What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-03 compared with 2021-03-25 · 392 added, 439 removed, 670 unchanged (55% of the section changed)

1 unchanged sentence

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Financial Statements:

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generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Inventories 1,762 3,354

Prepaid expenses and other current assets 7,016 5,326

Prepaid expenses 5,082 4,828

Other current assets 11,042 2,188

Total current assets 178,799 127,612

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Total assets $ 257,483 $ 209,068

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

1 unchanged sentence

Accrued expenses 29,993 9,102

Accrued litigation settlement expenses 63,421 —

Accrued litigation settlement 15,000 63,421

Operating lease liabilities 1,265 1,212

Contingent royalty obligation payable to Evolus Founders 5,314 3,446

Contingent promissory note payable to Evolus Founders 19,068 —

Promissory note payable to Evolus Founders — 19,068

Term loan, net of discount and issuance costs — 74,384

Total current liabilities 57,663 180,248

Accrued litigation settlement expenses 20,000 —

Accrued litigation settlement 5,000 20,000

Operating lease liabilities 2,256 3,147

Contingent royalty obligation payable to Evolus Founders 39,426 38,100

Contingent promissory note payable to Evolus Founders — 17,945

Term loan, net of discounts and issuance costs — 73,508

Term loan, net of discount and issuance costs 71,222 —

Convertible note — 40,506

2 unchanged sentences

Commitments and contingencies (Note 9)

Stockholders’ (deficit) equity

Stockholders’ equity (deficit)

Preferred Stock, $ 0.00001 par value;

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Additional paid-in capital 504,757 303,113

Accumulated other comprehensive gain — 6

Accumulated deficit ( 422,882 ) ( 376,072 )

Total stockholders’ (deficit) equity ( 72,958 ) 79,457

Total liabilities and stockholders’ (deficit) equity $ 209,068 $ 240,442

Total stockholders’ equity (deficit) 81,876 ( 72,958 )

Total liabilities and stockholders’ equity (deficit) $ 257,483 $ 209,068

See accompanying notes to financial statements.

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Product revenue, net $ 98,971 $ 55,802

$ 55,802 $ 34,237

Service revenue 702 738

Total net revenues 99,673 56,540

56,540 34,925

Operating expenses:

Product cost of sales (excludes amortization of intangible assets) 43,534 18,299

Settlement payment from Daewoong ( 25,500 ) —

Selling, general and administrative 112,068 98,190

98,190 113,593

Research and development 2,064 1,722

Revaluation of contingent royalty obligation to Evolus Founders 6,290 ( 2,007 )

( 2,007 ) 4,160

Depreciation and amortization 5,622 7,027

2 unchanged sentences

Total operating expenses 144,078 209,608

209,608 133,872

Loss from operations ( 44,405 ) ( 153,068 )

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Interest expense ( 1,396 ) ( 10,503 )

( 10,503 ) ( 7,953 )

Loss from extinguishment of debts, net ( 968 ) —

Loss before income taxes ( 46,768 ) ( 162,936 )

Income tax expense (benefit) 77 ( 15,027 )

Income tax expense 42 77

Net loss $ ( 46,810 ) $ ( 163,013 )

Other comprehensive gain:

Unrealized (loss) gain on available-for-sale securities, net of tax ( 6 ) 6

Unrealized loss on available-for-sale securities, net of tax — ( 6 )

Comprehensive loss $ ( 46,810 ) $ ( 163,019 )

Net loss per share, basic and diluted $ ( 0.94 ) $ ( 4.83 )

$ ( 4.83 ) $ ( 3.19 )

Weighted-average shares outstanding used to compute basic and diluted net loss per share 49,773,101 33,737,838

33,737,838 28,237,816

See accompanying notes to financial statements.

Statements of Stockholders’ (Deficit) Equity

Statements of Stockholders’ Equity (Deficit)

(in thousands, except share data)

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Balance at December 31, 2019 — $ — 33,562,665 $ 1 $ 292,509 $ 6 $ ( 213,059 ) $ 79,457

Issuance of common stock upon follow-on offering, net of issuance costs

— — 5,999,550 — 73,022 — — 73,022

Issuance of common stock in connection with the incentive equity plan

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— — — — — — ( 163,013 ) ( 163,013 )

Other comprehensive gain

— — — — — 6 — 6

Other comprehensive loss — — — — — ( 6 ) — ( 6 )

Balance at December 31, 2020 — $ — 33,749,228 $ 1 $ 303,113 $ — $ ( 376,072 ) $ ( 72,958 )

Issuance of common stock in connection with litigation settlement — — 6,762,652 — 48,421 — — 48,421

Issuance of common stock for conversion of convertible note — — 3,136,869 — 39,808 — — 39,808

Issuance of common stock upon follow-on offering, net of issuance costs — — 10,350,000 — 92,212 — — 92,212

Issuance of common stock under “at-the-market” (ATM) program — — 934,367 — 10,910 — — 10,910

Issuance of common stock in connection with the incentive equity plan — — 643,872 — 655 — — 655

— — 186,563 — — — — —

Stock-based compensation

— — — — 10,604 — — 10,604

— — — — — — ( 163,013 ) ( 163,013 )

Other comprehensive loss — — — — — ( 6 ) — ( 6 )

Stock-based compensation expense — — — — 9,638 — — 9,638

Net loss — — — — — — ( 46,810 ) ( 46,810 )

Balance at December 31, 2021 — $ — 55,576,988 $ 1 $ 504,757 $ — $ ( 422,882 ) $ 81,876

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Revaluation of contingent royalty obligation to Evolus Founders 6,290 ( 2,007 )

Loss from extinguishment of debts 968 —

Non-cash portion of accrued settlement expenses — 48,421

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Accrued expenses 20,891 ( 4,248 )

Accrued settlement expenses 35,000 —

Accrued litigation settlement ( 15,000 ) 35,000

Operating lease liabilities ( 838 ) ( 734 )

6 unchanged sentences

Maturities of short-term investments 5,000 90,000

Net cash provided by (used in) investing activities 12,194 ( 23,434 )

Net cash provided by investing activities 4,030 12,194

Cash flows from financing activities

Repayment of long term debt ( 76,323 ) —

Repayment of promissory note payable to Evolus Founders ( 20,000 ) —

Payment of contingent royalty obligation to Evolus Founders ( 3,097 ) ( 1,130 )

Proceeds from issuance of convertible note — 40,000

Milestone payment for intangible assets — ( 3,000 )

Proceeds from issuance of long-term debt, net of discounts 71,958 —

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Issuance of common stock in connection with incentive equity plan 655 —

Proceeds from ATM sales of shares 10,910 —

Net cash provided by financing activities 73,052 38,347

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Cash paid for interest $ 138 $ 7,244

$ 7,244 $ 5,166

Cash paid for income taxes $ 14 $ 65

Non-cash investing and financing information

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

Landlord paid tenant improvements

Financed D & O insurance payment

Conversion of convertible note to equity $ 39,808 $ —

Issuance of common stock in exchange for litigation settlement expense $ 48,421 $ —

Capitalized software recorded in accounts payable and accrued expenses $ 10 $ —

Accrued offering costs, unpaid

See accompanying notes to financial statements.

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The Company is headquartered in Newport Beach, California.

In November 2019, the Company completed a follow-on public offering and issued 5,999,550 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase an additional 782,550 shares of common stock, at a price to the public of $ 13.00 per share.

The Company received net proceeds of approximately $ 73,315 from the offering, after deducting underwriting discounts and commissions, excluding other offering expenses.

Liquidity and Financial Condition

The Company believes that its current capital resources are not sufficient to meet its obligations and fund operations through at least the next 12 months from the date the accompanying financial statements are issued.

The Company will be required to raise additional capital to meet its operating, debt and settlement obligations coming due.

The Company cannot be certain that additional funding will be available on acceptable terms, or at all.

To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution.

Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business.

If the Company is unable to raise additional capital when required or on acceptable terms, the Company will be required to take action to address the Company’s liquidity needs, which may include significantly scaling back or discontinuing the commercialization of Jeuveau ® , or relinquish or otherwise dispose of rights to Jeuveau ® on unfavorable terms.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, and do not include any adjustments that may result from the outcome of this uncertainty.

This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of the Company’s liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Since inception, the Company has incurred recurring net operating losses and negative cash flows from operating activities and management expects operating losses and negative cash flows to continue for at least the next 12 months.

As of December 31, 2020, the Company had $ 102,562 in cash and cash equivalents plus $ 5,000 in short-term investments and an accumulated deficit of $ 376,072 .

On January 4, 2021, the Company and Oxford Finance LLC (“Oxford”) entered into an agreement, pursuant to which the Company paid Oxford $ 76,447 to pay off the Oxford Term Loan.

Oxford Term Loan for additional information.

On February 18, 2021, the Company, Medytox, Inc.

As of December 31, 2021, the Company had $ 146,256 in cash and cash equivalents and an accumulated deficit of $ 422,882 .

In December 2021, the Company entered into a $ 125,000 Term Loan agreement with BPCR Limited Partnership, BioPharma Credit Investments V (Master) LP, and Biopharma Credit PLC (collectively, “Pharmakon”).

The first tranche of $ 75,000 was funded on December 29, 2021.

The second tranche of $ 50,000 may be drawn at the Company’s election no later than December 31, 2022, subject to the terms and conditions of the loan agreement.

As of December 31, 2021, the Company has not drawn the second tranche.

The Company received net proceeds of approximately $ 68,695 from Pharmakon, after issuance costs and debt discounts.

Term Loans for additional information.

In January 2021, the Company and Oxford Finance LLC (“Oxford”) entered into an agreement, pursuant to which the Company paid Oxford $ 76,447 to pay off the Oxford Term Loan.

Term Loans for additional information.

In February 2021, the Company, Medytox, Inc.

(“Medytox”), Allergan, Inc.

and Allergan Limited (together, “Allergan”) entered into settlement agreements in connection with the International Trade Commission (“ITC”) action, for which the Company agreed to pay $ 15,000 in 2021, $ 15,000 in 2022 and $ 5,000 in 2023 with additional terms including specified royalty payments as described below and in Note 11.

Commitments and Contingencies —Legal Proceedings.

Additionally, the Company is obligated to pay the Evolus Founders the promissory note of $ 20,000 in November 2021.

Related Party Transactions for more information.

On December 16, 2020, the ITC issued its final determination in the ITC Action (as defined in Note 9.

Commitments and Contingencies) .

The final determination partially affirmed the ALJ’s ruling in the initial determination that found a violation of Section 337 of the Tariff Act of 1930 had occurred by reason of a misappropriation of certain manufacturing process trade secrets.

The ITC also reversed the ALJ’s finding that a trade secret exists with respect to a bacterial strain.

As a result, the ITC issued (1) a limited exclusion order prohibiting the importation of Jeuveau ® into the United States for a period of 21 months and (2) a cease and desist order preventing the Company from, among other things, selling, marketing, or promoting such imported Jeuveau ® in the United States for a period of 21 months (collectively, the “Remedial Orders”).

The Final Determination was subject to a 60-day presidential review period before taking effect.

During the presidential review period, the Company was permitted to continue importation and sales of Jeuveau ® subject to payment of a bond.

Effective February 18, 2021, the Company, Medytox and Allergan entered into certain agreements in connection with the settlement of certain claims relating to or arising from the Remedial Orders, the ITC Investigation, the California Litigation, the Korea Actions (as each of such terms are defined in Note 9 ) and certain other matters related thereto.

On March 23, 2021, the Company and

Medytox/Allergan Settlement Agreements and Daewoong Arrangement .

In March 2021, the Company and Daewoong entered into certain agreements, pursuant to which Daewoong (1) paid the Company $ 25,500 in April 2021 and (2) agreed to reimburse the Company certain amounts with respect to the royalties payable to Medytox and Allergan, among other terms.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

In addition, in March 2021 the outstanding Daewoong Convertible Note (as such term is defined in Note 7.

Daewoong Convertible Note ), including accrued interest, in the amount of $ 40,779 was converted into 3,136,869 shares of the Company’s common stock.

Daewoong Convertible Note for additional information.

In April 2021, the Company completed a follow-on public offering and issued 10,350,000 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase an additional 1,350,000 shares of common stock, at a price to the public of $ 9.50 per share.

The Company received net proceeds of approximately $ 92,426 from the offering, after deducting underwriting discounts and commissions, excluding other offering expenses.

In June, July and August 2021, the Company sold 934,367 common shares at the prevailing market prices for total net proceeds of $ 10,910 under the existing “at-the-market” sales agreement.

Stockholders’ Equity for additional details.

Notes to Financial Statements

(in thousands, except share and per share data)

Daewoong entered into certain agreements in connection with the ITC Action, the California Litigation, the Korea Action and the Medytox/Allergan Settlement Agreements (as each of such terms are defined in Note 9 ).

Commitments and Contingencies —Legal Proceedings for additional information.

The COVID-19 outbreak that was first detected in Wuhan, China, in December 2019, has negatively impacted and disrupted the global economy and financial markets on an unprecedented scale, which could interfere with the Company’s ability to access financing when and on terms that the Company desires.

In an effort to reduce operating expenses and conserve cash resources, the Company separated approximately 100 employees, temporarily reduced executive salaries and Board of Directors fees and reduced the size of its Board of Directors by two members during the year ended December 31, 2020.

The accompanying financial statements as of December 31, 2020 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate sufficient revenue.

The accompanying financial statements as of December 31, 2020 did not include any adjustments that might result from the outcome of this uncertainty.

The Company believes that its current capital resources, which consist of cash and cash equivalents, will be sufficient to fund operations through at least the next twelve months based on its expected cash needs.

The Company may be required to raise additional capital to fund future operations through entering into licensing or collaboration agreements with partners, grants or other sources of financing.

Sufficient funds may not be available to the Company at all or on attractive terms when needed from equity or debt financings.

If the Company is unable to obtain additional funding from these or other sources when needed, or to the extent needed, it may be necessary to significantly reduce its controllable and variable expenditures and current rate of spending through reductions in staff and delaying, scaling back, or suspending certain research and development, sales and marketing programs and other operational goals.

Basis of Presentation and Summary of Significant Accounting Policies

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The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Reclassifications

Certain comparative amounts for prior year have been reclassified to conform to current year presentations.

Such reclassifications did not affect net income or retained earnings.

Use of Estimates

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Risks and Uncertainties

In 2013, Evolus and Daewoong Pharmaceuticals Co.

(“Daewoong”) entered into an agreement (“Daewoong Agreement”), pursuant to which, the Company has an exclusive distribution license to Jeuveau ® from Daewoong for aesthetic indications in the United States, European Union, Great Britain, Canada, Australia, Russia, Commonwealth of Independent States, and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan.

In 2013, Evolus and Daewoong Pharmaceutical Co.

(“Daewoong”) entered into an agreement (the “Daewoong Agreement”), pursuant to which the Company received an exclusive distribution license to Jeuveau ® from Daewoong for aesthetic indications in the United States, European Union, United Kingdom, members of the European Economic Area, Switzerland, Canada, Australia, Russia, certain members of the Commonwealth of Independent States, and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan.

Jeuveau ® is manufactured by Daewoong in a facility in South Korea.

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Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement would materially and adversely affect the Company’s commercialization of Jeuveau ® .

The Daewoong Agreement, and Daewoong’s rights relating to Jeuveau ® , are subject to litigation.

Commitments and Contingencies for additional information regarding such litigation.

Commitments and Contingencies and Note 11.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

The Company commercially launched Jeuveau ® in the United States in May 2019 and in Canada through its distribution partner in October 2019 and, as such, has a limited history of sales.

If any previously granted approval is retracted or the

If any previously granted approval is retracted or the Company is denied approval or approval is delayed by any other regulators, it may have a material adverse impact on the Company’s business and its financial statements.

Notes to Financial Statements

(in thousands, except share and per share data)

Company is denied approval or approval is delayed by any other regulators, it may have a material adverse impact on the Company’s business and its financial statements.

The Company is also subject to risks common to companies in the pharmaceutical industry including, but not limited to, dependency on the commercial success of Jeuveau ® , the Company’s sole commercial product, significant competition within the medical aesthetics industry, its ability to maintain regulatory approval of Jeuveau ® , the need for additional financing to achieve its goals, third party litigation and challenges to its intellectual property, uncertainty of broad adoption of its product by physicians and patients, its ability to in-license, acquire or develop additional product candidates and to obtain the necessary approvals for those product candidates, and the need to scale manufacturing capabilities over time.

The Company is also subject to risks common to companies in the pharmaceutical industry including, but not limited to, dependency on the commercial success of Jeuveau ® , the Company’s sole commercial product, significant competition within the medical aesthetics industry, its ability to maintain regulatory approval of Jeuveau ® , third party litigation and challenges to its intellectual property, uncertainty of broad adoption of its product by physicians and patients, its ability to in-license, acquire or develop additional product candidates and to obtain the necessary approvals for those product candidates, and the need to scale manufacturing capabilities over time.

The COVID-19 outbreak and restrictions intended to slow the spread of COVID-19, including quarantines, government-mandated actions, stay-at-home orders and other restrictions, have adversely affected the Company’s business in a number of ways, which have resulted, and may continue to result, in a period of business disruption and in reduced sales and operations.

In addition, any disruption and volatility in the global capital markets may increase the Company’s cost of capital and adversely affect its ability to access financing when and on terms that we desire.

Any of these events could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

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Purchase premiums and discounts are recognized in interest expense using the effective interest method over the terms of the securities.

Realized gains and losses and declines in fair value that are

Realized gains and losses and declines in fair value that are deemed to be other than temporary are reflected in the statements of operations and comprehensive loss using the specific-identification method.

Notes to Financial Statements

(in thousands, except share and per share data)

deemed to be other than temporary are reflected in the statements of operations and comprehensive loss using the specific-identification method.

The Company periodically reviews all available-for-sale securities for other than temporary declines in fair value below the cost basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Inventories consist of finished goods held for sale and distribution.

Cost is determined using the first‑in, first‑out method with prioritization of the items with the earliest expiration dates.

Cost is determined based on the estimated amount payable to the Company’s supplier after accounting for any reimbursement receivable pursuant to the Daewoong Settlement Agreement (as such term is defined, and such agreement is discussed, in Note 11.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement ), usin g the first-in, first-out method with prioritization of the items with the earliest expiration dates.

Inventory valuation reserves are established based on a number of factors including, but not limited to, finished goods not meeting product specifications, product excess and obsolescence, or application of the lower of cost or net realizable value concepts.

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Adverse changes in assumptions utilized in the Company’s inventory reserve calculations could result in an increase to its inventory valuation reserves.

Product cost of sales, excluding amortization of intangible assets, consisted of the inventory cost, and, for periods on or after December 16, 2020, included certain royalties on the sale of Jeuveau ® payable to Medytox and Allergan pursuant to the Medytox/Allergan Settlement Agreements (as such term is defined in Note 11.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement ), as partially offset by reimbursement receivable from Daewoong pursuant to the Daewoong Settlement Agreement with respect to such royalties.

Fair Value of Financial Instruments

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Operating lease ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received, if any.

The Company determines the lease term as the noncancellable period of the lease and may include options to extend or terminate the lease

The Company determines the lease term as the noncancelable period of the lease and may include options to extend or terminate the lease

Notes to Financial Statements

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Changes in the fair value of the contingent royalty obligation payable are determined at each reporting period end and recorded in operating expenses in the accompanying statements of operations and comprehensive loss and as a liability in the accompanying balance sheets.

Contingent Promissory Note Payable to Evolus Founders

On February 12, 2018, the Company recognized a contingent promissory note payable at present value using a discount rate for similar rated debt securities based on an estimated date that the Company believed the contingent promissory note will mature.

Discount amortization related to the contingent promissory note is recorded in interest expense in the accompanying statements of operations and comprehensive loss with a corresponding increase to the non-current liabilities in the accompanying balance sheets.

Promissory Note Payable to the Evolus Founders

On February 12, 2018, the Company recognized a promissory note payable at present value using a discount rate for similar rated debt securities.

Discount amortization related to the promissory note is recorded in interest expense in the accompanying statements of operations and comprehensive loss with a corresponding increase to the liabilities in the accompanying balance sheets.

Long-term Debt

Long-term debt represents the debt balance with Oxford (see Note 6.

Oxford Term Loan ) and the Daewoong Convertible Note (as defined in Note 7.

Daewoong Convertible Note ) , net of debt issuance costs.

Long-term debt represents the debt balance with Pharmakon as of December 31, 2021 and Oxford as of December 31, 2020 (see Note 6.

Term Loans ) , net of debt issuance costs.

Debt issuance costs represent legal, lender and consulting costs or fees associated with debt financing.

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Revenue Recognition

The Company applies Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), to account for revenue generated since the commercial launch of Jeuveau ® in May 2019.

The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the goods or services.

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The Company also excludes any amounts related to taxes assessed by governmental authorities from revenue measurement.

Shipping and handling costs associated with outbound product freight are accounted for as fulfillment costs and are included in selling, general and marketing expenses in the accompanying statements of operations and comprehensive loss.

For service revenue, the Company evaluated the arrangement with the distribution partner in Canada and determined that it acts as an agent in the distribution of Jeuveau ® in Canada as it does not control the product before control is transferred to a

Notes to Financial Statements

(in thousands, except share and per share data)

Shipping and handling costs associated with outbound product freight are accounted for as fulfillment costs and are included in selling, general and administrative expenses in the accompanying statements of operations and comprehensive loss.

The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and discretion in establishing the price.

Accordingly, the Company records the sale as service revenue on a net basis.

Revenue from services is recognized in the period the service is performed for the amount of consideration expected to be received.

For the year ended December 31, 2020 and 2019, the Company recognized $ 738 and $ 688 of revenue related to Canada sales.

Revenue from services is recognized in the period the service is performed

Notes to Financial Statements

(in thousands, except share and per share data)

for the amount of consideration expected to be received.

For the years ended December 31, 2021 and 2020, the Company recognized $ 702 and $ 738 , respectively, of revenues related to international sales.

Disaggregation of Revenue

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The Company provides customers with discounts, such as trade and volume discounts and prompt pay discounts, that are directly reflected in the invoice price.

Revenues are recorded net of sales-related adjustments, wherever applicable, primarily for the volume based rebates, coupon and consumer loyalty programs.

Revenues are recorded net of sales-related adjustments, wherever applicable, primarily for the volume based rebates, coupons, consumer loyalty programs and co-branded marketing programs.

• Volume-based Rebates — Volume-based rebates are contractually offered to certain customers.

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• Coupons — The Company issued customers coupons redeemable into gift cards funded by the Company for the benefit of patients.

The coupons are accounted for as variable consideration.

The Company estimates the coupon redemption rates based on historical data and future expectations.

The coupons are accrued based on estimated redemption rates and the volume of products purchased and are recorded as a reduction to revenues on product delivery.

The coupons were accounted for as variable consideration.

The Company estimated coupon redemption rates based on historical data and future expectations.

The coupons were accrued based on estimated redemption rates and the volume of products purchased and were recorded as a reduction to revenues on product delivery.

All issued coupons expired on June 30, 2020.

• Consumer Loyalty Program — In May 2020, the Company announced the launch of a consumer loyalty program, which allows participating customers to earn rewards for qualifying treatments to their patients (i.e.

• Consumer Loyalty Program — In May 2020, the Company launched a consumer loyalty program, which allows participating customers to earn rewards for qualifying treatments to their patients (i.e.

consumers) using Jeuveau ® and redeem the rewards for Jeuveau ® in the future at no additional cost.

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At the time Jeuveau ® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward (“Reward”) that the customer might redeem in the future.

The standalone selling price of the Reward is measured based on historical sales data, average selling price of Jeuveau ® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers.

The standalone selling price of the Reward is measured based on historical sales data, estimated average selling price of Jeuveau ® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers.

The portion of invoice price allocated to the Reward is initially recorded as deferred revenue.

Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is recognized in net revenue at that time.

As of December 31, 2020 and 2019, the accrued revenue contract liabilities, primarily related to volume-based rebates, coupons and consumer loyalty program, were $ 3,081 and $ 1,709 , respectively, which were recorded in the accrued expenses in the accompanying balance sheets.

For the years ended December 31, 2020 and 2019, provisions for rebate, coupon and consumer loyalty programs were $ 16,896 and $ 12,325 , respectively, which were offset by related payments, redemptions and adjustments of $ 15,524 and $ 10,616 , respectively.

Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is recognized in net revenues at that time.

• Co-Branded Marketing Programs — The Company offers eligible customers with a certain level of Jeuveau ® purchases to receive advertising co-branded with the Company.

The co-branded advertising represents a performance obligation.

At the time Jeuveau ® product is sold to customers, the invoice price is allocated between the product sold and the advertisement.

The standalone selling price of the advertisement is measured based on the estimated market value of similar advertisement adjusted for the customer’s portion of the advertisement.

The portion of invoice price allocated to the advertisement is initially recorded as deferred revenue.

Subsequently, when the advertisement airs, the deferred revenue is recognized in net revenues at that time.

Contract balances

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Sales commissions are included in selling, general and administrative expenses when incurred.

Contract liabilities reflect estimated amounts that the Company is obligated to pay to customers or patients primarily under the rebate and coupon programs and deferred revenue associated with Rewards under the consumer loyalty program and co-

Notes to Financial Statements

(in thousands, except share and per share data)

The Company’s contract liabilities are included in accounts payable and accrued expenses in the accompanying condensed balance sheets.

During the years ended December 31, 2020 and 2019, the Company did not recognize any revenue related to changes in transaction prices regarding its contracts with customers and did not recognize any material changes in revenue related to amounts included in contract liabilities at the beginning of the period.

branded marketing programs.

The Company’s contract liabilities are included in accounts payable and accrued expenses in the accompanying balance sheets.

As of December 31, 2021 and 2020, the accrued revenue contract liabilities, primarily related to volume-based rebates, consumer loyalty program, and co-branded media programs, were $ 7,934 and $ 3,081 , respectively, which were recorded in accrued expenses in the accompanying balance sheets.

For the years ended December 31, 2021 and 2020, provisions for rebate, coupon, consumer loyalty programs, and co-branded media programs were $ 16,139 and $ 16,896 , respectively, which were offset by related payments, redemptions and adjustments of $ 11,286 and $ 15,524 , respectively.

During the years ended December 31, 2021 and 2020, the Company recognized $ 2,802 and $ 0 , respectively, of revenue related to amounts included in contract liabilities at the beginning of the period and did not recognize any revenue related to changes in transaction prices regarding its contracts with customers from previous periods.

Collectability

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As of December 31, 2021 and 2020, allowance for doubtful accounts was $ 2,385 and $ 2,118 , respectively.

For the years ended December 31, 2020 and 2019, provision for bad debts was $ 2,066 and $ 387 , respectively, and write-offs were $ 335 and $ 0 , respectively.

For the years ended December 31, 2021 and 2020, provision for bad debts was $ 589 and $ 2,066 , respectively, and the write-off amount was $ 322 and $ 335 , respectively.

Practical Expedients

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Research and development expenses include personnel-related costs, costs associated with pre-clinical and clinical development activities, costs associated with and costs for prototype products that are manufactured prior to market approval for that prototype product, internal and external costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs, including allocated facility related expenses.

Restructuring Costs

In April 2020, in response to the impact of COVID-19 on its business, the Company announced plans to reduce its operating expenses and separate over 100 employees.

As of December 31, 2020, all separations were completed and for the year ended December 31, 2020, the Company recorded $ 2,956 of termination benefits as restructuring costs within operating expenses on the accompanying statements of operations and comprehensive loss.

Litigation Settlement

On February 18, 2021, upon entering into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes relating to Jeuveau ® (See Note 9.

Commitments and Contingencies ), the Company agreed to pay to Allergan and Medytox $ 35,000 in multiple payments over two years and issued 6,762,652 shares its common stock to Medytox.

In addition, for the period from December 16, 2020 to September 16, 2022, the Company agreed to pay to Allergan and Medytox a certain royalty on the sale of Jeuveau ® , based on a certain dollar amount per vial sold in the United States and a low-double digit royalty on net sales of Jeuveau ® sold in other Evolus territories.

In February 2021, upon entering into certain agreements to settle intellectual property disputes relating to Jeuveau ® , the Company agreed to pay to Allergan and Medytox $ 35,000 in multiple payments over two years , of which $ 15,000 was paid in the third quarter of 2021 and $ 15,000 was paid in the first quarter of 2022, and issued 6,762,652 shares of its common stock to Medytox.

In addition, for the period from December 16, 2020 to September 16, 2022, the Company agreed to pay to Allergan and Medytox a royalty on the sale of Jeuveau ® , based on a certain dollar amount per vial sold in the United States and a low-double digit royalty on net sales of Jeuveau ® sold in other Evolus territories.

For the period from September 17, 2022 to September 16, 2032, the Company agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau ® .

The royalty payments will be made quarterly.

The royalty payments are made quarterly and recorded as product cost of sales on the accompanying statements of operations and comprehensive loss in the periods the royalties are incurred.

The settlement agreements resulted in an $ 83,421 charge for the year ended December 31, 2020, which consisted of $ 35,000 in deferred cash payments and $ 48,421 from the issuance of 6,762,652 shares of the Company’s common stock in February

Notes to Financial Statements

(in thousands, except share and per share data)

The settlement agreements resulted in an $ 83,421 charge for the year ended December 31, 2020, which consisted of $ 35,000 in cash payments and $ 48,421 from the issuance of 6,762,652 shares of the Company’s common stock in February 2021 and was recorded as litigation settlement expenses in the accompanying statements of operations and comprehensive loss.

The related current liability of $ 63,421 and non-current liability of $ 20,000 were recorded in the accompanying balance sheets as of December 31, 2020.

The royalty payments are recorded as cost of sales in the accompanying statements of operations and comprehensive loss at the time the corresponding sales are recognized starting on December 16, 2020.

In the year ended December 31, 2021, the Company made cash payments of $ 15,000 to Medytox and Allergan.

As of December 31, 2021, a current liability of $ 15,000 and non-current liability of $ 5,000 were recorded in the accompanying balance sheets.

Separately, in March 2021, Daewoong and the Company entered into certain agreements, pursuant to which Daewoong agreed to pay the Company an amount equal to $ 25,500 , which was recorded as a settlement payment from Daewoong and included as part of cost of sales on the accompanying statements of operations and comprehensive loss for the year ended December 31, 2021.

For the period from December 16, 2020 to September 16, 2022, Daewoong also agreed to reimburse the Company certain amounts with respect to the royalties payable to Medytox and Allergan.

This reimbursement is received quarterly and recorded as an offset to the related royalties to Medytox and Allergan in the product cost of sales on the accompanying statements of operations and comprehensive loss.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for the details of all litigation settlement agreements.

Stock-Based Compensation

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Advertising Costs

Advertising costs are expensed as incurred and primarily include costs related to social media ads.

Advertising costs are expensed as incurred and primarily include costs related to social media ads and co-branded marketing programs.

Advertising costs are included in selling, general and administrative expenses.

For the years ended December 31, 2021 and 2020, the Company incurred advertising costs of $ 16,391 and $ 4,979 , respectively.

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A valuation allowance is recorded against deferred tax assets to reduce the net carrying value when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

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The Company has not recognized interest or penalties in its statement of operations and comprehensive loss.

Notes to Financial Statements

(in thousands, except share and per share data)

The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions.

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In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions

Notes to Financial Statements

(in thousands, except share and per share data)

based on a two-step process.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

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The Company continually assesses the likelihood and amount of potential revisions and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

The Company monitors changes to the tax laws in the states it conducts business and files corporate income tax returns.

The Company does not expect that changes to state tax laws through December 31, 2021 to materially impact its financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period including contingently issuable shares.

Diluted earnings per share includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options, the vesting of restricted stock units and the conversion of the Daewoong Convertible Note.

Diluted earnings per share is based on the treasury stock method and includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options and the vesting of restricted stock units.

The dilutive effect of stock options and restricted stock units is computed under the treasury stock method.

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Recently Adopted Pronouncements

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract .

ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.

The guidance is effective for interim and annual reporting periods during the year ending December 31, 2020.

Early adoption is permitted.

The Company adopted the guidance using the prospective method on January 1, 2020, and such adoption did not have a material impact on its financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement .

The update is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements.

Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements.

However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income.

The guidance is effective for interim and annual reporting periods during the year ending December 31, 2020.

Early adoption is permitted.

The Company adopted the guidance in the current period, and such adoption did not have a material impact on its financial statements.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes .

FASB issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness.

The main provisions remove certain exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In addition, the amendments simplify income tax accounting in the areas such as income based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

For public companies, the standard is effective for fiscal years beginning after December 15, 2020 and interim periods therein.

The Company has adopted the guidance on the effective date of January 1, 2021.

There are no material impacts to the financial statements as a result of this adoption.

Recent Accounting Pronouncements Issued But Not Adopted

Notes to Financial Statements

(in thousands, except share and per share data)

In January 2017, the FASB issued ASU No.

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The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.

As amended by ASU 2019-10, the updated guidance is effective for the

Notes to Financial Statements

(in thousands, except share and per share data)

Company as a smaller reporting company beginning January 1, 2023.

As amended by ASU No.

2019-10, the updated guidance is effective for the Company as a smaller reporting company beginning January 1, 2023.

The standard requires prospective application.

Early adoption is permitted.

The Company is evaluating the effect of this standard on its financial statements and related disclosures as well as whether to early adopt the new guidance.

The Company does not expect adoption of this guidance will have a material impact on its financial statements.

In June 2016, the FASB issued ASU No.

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The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination.

Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard.

The FASB also subsequently issued ASU 2019-04 which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off.

As amended by ASU 2019-10, the updated guidance is effective for the Company as a smaller reporting company beginning January 1, 2023.

Subsequent to the issuance of ASU No.

2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

This ASU does not change the core principle of the guidance in ASU No.

2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard.

The FASB also subsequently issued ASU No.

2019-04 which did not change the core principle of the guidance in ASU No.

2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off.

As amended by ASU No.

2019-10, the updated guidance is effective for the Company as a smaller reporting company beginning January 1, 2023.

The Company is in the process of determining the effects the adoption will have on its financial statements and reviewing credit loss models to assess the impact of the adoption of the standard on the financial statements.

Based on initial assessments, the Company believes that while adoption will modify the way it analyzes financial instruments, it does not expect adoption of this guidance will have a material impact to its financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact this change will have on its financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope (“ASU 2021-01”).

2020-04 and ASU No.

2021-01 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

2020-04 and ASU No.

2021-01 are effective upon issuance for contract modifications and hedging relationships, and the Company is allowed to elect to apply the amendments prospectively through December 31, 2022.

The Company does not expect adoption of this guidance will have a material impact on its financial statements.

In November 2021, the FASB issued ASU No.

2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

This update will increase transparency of government assistance received by most business entities by requiring the disclosure of:

(1) the types of transactions;

(2) the accounting for the transactions;

and, (3) the effect of the transactions on a business entity’s financial statements.

2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021, with early application permitted.

The Company does not expect adoption of this guidance will have a material impact on its financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future financial position, results of operations or cash flows.

Notes to Financial Statements

(in thousands, except share and per share data)

Fair Value Measurements and Short-Term Investments

Short-Term Investments

As of December 31, 2020 and 2019, all of the Company’s investments had remaining maturities of less than 12 months.

The following is a summary of the Company’s short-term investments, considered available-for-sale:

As of December 31, 2020

Amortized Gross Unrealized Estimated

Cost Gains Losses Fair Value

Available-for-sale securities

U.S treasury securities $ 5,000 $ — $ — $ 5,000

As of December 31, 2021, the Company did not hold any short-term investments.

As of December 31, 2020, all of the Company’s investments had remaining maturities of less than 12 months.

The following is a summary of the Company’s short-term investments, considered available-for-sale, as of December 31, 2020:

As of December 31, 2020

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U.S treasury securities $ 5,000 $ — $ — $ 5,000

As of December 31, 2020, no investments had been in a continuous unrealized loss position for more than 12 months, and the Company did no t record any other-than-temporary impairments on these securities.

Notes to Financial Statements

(in thousands, except share and per share data)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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Fair Value Level 1 Level 2 Level 3

Available-for-sale debt securities

U.S treasury securities $ 5,000 $ 5,000 $ — $ —

Contingent royalty obligation payable to Evolus Founders $ 44,740 $ — $ — $ 44,740

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The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the year ended December 31, 2021.

The Company determines the fair value of the contingent royalty obligation payable to Evolus Founders based on Level 3 inputs using a discounted cash flow method.

The Company determines the fair value of the contingent royalty obligation payable to the Evolus Founders based on Level 3 inputs using a discounted cash flows method.

The significant unobservable input assumptions that can significantly change the fair value include (i) projected amount and timing of net revenues during the payment period, which terminates in the quarter following the 10 -year anniversary of the first commercial sale of Jeuveau ® in the United States, (ii) the discount rate and (iii) the timing of payments.

During the years ended December 31, 2021 and 2020, the Company utilized discount rates between 13.0 % and 20.0 %, reflecting changes in the Company’s risk profile.

Net revenue projections were also updated to reflect changes in the timing of expected sales.

Significant increases (decreases) in discount rate would result in a significantly lower (higher) fair value measurement, which could impact materially the fair value reported on the balance sheet.

Net revenue projections are also updated to reflect changes in the timing of expected sales.

Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement, which could materially impact the fair value reported on the balance sheet.

Notes to Financial Statements

(in thousands, except share and per share data)

The following table shows a reconciliation of the beginning and ending fair value measurements of the contingent royalty obligation payable:

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The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments.

The Company estimates the fair value of the contingent promissory note payable to the Evolus Founders, long-term debt and operating lease liabilities using the discounted cash flow analysis based on the interest rates for similar rated debt securities (Level 2).

As of December 31, 2020, the fair value of the contingent promissory note and long-term debt was estimated to be

Notes to Financial Statements

(in thousands, except share and per share data)

$ 19,284 and $ 76,368 , respectively.

The Company estimates the fair value of the promissory note payable to the Evolus Founders, long-term debt and operating lease liabilities using the discounted cash flow analysis based on the interest rates for similar rated debt securities (Level 2).

As of December 31, 2021, the fair value of the long-term debt was $ 75,448 .

As of December 31, 2020, the fair value of the contingent promissory note and long-term debt was estimated to be $ 19,284 and $ 76,368 , respectively.

The fair value of operating lease liabilities as of December 31, 2021 and 2020 approximated their carrying value.

Notes to Financial Statements

(in thousands, except share and per share data)

Goodwill and Intangible Assets

The table below shows the weighted-average life, original cost, accumulated amortization and net book value by major intangible asset classification:

As of December 31, 2020

Weighted-Average Life (Years) Original Cost Accumulated Amortization Net Book Value

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Goodwill * 21,208 — 21,208

Total $ 86,965 $ ( 10,460 ) $ 76,505

As of December 31, 2019

Total as of December 31, 2021

$ 87,598 $ ( 15,765 ) $ 71,833

Weighted-Average Life (Years) Original Cost Accumulated Amortization Net Book Value

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Goodwill * 21,208 — 21,208

Total $ 84,699 $ ( 3,853 ) $ 80,846

Total as of December 31, 2020

$ 86,965 $ ( 10,460 ) $ 76,505

* Intangible assets with indefinite lives have an indeterminable average life.

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Distribution right represents the license and associated distribution right to develop Jeuveau ® , the initial term of which expires in September 2023 and is automatically extended for unlimited additional three-year terms provided that the Company meets certain performance requirements.

Additionally, upon FDA approval of Jeuveau ® on February 1, 2019, the IPR&D project was completed and reclassified as a definite-lived distribution right intangible asset, which is amortized on a

Notes to Financial Statements

(in thousands, except share and per share data)

straight-line basis over the estimated useful life of 20 years.

Additionally, upon FDA approval of Jeuveau ® on February 1, 2019, the IPR&D project was completed and reclassified as a definite-lived distribution right intangible asset, which is amortized on a straight-line basis over the estimated useful life of 20 years.

The Company paid Daewoong a $ 2,000 milestone payment, pursuant to the Daewoong Agreement, which increased the cost basis of the distribution.

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), there is no additional cash consideration due to Daewoong.

Commitments and Contingencies for additional information.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

Notes to Financial Statements

(in thousands, except share and per share data)

For the years ended December 31, 2021 and 2020, the Company capitalized $ 633 and $ 2,266 , respectively, related to costs of computer software developed for internal use.

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Accrued Expenses

Accrued expenses consisted of the following:

Accrued expenses consisted of:

Year Ended December 31,

Accrued royalties under the Medytox/Allergan Settlement Agreements $ 12,447 $ —

Accrued payroll and related benefits 6,856 4,076

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$ 29,993 $ 9,102

Oxford Term Loan

On March 15, 2019, the Company entered into a credit facility of up to $ 100,000 with Oxford (“Loan Agreement”).

Pursuant to the terms of the Loan Agreement, the lender extended term loans (the “Oxford Term Loans”), available in two advances, to the Company.

The first tranche of $ 75,000 was funded on the closing date.

The second tranche of $ 25,000 could have been drawn, at the request of the Company, no later than September 30, 2020, upon achieving specified minimum net sales milestones based on a trailing six-month basis and no event of default.

The Company did not meet the net sales milestone to draw the second tranche.

The credit facility bears an annual interest rate equal to the greater of 9.5 %, or the 30-day U.S.

Dollar LIBOR rate plus 7.0 %.

The Company agreed to pay interest-only for the first 36 months until May 2022, which is followed by a 23-month amortization period.

Upon the earliest to occur of the maturity date, the acceleration of the Oxford Term Loan, or the prepayment of the Oxford Term Loan, the Company was required to pay to Oxford a final payment of 5.5 % of the full principal amount of the Oxford Term Loan funded (“Final Payment”).

The Company could elect to prepay all amounts owed prior to the maturity date, provided that a prepayment fee was also paid, which would be equal to 2.0 % of the amount prepaid if the prepayment occurred after March 15, 2020 and on or prior to March 15, 2021, or 1.0 % of the amount prepaid if the prepayment occurred thereafter (“Prepayment Fee”).

If the Oxford Term Loan was accelerated following the occurrence of an event of default, the Company was required to immediately pay to Oxford an amount equal to the sum of all outstanding principal of the Oxford Term Loan plus accrued and unpaid interest thereon through the prepayment date, the Final Payment, the Prepayment Fee and all other obligations that were due and payable, including payment of Oxford’s expenses and interest at the default rate with respect to any past due amounts.

The credit facility was secured by substantially all of the Company’s assets.

The credit facility included affirmative and negative covenants applicable to the Company and any subsidiaries it may create in the future.

The affirmative covenants included, among others, covenants requiring the Company to maintain its legal corporate existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts.

The negative covenants included, among others, restrictions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions.

Pharmakon Term Loans

On December 14, 2021, the Company entered into a loan agreement with Pharmakon.

Pursuant to the terms of the agreement, Pharmakon agreed to make term loans to the Company in two tranches (“Pharmakon Term Loans”).

The first tranche of $ 75,000 was funded on December 29, 2021.

The second tranche of $ 50,000 may be drawn at the Company’s election no later than December 31, 2022.

As of December 31, 2021, the Company has not drawn the second tranche.

The Pharmakon Term Loans will mature on the sixth year anniversary of the closing date of the first tranche (“Maturity Date”).

The Pharmakon Term Loans accrue interest at a per annum rate equal to the 3-month U.S.

Dollar LIBOR rate (subject to a LIBOR rate floor of 1.0 %) plus 8.5 % per annum;

provided that, upon a public statement or publication of information in certain circumstances that LIBOR has ceased or will cease to be provided or be representative or the occurrence of an early opt-in determination by the collateral agent, the Pharmakon Term Loans will be amended to provide for an alternative to the 3-month U.S.

Dollar LIBOR rate established by the lenders holding a majority of the outstanding Pharmakon Term Loans, giving due consideration to the selection or recommendation of a replacement rate or mechanism for determining such rate by any applicable governmental authority or the then-prevailing market conventions.

The Company agreed to make 12 equal quarterly payments of principal on the outstanding Pharmakon Term Loans commencing on or immediately following the 39 th-month anniversary of the funding date of the first tranche continuing through the Maturity Date.

The Company may elect to prepay all amounts, not less than $ 20,000 , owed prior to the Maturity Date.

Prepayments of the first tranche prior to the second anniversary of the closing date of the first tranche and prepayments of the second tranche prior to the second anniversary of the date on which the second tranche is drawn by the Company will be accompanied by a make whole amount equal to the sum of all interest that would have accrued through such second anniversary.

Prepayments of the Pharmakon Term Loans will also be accompanied by a prepayment premium equal to the principal amount so prepaid multiplied by 3.0 % if made prior to the third anniversary of the closing date of the first tranche, 2.0 % if made on or after the third anniversary of the closing date of the first tranche but prior to the fourth anniversary of the closing date of the first tranche, and 1.0 % if made on or after the fourth anniversary of the closing date of the first tranche but prior to the Maturity Date.

If the Pharmakon Term Loans are accelerated following the occurrence of an event of default, including a material adverse change, the Company is required to immediately pay Pharmakon an amount equal to the sum of all outstanding principal, unpaid interest, and applicable make whole and prepayment premiums.

The Pharmakon Term Loans are secured by substantially all of the Company’s assets.

The Pharmakon Term Loans contain customary affirmative and restrictive covenants and representations and warranties.

The affirmative covenants include,

Notes to Financial Statements

(in thousands, except share and per share data)

The credit facility also included events of default, the occurrence and continuation of which could cause interest to be charged at a default interest rate equal to the applicable rate plus 5.0 % and Oxford, 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 facility, including the Company’s cash.

These events of default included, 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, the occurrence of any default under certain other indebtedness and one or more judgments against the Company, the institution of certain temporary or permanent relief in connection with pending litigation, or the breach, termination or other adverse events under the Daewoong Agreement.

among others, certain information delivery requirements, obligations to maintain certain insurance, and certain notice requirements.

The restrictive covenants include, among others, incurring certain additional indebtedness, consummating certain change in control transactions, or incurring any non- permitted lien or other encumbrance on the Company’s assets, without Pharmakon’s prior written consent.

The Pharmakon Term Loans do not contain covenants requiring the Company to maintain a minimum cash threshold or minimum revenues or earnings.

As of December 31, 2021, the Company was in compliance with its debt covenants.

At the closing date of the first tranche, the Company incurred $ 3,042 and $ 3,263 in debt discounts and issuance costs related to the Pharmakon Term Loans, respectively.

Debt discounts and issuance costs related to the entire Pharmakon Term Loans have been allocated pro rata between the funded and unfunded portions.

Debt discounts and issuance costs allocated to the first tranche of $ 75,000 have been presented as a deduction to the debt balance and are amortized into interest expense using the effective interest method.

As of December 31, 2021, the borrowings outstanding under the Pharmakon Term Loans were classified as long-term debt in the accompanying balance sheets.

Debt discounts and issuance costs associated with the unfunded tranche are deferred as assets until the tranche is drawn and are amortized into interest expense using the straight-line method over the term of the debt.

The overall effective interest rate was approximately 10.89 % as of December 31, 2021.

As of December 31, 2021, the principal amounts of long-term debt maturities for each of the next five fiscal years are as follows:

Thereafter 25,000

Total principal payments 75,000

Unamortized debt discounts and issuance costs ( 3,778 )

Long term debt, net of discounts and issuance costs $ 71,222

Oxford Term Loans

On March 15, 2019, the Company entered into a Loan and Security Agreement with Oxford (the “Loan Agreement”), providing for a credit facility of up to $ 100,000 .

Pursuant to the terms of the credit facility, the lender extended term loans (the “Oxford Term Loan”), available in two advances, to the Company.

The first tranche of $ 75,000 was funded on the closing date.

The second tranche of $ 25,000 was not drawn.

The credit facility bore an annual interest rate equal to the greater of 9.5 %, or the 30-day U.S.

Dollar LIBOR rate plus 7.0 %.

The Company agreed to pay interest-only for the first 36 months until May 2022, followed by a 23 months amortization period.

At the closing date, the Company incurred $ 1,094 and $ 2,205 in debt discounts and issuance costs related to the Oxford Term Loan, respectively.

2 unchanged sentences

The overall effective interest rate was approximately 11.6 % as of December 31, 2020.

On January 4, 2021, the Company and Oxford entered into an agreement (“Payoff Letter”), pursuant to which (i) on January 4, 2021, the Company paid Oxford $ 76,447 to discharge in full all outstanding obligations, included accrued interest by and between Oxford, in its capacity as collateral agent and lender, and the Company, and (ii) effective upon such repayment, the Loan Agreement, and all unfunded commitments thereunder, guarantees and other security interests granted to Oxford in connection with the Loan Agreement and all other obligations of and restrictions on the Company under the Loan Agreement, terminated.

As a condition to entering into the Payoff Letter, Oxford agreed to waive a total of $ 4,300 of fees comprised of (i) $ 2,800 of the Final Payment and (ii) the Prepayment Fee of $ 1,500 .

As of December 31, 2020 and 2019, the borrowings outstanding under the Oxford Term Loan was classified as current liabilities and long-term debt, respectively, in the accompanying balance sheets.

Daewoong Convertible Note

On July 6, 2020, the Company entered into a Convertible Promissory Note Purchase Agreement with Daewoong for the purchase and sale of a Convertible Promissory Note for the principal amount of $ 40,000 (the “Daewoong Convertible Note”), which was funded on July 30, 2020.

Additionally, on July 6, 2020, the Company, Daewoong and Oxford Finance, LLC entered into a Subordination Agreement pursuant to which the Daewoong Convertible Note is subordinated to the Company’s obligations under that certain Loan and Security Agreement, dated as of March 15, 2019, by and between the Company and Oxford.

The Daewoong Convertible Note bears interest at a rate of 3.0 % payable semi-annually in arrears on June 30th and December 31st of each year and matures on July 30, 2025, subject to earlier conversion as provided below.

Interest is initially paid in kind by adding the accrued amount thereof to the outstanding principal amount on a semi-annual basis on June 30th and December 31st of each calendar year for so long as any principal amount under the Oxford Term Loan remains outstanding and the Subordination Agreement has not been terminated.

Interest will begin to be paid in cash after the Oxford Term Loan was repaid in full and the Subordination Agreement was terminated on January 4, 2021.

During the term, the Daewoong Convertible Note is convertible at the option of Daewoong beginning 12 months from the date of issuance, subject to certain suspensions of that conversion right in the event of a final determination of the ITC Action resulting in an exclusion order with respect to Jeuveau ® as further set forth in the Daewoong Convertible Note.

The initial conversion price of the Daewoong Convertible Note is $ 13.00 per share, which is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions.

The Daewoong Convertible Note and the shares of the Company’s common stock issuable upon conversion of the Daewoong Convertible Note have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Starting 27 months from the date of issuance, the Company may prepay the Daewoong Convertible Note without penalty, provided the Company provides Daewoong with at least ten business days’ written notice during which Daewoong may convert all or any portion of the Daewoong Convertible Note at the conversion price.

Notes to Financial Statements

(in thousands, except share and per share data)

Further, in the event the Company is awarded any recovery pursuant to a final, non-appealable award or judgment issued by a court of competent jurisdiction over the parties, or pursuant to any settlement acceptable in the sole and absolute discretion of each of the Company and Daewoong, for any indemnification or other claim for damages by the Company under the Daewoong Agreement, the amount of Daewoong’s or its affiliate’s indemnification obligation with respect to such award, judgment or settlement shall be reduced on a dollar-for-dollar basis and will be offset by the amount of the then-outstanding principal amount of the Daewoong Convertible Note and any accrued but unpaid interest thereon.

On March 23, 2021, the outstanding principal balance including interest paid in kid that was added to the outstanding principal under the terms of the Daewoong Convertible Note, together with all accrued and unpaid interest thereon, in the amount of $ 40,779 was converted, at the conversion price of $ 13.00 per share, into 3,136,869 shares of the Company’s common stock under the Conversion Agreement.

Such shares of the Company’s common stock were exempt from registration under the Securities Act by virtue of Section 3(a)(9) or Section 4(a)(2) thereof, and no commission or other remuneration was paid in connection with conversion of the Daewoong Convertible Note and any resulting issuance of shares of the Company’s common stock.

After the conversion, shares owned by Daewoong, together with its affiliates and attribution parties, did not exceed 9.99 % of the Company’s then outstanding common shares immediately following such issuance, as required under the terms of the Daewoong Convertible Note.

Commitments and Contingencies for the details of the Conversion Agreement.

As of December 31, 2020, the Company was in compliance with its debt covenants.

On January 4, 2021, the Company and Oxford entered into an agreement (“Payoff Letter”), pursuant to which (i) the Company paid Oxford $ 76,447 to discharge in full all outstanding obligations, including accrued interest by and between Oxford, in its capacity as collateral agent and lender, and the Company, and (ii) effective upon such repayment, the Loan Agreement, and all unfunded commitments thereunder, guarantees and other security interests granted to Oxford in connection with the Loan Agreement and all other obligations of and restrictions on the Company under the Loan Agreement, terminated.

As a condition to entering into the Payoff Letter, Oxford agreed to waive a total of $ 4,300 of fees comprised of (i) $ 2,800 of the Final Payment and (ii) the Prepayment Fee of $ 1,500 .

As a result, the Company recorded a loss of $ 1,939 in extinguishment of debts, net on the accompanying statements of operations and comprehensive loss.

Daewoong Convertible Note

On July 6, 2020, the Company entered into a Convertible Promissory Note Purchase Agreement with Daewoong for the principal amount of $ 40,000 (the “Daewoong Convertible Note”), which was funded on July 30, 2020.

Additionally, on July 6, 2020, the Company, Daewoong and Oxford entered into a Subordination Agreement pursuant to which the Daewoong Convertible Note was subordinated to the Company’s obligations under the Loan Agreement.

The Daewoong Convertible Note bore interest at a rate of 3.0 % payable semi-annually in arrears on June 30th and December 31st of each year and was to mature on July 30, 2025, subject to earlier conversion as provided below.

Interest was initially paid in kind by adding the accrued amount thereof to the outstanding principal amount on a semi-annual basis on June 30th and December 31st of each calendar year for so long as any principal amount under the Oxford Term Loan remained outstanding and the Subordination Agreement was not terminated.

Interest became payable in cash after the Oxford Term Loan was repaid in full, and the Subordination Agreement was terminated on January 4, 2021.

On March 23, 2021, the outstanding principal balance including all accrued and unpaid interest thereon, of $ 40,779 was converted into 3,136,869 shares of the Company’s common stock under the Conversion Agreement at the conversion price of $ 13.00 per share.

The conversion was accounted for as an extinguishment of debt resulting in a gain of $ 971 , which is recorded in loss from extinguishment of debts, net on the accompanying statements of operations and comprehensive loss.

The Daewoong Convertible Note was not registered, and the shares of the Company’s common stock issued upon conversion of the Daewoong Convertible Note have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for the details of the Conversion Agreement.

Operating Leases

The Company’s corporate headquarters is located in Newport Beach, California, in a facility that it subleased until January 2020 under a non-cancelable operating lease for a fixed amount each month.

On May 15, 2019, the Company entered into a non-cancelable operating lease for the same office facility with the original lessor.

This non-cancelable operating lease commenced on February 1, 2020 and expires on January 31, 2025.

Lease payments increase based on an annual rent escalation clause that occurs each year on February 1.

The Company’s corporate headquarters in Newport Beach, California is leased under a five-year non-cancelable operating lease, which expires on January 31, 2025.

Lease payments increase each year on February 1 based on an annual rent escalation clause.

The Company may, under certain circumstances, terminate the lease on the 36 -month anniversary of the lease commencement date by providing a written notice 12 months prior to such anniversary and paying a termination fee equal to six months basic rent plus certain other expenses.

The Company has an option to extend the term of the lease for an additional 60 months, which is not recognized as part of its ROU assets and lease liabilities.

The lease with the original lessor is a modification of the existing sublease that is not accounted for as a separate contract.

The Company also leased an office facility in Santa Barbara, California, under a non-cancelable operating lease, the payments of which included a three percent annual rent escalation clause that occurs on each June 1 anniversary.

The lease for this facility expired on May 31, 2020 and the Company did not extend the term of the lease.

In June 2019, the Company subleased the Santa Barbara, California facility to a third-party for a term starting on June 1, 2019 and expiring on May 31, 2020.

The sublease income was not significant.

Upon signing the sublease, the Company recorded an impairment charge of $ 80 to the right-of-use asset related to the original lease.

The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants.

The Company’s lease agreement does not contain any residual value guarantees or material restrictive covenants.

The payments associated with the renewal will only be included in the measurement of the lease liability and ROU assets if the exercise of the renewal option is determined to be reasonably certain.

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(in thousands, except share and per share data)

For the year ended December 31, 2020, the components of operating lease expense and other quantitative information were as follows:

T he components of operating lease expense are as follows:

Year Ended December 31,

3 unchanged sentences

$ 1,129 $ 1,288

The weighted-average remaining lease term and discount rate are as follows:

As of December 31,

1 unchanged sentence

Weighted-average discount rate 9.4 % 9.4 %

Operating lease expenses were included in the selling, general and administration expenses in the accompanying statements of operations and comprehensive loss.

Operating lease expenses were included in the selling, general and administrative expenses in the accompanying statements of operations and comprehensive loss.

Operating lease right-of-use assets and related current and noncurrent operating lease liabilities are presented in the accompanying balance sheets.

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2020, future minimum payments under the operating lease agreements with non-cancelable terms as follows:

The following table presents the future minimum payments under the operating lease agreements with non-cancelable terms as of December 31, 2021:

Total operating lease payments 4,077

6 unchanged sentences

License and Supply Agreement

In connection with the Daewoong Agreement, the Company was obligated to make future milestone payments to Daewoong for certain confidential development and commercial milestones associated with Jeuveau ® .

As of December 31, 2020, Daewoong is eligible to receive remaining contingent milestone payments of up to $ 10,500 , all of which were cancelled pursuant to the Daewoong Settlement Agreement on March 23, 2021 as described below.

The Daewoong Agreement also includes certain minimum annual purchases the Company is required to make in order to maintain the exclusivity of the license.

The Daewoong Agreement includes certain minimum annual purchases that the Company is required to make in order to maintain the exclusivity of the license.

The Company may, however, meet these minimum purchase obligations by achieving certain market share in its covered territories.

These potential minimum purchase obligations are contingent upon the

These potential minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and the Company’s future market share in various jurisdictions.

Notes to Financial Statements

(in thousands, except share and per share data)

occurrence of future events, including receipt of governmental approvals and the Company’s future market share in various jurisdictions.

Legal Proceedings

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.

The Company’s exposure under these agreements is unknown because they involve claims that may be made against the Company in the future, but have not yet been made.

The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

No amounts were accrued as of December 31, 2021 and 2020.

Medytox Litigation

The Company, Daewoong and other individuals and entities were defendants to a lawsuit brought by Medytox, Inc.

(“Medytox”) originally instituted in the Superior Court of the State of California in June 2017.

With specific regard to the Company, Medytox alleged that (i) the Company has violated California Uniform Trade Secrets Act, Cal.

Code § 3426 because Daewoong’s alleged knowledge of the misappropriation of certain trade secrets of Medytox is imputed to the Company as a result of the Company’s relationship with Daewoong, (ii) the Company has stolen the botulinum toxin bacterial strain of Medytox through our possession of and refusal to return the botulinum toxin bacterial strain, (iii) the Company has engaged in unlawful, unfair and fraudulent business acts and practices in violation of California Bus.

Code § 17200, including conversion of the botulinum toxin bacterial strain and misrepresentations to the public regarding the source of the botulinum toxin bacterial strain used to manufacture Jeuveau ® , and (iv) the Daewoong Agreement is invalid and in violation of Medytox’s rights (the “Medytox Litigation”).

Medytox sought, among other things, (i) actual, consequential and punitive damages, (ii) a reasonable royalty, as appropriate, (iii) a declaration that the Daewoong Agreement is void and unenforceable and that Medytox is entitled to disgorgement of all property wrongfully and unjustly retained or acquired by the defendants, including unlawfully gained profits, (iv) injunctive relief prohibiting the Company from using the license under the Daewoong Agreement and distributing Jeuveau ® , and (v) attorneys’ fees and costs.

As a result of the Medytox/Allergan Settlement Agreements as described below, on February 23, 2021, the case was dismissed.

On January 30, 2019, Allergan and Medytox filed a complaint (“ITC Complaint”) against the Company and Daewoong in the U.S.

International Trade Commission (“ ITC”), containing substantially similar allegations to the Medytox Litigation, specifically that Jeuveau ® is manufactured based on misappropriated trade secrets of Medytox and therefore the importation of Jeuveau ® is an unfair act.

The ITC matter, which is referred to herein as the ITC Action, is entitled In the Matter of Certain Botulinum Toxin Products .

On March 6, 2019, the ITC instituted an investigation as ITC Inv.

The ITC Complaint called for an investigation by the ITC Office of Unfair Import Investigations, or OUII, under Section 337 of the Tariff Act of 1930.

The ITC Complaint sought (i) an investigation pursuant to Section 337 of the Tariff Act of 1930, (ii) a hearing with the ITC on permanent relief, (iii) issuance of a limited exclusion order forbidding entry of Jeuveau ® into the United States, (iv) a cease and desist order prohibiting Daewoong and us from engaging in the importations, sale for importation, marketing, distribution, offering for sale, the sale after the importation of, or otherwise transferring Jeuveau ® within the United States, (v) a bond issued during the presidential review period, (vi) the return of Medytox’s trade secrets and other confidential information including the alleged stolen BTX Strain, and (vii) exclusion and cease and desist orders.

On December 16, 2020, the ITC issued its final determination in the ITC Action.

The final determination partially affirmed the Administrative Law Judge’s (“ALJ’s”) ruling in the initial determination that found a violation of Section 337 of the Tariff Act of 1930 had occurred by reason of a misappropriation of certain manufacturing process trade secrets.

The ITC also reversed the ALJ’s finding that a trade secret exists with respect to a bacterial strain.

The Final Determination was subject to a 60-day presidential review period before taking effect.

During the presidential review period, the Company was permitted to continue importation and sales of Jeuveau ® subject to payment of a bond of $ 441.00 for every vial distributed in the United States.

The Presidential review period ended on February 16, 2021.

Notes to Financial Statements

(in thousands, except share and per share data)

the expiration of the presidential review period, the Company filed an emergency motion with the United States Court of Appeals for the Federal Circuit which issued an emergency stay which suspended the execution of the remedial orders pending appeal of the ITC’s decision, briefing for which was to be due by March 5, 2021.

On February 18, 2021, the Company, Medytox and Allergan entered into certain agreements described below (the “Medytox/Allergan Settlement Agreements”) pursuant to which the Company, Allergan and Medytox agreed to rescind the Remedial Orders, dismiss the ITC Action and dismiss any appeal of the ITC Action.

On March 23, 2021, the Company and Daewoong entered into certain agreements described below (the “2021 Daewoong Arrangement”) in connection with the settlement of certain claims relating to or arising from the Remedial Orders, the ITC Action, the California Litigation, the Korea Action and certain other matters.

As of December 31, 2020, the total bond payment was $ 1,350 , which was recorded in prepaid expenses and other current assets in the accompanying balance sheets.

Pursuant to the Medytox/Allergan Settlement Agreements described below, the bond paid will be returned to the Company upon the termination of the ITC Action.

Medytox/Allergan Settlement Agreements

Settlement Agreement

Effective February 18, 2021, the Company, Allergan and Medytox entered into a Settlement and License Agreement (the “U.S.

Settlement Agreement”), pursuant to which, among other things:

(i) Allergan and Medytox agreed to file a petition with the ITC requesting that the ITC rescind the Remedial Orders with respect to the Company;

(ii) Medytox agreed to dismiss the California Litigation;

(iii) the Company, on the one hand, and Medytox and Allergan, on the other hand, agreed to mutually release certain claims they may have against one another and their respective affiliates, (iv) Allergan and Medytox granted to the Company and its agents a license to manufacture and commercialize certain products identified in the U.S.

Settlement Agreement, including Jeuveau ® (the “Licensed Products”), in the United States during the Restricted Period;

(v) the Company agreed to pay to Allergan and Medytox $ 35,000 in multiple payments over two years ;

and (vi) during the Restricted Period, the Company agreed to pay to Allergan and Medytox certain confidential royalties on the sale of Licensed Products, calculated on dollar amount per vial sold of Licensed Product by or on behalf of the Company in the United States.

ROW Settlement Agreement

Effective February 18, 2021, the Company and Medytox entered into a Settlement and License Agreement (the “ROW Settlement Agreement”), pursuant to which, among other things:

(i) the Company and Medytox agreed to mutually release certain claims they may have against one another and their respective affiliates;

(ii) Medytox granted to the Company and its agents a license to manufacture and commercialize the Licensed Products, in Canada, the European Union, Switzerland, member countries and cooperating countries of the European Economic Area, Russia, the Commonwealth of Independent States, South Africa, Australia and Japan (the “ROW Territories”) during the Restricted Period;

(iii) Medytox granted to the Company and its agents a fully paid up license to manufacture and commercialize the Licensed Products in the ROW Territories and the United States from the end of the Restricted Period (the “Medytox License Period”);

(iv) the Company and Medytox agreed to enter into the Share Issuance Agreement (as defined below) pursuant to which the Company would issue 6,762,652 shares (the “Settlement Shares”) of the Company’s common stock, par value $ 0.00001 per share, to Medytox;

(v) the Company and Medytox agreed to enter into the Registration Rights Agreement (as defined below), pursuant to which the Company would grant certain registration rights to Medytox with respect to the Settlement Shares;

(vi) during the Restricted Period, the Company agreed to pay to Medytox a confidential low-double digit royalty on net sales of the Licensed Products sold by or on behalf of the Company in the ROW Territories;

and (vii) during the Medytox License Period, the Company agreed to pay to Medytox a confidential mid-single digit royalty percentage on net sales of the Licensed Products sold by or on behalf of the Company in the United States and the ROW Territories.

Share Issuance Agreement

In connection with the execution of the ROW Settlement Agreement, the Company and Medytox also entered into a Share Issuance Agreement effective February 18, 2021 (the “Share Issuance Agreement”).

Pursuant to the Share Issuance Agreement and subject to the terms and conditions set forth therein, among other things, the Company issued to Medytox the Settlement Shares to enter into the ROW Settlement Agreement and in consideration for Medytox’s representations, warranties, and other agreements set forth in the Share Issuance Agreement.

Subject to certain exceptions, the Settlement

Notes to Financial Statements

(in thousands, except share and per share data)

Shares are subject to a lockup until February 16, 2022, after which time Medytox may dispose of up to 25 % of the Settlement Shares together with an additional 25 % each year thereafter.

All Settlement Shares may be disposed of on or after September 16, 2025.

Registration Rights Agreement

In connection with the execution of the ROW Settlement Agreement, the Company and Medytox also entered into a Registration Rights Agreement effective February 18, 2021 (the “Registration Rights Agreement”).

Pursuant to the Registration Rights Agreement, among other things, the Company agreed, after March 31, 2022, (i) to comply with certain demands by Medytox to register for sale, under the Securities Act, the Settlement Shares, and (ii) to include the Settlement Shares in certain registrations by the Company of its securities for sale under the Securities Act, to the extent requested by Medytox, in each case subject to certain customary conditions, exceptions and limitations as set forth in the Registration Rights Agreement.

In addition, Medytox’s registration rights under the Registration Rights Agreement will terminate at such time that Medytox is able to sell all of the Settlement Shares over a three-month period, or less, pursuant to an exemption to registration under the Securities Act.

2021 Daewoong Arrangement

Daewoong Settlement Agreement

On March 23, 2021, the Company and Daewoong entered into a Confidential Settlement and Release Agreement (the “Daewoong Settlement Agreement”), pursuant to which, among other things:

(i) Daewoong agreed to (a) pay to the Company an amount equal to $ 25,500 , (b) pay certain reasonable legal fees incurred by the Company’s litigation counsel in connection with its defense of the ITC Action (including any appeal of the resulting Remedial Orders), (c) cancel all remaining milestone payments up to $ 10,500 in aggregate, which otherwise are or may become due and payable by the Company pursuant to the Daewoong Agreement, and (d) reimburse the Company certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which the Company is required to pay Medytox and Allergan royalties pursuant to the U.S.

Settlement Agreement;

and (ii) the Company agreed to (a) release, on behalf of itself and certain of its affiliates and representatives, certain claims they may have against Daewoong or certain of its affiliates and representatives related to the allegations made in or the subject matter of the Medytox/Allergan Actions, or any orders, remedies and losses resulting from the Medytox/Allergan Actions, and (b) coordinate with Daewoong on certain matters related to the Medytox/Allergan Actions.

The rights and obligations of the parties under the Daewoong Settlement Agreement are subject to the parties’ execution and delivery of certain other related agreements, including the Daewoong Agreement Amendment and the Conversion Agreement (as each of such terms are defined below).

Conversion Agreement

In connection with the execution of the Settlement Agreement, the Company and Daewoong also entered into a Convertible Promissory Note Conversion Agreement (the “Conversion Agreement”), pursuant to which, among other things, the parties agreed that (i) the Principal Balance under the Daewoong Convertible Note, together with all accrued and unpaid interest thereon, in the amount of $ 40,779 shall be automatically converted, at the conversion price of $ 13.00 per share, 3,136,869 shares of Common Stock (the “Conversion Shares”);

and (ii) the Daewoong Convertible Note shall be deemed cancelled and satisfied in full in connection with such conversion.

The Company and Daewoong agreed to the conversion and issuance of the Conversion Shares in connection with the Daewoong Settlement Agreement and in consideration for the cancellation of the Daewoong Convertible Note and the other terms set forth in the Conversion Agreement.

The Conversion Shares issued to Daewoong pursuant to the Conversion Agreement were offered and issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering and in reliance on similar exemptions under applicable state laws.

Daewoong Agreement Amendment

In connection with the execution of the Daewoong Settlement Agreement, on March 23, 2021, the Company and Daewoong also entered into the Third Amendment to the Supply Agreement (the “Daewoong Agreement Amendment”).

Pursuant to the

Notes to Financial Statements

(in thousands, except share and per share data)

Daewoong Agreement Amendment, the parties amended the Daewoong Agreement to, among other things, (i) expand the territory within which the Company may distribute Jeuveau ® to certain countries in Europe, (ii) reduce the period of time with respect to which the Company is required to deliver binding forecasts to Daewoong;

(iii) introduce certain limitations on Daewoong’s ability to convert the Company’s exclusive license for certain territories to a non-exclusive license in the event the Company fails to meet certain minimum purchase requirements for such territory;

(iv) adjust the minimum purchase requirements and reduce the transfer price per vial of Jeuveau ® applicable to various territories, (v) require that any Jeuveau ® supplied by Daewoong match certain shelf-life thresholds, and (vi) prohibit the Company from sharing certain confidential information of Daewoong with Medytox or its affiliates or representatives.

Securities Class Action Lawsuit

On October 16 and 28, 2020, two putative securities class action complaints were filed in the U.S.

District Court for the Southern District of New York by putative Evolus shareholders Armin Malakouti and Clinton Cox, respectively, naming the Company and certain of its officers as defendants.

The complaints assert violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, claiming that the defendants made false and materially misleading statements and failed to disclose material adverse facts related to the Company’s acquisition of the right to sell Jeuveau ® , the ITC Action and risks related to the ITC Action.

District Court for the Southern District of New York by Evolus shareholders Armin Malakouti and Clinton Cox, respectively, naming the Company and certain of its officers as defendants.

International Trade Commission related to Jeuveau ® (the “ITC Action”), and risks related to the ITC Action.

The complaints assert a putative class period of February 1, 2019 to July 6, 2020.

2 unchanged sentences

1:20-cv-08647 (PGG).

Four putative shareholders (or groups of shareholders) have since moved to be appointed lead plaintiff.

Under the court’s November 13, 2020 order, defendants need not move, answer, or otherwise respond to the complaints until 60 days after a lead plaintiff is appointed and files a consolidated, amended complaint.

On September 17, 2021, the court appointed a lead plaintiff and lead counsel.

On November 17, 2021, the lead plaintiff filed an amended class action complaint against the Company, three of its officers, and Alphaeon Corporation, the Company’s former majority shareholder.

On January 18, 2022, the Company and the officer defendants served their motion to dismiss the amended complaint, which is scheduled to be fully briefed on June 16, 2022.

Shareholder Derivative Lawsuit

2 unchanged sentences

The complaints alleged substantially similar facts as those in the Securities Class Action and assert claims for, among other things, breach of fiduciary duty, waste of corporate assets, unjust enrichment, and violations of Section 14(a) of the Exchange Act and for contribution under Sections 10(b) and 21(D) of the Exchange Act.

On December 29, 2020, the plaintiffs filed a joint stipulation to consolidate their actions and on February 5, 2021, the court consolidated the action.

On February 5, 2021, the court consolidated the actions under the caption In re Evolus, Inc.

On December 29, 2020, the plaintiffs filed a joint stipulation to consolidate their actions and on February 5, 2021, the court consolidated the action under the caption In re Evolus, Inc.

Derivative Litigation , No.

1:20-cv-09986-PPG, and adjourned defendants’ time to move, answer or otherwise respond to the complains.

On March 8, 2021, the parties filed a stipulation and proposed order to stay the consolidated derivative suit pending the court’s decision on the defendants’ anticipated motion to dismiss the Securities Class Action.

1:20-cv-09986-PPG, and adjourned defendants’ time to move, answer or otherwise respond to the complaints.

On September 20, 2021, the court so-ordered the parties’ stipulated stay of the consolidated derivative suit pending the court’s decision on the defendants’ motion to dismiss the Securities Class Action.

It is possible that additional suits will be filed, or additional allegations will be made by stockholders, with respect to these same or similar or other matters and also naming the Company and/or its officers and directors as defendants.

2 unchanged sentences

Based on information available to the Company at present, management cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.

Books and Records Demand

On March 5, 2021, the Company received a letter from a putative stockholder demanding inspection of specified categories of the Company’s books and records under Section 220 of the Delaware General Corporations Law.

The Company was subsequently informed that the stockholder sold his shares of the Company’s common stock.

On October 13, 2021, the Company received a substantially similar demand to inspect specified categories of the Company’s books and records under Section 220 of the Delaware General Corporations Law from another putative stockholder.

The subject of the demand is substantially similar to the allegations in the putative securities class action and derivative complaints described above.

The Company responded to that demand on December 17, 2021.

Other Legal Matters

The Company, from time to time, is involved in various litigation matters or regulatory encounters arising in the ordinary course of business that could result in unasserted or asserted claims or litigation.

These other matters may raise difficult and complex legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit or regulatory encounter is brought, and differences in applicable laws and regulations.

Except as set forth above, the Company does not believe that these other matters would have a material adverse effect on its accompanying financial position, results of operations or cash flows.

However, the resolution of one or more of the other matters in any reporting period could have a material adverse impact on the Company’s financial results for that period.

The Company is, from time to time, involved in various litigation matters or regulatory encounters arising in the ordinary course of business that could result in unasserted or asserted claims or litigation.

These other matters may raise difficult and complex legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of

Notes to Financial Statements

(in thousands, except share and per share data)

each particular case or claim, the jurisdiction in which each suit or regulatory encounter is brought, and differences in applicable laws and regulations.

Except as set forth above, the Company does not believe that these other matters would have a material adverse effect on its accompanying financial position, results of operations or cash flows.

However, the resolution of one or more of the other matters in any reporting period could have a material adverse impact on the Company’s financial results for that period.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.

The Company’s exposure under these agreements is unknown because they involve claims that may be made against the Company in the future, but have not yet been made.

The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

No amounts were accrued as of December 31, 2021.

Stockholders’ Equity

1 unchanged sentence

The Company has 10,000,000 authorized shares of preferred stock with a par value of $ 0.00001 per share.

As of December 31, 2020, none were issued and outstanding.

As of December 31, 2021, no shares of its preferred stock were issued and outstanding.

The Company has 100,000,000 authorized shares of common stock with a par value of $ 0.00001 per share.

As of December 31, 2020, 33,749,228 shares were issued and outstanding.

As of December 31, 2021, 55,576,988 shares of its common stock were issued and outstanding.

On February 28, 2021, the Company issued 6,762,652 shares of its common stock to Medytox pursuant to the Share Issuance Agreement.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for additional information.

On March 25, 2021, the Company issued 3,136,869 shares of its common stock to Daewoong in connection with the conversion of Daewoong Convertible Note.

Daewoong Convertible Note for additional information.

The Company received net proceeds of approximately $ 92,426 from the offering, after deducting underwriting discounts and commissions, excluding other offering expenses.

“At-the-market” Offerings of Common Stock

On March 26, 2021, the Company entered into an “at-the-market” sales agreement with SVB Leerink LLC (the “Sales Agent”) pursuant to which shares of the Company’s common stock may be sold from time to time for aggregate gross proceeds of up to $ 75,000 (the “ATM Program”).

The Sales Agent is entitled to compensation, at a commission rate equal to 3.0 % of the gross proceeds from sales of the Company’s common shares under the ATM Program.

For the year ended December 31, 2021, the Company sold a total of 934,367 shares of its common stock pursuant to the ATM Program at the prevailing market prices for total net proceeds of $ 10,910 and paid total commissions of $ 337 to the Sales Agent.

2017 Omnibus Incentive Plan and Stock-based Compensation Allocation

On November 21, 2017, the board of directors and the then-sole stockholder of the Company approved the Company’s 2017 Omnibus Incentive Plan (the “Plan”).

The Plan provides for the grant of incentive options to employees of the Company, and for the grant of nonstatutory options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the Company’s employees, including officers, directors, consultants and employees of the Company.

The Company’s 2017 Omnibus Incentive Plan (the “Plan”) provides for the grant of incentive options to employees of the Company, and for the grant of non-statutory options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the Company’s officers, directors, consultants and employees of the Company.

The maximum number of shares of common stock that may be issued under the Plan is 4,361,291 shares, plus an annual increase on each anniversary of November 21, 2017 equal to 4.0 % of the total issued and outstanding shares of the Company’s common stock as of such anniversary (or such lesser number of shares as may be determined by the Company’s board of directors).

On November 21, 2021 and 2020, an additional 2,223,080 shares and 1,349,969 shares, respectively, were reserved under the evergreen provision of the Plan.

As of December 31, 2020, the Company has available an aggregate of 2,049,553 shares of common stock for future issuance under the Plan.

As of December 31, 2021, the Company had an aggregate of 3,361,247 shares of its common stock available for future issuance under the Plan.

Notes to Financial Statements

(in thousands, except share and per share data)

Stock-Based Award Activity and Balances

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The Company has limited data regarding company‑specific historical or implied volatility of its share price.

Consequently, the Company estimates its volatility based on the average historical volatility of the stock price from a set of peer companies, since our shares do not have sufficient trading history.

Consequently, the Company estimates its volatility based on the average historical volatility of the stock price from a set of peer companies and its own stock performance, since our shares do not have sufficient trading history.

Management considers factors such as stage of life cycle, competitors, size, market capitalization and financial leverage in the selection of similar entities.

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Consequently, the Company uses an expected dividend yield rate of zero .

Notes to Financial Statements

(in thousands, except share and per share data)

The weighted-averages for assumptions used in determining the fair value of stock options granted were as follows:

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Dividend yield rate

Notes to Financial Statements

(in thousands, except share and per share data)

A summary of stock option activity under the Plan for the year ended December 31, 2021 and 2020, is presented below:

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Options Per Share Terms (Years) Value

Outstanding, December 31, 2018

3,257,801 $ 11.99 9.26 $ 7,119

1,321,451 18.63

Outstanding as of December 31, 2019 3,977,401 14.07 8.51 $ 7,198

1,322,119 8.89

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( 892,022 ) 15.62

Outstanding, December 31, 2019

3,977,401 14.07 8.51 7,198

Outstanding as of December 31, 2020 4,407,498 $ 12.20 7.66 $ 50

( 99,435 ) 9.81

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( 742,902 ) 16.21

Outstanding, December 31, 2020 4,407,498 $ 12.20 7.66 $ 50

Exercisable, December 31, 2020 1,791,136 $ 12.25 7.06 $ —

Vested and expected to vest, December 31, 2020 4,407,498 $ 12.20 7.66 $ 50

Outstanding as of December 31, 2021 3,922,286 $ 11.23 7.10 $ 455

Exercisable as of December 31, 2021 2,316,637 $ 11.44 6.67 $ 98

Vested and expected to vest as of December 31, 2021 3,922,286 $ 11.23 7.10 $ 455

The aggregate intrinsic value of outstanding and exercisable options represents the excess of the fair market value of our common stock over the exercise price of underlying options as of December 31, 2021 and 2020.

There were no options exercised in the year ended December 31, 2020.

The total intrinsic value of options exercised in the year ended December 31, 2019 was $ 2,311 .

The total intrinsic value of options exercised during the year ended December 31, 2021 was $ 200 .

There were no options exercised during the year ended December 31, 2020.

During the years ended December 31, 2021 and 2020, the Company recorded expenses related to stock options of $ 5,302 and $ 7,968 , respectively.

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The cost is expected to be recognized over a weighted-average period of 1.68 years.

Notes to Financial Statements

(in thousands, except share and per share data)

A summary of RSU activity under the Plan for the year ended December 31, 2021 and 2020, is presented below:

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Units Fair Value

Outstanding, December 31, 2018

271,404 $ 16.53

Outstanding as of December 31, 2019 229,870 $ 15.89

1,301,439 5.88

( 186,870 ) 13.6

Outstanding, December 31, 2019

( 170,698 ) 7.21

Outstanding as of December 31, 2020 1,173,741 $ 6.42

1,850,243 7.94

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( 530,729 ) 7.22

Outstanding, December 31, 2020 1,173,741 $ 6.42

Outstanding as of December 31, 2021 1,926,467 $ 8.06

During the years ended December 31, 2021 and 2020, the Company recorded expenses related to restricted stock units of $ 4,274 and $ 2,615 , respectively.

Total fair value of RSUs vested during the years ended December 31, 2020 and 2019 was $ 1,980 and $ 357 , respectively.

Total fair value of RSUs vested during the years ended December 31, 2021 and 2020 was

Notes to Financial Statements

(in thousands, except share and per share data)

$ 5,892 and $ 1,980 , respectively.

As of December 31, 2021, there was $ 11,768 of total unrecognized compensation cost, net of actual forfeitures, related to RSU-based compensation arrangements granted under the Plan.

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In addition, during the years ended December 31, 2021 and 2020, the Company capitalized $ 63 and $ 21 , respectively, of stock-based compensation expense in capitalized software.

Capitalized software is a component of intangible assets and is presented in the accompanying condensed balance sheets.

See Note 4 , Goodwill and Intangible Assets for capitalized software information.

Employee Benefit Plan

The Company maintains a defined contribution 401(k) plan covering substantially all employees.

Matching contributions totaled $ 524 and $ 479 for the years ended December 31, 2020 and 2019.

Capitalized software is a component of intangible assets and is presented in the accompanying balance sheets.

Goodwill and Intangible Assets for capitalized software information.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement

Medytox/Allergan Settlement Agreements

Settlement Agreement

Effective February 18, 2021, the Company, Allergan and Medytox entered into a Settlement and License Agreement (the “U.S.

Settlement Agreement”), pursuant to which, among other things:

(i) Allergan and Medytox agreed to file a petition requesting the remedial orders related to the ITC Action be rescinded with respect to the Company;

(ii) Medytox agreed to dismiss substantially similar litigation in California against the Company;

Settlement Agreement, including Jeuveau ® (the “Licensed Products”), in the United States during the 21 month period that, pursuant to the ITC Action, the Company was restricted from, among other things, selling, marketing, or promoting such imported Jeuveau ® in the United States (the “Restricted Period”);

(v) the Company agreed to pay to Allergan and Medytox $ 35,000 in multiple payments over two years , of which the Company paid the first cash payment of $ 15,000 in the third quarter of 2021 and the second payment of $ 15,000 in the first quarter of 2022;

and (vi) during the Restricted Period, the Company agreed to pay to Allergan and Medytox certain confidential royalties on the sale of Licensed Products, calculated on dollar amount per vial sold of Licensed Products by or on behalf of the Company in the United States.

ROW Settlement Agreement

Effective February 18, 2021, the Company and Medytox entered into a Settlement and License Agreement (the “ROW Settlement Agreement” and, together with the U.S.

Settlement Agreement, the “Medytox/Allergan Settlement Agreements”), pursuant to which, among other things:

(i) the Company and Medytox agreed to mutually release certain claims they may have against one another and their respective affiliates;

(ii) Medytox granted to the Company and its agents a license to manufacture and commercialize the Licensed Products, in Canada, the European Union, Switzerland, member countries and cooperating countries of the European Economic Area, Russia, certain members of the Commonwealth of Independent States, South Africa, Australia and Japan (the “ROW Territories”) during the Restricted Period;

(iv) the Company and Medytox agreed to enter into the Share Issuance Agreement (as defined below) pursuant to which the Company issued 6,762,652 shares (the “Settlement Shares”) of the Company’s common stock, par value $ 0.00001 per share, to Medytox;

(v) the Company and Medytox agreed to enter into the Registration Rights Agreement (as defined below), pursuant to which the Company granted certain registration rights to Medytox with respect to the Settlement Shares;

(vi) during the Restricted Period, the Company agreed to pay Medytox a confidential low-double digit royalty on net sales of the Licensed Products sold by or on behalf of the Company in the ROW Territories;

and (vii) during the Medytox License Period, the Company

Notes to Financial Statements

(in thousands, except share and per share data)

agreed to pay Medytox a confidential mid-single digit royalty percentage on net sales of the Licensed Products sold by or on behalf of the Company in the United States and the ROW Territories.

Share Issuance Agreement

In connection with the execution of the ROW Settlement Agreement, the Company and Medytox entered into a Share Issuance Agreement effective February 18, 2021 (the “Share Issuance Agreement”).

The Settlement Shares are subject to contractual restrictions on transfer that, subject to certain limited exceptions such as transfers to affiliates, prevented Medytox from transferring any shares of common stock prior to February 16, 2022 and, thereafter, prohibit Medytox from transferring more than 25 % of the shares it holds prior to September 16, 2023, more than 50 % of the shares it holds prior to September 16, 2024 and more than 75 % of the shares it holds prior to September 16, 2025, with such contractual restrictions terminating on September 16, 2025.

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, among other things, the Company agreed, after March 31, 2022, (i) to comply with certain requests by Medytox to register for sale, under the Securities Act, the Settlement Shares, and (ii) to include the Settlement Shares in certain registrations by the Company of its securities for sale under the Securities Act, to the extent requested by Medytox, in each case subject to certain customary conditions, exceptions and limitations as set forth in the Registration Rights Agreement.

Daewoong Arrangement

On March 23, 2021, the Company and Daewoong entered into a Confidential Settlement and Release Agreement (the “Daewoong Arrangement”), pursuant to which, among other things:

(i) Daewoong agreed to (a) pay to the Company an amount equal to $ 25,500 , which the Company received in April 2021, (b) pay certain legal fees incurred by the Company’s litigation counsel in connection with its defense of the ITC Action (including any appeal of the resulting remedial orders), (c) cancel all remaining milestone payments, totaling $ 10,500 in aggregate, and (d) reimburse the Company certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which the Company is required to pay Medytox and Allergan royalties pursuant to the U.S.

Settlement Agreement;

and (ii) the Company agreed to (a) release, on behalf of itself and certain of its affiliates and representatives, certain claims they may have against Daewoong related to the allegations made in or the subject matter of the Medytox/Allergan Actions, or any orders, remedies and losses resulting from the Medytox/Allergan Actions, and (b) coordinate with Daewoong on certain matters related to the Medytox/Allergan Actions.

Conversion Agreement

In connection with the execution of the Daewoong Arrangement, the Company and Daewoong also entered into a Convertible Promissory Note Conversion Agreement (the “Conversion Agreement”), pursuant to which, among other things, (i) the principal balance under the Daewoong Convertible Note, together with all accrued and unpaid interest thereon, in the amount of $ 40,779 was converted into 3,136,869 shares of Common Stock at the conversion price of $ 13.00 per share (the “Conversion Shares”);

and (ii) the Daewoong Convertible Note was deemed cancelled and satisfied in full in connection with such conversion.

Notes to Financial Statements

(in thousands, except share and per share data)

Daewoong Agreement Amendment

In connection with the execution of the Daewoong Arrangement, on March 23, 2021, the Company and Daewoong also entered into the Third Amendment to the Supply Agreement (the “Daewoong Agreement Amendment”).

Pursuant to the Daewoong Agreement Amendment, the parties amended the Daewoong Agreement to (i) expand the territory within which the Company may distribute Jeuveau ® to certain countries in Europe, (ii) reduce the period of time with respect to which the Company is required to deliver binding forecasts to Daewoong;

Employee Benefit Plan

The Company maintains a defined contribution 401(k) plan covering substantially all employees.

Matching contributions totaled $ 481 and $ 524 for the years ended December 31, 2021 and 2020, respectively.

The Company’s loss before income taxes was entirely generated from its U.S.

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The Company also has California R&D credit carryforwards of $ 2,918 , which has an indefinite carryforward period.

The NOL and the R&D credit carryforwards generated by the Company in tax years ended February 11, 2018 and prior have been included in the consolidated and unitary income tax returns of Alphaeon.

After the Company left the Alphaeon consolidated and unitary income tax group on February 11, 2018, the Company files its own standalone income tax returns.

The NOL and the R&D credit carryforwards generated by the Company in tax years ended February 11, 2018 and prior have been included in the consolidated and unitary income tax returns of Alphaeon Corporation (“Alphaeon”).

After the Company left Alphaeon consolidated and unitary income tax group on February 11, 2018, the Company files its own standalone income tax returns.

Deferred tax assets in the accompanying financial statements reflect the Company's standalone tax attributes that are reportable on its own income tax returns.

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The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change, subject to certain adjustments, by the applicable long-term tax-exempt rate.

The annual limitations may result in the expiration of NOL and R&D credit carryforwards before utilization and may be material.

The annual limitations may

Notes to Financial Statements

(in thousands, except share and per share data)

result in the expiration of NOL and R&D credit carryforwards before utilization and may be material.

The Company has started but has not completed an analysis to determine whether its NOL and R&D credits generated through December 31, 2021 are likely to be limited by Section 382 and 383.

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The components of deferred tax assets and liabilities were as follows:

Notes to Financial Statements

(in thousands, except share and per share data)

As of December 31,

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Accrued legal settlement 20,276 21,318

Contingent obligation - imputed interest — 199

Other, net 216 21

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Net deferred income taxes

Upon FDA approval of Jeuveau ® in February 2019, the Company’s IPR&D intangible asset was reclassified to a definite-lived distribution right intangible asset.

As a result, management determined that it was more likely than not that certain deferred tax assets became realizable due to the future reversals of the deferred tax liability associated with such intangible asset.

Accordingly, the Company released $ 15,055 of its valuation allowance for the year ended December 31, 2019.

The total valuation allowance balance did not significantly change in 2019 due to the increase related to the current year operating loss as offset by the release as discussed above.

$ ( 40 ) $ ( 25 )

A reconciliation of the difference between the provision (benefit) for income taxes and income taxes at the statutory U.S.

federal income tax rate is as follows:

Notes to Financial Statements

(in thousands, except share and per share data)

As of December 31,

1 unchanged sentence

State income taxes, net of Federal benefit ( 1,872 ) ( 7,232 )

California NOL write-off — 5,174

Revaluation of contingent royalty obligation 1,595 ( 513 )

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Income tax provision (benefit) $ 42 $ 77

$ 77 $ ( 15,027 )

Notes to Financial Statements

(in thousands, except share and per share data)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

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While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

The Company does not believe that the CARES Act will have a material impact on its financial position, results of operations, or cash flows.

There was no material impact on its financial position, results of operations, or cash flows related to the CARES Act.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, which extended many of the benefits of the CARES Act that were scheduled to expire.

The Company is evaluating the impact of the Consolidated Appropriations Act on its financial statements and related disclosures.

Related Party Transactions

Services with Alphaeon

In January 2018, the Company entered into a services agreement with Alphaeon Corporation (“Alphaeon”), which is majority-owned by Strathspey Crown Holdings Group, LLC, formerly known as SCH-AEON, LLC, (“SCH”).

Such services agreement became effective upon the Company’s initial public offering (“IPO”).

In 2019 Alphaeon changed its name to AEON Biopharma, Inc.

and contributed all of the shares it held in the Company to Alphaeon 1, LLC.

The Company continues to refer to the renamed AEON Biopharma, Inc.

as “Alphaeon” and Alphaeon 1, LLC as “Alphaeon 1, LLC.” The Services Agreement has a one-year term and thereafter will renew for successive one year terms unless sooner terminated by either party.

The Company or Alphaeon may terminate the Services Agreement upon sixty days ’ notice to the other party.

There were no significant services provided under the Services Agreement after the Company’s IPO.

As of December 31, 2020 and 2019, Alphaeon owned 25.7 % and 25.8 % of the Company’s outstanding shares of common stock, respectively.

As of December 31, 2020 and 2019, Evolus had no related party accounts receivable or payable with Alphaeon.

Payment Obligations Related to the Acquisition by Alphaeon

The Company was acquired by SCH in 2013 and subsequently by its subsidiary, Alphaeon Corporation, by means of a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which Alphaeon assumed certain payment obligations related to the acquisition.

On December 14, 2017, the Stock Purchase Agreement was amended (“Amended

Notes to Financial Statements

(in thousands, except share and per share data)

Stock Purchase Agreement”), and, as a result, effective upon the closing of the Company’s IPO, the Company assumed all of Alphaeon’s payment obligations under the Amended Stock Purchase Agreement.

Under the Amended Stock Purchase Agreement, the payment obligations consisted of (i) a $ 9,200 up-front payment upon obtaining FDA approval for Jeuveau ® for the treatment of glabellar lines which was paid in full during the first quarter of 2019, (ii) quarterly royalty payments of a low single digit percentage of net sales of Jeuveau ® , and (iii) a $ 20,000 promissory note that matures in November 2021.

The payment obligations set forth in (ii) above terminates in the quarter following the 10 -year anniversary of the first commercial sale of Jeuveau ® in the United States.

Under the Amended Stock Purchase Agreement, the Company recorded the fair value of all revised payment obligations and the promissory note owed to the Evolus Founders.

See Note 3, Fair Value Measurements and Short-Term Investments for more information about the Company’s accounting thereof.

Under the Amended Stock Purchase Agreement, Evolus paid one-time bonuses of $ 1,575 to certain current and former employees upon FDA approval of Jeuveau ® in February 2019, including a one-time bonus of $ 700 paid to the Company’s Chief Medical Officer and Head of Research & Development.

The payment is included in research and development expenses in the accompanying statements of operations and comprehensive loss for the year ended December 31, 2019.

The Company has the right to prepay the promissory note, in whole or in part, at any time and from time to time without penalty.

Upon an event of default under the promissory note, all unpaid principal becomes immediately due and payable at the option of the holder.

An event of default occurs under the terms of the promissory note upon any of the following events:

(i) Evolus fails to meet the obligations to make the required payments thereunder, (ii) Evolus makes an assignment for the benefit of creditors, (iii) Evolus commences any bankruptcy proceeding, or (iv) Evolus materially breaches the Amended Stock Purchase Agreement or Tax Indemnity Agreement (which is defined below) and such breach is not cured within 30 days.

In addition, upon a change-of-control of Evolus, all unpaid principal becomes immediately due and payable.

Under the terms of the promissory note, a change-of-control is defined as (i) the sale of all or substantially all of Evolus’ assets, (ii) the exclusive license of Jeuveau ® or the business related to Jeuveau ® to a third-party (other than a sublicense under the Daewoong Agreement), or (iii) any merger, consolidation, or acquisition of Evolus, except a merger, consolidation, or acquisition of Evolus in which the holders of capital stock of Evolus immediately prior to such merger, consolidation, or acquisition hold at least 50 % of the voting power of the capital stock of Evolus or the surviving entity.

Notwithstanding the foregoing, the promissory note expressly provides that neither the IPO or any merger with or acquisition by Alphaeon or any of its subsidiaries or affiliates constitutes a change-of-control.

In connection with the Amended Stock Purchase Agreement, the Company entered into a tax indemnity agreement with the Evolus Founders (“Tax Indemnity Agreement”).

Pursuant to the Tax Indemnity Agreement, the Company is obligated to indemnify the Evolus Founders for any tax liability resulting from the Company’s assumption of the revised payment obligations under the Amended Stock Purchase Agreement from Alphaeon.

Such assumption of the revised payment obligations occurred upon the completion of the IPO.

Under the Amended Stock Purchase Agreement, the payment obligations are contingent and thus eligible for installment sale reporting under Section 453 of the Internal Revenue Code of 1986, as amended.

Under the Tax Indemnity Agreement, the Company was obligated to indemnify the Evolus Founders for any taxes or penalties required to be paid by the Evolus Founders in the event the U.S.

Internal Revenue Service or other taxing authority were to determine that Company’s assumption of the revised payment obligations under the Amended Stock Purchase Agreement rendered continued installment sale reporting unavailable to the Evolus Founders.

Any taxes or penalties paid by us on behalf of the Evolus Founders under the Tax Indemnity Agreement will be offset dollar-for-dollar against the promissory note and future royalties that will be payable to the Evolus Founders under the Amended Stock Purchase Agreement.

Exclusive Distribution and Supply Agreement with Clarion Medical Technologies Inc.

On November 30, 2017, the Company entered into an exclusive distribution and supply agreement (the “Distribution Agreement”), with Clarion Medical Technologies Inc.

The Distribution Agreement provides terms pursuant to which the Company will exclusively supply Jeuveau ® to Clarion in Canada.

Clarion was previously a wholly-owned subsidiary of Alphaeon.

However, pursuant to previous agreements among Alphaeon, Clarion, and previous equity holders of Clarion, the previous equity holders of Clarion had the option, and exercised such option, to unwind Alphaeon’s acquisition

The Company noted no material impacts due to the Consolidated Appropriations Act on its financial statements and related disclosures.

Notes to Financial Statements

(in thousands, except share and per share data)

As a result, Alphaeon owes the equity holders of Clarion an unwinding fee of $ 9,550 (the “Unwinding Fee”).

The Distribution Agreement sets forth that a portion of the proceeds received by the Company from each unit of Jeuveau ® purchased by Clarion shall be paid directly to the previous equity holders of Clarion, and will reduce, on a dollar-for-dollar basis, the amount of the Unwinding Fee Alphaeon owes.

In addition, Alphaeon and SCH have agreed with Clarion to pay the unpaid amount of the Unwinding Fee on December 31, 2022, if demanded by the previous equity holders of Clarion.

The service revenue related to the sale of Jeuveau ® through Clarion for the years ended December 31, 2020 and 2019 was recorded based on terms that were not in the scope of the Distribution Agreement.

On March 23, 2021, the Company, Clarion, and Daewoong entered into an addendum to the Distribution Agreement to provide for Clarion to purchase Jeuveau ® directly from Daewoong.

The Company’s obligation under the Distribution Agreement to pay to the previous equity holders of Clarion is therefore cancelled.

Instead, the Company receives a payment on per unit basis from Clarion for its purchase of Jeuveau ® from Daewoong.

Related Party Transactions

Payment Obligations Related to the Acquisition by Alphaeon

The Company was acquired by Strathspey Crown Holdings Group, LLC (“SCH”) in 2013 and subsequently by its subsidiary, Alphaeon Corporation (“Alphaeon”), by means of a stock purchase agreement (“Stock Purchase Agreement”) pursuant to which Alphaeon assumed certain payment obligations related to the acquisition.

On December 14, 2017, the Stock Purchase Agreement was amended (“Amended Stock Purchase Agreement”), and, as a result, effective upon the closing of the Company’s IPO, the Company assumed all of Alphaeon’s payment obligations under the Amended Stock Purchase Agreement.

Under the Amended Stock Purchase Agreement, the payment obligations to the Evolus founders consists of:

quarterly royalty payments of a low single digit percentage of net sales of Jeuveau ® .

The obligations terminate in the quarter following the 10 -year anniversary of the first commercial sale of Jeuveau ® in the United States.

In November 2021, we paid $ 20,000 to satisfy in full a promissory note that matured in November 2021.

Under the Amended Stock Purchase Agreement, the Company recorded the fair value of all revised payment obligations owed to the Evolus Founders.

Fair Value Measurements and Short-Term Investments for more information about the Company’s accounting thereof.

Other Related Party Transactions

On February 18, 2021, the Company and Medytox entered into a Settlement and License Agreement (the “ROW Settlement Agreement” and, together with the U.S.

Settlement Agreement, the “Medytox/Allergan Settlement Agreements”), pursuant to which, among other things, the Company issued 6,762,652 shares (the “Settlement Shares”) of the Company’s common stock, par value $ 0.00001 per share, to Medytox.

Medytox/Allergan Settlement Agreements and Daewoong Arrangement for more information about the Company’s accounting thereof.

On March 23, 2021, the Company and Daewoong entered into a Confidential Settlement and Release Agreement (the “Daewoong Settlement Agreement”) and a Convertible Promissory Note Conversion Agreement (the “Conversion Agreement”).

Pursuant to the Conversion Agreement, among other things, (i) the principal balance under the Daewoong Convertible Note, together with all accrued and unpaid interest thereon, in the amount of $ 40,779 was converted, at the conversion price of $ 13.00 per share, into 3,136,869 shares of Common Stock (the “Conversion Shares”);

and (ii) the Daewoong Convertible Note was deemed cancelled and satisfied in full in connection with such conversion.

Daewoong Arrangement for more information about the Company’s accounting thereof.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data