 Unvested restricted stock units - 605,682 Warrants 1,934,366 1,944,366 8 (3) Marketable Investment Securities The Company has classified its marketable investment securities as available-for-sale securities, all of which are debt securities. These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive income (loss) in stockholders’ equity until realized. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at September 30, 2021 and December 31, 2020 were as follows: Schedule of Available-for-Sale Securities September 30, 2021 Amortized Cost Gross unrealized holding gains Gross unrealized holding losses Aggregate fair value Corporate bonds, notes and commercial paper $ 34,148,800 $ - $ ( 3,420 ) $ 34,145,380 $ 34,148,800 $ - $ ( 3,420 ) $ 34,145,380 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 September 30, 2021 are as follows: Schedule of Maturities of Debt Securities Classified as Available-for-sale Securities September 30, 2021 Amortized Cost Aggregate fair value Due within one year $ 34,148,800 $ 34,145,380 $ 34,148,800 $ 34,145,380 There were no sales of marketable investment securities during the three and nine months ended September 30, 2021 and 2020 and therefore no realized gains or losses. Additionally, $ 2.8 million and $ 450,000 marketable investment securities matured during the three months ended September 30, 2021 and 2020, respectively and $ 3.3 million and $ 4.8 million of marketable investment securities matured during the nine months ended September 30, 2021 and 2020, respectively. The Company determined there were no other-than-temporary impairments for the three and nine months ended September 30, 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: ● Level 1 Inputs: Quoted prices for identical instruments in active markets. ● Level 2 Inputs: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets. ● Level 3 Inputs: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 9 All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For accrued interest income, prepaid and other current assets, accounts payable, and accrued expenses, the carrying amounts approximate fair value because of the short maturity of these instruments. The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020: Schedule of Fair Value, Assets Measured on Recurring Basis Fair value measurements at reporting date using September 30, 2021 Level 1 inputs Level 2 inputs Level 3 inputs Assets: Cash equivalents - money market funds $ 4,080,187 $ 4,080,187 $ - $ - Commercial Paper 11,193,493 - 11,193,493 - Corporate bonds and notes 22,951,887 - 22,951,887 - $ 38,225,567 $ 4,080,187 $ 34,145,380 $ - Liabilities: Warrant liability $ 645,478 - - 645,478 $ 38,871,045 $ 4,080,187 $ 34,145,380 $ 645,478 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. Corporate bonds, notes, and commercial paper: The Company uses a third-party pricing service to value these investments. Corporate bonds, notes and commercial paper are classified within Level 2 of the fair value hierarchy because they are valued using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable inputs. Warrant liability: The warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of September 30, 2021, include (i) volatility of 59.69 %, (ii) risk free interest rate of 0.53 %, (iii) strike price of $ 0.50 , (iv) fair value of common stock of $ 1.09 , and (v) expected life of 3.13 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. 10 The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2, or Level 3 for the three and nine months ended September 30, 2021. (5) Loan and Security Agreements and Other Liabilities Silicon Valley Bank Loan On January 5, 2018, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant to which SVB agreed to lend the Company $ 10.0 million. The principal borrowed under the Loan and Security Agreement 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 September 30, 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 “Final Payment Charge”). The Final Payment Charge will be due on the scheduled maturity date and to date approximately $ 636,000 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’s assets now owned or hereafter acquired, excluding intellectual property and certain other assets. On September 9, 2021, SVB consented to the Antares Licensing Agreement which among other things provides Antares a license to certain intellectual property as well as assigns Antares the TLANDO® trademark. In addition, as TLANDO was not approved by the United States Food and Drug Administration (“FDA”) 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’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. 11 Future maturities of principal payments on the Loan and Security Agreement at September 30, 2021 (excluding accrued final payment fee) are as follows: Schedule of Maturities of Debt Years Ending December 31, Amount (in thousands) 2021 $ 833 2022 1,667 Thereafter — $ 2,500 Other Effective June 15, 2020 and through December 31, 2020, the Company deferred Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act Section 2302. Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022. As of September 30, 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’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 September 30, 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 expense during the three and nine months ended September 30, 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 $ 1.8 million in each of the three months ended September 30, 2021 and 2020 and $ 3.4 million and $ 5.1 million, respectively, for the nine months ended September 30, 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. Future minimum lease payments under non-cancelable operating leases as of September 30, 2021 are: Schedule of Future Minimum Rental Payments for Operating Leases Operating leases Year ending December 31: 2021 82,596 2022 55,064 Total minimum lease payments $ 137,660 The Company’s rent expense was $ 83,000 for each of the three months ended September 30, 2021 and 2020 and was $ 248,000 for each of the nine months ended September 30, 2021 and 2020. 12 (9) Stockholders’ 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 (“January 2021 Offering”). 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 (“February 2020 Offering”). 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 (“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 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. (“Cantor”) pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to the amount the Company registered on an effective registration statement pursuant to which the offering is being made. The Company currently has registered up to $ 50.0 million for sale under the Sales Agreement, pursuant to the Registration Statement on Form S-3 (File No. 333-250072) through Cantor as the Company’s sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Capital Market or any other existing trade market for our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Cantor uses its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law and regulations to sell these shares. The Company pays Cantor 3.0 % of the aggregate gross proceeds from each sale of shares under the Sales Agreement. In addition, the Company has also provided Cantor with customary indemnification rights. The shares of the Company’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 “Form S-3”), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and one or more prospectus supplements. 13 The Company is not obligated to make any sales of its common stock under the Sales Agreement. The offering of common stock pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement as permitted therein. The Company and Cantor may each terminate the Sales Agreement at any time upon ten days’ prior notice. As of September 30, 2021, we had sold an aggregate of 15,023,073 shares at a weighted-average sales price of $ 2.19 per share under the Sales Agreement 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 September 30, 2021, the Company did not sell any shares of our common stock pursuant to the current Registration Statement on Form S-3 (File No. 333-250072). During the nine months ended September 30, 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 and nine months ended September 30, 2020, the Company sold 2,830,000 shares at a weighted average sales price of $ 1.43 per share under the ATM for aggregate gross proceeds of $ 4.0 million and net proceeds of $ 3.9 million pursuant to the prior Registration Statement on Form S-3 (File No. 333-220942). As of September 30, 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 “Right” and collectively, the “Rights”) for each outstanding share of common stock of the Company. The dividend was payable to stockholders of record as of the close of business on November 30, 2015 and entitles the registered holder to purchase from the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company at a price of $ 63.96 per one-thousandth share (the “Purchase Price”). The Rights will generally become exercisable upon the earlier to occur of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons has become an Acquiring Person (as defined below) or (ii) 10 business days (or such later date as may be determined by action of the board of directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company. Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company. In general, in the event a person becomes an Acquiring Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with a market value of twice the Purchase Price. In addition, if after any person has become an Acquiring Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets, or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and associates and certain transferees thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation which at the time of such transaction would have a market value of twice the Purchase Price. The Company will be entitled to redeem the Rights at $ 0.001 per Right at any time prior to the time an Acquiring Person becomes such. The terms of the Rights are set forth in the Rights Agreement, which is summarized in the Company’s Current Report on Form 8-K dated November 13, 2015. The rights plan was originally set to expire on November 12, 2018; however, on November 5, 2018 our Board of Directors approved an Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 5, 2021 and again on November 1, 2021, the Company adopted a Second Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 1, 2024, unless the rights are earlier redeemed or exchanged by the Company. 14 (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’s Incentive Plan to employees, nonemployees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. In addition, the Company has granted performance-based stock option awards and restricted stock units, which vest based upon the Company satisfying certain performance conditions. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, the Company estimates that these options or units will vest, which is based on whether the Company considers the performance conditions to be probable of attainment. The Company’s estimates of the number of performance-based options or units that will vest will be revised, if necessary, in subsequent periods. The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees 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 $ 155 ,000 and $ 352 ,000, respectively, for the three months ended September 30, 2021 and 2020, and amounted to $ 449 ,000 and $ 1.1 million, respectively, for the nine months ended September 30, 2021 and 2020, and is allocated as follows: Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Research and development $ 70,911 $ 150,435 $ 207,280 $ 484,876 General and administrative 84,087 201,188 242,031 653,718 $ 154,998 $ 351,623 $ 449,311 $ 1,138,594 The Company did not issue any stock options during each of the three months ended September 30, 2021 and 2020 and issued 376,000 and 739,000 stock options, respectively, during the nine months ended September 30, 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 (“SAB”) No. 107, Share-Based Payment, for awards with stated or implied service periods. The simplified method defines the expected term as the average of the contractual term and the vesting period of the stock option. For awards with performance conditions, and that have the contractual term to satisfy the performance condition, the contractual term was used. Risk-Free Interest Rate : The risk-free interest rate used was based on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term. Expected Dividend : The expected dividend assumption is based on management’s current expectation about the Company’s anticipated dividend policy. The Company does not anticipate declaring dividends in the foreseeable future. Expected Volatility : The volatility factor is based solely on the Company’s trading history. For options granted during the nine months ended September 30, 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: Schedule of Key Assumption of Fair Value of Stock Options Granted 2021 2020 Expected term 5.79 years 5.81 years Risk-free interest rate 53.56 % 1.33 % Expected dividend yield — — Expected volatility 101.68 % 99.52 % 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. 15 As of September 30, 2021, there was $ 941,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s stock option plan. That cost is expected to be recognized over a weighted average period of 2.0 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 (“2014 Plan”) subject to shareholder approval which was received in June 2014. The 2014 Plan provides for the granting of nonqualified and incentive stock options, stock appreciation rights, restricted stock units, restricted stock and dividend equivalents. An aggregate of 1,000,000 shares were authorized for issuance under the 2014 Plan. Additionally, 271,906 remaining authorized shares under the 2011 Equity Incentive Plan (“2011 Plan”) were issuable under the 2014 Plan at the time of the 2014 Plan adoption. Upon receiving shareholder approval in June 2016, the 2014 Plan was amended and restated to increase the authorized number of shares of common stock of the Company issuable under all awards granted under the 2014 Plan from 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 1,586,959 shares remaining available for grant as of September 30, 2021. A summary of stock option activity is as follows: Schedule of Stock Option Activity Outstanding stock options Number of shares Weighted average exercise price Balance at December 31, 2020 3,564,458 $ 3.36 Options granted 376,000 1.44 Options exercised ( 4,584 ) 1.46 Options forfeited - - Options cancelled ( 22,169 ) 6.41 Balance at September 30, 2021 3,913,705 3.16 Options exercisable at September 30, 2021 2,606,227 4.14 16 The following table summarizes information about stock options outstanding and exercisable at September 30, 2021: Schedule of Share-based Compensation of Stock Options Outstanding and Exercisable Options outstanding Options exercisable Number outstanding Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value Number exerciseable Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value 3,913,705 6.14 $ 3.16 $ 382,749 2,606,227 4.69 $ 4.14 $ 217,335 The intrinsic value for stock options is defined as the difference between the current market value and the exercise price. There were zero and 4,584 , respectively, stock options exercised during the three and nine months ended September 30, 2021, and no stock options exercised during the three and nine months ended September 30, 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’s equity shares, or is indexed to such an obligation, and requires or may require the issuer to settle the obligation by transferring assets, to be classified as a liability. In accordance with ASC 480, the Company’s outstanding warrants from the November 2019 Offering are classified as a liability. The liability is adjusted to fair value at each reporting period, with the changes in fair value recognized as gain (loss) on change in fair value of warrant liability in the Company’s consolidated statements of operations. The warrants issued in the November 2019 Offering allow the warrant holder, if certain change in control events occur, the option to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a fundamental transaction. As of September 30, 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 September 30, 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): Schedule of Fair Value of Warrants September 30, 2021 December 31, 2020 Expected life in years 3.13 3.88 Risk-free interest rate 0.53 % 0.27 % Dividend yield — — Volatility 59.69 % 88.46 % Stock price $ 1.09 $ 1.36 During the three and nine months ended September 30, 2021, the Company recorded a non-cash gain of $ 480,000 and $ 506,000 , respectively, from the change in fair value of the November 2019 Offering warrants. During the three and nine months ended September 30, 2020, the Company recorded a non-cash gain of $ 140,000 and a non-cash loss of $ 3.0 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: Schedule of Reconciliation of Warrant Liability 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 ( 506,208 ) Balance at September 30, 2021 $ 645,478 17 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. Schedule of Number of Warrants Outstanding and the Weighted Average Exercise Price 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 September 30, 2021 1,934,366 $ 0.51 During the three and nine months ended September 30, 2021, zero and 10,000 common stock warrants to purchase one share of our common stock were exercised, respectively, resulting in proceeds of zero and $ 5,000 , respectively. Additionally, during the three and nine months ended September 30, 2020, 1,478,844 and 15,097,651 common stock warrants to purchase one share of our common stock were exercised, respectively, resulting in proceeds of approximately $ 761,000 and $ 7.7 million, respectively. The following table summarizes information about common stock warrants outstanding at September 30, 2021: Warrants outstanding Number exercisable Weighted average remaining contractual life (Years) Weighted average exercise price Aggregate intrinsic value 1,934,366 3.25 $ 0.51 $ 1,116,066 (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’s JATENZO® product infringes six of Lipocine’s issued U.S. patents: 9,034,858; 9,205,057; 9,480,690; 9,757,390; 6,569,463; and 6,923,988. However on February 11, 2020, the Company voluntarily dismissed allegations of patent infringement for expired U.S. Patent Nos. 6,569,463 and 6,923,988 in an effort to streamline the issues and associated costs for dispute. Clarus has answered the complaint and asserted counterclaims of non-infringement, inequitable conduct and invalidity. The Company answered Clarus’s counterclaims on April 29, 2019. The Court held a scheduling conference on August 15, 2019, a claim construction hearing on February 11, 2020 and a Summary Judgement Hearing on January 15, 2021. In May 2021, the Court granted Clarus’ motion for Summary Judgment, finding the asserted claims of Lipocine’s U.S. patents 9,034,858; 9,205,057; 9,480,690; and 9,757,390 invalid for failure to satisfy the written description requirement of 35 U.S.C. § 112. Clarus still had remaining counterclaims before the Court. On July 13, 2021, Clarus and the Company entered into a global settlement agreement (“Global Agreement’) which resolved all outstanding claims of this litigation as well as the on-going United States Patent and Trademark Office (“USPTO”) Interference No. 106,128 between the parties. Under the terms of the Global Agreement, the Company agreed to pay Clarus $ 4.0 million payable as follows: $ 2.5 million immediately, $ 1.0 million on July 13, 2022 and $ 500,000 on July 13, 2023. No future royalties are owing from either party. On July 15, 2021, the Court dismissed with prejudice the Company’s claims and Clarus’ counterclaims. 18 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’ statements about our business and operations were false and misleading and/or lacked a reasonable basis in violation of federal securities laws. The lawsuit seeks certification as a class action (for a purported class of purchasers of the Company’s securities from March 27, 2019 through November 8, 2019), compensatory damages in an unspecified amount, and unspecified equitable or injunctive relief. The Company has insurance that covers claims of this nature. 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. A hearing on the motion to dismiss has been scheduled for January 12, 2022. 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 (“the Lipocine ‘779 Application”) with the USPTO. 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 ‘779 Application and US patent application serial number 16/656,178 to Clarus Therapeutics, Inc. (“the Clarus ‘178 Application”). Pursuant to the Company’s request, the Patent Trial and Appeal Board (“PTAB”) 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. On July 13, 2021, Clarus and the Company entered into the Global Agreement to resolve interference No. 106,128 among other items. On July 26, 2021, the PTAB granted the Company’s request for adverse judgment in interference No. 106,128 in accordance with the Global Agreement. 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’s rights, title and interest in its intellectual property to develop products for the cough and cold field. In addition, Spriaso received all rights and obligations under the Company’s product development agreement with a third-party. In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $ 10.0 million. Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside of the cough and cold field. 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 reinstated upon written agreement of Spriaso and the Company. The Company did not receive any reimbursements during the three and nine months ended September 30, 2021 or 2020. Additionally, during the three and nine months ended September 30, 2021 and 2020, the Company received $ 55,000 and zero , respectively, in licensing payments from Spriaso. Spriaso filed its first NDA and as an affiliated entity of the Company, it used up the one-time waiver for user fees for a small business submitting its first human drug application to the FDA. Spriaso is considered a variable interest entity under the FASB ASC Topic 810-10, Consolidations , however the Company is not the primary beneficiary and has therefore not consolidated Spriaso. 19 (12) Recent Accounting Pronouncements Accounting Pronouncements Issued Not Yet Adopted In 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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’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. (13) Subsequent Event On October 14, 2021, the Company entered into the Antares License Agreement with Antares, pursuant to which the Company granted to Antares an exclusive, royalty-bearing, sublicensable right and license to develop and commercialize, upon final approval of TLANDO® from the U.S. Food and Drug Administration (“FDA”), the Company’s TLANDO product with respect to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone, as indicated in NDA No. 208088, treatment of Klinefelter syndrome, and pediatric indications relating to testosterone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone (the “Field”), in each case within the United States. The Antares License Agreement also provides Antares with an option, exercisable on or before March 31, 2022 , to license TLANDO XR, the Company’s potential once-daily oral product candidate for testosterone replacement therapy. Upon execution of the Antares License Agreement, Antares paid to the Company an initial payment of $ 11.0 million. Antares will also make additional payments of $ 5.0 million to the Company on each of January 1, 2025, and January 1, 2026, provided that certain conditions are satisfied. The Company is also eligible to receive milestone payments of up to $ 160.0 million in the aggregate, depending on the achievement of certain sales milestones in a single calendar year with respect to all products licensed by Antares under the Antares License Agreement. In addition, upon commercialization, the Company will receive tiered royalty payments at rates ranging from percentages in the mid-teens to up to 20 % of net sales of TLANDO in the United States, subject to certain minimum royalty obligations. If Antares exercises its option to license TLANDO XR, the Company will be entitled to an additional payment of $ 4.0 million, as well as development milestone payments of up to $ 35.0 million in the aggregate and tiered royalty payments at rates ranging from percentages in the mid-teens to 20 % of net sales of TLANDO XR in the United States. The Company retains development and commercialization rights in the rest of the world, and with respect to applications outside of the Field inside or outside the United States. Antares will also purchase certain existing inventory of licensed products from the Company, subject to testing and acceptance procedures. Finally, pursuant to the terms of the Antares License Agreement, Antares is generally responsible for expenses relating to the development (including the conduct of any clinical trials) and commercialization of licensed products in the Field in the United States, while the Company is generally responsible for expenses relating to development activities outside of the Field and/or the United States. 20