What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 353 added, 652 removed, 346 unchanged (74% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

$ 22,070  

$ 16,305  

$ 16,655 $ 21,388

Accounts receivable, net

1 unchanged sentence

Total current assets

27,157  

20,004  

24,263 26,839

Property and equipment, net

2 unchanged sentences

Other long-term assets, net

$ 31,526  

$ 25,030  

Liabilities and stockholders’

$ 30,794 $ 31,740

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$ 1,712  

$ 1,766  

Current portion of long-term debt

$ 2,263 $ 1,848

Debt, net of unamortized discount

Accrued liabilities

Total current liabilities

10,393  

Long-term debt, net of discount and including accrued fees

15,300 16,241

Operating lease liabilities, net of current portion

Total liabilities

14,634  

11,952  

15,300 16,263

Commitments and contingencies (Note 11)

Stockholders’

Stockholders’ equity

Common stock, $ 0.001 par value;

50,000,000 shares authorized;

25,658,396 and 25,353,119 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

25,690,562 and 25,688,062 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

118,680  

116,187  

120,349 119,521

Accumulated deficit

( 101,814 )  

Total stockholders’

16,892  

13,078  

Total liabilities and stockholders’

$ 31,526  

$ 25,030  

( 104,881 ) ( 104,070 )

Total stockholders’ equity

15,494 15,477

Total liabilities and stockholders’ equity

$ 30,794 $ 31,740

The accompanying notes are an integral part of these condensed financial statements.

3 unchanged sentences

For the three months ended

For the nine months ended

September 30,

Licensing revenue

9 unchanged sentences

Total operating expenses

Income (loss) from operations

Loss from operations

Other income (expense):

Interest and other expense, net

Interest expense, net

Total other income (expense)

Income (loss) before income tax expense

Loss before income tax expense

Income tax expense

Net income (loss)

Net income (loss) per share, basic

Net loss per share, basic

Weighted average number of common shares outstanding, basic

Net income (loss) per share, diluted

Net loss per share, diluted

Weighted average number of common shares outstanding, diluted

1 unchanged sentence

Eton Pharmaceuticals, Inc.

Condensed Statements of Stockholders ’

For the three months ended September 30, 2023 and 2022

(in thousands, except share amounts)

Additional Paid-in

Total Stockholders’

Balances at June 30, 2023

25,561,994  

$ 117,934  

$ ( 101,235 )  

$ 16,725  

Stock-based compensation

Stock option exercises and vesting of restricted stock units

96,402  

( 579 )  

Balances at September 30, 2023

25,658,396  

$ 118,680  

$ ( 101,814 )  

$ 16,892  

Additional Paid-in

Total Stockholders’

Balances at June 30, 2022

25,272,037  

$ 114,218  

$ ( 101,001 )  

$ 13,242  

Stock-based compensation

Stock option exercises

25,000  

( 3,045 )  

Balances at September 30, 2022

25,297,037  

$ 115,202  

$ ( 104,046 )  

$ 11,181  

The accompanying notes are an integral part of these condensed financial statements.

Eton Pharmaceuticals, Inc.

Condensed Statements of Stockholders ’

For the nine months ended September 30, 2023 and 2022

Condensed Statements of Stockholders ’ Equity

For the three months ended March 31, 2024 and 2023

(in thousands, except share amounts)

Additional Paid-in

Total Stockholders’

Balances at December 31, 2023

25,353,119  

$ 116,187  

$ ( 103,134 )  

$ 13,078  

Stock-based compensation

Employee stock purchase plan

57,616  

Stock option exercises and vesting of restricted stock units

298,528  

Shares withheld related to net share settlement of stock option exercises

( 50,867 )  

( 181 )  

Balances at September 30, 2023

25,658,396  

$ 118,680  

$ ( 101,814 )  

$ 16,892  

Stock option exercises

Balances at March 31, 2024

Additional Paid-in

Total Stockholders’

Balances at December 31, 2022

24,626,004  

$ 111,718  

$ ( 94,113 )  

$ 17,630  

Stock-based compensation

Employee stock purchase plan

47,585  

Stock option exercises

25,000  

Warrant exercises

598,448  

Warrant extensions

( 9,933 )  

Balances at September 30, 2022

25,297,037  

$ 115,202  

$ ( 104,046 )  

$ 11,181  

Shares withheld related to net share settlement of stock option exercises

Balances at March 31, 2023

The accompanying notes are an integral part of these condensed financial statements.

2 unchanged sentences

(In thousands)

Nine months ended

September 30, 2023

September 30, 2022

Three months ended

March 31, 2024

March 31, 2023

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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

Stock-based compensation

6 unchanged sentences

Accrued liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities

4 unchanged sentences

Repayment of long-term debt

Proceeds from employee stock purchase plan and stock option exercises

Proceeds from stock option exercises

Payment of tax withholding related to net share settlement of stock option exercises

6 unchanged sentences

Cash paid for income taxes

Supplemental disclosures of non-cash transactions

Adjustment of operating lease right-of-use assets and liabilities due to tenant allowance

The accompanying notes are an integral part of these condensed financial statements.

2 unchanged sentences

(in thousands, except share and per share amounts)

Note 1 —

Company Overview

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing products to address unmet needs in patients suffering from rare diseases.

The Company currently has three commercial rare disease products, ALKINDI SPRINKLE®

for the treatment of pediatric adrenocortical insufficiency, Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency, and Betaine Anhydrous for the treatment of homocystinuria.

The Company has three  additional product candidates in late-stage development:

hydrocortisone autoinjector for the treatment of adrenal crisis, ET- 400 for the treatment of adrenocortical insufficiency, and ET- 600 for the treatment of diabetes insipidus.

As noted in Note 12, effective October 11, 2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

Note 2 —

Liquidity Considerations

The Company believes its existing cash and cash equivalents of $ 22,070  as of September 30, 2023  in addition to revenues from approved products will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of filing of this quarterly report.

This estimate is based on the Company’s current assumptions, including assumptions relating to estimated sales and its ability to manage spending.

Note 1 — Company Overview

Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases.

The Company currently has five commercial rare disease products:

ALKINDI SPRINKLE® for the treatment of pediatric adrenocortical insufficiency;

Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency;

Betaine Anhydrous for the treatment of homocystinuria;

Nitisinone for the treatment of hereditary tyrosinemia type 1 (HT- 1 );

and PKU GOLIKE® medical formula for patients with phenylketonuria (“PKU”).

The Company has three additional product candidates in late-stage development:

ET- 400, ET- 600, and ZENEO® hydrocortisone autoinjector.

Note 2 — Liquidity Considerations

The Company believes its existing cash and cash equivalents of $ 16,655 as of March 31, 2024 in addition to revenues from approved products will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of filing of this quarterly report.

This estimate is based on the Company’s current assumptions, including assumptions relating to estimated sales and its ability to manage spending.

The Company could use its available capital resources sooner than currently expected.

Accordingly, the Company could seek to obtain additional capital through equity financings, the issuance of debt or other arrangements.

However, the Company cannot make assurances that it will be able to raise additional capital if needed or under acceptable terms.

The sale of additional equity may dilute existing stockholders and newly issued stock could contain senior rights and preferences compared to currently outstanding common shares.

The Company’s existing long-term debt obligation contains covenants and limits the Company’s ability to pay dividends or make other distributions to stockholders.

If the Company experiences delays in product development or sales growth, obtaining regulatory approval for its other product candidates, or is unable to secure such additional financing, it might need to scale back or discontinue operations.

However, the Company cannot make assurances that it will be able to raise additional capital if needed or under acceptable terms.

The sale of additional equity may dilute existing stockholders and newly issued stock could contain senior rights and preferences compared to currently outstanding common shares.

The Company’s existing long-term debt obligation contains covenants and limits the Company’s ability to pay dividends or make other distributions to stockholders.

If the Company experiences delays in product development or sales growth, obtaining regulatory approval for its other product candidates, or is unable to secure such additional financing, it might need to scale back or discontinue operations.

Eton Pharmaceuticals, Inc.

1 unchanged sentence

(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies

Note 3 — Summary of Significant Accounting Policies

Basis of Presentation

The Company has prepared the accompanying condensed financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

Unaudited Interim Financial Information

The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2023 , and the results of its operations and its cash flows for the periods ended September 30, 2023 and 2022 .

The financial data and other information disclosed in these notes related to the three -month and nine -month periods ended September 30, 2023 and 2022 are also unaudited.

The results for the three -month and nine -month periods ended September 30, 2023  are not necessarily indicative of results to be expected for the year ending December 31, 2023 , any other interim periods, or any future year or period.

The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2024 , and the results of its operations and its cash flows for the periods ended March 31, 2024 and 2023 .

The financial data and other information disclosed in these notes related to the three -month periods ended March 31, 2024 and 2023 are also unaudited.

The results for the three -month periods ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024 , any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, provisions for uncollectible receivables, chargebacks and sales returns, Medicaid program rebates, valuation of inventories, useful lives of assets, and the impairment of property and equipment and intangible assets, valuation of deferred tax assets, the accrual of research and development expenses and the valuation of stock options and warrants, and restricted stock units (“RSUs”).

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, provisions for uncollectible receivables, chargebacks and sales returns, Medicaid program rebates, valuation of inventories, useful lives of assets and the recoverability of long-lived assets, valuation of deferred tax assets, the accrual of research and development expenses and the valuation of stock options and warrants, and restricted stock units (“RSUs”).

Estimates are periodically reviewed in light of changes in circumstances, facts, and experience.

3 unchanged sentences

The Company operates the business on the basis of a single reportable segment, which is the business of developing and commercializing prescription drug products.

The Company’s chief operating decision-maker is the Chief Executive Officer (“CEO”), who evaluates the Company as a single operating segment.

Cash and Cash Equivalents

3 unchanged sentences

treasury bills or high-grade money market funds.

As of September 30, 2023 , the Company’s cash is in a non-interest-bearing account and a government money market fund.

As of March 31, 2024 , the Company’s cash is in a non-interest-bearing account and a government money market fund.

From time to time, amounts deposited with its bank exceed federally insured limits.

3 unchanged sentences

Accounts receivable are recorded net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees, chargebacks, returns, and allowances.

The total for these reserves amounted to $ 136  and $ 262  as of September 30, 2023 and December 31, 2022 , respectively.

The total for these reserves amounted to $ 207 and $ 129 as of March 31, 2024 and December 31, 2023 , respectively.

The Company considers historical collection rates and the current financial status of its customers, as well as macroeconomic and industry-specific factors when evaluating potential credit losses.

Historically, the Company's accounts receivable balances have been highly concentrated with a select number of customers, consisting primarily of specialty pharmacies and large wholesale pharmaceutical distributors. Given the size and creditworthiness of these customers, we have not experienced and do not expect to experience material credit losses.

Given the size and creditworthiness of these customers, we have not experienced and do not expect to experience material credit losses.

The Company values its inventories at the lower of cost or net realizable value using the first -in, first -out method of valuation.

The Company reviews its inventories for potential excess or obsolete issues on an ongoing basis and will record a write-down if an impairment is identified.

Inventories at September 30, 2023 and December 31, 2022 , consist solely of purchased finished goods.

At September 30, 2023 and December 31, 2022 , inventories are shown net of reserves for its ALKINDI SPRINKLE®

of $ 76  and $ 62 , respectively, due to the risk of expiry before this entire stock of inventories is sold.

Inventories at March 31, 2024 and December 31, 2023 , consist solely of purchased finished goods.

At March 31, 2024 and December 31, 2023 , inventories are shown net of reserves for ALKINDI SPRINKLE® of $ 66 and $ 76 , respectively, due to the risk of expiry before this entire stock of inventories is sold.

Eton Pharmaceuticals, Inc.

1 unchanged sentence

(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies (continued)

Note 3 — Summary of Significant Accounting Policies (continued)

Property and Equipment

4 unchanged sentences

leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter.

Construction in progress is capitalized but not depreciated until it is placed into service.

Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized.

1 unchanged sentence

The Company capitalizes payments it makes for licensed products when the payment relates to an FDA-approved product, and the cost is recoverable based on expected future cash flows from the product.

The cost is amortized on a straight-line basis over the estimated useful life of the product commencing on the approval date in accordance with Accounting Standards Codification (“ASC”) 350,  Intangibles — Goodwill and Other.

In November 2021, the Company purchased the rights for its Carglumic Acid product for $ 3,250 , and that cost is being amortized over ten years.

A $ 750 payment related to the approval of Biorphen had been capitalized in 2019, and that cost was being amortized over five years.

As a result of the Biorphen sale to Dr.

Reddy’s Laboratories S.A.

Reddy’s”) (see Note 11 ) in June 2022, amortization of that asset was accelerated to record $ 275 of expense in June 2022, and the remaining $ 75 of expense in the last six months of the year ended December 31, 2022.

A $ 750 payment related to the approval of Rezipres had been capitalized in Q1 2022, and that cost was being amortized over five years.

As a result of the sale to Dr.

Reddy’s, amortization of the Rezipres asset was accelerated to record the remaining $ 738 in the three -month period ended June 30, 2022.

In September 2022, the Company purchased the rights for its Betaine Anhydrous product for $ 2,125 and that cost is being amortized over five years.

The intangible assets, net on the Company’s balance sheet, reflected $ 1,040  of accumulated amortization as of September 30, 2023 .

The Company recorded $ 182  and $ 544 , respectively, of amortization expense for the 

three and nine months ended September 30, 2023 . The table below shows the estimated remaining amortization for these products for each of the five years from 2023 to 2027 and thereafter.

In October 2023, the Company purchased the rights for its Nitisinone product for $ 650 and that cost is being amortized over five years.

In March 2024, the Company purchased the rights for its PKU GOLIKE® product which resulted in a $ 1,868 intangible asset that is being amortized over ten years.

The intangible assets, net on the Company’s balance sheet, reflected $ 1,506 of accumulated amortization as of March 31, 2024 .

The Company recorded $ 220 and $ 181 , respectively, of amortization expense for the three -month periods ended March 31, 2024 and 2023.

The table below shows the estimated remaining amortization for these products for each of the five years from 2024 to 2028 and thereafter.

Remainder of 2024

Total estimated amortization expense

$ 4,210  

Impairment of Long-Lived Assets

1 unchanged sentence

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the Company’s statements of operations for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

No impairment was recognized during the 

nine months ended September 30, 2023 and 2022 .

No impairment was recognized during the three -month periods ended March 31, 2024 and 2023.

Debt Issuance Costs and Debt Discount and Detachable Debt-Related Warrants

5 unchanged sentences

(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies (continued)

The Company accounts for leases in accordance with ASC Topic 842,  Leases.

Note 3 — Summary of Significant Accounting Policies (continued)

The Company accounts for leases in accordance with ASC Topic 842 – Leases.

The Company reviews all relevant facts and circumstances of a contract to determine if it is a lease whereby the terms of the agreement convey the right to control the direct use and receive substantially all the economic benefits of an identified asset for a period of time in exchange for consideration.

6 unchanged sentences

Operating leases are reflected on the balance sheets as operating lease right-of-use assets, current accrued liabilities, and long-term operating lease liabilities.

The Company did 

not have any finance leases as of 

September 30, 2023  or 

December 31, 2022 .

The Company did not have any finance leases as of March 31, 2024 or December 31, 2023 .

The Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company and the operating lease expense is recognized on a straight-line basis over the term of the lease.

3 unchanged sentences

Concentrations of Credit Risk, Sources of Supply and Significant Customers

The Company is subject to credit risk for its cash and cash equivalents which are invested in money market funds and U.S.

The Company is subject to credit risk for its cash and cash equivalents which are invested in high-grade money market funds and short-term U.S.

treasury bills from time to time.

4 unchanged sentences

These programs could be adversely affected by a significant interruption in the manufacturing process.

The Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation of the customer’s financial condition, and collateral is not required.

Management monitors its exposure to accounts receivable by periodically evaluating the collectability of the account receivable based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer and historical experience.

Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at September 30, 2023 and December 31, 2022.

The accounts receivable balance at 

September 30, 2023 and product sales revenue recognized during the 

nine months ended September 30, 2023 , primarily consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

and Carglumic Acid products.

The accounts receivable balance at September 30, 2022  and product sales revenue recognized during the 

nine months ended September 30, 2022 , consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

and Carglumic Acid products as well as sales to and amounts due from AmerisourceBergen Corporation, Cardinal Health Services, and McKesson Corporation for sales of the Company’s Biorphen product.

AnovoRx sales made up 73 % of total net revenues recognized in the 

nine months ended September 30, 2023 and 98 % of net accounts receivable as of September 30, 2023 , and 

52 % of total net revenues recognized in the 

nine months ended September 30, 2022 , and 80 % of net accounts receivable as of 

December 31, 2022 .

Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at March 31, 2024 or 2023.

The accounts receivable balance at March 31, 2024 and 2023, and product sales revenue recognized during the three -month periods ended March 31, 2024 and 2023, primarily consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE® and Carglumic Acid products.

AnovoRx sales made up 97.7 % of total net revenues recognized in the three -month period ended March 31, 2024 and 94.8 % of net accounts receivable as of March 31, 2024 , and 96.3 % of total net revenues recognized in the three -month period ended March 31, 2023, and 97.4 % of net accounts receivable as of December 31, 2023 .

Eton Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(in thousands, except share and per share amounts)

Note 3 — Summary of Significant Accounting Policies (continued)

Revenue Recognition for Contracts with Customers

The Company accounts for contracts with its customers in accordance with ASC 606,  Revenue from Contracts with Customers.

The Company accounts for contracts with its customers in accordance with ASC 606 – Revenue from Contracts with Customers.

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

4 unchanged sentences

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations to assess whether each promised good or service is distinct.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations to assess whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.

The Company assesses whether these options provide a material right to the customer and, if so, they are considered performance obligations.

The exercise of a material right is accounted for as a contract modification for accounting purposes.

Eton Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies (continued)

The Company recognizes as revenue the amount of the transaction price allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Any amounts received prior to revenue recognition will be recorded as deferred revenue.

Amounts expected to be recognized as revenue within the twelve months following the balance sheet date will be classified as current portion of deferred revenue in the Company’s balance sheets.

Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as long-term deferred revenue, net of current portion.

Milestone Payments  –

If a commercial contract arrangement includes development and regulatory milestone payments, the Company will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue.

Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Significant Financing Component – In determining the transaction price, the Company will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.

The Company sells its rare disease products to a pharmacy distributor customer which provides order fulfillment and inventory storage/distribution services.

The Company has sold products in the U.S.

to wholesale pharmaceutical distributors, who then sold the products to hospitals and other end-user customers.

Sales to wholesalers were made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represented performance obligations under each purchase order.

The Company used a third -party logistics ( “3PL”

) vendor to process and fulfill orders and concluded that the Company is the principal in the sales to wholesalers because it controlled access to the 3PL vendor services rendered and directed the 3PL vendor activities.

The Company had 

no significant obligations to wholesalers to generate pull-through sales.

For its rare disease products, the Company bills at the initial product list price, which is subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements that are recorded as a reduction of net revenues at the date of sale/shipment.

Selling prices initially billed to wholesalers were subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sold products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

Because of the shelf life of the product and the Company’s lengthy return period, there may be a significant period of time between when the product is shipped and when it issues credits on returned product.

Milestone Payments – If a commercial contract arrangement includes development and regulatory milestone payments, the Company will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Significant Financing Component – In determining the transaction price, the Company will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.

The Company sells its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services.

The Company may sell products in the U.S.

to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers.

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order.

The Company uses a third -party logistics ( “3PL” ) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

The Company has no significant obligations to wholesalers to generate pull-through sales.

For its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are estimated and recorded as a reduction of net revenues at the date of sale/shipment.

Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

The Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler/distributor arising from all of the above factors.

The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although rare disease product sales are not subject to returns.

The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays.

When estimating these adjustments to the transaction price, the Company reduces it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known.

The Company stores its rare disease product inventory at its pharmacy distributor customer location, and records sales when stock is pulled and shipped to fulfill specific patient orders.

The Company recognized revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location.

At that time, the wholesalers take control of the product and take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company.

The wholesalers also have the ability to direct sales of products to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, the Company does not believe they have a significant incentive to return the product. 

Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid, and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable.

The Company monitors actual product returns, chargebacks, discounts, and fees after the sale.

If these amounts end up differing from its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.

In addition, the Company anticipates it will receive revenues from product licensing agreements where it has contracted for milestone payments and royalties from products it has developed or acquired.

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies (continued)

Note 3 — Summary of Significant Accounting Policies (continued)

The Company stores its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® inventory at its pharmacy distributor customer locations, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders.

The Company may recognize revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location.

At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company.

They also have the ability to direct sales of product to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, the Company does not believe they have a significant incentive to return the product.

Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable.

The Company monitors actual product returns, chargebacks, discounts and fees subsequent to the sale.

Cost of Product Sales

Cost of product sales consists of the profit-sharing and royalty fees with the Company’s product licensing and development partners, the purchase costs for finished products from third -party manufacturers, freight and handling/storage from the Company’s 3PL logistics service providers, and amortization expense of certain intangible assets.

The costs of sales for profit-sharing, royalty fees, purchased finished products, and the associated inbound freight expense are recorded when the associated product sale revenue is recognized in accordance with the terms of shipment to customers while outbound freight and handling/storage fees charged by the 3PL service provider are expensed as they are incurred.

The costs of sales for profit-sharing, royalty fees, purchased finished products, and the associated inbound freight expense are recorded when the associated product sale revenue is recognized in accordance with the terms of shipment to customers while outbound freight and handling/storage fees charged by the 3PL service provider are expensed as they are incurred.

Intangible assets are amortized on a straight-line basis over the estimated useful life of the product.

Cost of product sales also reflects any write-downs or reserve adjustments for the Company’s inventories.

Research and Development Expenses

Research and development (“R&D”) expenses include both internal R&D activities and external contracted services.

Internal R&D activity expenses include salaries, benefits, stock-based compensation, and other costs to support the Company’s R&D operations.

Research and development (“R&D”) expenses include both internal R&D activities and external contracted services.

Internal R&D activity expenses include salaries, benefits, stock-based compensation, and other costs to support the Company’s R&D operations.

External contracted services include product development efforts such as certain product licensor milestone payments, clinical trial activities, manufacturing and control-related activities, and regulatory costs.

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Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ from the Company’s estimates.

Upfront payments and milestone payments made for the licensing of products that are not yet approved by the FDA are expensed as R&D in the period in which they are incurred.

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Income (Loss) Per Share

Basic net income (loss) per share of common stock is computed by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as unvested restricted stock, stock options, RSUs and warrants that are outstanding during the period.

Common stock equivalents are excluded from the computation when their inclusion would be anti-dilutive.

For the 

three -month period ended 

September 30, 2023 , common stock equivalents excluded 

5,618,663  shares that were anti-dilutive.

For the 

nine months ended September 30, 2023 , common stock equivalents were 

388,832 and excluded 

4,821,906  shares that were anti-dilutive.

For the 

three -month and nine -month periods ended September 30, 2022 , common stock equivalents of 

5,349,891  and 5,118,574 , respectively, are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. Included in the basic and diluted net income (loss) per share calculation are RSUs awarded to employees or directors that have vested, but the issuance and delivery of the shares of common stock are deferred until the director retires from service as a director.

For the three -month periods ended March 31, 2024 and 2023, common stock equivalents of 5,942,961 and 5,441,568 , respectively, are excluded from the calculation of diluted net loss per shares because the effect is anti-dilutive.

Included in the basic and diluted net income (loss) per share calculation are RSUs awarded to directors that have vested, but the issuance and delivery of the shares of common stock are deferred until the director retires from service as a director.

Eton Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(in thousands, except share and per share amounts)

Note 3 — Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 

718, Compensation — Stock Compensation.

The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation.

The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards.

The Company estimates the fair value of stock-based option awards using the Black-Scholes-Merton option-pricing model (“BSM”).

Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed.

At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model (“BSM”).

The Company estimates the fair value of stock-based option awards using the BSM.

The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs.

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The expected term of stock options granted is based on vesting periods and the contractual life of the options.

Expected volatility is based on the Company's own volatility, along with a limited weighting of comparable companies’

historical volatilities, which management believes represents the most accurate basis for estimating expected future volatility under the current conditions.

The Company accounts for forfeitures as they occur.

The Company uses the closing common stock price on the date of grant for the fair value of the common stock.

Eton Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(in thousands, except share and per share amounts)

Note 3 —

Summary of Significant Accounting Policies (continued)

Expected volatilities are based on the Company's historical volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions.

We account for forfeitures as they occur.

Fair Value Measurements

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Fair value accounting requires characterization of the inputs used to measure fair value into a three -level fair value hierarchy as follows:

Level 1 —

Inputs based on quoted prices in active markets for identical assets or liabilities.

Level 1 — Inputs based on quoted prices in active markets for identical assets or liabilities.

An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 —

Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.

Level 3 —

Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.

Level 2 — Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.

Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.

Fair value measurements are classified based on the lowest level of input that is significant to the measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels.

The determination of the fair values stated below take into account the market for the Company’s financials, assets and liabilities, the associated credit risk and other factors as required.

The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

The Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and long-term debt obligation.

The carrying amounts of these financial instruments, except for the long-term debt obligation, approximate their fair values due to the short-term maturities of these instruments.

Based on borrowing rates currently available to the Company, the carrying value of the long-term debt obligation approximates its fair value.

Impact of Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 

2016 - 13, “Measurement of Credit Losses on Financial Instruments.”

This ASU replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade receivables, and new disclosures.

The ASU, as subsequently amended, is effective for the Company for fiscal years beginning after December 15, 2022, as the Company was a smaller reporting company as of November 15, 2019, the determination date.

We adopted ASU 

2016 - 13  on January 1, 2023 .

Based on the composition of the Company’s accounts receivable, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures.

Specifically, the Company’s estimate of expected credit losses as of September 30, 2023 , using its expected credit loss evaluation process described above, resulted in no provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt obligation.

The carrying amounts of these financial instruments approximate their fair values due to the short-term maturities of these instruments.

Based on borrowing rates currently available to the Company, the carrying value of the debt obligation approximates its fair value.

Impact of Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023 - 07 Segment Reporting - Improving Reportable Segment Disclosures.

The standard requires enhanced disclosures of a public company's significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), and any additional measures of a segment's profit or loss used by the CODM when making resource allocation decisions, including for companies with a single reportable segment.

The standard is effective for public companies for annual periods after December 15, 2023 and in interim periods in 2025, with early adoption permitted.

The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023 - 09, Income Taxes - Improvements to Income Tax Disclosures.

The standard requires enhanced income tax disclosures, including the effective tax rate reconciliation and income taxes paid, amongst others.

The standard will be effective for public companies for annual periods beginning in 2025, with early adoption permitted.

The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 4 –

Property and Equipment

Note 4 – Property and Equipment

Property and equipment consist of the following:

September 30,

Computer hardware and software

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accumulated depreciation

( 383 )  

Property and equipment, net

Depreciation expense for the 

three months ended September 30, 2023 and 2022 was $ 9  and $ 14 , respectively. 

Depreciation expense for the 

nine months ended September 30, 2023 and 2022 was $ 32 and $ 53 , respectively.

Note 5 —

Long-Term Debt

In November 2019, the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Holdings Corporation (“SWK”) which provided for up to $ 10,000  in financing.

The Company received proceeds of $ 5,000  at closing and borrowed an additional $ 5,000  upon the FDA approval of a second product developed by the Company. In March 2020, the Company and SWK amended the SWK Credit Agreement, and the Company borrowed an additional $ 2,000 in August 

The term of the SWK Credit Agreement is for five years, and borrowings bear interest at a rate of LIBOR 3 -month plus 

10.0 %, subject to a stated LIBOR floor rate of 

2.0 % unused credit limit fee was assessed during the first twelve months after the date of the SWK Credit Agreement and loan fees include a 

5.0 % exit fee based on the principal amounts drawn which is payable at the end of the term of the SWK Credit Agreement. The Company was required to maintain a minimum cash balance of $ 3,000 , only pay interest on the debt until February 2022 and then pay 5.5 % of the loan principal balance commencing on February 15, 2022 and then every three months thereafter until November 13, 2024 at which time the remaining principal balance is due.

Borrowings under the SWK Credit Agreement are secured by the Company’s assets.

The SWK Credit Agreement contains customary default provisions and covenants which limit additional indebtedness.

In March 2020, SWK provided a waiver for the Company to obtain loans with the Small Business Association.

In February 2021, the Company notified SWK that it would 

not require additional borrowing capacity under the SWK Credit Agreement and terminated the additional borrowing capacity with SWK.

In connection with the initial $ 5,000  borrowed under the SWK Credit Agreement, the Company issued warrants to SWK to purchase 

51,239  shares of the Company’s common stock with an exercise price of $ 5.86  per share.

The relative fair value of these warrants was $ 226  and was estimated using BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 5.75  per share; 

seven -year contractual term; 

95 % volatility; 

Depreciation expense for the three -month periods ended March 31, 2024 and 2023 was $ 14 and $ 13 , respectively.

Note 5 — Long-Term Debt

In November 2019, the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Holdings Corporation (“SWK”) which provided for up to $ 10,000 in financing.

The Company received proceeds of $ 5,000 at closing and borrowed an additional $ 5,000 upon the FDA approval of a second product developed by the Company.

In March 2020, the Company and SWK amended the SWK Credit Agreement, and the Company borrowed an additional $ 2,000 in August 2020.

The term of the SWK Credit Agreement is for five years, and borrowings bear interest at a rate of LIBOR 3 -month plus 10.0 %, subject to a stated LIBOR floor rate of 2.0 %.

A 2.0 % unused credit limit fee was assessed during the first twelve months after the date of the SWK Credit Agreement and loan fees include a 5.0 % exit fee based on the principal amounts drawn which is payable at the end of the term of the SWK Credit Agreement.

The Company was required to maintain a minimum cash balance of $ 3,000 , only pay interest on the debt until February 2022 and then pay 5.5 % of the loan principal balance commencing on February 15, 2022 and then every three months thereafter until November 13, 2024 at which time the remaining principal balance is due.

Borrowings under the SWK Credit Agreement are secured by the Company’s assets.

The SWK Credit Agreement contains customary default provisions and covenants which limit additional indebtedness.

In connection with the initial $ 5,000 borrowed under the SWK Credit Agreement, the Company issued warrants to SWK to purchase 51,239 shares of the Company’s common stock with an exercise price of $ 5.86 per share.

The relative fair value of these warrants was $ 226 and was estimated using BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 5.75 per share;

seven -year contractual term;

95 % volatility;

0 % dividend rate;

and a risk-free interest rate of 

In connection with the additional $ 2,000  borrowed in August 2020, the Company issued warrants for 

18,141  shares of its common stock at an exercise price of $ 6.62  per share.

The relative fair value of the 

18,141  warrants was $ 94  and was estimated using BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 6.85  per share; 

seven -year contractual term; 

95 % volatility; 

and a risk-free interest rate of 1.8 %.

In connection with the additional $ 2,000 borrowed in August 2020, the Company issued warrants for 18,141 shares of its common stock at an exercise price of $ 6.62 per share.

The relative fair value of the 18,141 warrants was $ 94 and was estimated using BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 6.85 per share;

seven -year contractual term;

95 % volatility;

0 % dividend rate;

and a risk-free interest rate of 

and a risk-free interest rate of 0.4 %.

Eton Pharmaceuticals, Inc.

1 unchanged sentence

(in thousands, except share and per share amounts)

Note 5 —

Long-Term Debt (continued)

These warrants (the “SWK Warrants”) are exercisable immediately and have a term of seven years from the date of issuance.

Note 5 — Long-Term Debt (continued)

These warrants (the “SWK Warrants”) are exercisable immediately and have a term of seven years from the date of issuance.

The SWK Warrants are subject to a cashless exercise feature, with the exercise price and number of shares issuable upon exercise subject to change in connection with stock splits, dividends, reclassifications and other conditions.

In April 2022, the Company and SWK further amended the SWK Credit Agreement to allow for a deferral of loan principal payments until May 2023 and reduce the interest rate to LIBOR 3 -month plus 

8.0 %, subject to a stated LIBOR floor rate of 

In accordance with the change, the Company has classified $ 1,540  as principal due in the next 12 months, and the remainder classified as long-term debt in its balance sheet at September 30, 2023 .

Because LIBOR was phased out as of June 30, 2023, the Company amended the Credit Agreement in August 2023 to refer to the secured overnight financing rate ("Term SOFR"), with an interest rate of Term SOFR plus 8.26 %, subject to a stated Term SOFR floor rate of 5.0 %.

Interest expense of $ 805  was recorded during the nine months ended September 30, 2023 , which included $ 90  of debt discount amortization.

Interest expense of $ 699  was recorded during the nine months ended September 30, 2022 , which included $ 96  of debt discount amortization.

As of September 30, 2023 , $ 307  of accrued interest is included in accrued liabilities.

The table below reflects the future payments for the SWK loan principal and interest as of September 30, 2023 .

In April 2022, the Company and SWK further amended the SWK Credit Agreement to allow for a deferral of loan principal payments until May 2023 and reduce the interest rate to LIBOR 3 -month plus 8.0 %, subject to a stated LIBOR floor rate of 2.0 %.

In accordance with the change, the Company has classified $ 5,020 as principal due in the next 12 months in its balance sheet at March 31, 2024 .

Because LIBOR was phased out as of June 30, 2023, the Company amended the Credit Agreement in August 2023 to refer to the secured overnight financing rate ("Term SOFR"), with an interest rate of Term SOFR plus 8.26 %, subject to a stated Term SOFR floor rate of 5.0 %.

Interest expense of $ 238 was recorded during the three months ended March 31, 2024 , which included $ 25 of debt discount amortization.

Interest expense of $ 265 was recorded during the three months ended March 31, 2023 , which included $ 29 of debt discount amortization.

As of March 31, 2024 , $ 354 of accrued interest is included in accrued liabilities.

The table below reflects the future payments for the SWK loan principal and interest as of March 31, 2024 .

Remainder of 2024

Total payments

amount representing interest

Loan payable, gross

current portion of long-term debt

unamortized discount

Long-term debt, net of unamortized discount

$ 4,197  

Debt, net of unamortized discount

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 6 —

Note 6 — Common Stock

The Company has 50,000,000 authorized shares of $ 0.001 par value common stock under its Amended and Restated Certificate of Incorporation.

During the nine months ended September 30, 2023 , the Company issued 298,528  shares of its common stock resulting from cash and non-cash stock option exercises under its 2018 Equity Incentive Plan as amended December 2020 ( see Note 8 ) and vesting of restricted stock units. The Company withheld 

50,867  shares for payroll tax obligations totaling $ 181 for the 

nine months ended September 30, 2023 .

In June 2023, the Company issued 57,616  shares of its common stock to employees in accordance with its Employee Stock Purchase Plan (“ESPP”). During the 

nine months ended September 30, 2022 , a holder of the Company’s common stock warrants exercised 

600,000  warrants on a cashless basis and the Company issued 

598,448  shares of its common stock in connection with the warrant exercise.

The intrinsic value of the warrant exercise was $ 2,268 .

In June 2022, the Company issued 

47,585  shares of its common stock to employees in accordance with its ESPP.

In July 2022, the Company issues 25,000 shares of its common stock to an employee for a stock option exercise under its 2018 Equity Incentive Plan as amended December 2020.

Note 7 —

Common Stock Warrants

The Company’s outstanding warrants to purchase shares of its common stock at September 30, 2023 are summarized in the table below.

During the three months ended March 31, 2024 , the Company issued 2,500 shares of its common stock resulting from stock option exercises under its 2018 Equity Incentive Plan as amended in December 2020 ( see Note 8 ).

During the three months ended March 31, 2023 , the Company issued 202,126 shares of its common stock resulting from cash and non-cash stock option exercises under its 2018 Equity Incentive Plan (see Note 8 ).

The Company withheld 50,867 shares for payroll tax obligations totaling $ 181 for the three months ended March 31, 2023.

Note 7 — Common Stock Warrants

The Company’s outstanding warrants to purchase shares of its common stock at March 31, 2024 are summarized in the table below.

Description of Warrants

Exercise Price

Placement Agent Warrants - IPO

414,000  

$ 7.50  

SWK Warrants –

Debt –

51,239  

$ 5.86  

SWK Warrants –

Debt –

18,141  

$ 6.62  

483,380  

$ 7.29  

The holders of these warrants or their permitted transferees, are entitled to rights with respect to the registration under the Securities Act of 1933, as amended (the “Securities Act”) for their shares that are converted to common stock, including demand registration rights and piggyback registration rights.

SWK Warrants – Debt – Tranche #1

SWK Warrants – Debt – Tranche #2

These rights are provided under the terms of a registration rights agreement between the Company and the investors.

On June 26, 2022, 467,242 warrants from the 2017 preferred stock offering with an exercise price of $ 3.00 were set to expire.

Prior to the expiration, the Company entered into an agreement with warrant holders, whereby it modified the terms of the warrants to extend the expiration date until December 26, 2022 in exchange for the Company retaining the option of a cashless exercise provision.

No other terms were modified.

Due to this modification, the Company incurred a modification expense of $ 244 that is included in general and administrative (“G&A”) expense on the Condensed Statements of Operations for the nine months ended September 30, 2022 .

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 8 —

Share-Based Payment Awards

The Company adopted the Eton Pharmaceuticals, Inc.

2017 Equity Incentive Plan (the “2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock, and in 2018 it adopted the 2018 Equity Incentive Plan as amended December 2020 ( the “2018 Plan”) which succeeded the 2017 Plan.

The Company has granted restricted stock awards (“RSAs”), stock options and RSUs for its common stock under the 2017 Plan and 2018 Plan as detailed in the tables below.

There were 693,597  shares available for future issuance under the 2018 Plan as of September 30, 2023 .

Share awards that are expired, terminated, surrendered, or canceled without having been fully exercised will be available for future awards under the 2018 Plan.

In addition, the 2018 Plan provides that commencing January 1, 2019 and through January 1, 2028, the share reserve will be increased annually by 4 % of the total number of shares of common stock outstanding as of the preceding December 31, subject to a reduction at the discretion of the Company’s board of directors.

The exercise price for stock options granted is no  less than the fair value of common stock as determined by the board of directors as of the date of grant.

Note 8 — Share-Based Payment Awards

The Company adopted the Eton Pharmaceuticals, Inc.

2017 Equity Incentive Plan (the “2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock, and in 2018 it adopted the 2018 Equity Incentive Plan as amended December 2020 ( the “2018 Plan”) which replaced the 2017 Plan.

The Company has granted restricted stock awards (“RSAs”), stock options and RSUs for its common stock under both plans as detailed in the tables below.

There were 250,002 shares available for future issuance under the 2018 Plan as of March 31, 2024 .

Share awards that expire, terminate, are surrendered, or canceled without having been fully exercised will be available for future awards under the 2018 Plan.

The exercise price for stock options granted is not less than the fair value of common stock as determined by the board of directors as of the date of grant.

The Company uses the closing stock price on the date of grant as the exercise price.

To date, all stock options issued have been non-qualified stock options, and the exercise prices were set at the fair value for the shares at the dates of grant.

Options typically have a ten -year life, except for options to purchase 50,000 shares of the Company’s common stock granted to product consultants in July 2017 that expired, unexercised, in July 2022.

The Company’s previous CFO had 

474,295  employee stock options with an exercise price range of $ 1.37  to $ 8.61  which were set to expire three months after his retirement date of May 31, 2022; 

Options typically have a ten -year life.

The Company’s previous Chief Financial Officer had 474,295 employee stock options with an exercise price range of $ 1.37 to $ 8.61 which were set to expire three months after his retirement date of May 31, 2022;

however, the Company extended the expiration date to April 10, 2023.

Of these options, 365,858 options were exercised in January and March 2023, and the remainder expired in April 2023.

Of these options, 365,858 options were exercised in January and March 2023, and the remainder expired in April 2023.

No other terms were modified.

Due to this modification, the Company incurred a modification expense of approximately $ 72  that is included in general and administration expense on the Condensed Statements of Operations for the nine -month period ended September 30, 2023.

For the three months ended September 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 730  and $ 949 , respectively.

Of these amounts, $ 657  and $ 893  were recorded in G&A expenses, respectively, and $ 73  and $ 56  were recorded in research and development expenses, respectively.

For the nine months ended September 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 2,387  and $ 3,332 , respectively.

Of these amounts, $ 2,191  and $ 3,102  were recorded in G&A expenses, respectively, and $ 196  and $ 230  were recorded in research and development expenses, respectively.

For the three -month periods ended March 31, 2024 and 2023, the Company’s total stock-based compensation expense was $ 821 and $ 872 , respectively.

Of these amounts, $ 742 and $ 818 were recorded in general and administrative (“G&A”) expenses, respectively, and $ 79 and $ 54 were recorded in research and development expenses, respectively.

Stock Options

The following table summarizes stock option activity during the nine months ended September 30, 2023 :

The following table summarizes stock option activity during the three months ended March 31, 2024 :

Outstanding as of December 31, 2023

4,402,292  

$ 4.71  

1,078,291  

$ 3.49  

( 407,308 )  

$ 2.23  

4,839,226 $ 4.57

1,441,118 $ 4.42

( 2,500 ) $ 2.97

Forfeited/Cancelled

( 263,549 )  

$ 5.94  

Outstanding as of September 30, 2023

4,809,726  

$ 4.58  

$ 2,725  

Exercisable as of September 30, 2023

3,139,749  

$ 4.81  

$ 1,828  

Vested and expected to vest at September 30, 2023

4,809,726  

$ 4.58  

$ 2,725  

Outstanding as of March 31, 2024

6,277,844 $ 4.54 7.7 $ 1,287

Exercisable as of March 31, 2024

3,619,469 $ 4.74 6.6 $ 1,031

Vested and expected to vest at March 31, 2024

6,277,844 $ 4.54 7.7 $ 1,287

Eton Pharmaceuticals, Inc.

1 unchanged sentence

(in thousands, except share and per share amounts)

Note 8 —

Share-Based Payment Awards (continued)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at September 30, 2023 for those stock options that had strike prices lower than the fair value of the Company’s common stock.

Stock-based compensation related to stock options was $ 639  and $ 2,115  for the three and nine months ended September 30, 2023 , respectively.

Stock-based compensation related to stock options was $ 853  and $ 2,850  for the 

three and nine months ended September 30, 2022 , respectively.

As of September 30, 2023 , there was a total of $ 4,164  of unrecognized compensation costs related to non-vested stock option awards.

The weighted average grant date fair value of stock option awards for the 

nine months ended September 30, 2023  was $ 2.31  per share.

In the 

nine months ended September 30, 2023 , there were  

stock option exercises which totaled 407,308  shares at a weighted average exercise price of $ 2.23  per share with an intrinsic value of $ 611 .

In the nine -month period ended September 30, 2022, there was one stock option exercise which totaled 25,000 shares at an exercise price of $ 1.38 per share with an intrinsic value of $ 31 .

Note 8 — Share-Based Payment Awards (continued)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at March 31, 2024 for those stock options that had strike prices lower than the fair value of the Company’s common stock.

Stock-based compensation related to stock options was $ 705 and $ 778 for the three -month periods ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 , there was a total of $ 7,129 of unrecognized compensation costs related to non-vested stock option awards.

The weighted average grant date fair value of stock option awards for the three months ended March 31, 2024 was $ 2.94 per share.

In the three months ended March 31, 2024 , there was one stock option exercise which totaled 2,500 shares at a weighted average exercise price of $ 2.97 per share with an intrinsic value of $ 2 .

Restricted Stock Units (RSUs)

The following table summarizes restricted stock unit activity during the nine months ended September 30, 2023 :

The following table summarizes restricted stock unit activity during the three months ended March 31, 2024 :

Number of Units

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Outstanding and unvested as of December 31, 2023

369,606  

$ 2.63  

( 91,402 )  

$ 2.63  

( 4,000 )  

$ 2.63  

Outstanding and unvested as of September 30, 2023

274,204  

$ 2.63  

Stock-based compensation related to RSUs was $ 61  and $ 179 for the three and nine months ended September 30, 2023 .

As of September 30, 2023 , there was $ 668  of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of 2.8  years.

274,204 $ 2.63

Outstanding and unvested as of March 31, 2024

274,204 $ 2.63

Stock-based compensation related to RSUs was $ 60 and $ 58 for the three -month periods ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 , there was $ 548 of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of 2.3 years.

Employee Stock Purchase Plan

The Company’s 2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of 150,000 shares, and this reserve is automatically increased on January 1 of each year by the lesser of 1 % of the outstanding common shares at December 31 of the preceding year or 150,000 shares, subject to reduction at the discretion of the Company’s board of directors.

As of September 30, 2023 , there were 652,680  shares available for issuance under the ESPP.

The Company’s 2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of 150,000 shares, and this reserve is automatically increased on January 1 of each year by the lesser of 1 % of the outstanding common shares at December 31 of the preceding year or 150,000 shares, subject to reduction at the discretion of the Company’s board of directors.

As of March 31, 2024 , there were 773,514 shares available for issuance under the ESPP.

The annual offerings consist of two stock purchase periods, with the first purchase period ending in June and the second ending in December.

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The terms of the ESPP provide a restart feature if the Company's stock price is lower at the end of a six -month period within the twelve -month offering period than it was at the beginning of the twelve -month offering period.

For the nine months ended September 30, 2023 and 2022 , there were 57,616   and 

47,585  share issuances, respectively, under the ESPP.

The weighted average fair value of share awards in the first  

nine months of 2023 and 2022 was $ 1.22  and $ 1.32 , respectively.

Employees contributed $ 181  and $ 174  via payroll deductions during the nine months ended September 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 93  and $ 97  related to the ESPP in the nine months ended September 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 30 and $ 27 related to the ESPP in the 

three months ended 

September 30, 2023 and 2022 , respectively.

As of September 30, 2023 and December 31, 2022 , the accompanying condensed balance sheets include $ 63  and $ 23 , respectively, in accrued liabilities for employee ESPP contributions.

For the three -month periods ended March 31, 2024 and 2023, there were no share issuances under the ESPP.

The weighted average fair value of share awards in the first three months of 2024 and 2023 was $ 1.36 and $ 1.11 , respectively.

Employees contributed $ 134 and $ 107 via payroll deductions during the three -month periods ended March 31, 2024 and 2023, respectively.

The Company recorded an expense of $ 56 and $ 36 related to the ESPP in the three -month periods ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023 , the accompanying condensed balance sheets include $ 158 and $ 24 , respectively, in accrued liabilities for employee ESPP contributions.

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 9 —

Related-Party Transactions

Note 9 — Related-Party Transactions

Chief Executive Officer

The CEO has a partial interest in a company that the Company had partnered with for its EM- 100/Alaway®

Preservative Free eye allergy product as described below.

The Company acquired the exclusive rights to sell the EM- 100 product in the United States pursuant to a sales and marketing agreement (the “Eyemax Agreement”) dated August 11, 2017, between the Company and Eyemax LLC (“Eyemax”), an entity affiliated with the Company’s CEO.

The Company also held a right of first refusal to obtain the exclusive license rights for geographic areas outside of the United States.

Pursuant to the Eyemax Agreement, the Company was responsible for all costs of testing and FDA approval of the product, other than the FDA filing fee which was paid by Eyemax.

The Company was also to be responsible for commercializing the product in the United States at its expense.

The Company paid Eyemax $ 250  upon execution of the Eyemax Agreement, which was recorded as a component of R&D expense.

Under the terms of the Eyemax Agreement, the Company would pay Eyemax $ 250  upon FDA approval, $ 500  upon the first commercial sale of the product, and a royalty of 

10 % on the net sales of all products. The Eyemax Agreement was for an initial term of 

10  years from the date of the Eyemax Agreement, subject to successive two -year renewals unless the Company elected to terminate the Eyemax Agreement. 

On February 18, 2019, the Company entered into an Amended and Restated Agreement with Eyemax amending the Sales Agreement (the “Amended Agreement”).

Pursuant to the Amended Agreement, Eyemax sold the Company all of its right, title and interest in EM- 100, including any such product that incorporates or utilizes Eyemax’s intellectual property rights.

Under the Amended Agreement, the Company assumed certain liabilities of Eyemax under its Exclusive Development & Supply Agreement with Excelvision SAS, dated as of July 11, 2013, as amended (the “Excelvision Agreement”), with respect to certain territories and arising during certain time periods.

The CEO has a partial interest in a company that the Company had partnered with for its EM- 100/Alaway® Preservative Free eye allergy product as described below.

The Company acquired the exclusive rights to sell the EM- 100 product in the United States pursuant to a Sales and Marketing Agreement (the “Eyemax Agreement”) dated August 11, 2017, between the Company and Eyemax LLC (“Eyemax”), an entity affiliated with the Company’s CEO.

Under the terms of the Eyemax Agreement, the Company would pay Eyemax $ 250 upon FDA approval, $ 500 upon the first commercial sale of the product, and a royalty of 10 % on the net sales of all products.

The Eyemax Agreement was for an initial term of ten years from the date of the Eyemax Agreement, subject to successive two -year renewals unless the Company elected to terminate the Eyemax Agreement.

On February 18, 2019, the Company entered into an Amended and Restated Agreement with Eyemax amending the Sales Agreement (the “Amended Agreement”).

Pursuant to the Amended Agreement, the Company paid Eyemax two milestone payments:

(i) one milestone payment for $ 250  upon regulatory approval in the territory by the FDA of the first single agent product and (ii) one milestone payment for $ 500  following the first commercial sale of the first single agent product in the territory.

Following payment of the milestones, the Company was entitled to retain all of the non-royalty transaction revenues and royalties up to $ 2,000  (the “Recovery Amount”).

After the Company had retained the full Recovery Amount, it was entitled to retain half of all royalty and non-royalty transaction revenue.

The Company has realized $ 1,840  of the non-royalty and royalty revenue as of 

September 30, 2023 .

The Amended Agreement also contains customary representations, warranties, covenants, and indemnities by the parties.

Preservative Free by Bausch, which was approved by the FDA in September 2020, would be split between Eyemax and the Company.

The royalty from Bausch Health is subject to reduction if a competitive product with the same active pharmaceutical ingredient is launched in the U.S.

or if the product’s U.S market share falls below a specified target percentage.

Bausch Health discontinued sales of Alaway®

Preservative Free effective March 24, 2023.

There were no amounts due to Eyemax under the terms of the Amended Agreement as of September 30, 2023 or December 31, 2022 .

(i) one milestone payment for $ 250 upon regulatory approval in the territory by the FDA of the first single agent product and (ii) one milestone payment for $ 500 following the first commercial sale of the first single agent product in the territory.

From the effective date of the Amended Agreement, the Company has realized a total of $ 1,840 of the non-royalty and royalty revenue through March 31, 2024 .

The EM- 100 asset and its associated product rights were sold to Bausch Health on February 18, 2019, and future potential royalties of twelve percent on Bausch Health sales of the product, named Alaway® Preservative Free by Bausch, which was approved by the FDA in September 2020, would be split between Eyemax and the Company.

There were no amounts due to Eyemax under the terms of the Amended Agreement as of March 31, 2024 , and Bausch Health discontinued sales of Alaway® Preservative Free effective March 24, 2023.

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 10 —

The Company recognizes a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, and separates lease components from non-lease components related to its office space lease. 

The Company’s operating lease cost as presented as G&A in the condensed statements of operations was $ 57  for the 

nine months ended September 30, 2023 , and $ 64 for the 

nine months ended September 30, 2022 .

Cash paid for amounts included in the measurement of operating lease liabilities was $ 66  for the nine months ended September 30, 2023 , and $ 66  for the nine months ended September 30, 2022 .

The ROU asset amortization was $ 11  and $ 50 for the 

three and nine -month periods ended September 30, 2023 , respectively, and $ 21  and $ 62  for the three and nine -month periods ended September 30, 2022 , respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows.

As of September 30, 2023 , the weighted-average remaining lease term was 1.50  years, and the weighted-average incremental borrowing rate was 8.6 %.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2023 (in thousands).

Note 10 — Leases

The Company’s operating lease cost as presented as G&A in the condensed statements of operations was $ 20 for the three months ended March 31, 2024 , and $ 23 for the three months ended March 31, 2023 .

Cash paid for amounts included in the measurement of operating lease liabilities was $ 10 for the three months ended March 31, 2024 , and $ 22 for the three months ended March 31, 2023 .

The ROU asset amortization was $ 18 and $ 19 for the three -month periods ended March 31, 2024 and 2023, respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows.

As of March 31, 2024 , the weighted-average remaining lease term was 1.00 years, and the weighted-average incremental borrowing rate was 8.6 %.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2024 (in thousands).

Classification

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Accrued liabilities

Operating lease liabilities, noncurrent

Operating lease liabilities, net of current portion

Total operating lease liabilities

The Company’s future lease commitments for its administrative offices in Deer Park, Illinois as of September 30, 2023 , is as indicated below:

The Company’s future lease commitments as of March 31, 2024 , are as indicated below:

Operating Lease Liabilities

2024 (remainder of 2024)

Undiscounted lease payments

Imputed interest

Total lease liabilities

* The Company expects to receive a tenant improvement allowance reimbursement of $ 32 in November 2023 which results in a negative lease commitment for the remainder of 2023.

Total operating lease liabilities

Eton Pharmaceuticals, Inc.

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(in thousands, except share and per share amounts)

Note 11 —

Commitments and Contingencies

Note 11 — Commitments and Contingencies

The Company is subject to legal proceedings and claims that may arise in the ordinary course of business.

The Company is not aware of any pending or threatened litigation matters at this time that would have a material impact on the operations of the Company.

The Company is not aware of any pending or threatened litigation matters at this time that would have a material impact on the operations of the Company.

License and product development agreements

The Company has entered into various agreements in addition to those discussed above which are described below.

The three oral solution pediatric neurology product candidates discussed below, Topiramate, Zonisamide, and Lamotrigine were developed by the Company and its various product candidate development partners, and the Company subsequently sold certain rights and interests in these three products to Azurity in 2021, but retained rights to certain royalties.

The Company has recognized $ 27,500 in milestone revenues to date from these three products.

Azurity assumed the royalty or profit share obligations owed to development partners as well as additional milestone payments based on sales volume targets.

In June 2023, the Company amended its asset purchase agreement with Azurity, and sold the royalty interests it received back to Azurity for total consideration of $ 5,500 which was recognized as license revenue for the nine months ended September 30, 2023.

During the years ended December 31, 2021 and 2020, the Company worked with Tulex Pharmaceuticals, Inc.

(“Tulex”) as a third -party contract manufacturer to develop an oral solution for Topiramate (fka ET- 101 ) which targets a neurological condition.

The Company subsequently filed the product with the FDA in October 2020 and paid a $ 1,438 filing fee.

In November 2021, the product received approval from the FDA ,and was launched by Azurity in December 2021.

The Company recognized a $ 5,000 milestone revenue at launch which was reflected in accounts receivable on the Company’s balance sheet at December 31, 2021 and subsequently collected in January 2022.

In January 2019, the Company entered into a Licensing and Supply Agreement (the “Agreement”) with Liquimeds Worldwide (“LMW”) for Zonisamide oral liquid, a development stage product candidate (“ET- 104”

Pursuant to the terms of the Agreement, the Company was to be responsible for regulatory and marketing activities and LMW was responsible for development and manufacturing of ET- 104.

The Company paid $ 650 to Azurity upon issuance of patent covering ET- 104 listed in the FDA’s Orange Book in November 2022.

In June 2019, the Company entered into an Exclusive Licensing and Supply Agreement (the “ET- 105 License Agreement”) with Aucta Pharmaceuticals, Inc.

(“Aucta”) for marketing rights in the United States to Lamotrigine, an oral suspension product candidate for use as an adjunct therapy for partial seizures, primary generalized tonic-clonic seizures, and generalized seizures of Lennox-Gastaut syndrome in patients two years of age and older.

Pursuant to the terms of the ET- 105 License Agreement, the Company was responsible for marketing activities and Aucta will be responsible for development, manufacturing, and regulatory activities related to obtaining regulatory approval.

In March 2020, the Company entered into an Exclusive Licensing and Supply Agreement (the “Alkindi License Agreement”) with Diurnal for marketing ALKINDI SPRINKLE®

in the United States.

In September 2020, ALKINDI SPRINKLE®’s New Drug Application (NDA) was approved by the FDA as a replacement therapy for pediatric patients with adrenocortical insufficiency.

For the initial licensing milestone fee, the Company paid Diurnal $ 3,500 in cash and issued 379,474 shares of its common stock to Diurnal, which were valued at $ 1,264 based on the Company’s closing stock price of $ 3.33 on March 26, 2020.

The Company will also pay Diurnal $ 2,500 if the product obtains orphan drug exclusivity status from the FDA.

The three oral solution pediatric neurology product candidates discussed below, Topiramate, Zonisamide, and Lamotrigine were developed by the Company and its various product candidate development partners, and the Company subsequently sold certain rights and interests in these three products to Azurity in 2021, but retained rights to certain royalties.

The Company has recognized $ 27,500 in milestone revenues to date from these three products, and in June 2023 the Company amended its asset purchase agreement with Azurity and sold the remaining royalty interests it received back to Azurity for $ 5,500 .

Azurity will assume royalty or profit share obligations owed to development partners as well as additional milestone payments based on sales volume targets.

In March 2020, the Company entered into an Exclusive Licensing and Supply Agreement (the “Alkindi License Agreement”) with Diurnal for marketing ALKINDI SPRINKLE® in the United States.

In September 2020, ALKINDI SPRINKLE®’s New Drug Application (NDA) was approved by the FDA as a replacement therapy for pediatric patients with adrenocortical insufficiency.

For the initial licensing milestone fee, the Company paid Diurnal $ 3,500 in cash and issued 379,474 shares of its common stock to Diurnal which were valued at $ 1,264 based on the Company’s closing stock price of $ 3.33 on March 26, 2020.

The Company paid Diurnal $ 1,000 for a 2023 sales milestone in January 2024 that was recorded as licensing cost of sales in December 2023, and will also pay Diurnal $ 2,500 if the product obtains orphan drug exclusivity status from the FDA.

In June 2021, the Company acquired U.S.

and Canadian rights to Crossject’s ZENEO®

hydrocortisone needleless autoinjector, which is under development as a rescue treatment for adrenal crisis.

and Canadian rights to Crossject’s ZENEO® hydrocortisone needleless autoinjector, which is under development as a rescue treatment for adrenal crisis.

The Company paid Crossject $ 500 upon signing, $ 500 in March 2022 upon a completion of a successful technical batch and could pay up to $ 3,500 in additional development milestones and up to $ 6,000 in commercial milestones, as well as a 10 % royalty on net sales.

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marketing rights to Carglumic Acid Tablets.

The product’s Abbreviated New Drug Application (“ANDA”), which is owned by Novitium Pharma, was approved by the FDA on October 12, 2021.

The product is an AB-rated, substitutable generic version of Carbaglu®.

The product’s Abbreviated New Drug Application (“ANDA”), which is owned by Novitium Pharma, was approved by the FDA on October 12, 2021.

The product is an AB-rated, substitutable generic version of Carbaglu®.

The Company paid $ 3,250 upon signing and retains 50 % of the product profits with the balance being distributed to the licensor and manufacturer.

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(in thousands, except share and per share amounts)

Note 11 —

Commitments and Contingencies (continued)

In June 2022, the Company sold its rights in Cysteine Hydrochloride, Biorphen®, and Rezipres®

Reddy’s.

Under the terms of the transaction, Dr.

Reddy’s assumed immediate ownership of Eton’s rights and interest in the products.

The Company received $ 5,000 at closing, recorded as licensing revenue in the twelve months ended December 31, 2022, and could receive up to $ 42,500 of additional payments based on the achievement of certain event-based and sales-based milestones.

Of the $ 5,000 received at closing, $ 250 was held in escrow to address potential indemnity claims during the 12 -month period following the effective date of the agreement.

In addition, 10 % of any additional payments by Dr.

Reddy’s during the 12 -month period following the effective date will be held in escrow and subsequently released to Eton upon expiration of the 12 -month period following the effective date.

In accordance with the terms of the agreement, $ 812 of Sintetica profit share receivables were expensed as cost of goods sold in the twelve months ended December 31, 2022.

In September 

2022, the Company acquired an FDA-approved ANDA for Betaine Anhydrous for oral solution.

Note 11 — Commitments and Contingencies (continued)

In September 2022, the Company acquired an FDA-approved ANDA for Betaine Anhydrous for oral solution.

The ANDA was approved by the FDA in January 2022.

The Company paid $ 2,000 to the seller upon signing and could pay up to $ 1,000 in commercial milestones based on future product sales.

The Company paid $ 2,000 to the seller upon signing and an additional $ 125 in November 2023, and could pay up to $ 1,000 in commercial milestones based on future product sales.

The Company will retain 65 % of the product profits with the balance being distributed to the licensor.

In March 2023, the Company acquired rare disease endocrinology product candidate ET- 600 from Tulex.

The Company paid $ 450 to Tulex in July 2023 

as a result of successful manufacturing of registration batches.

The Company will pay Tulex $ 200 upon acceptance by the FDA of the NDA for the product, $ 250 upon 

first commercial sale of the product, and tiered royalties of 12.5 % to 

17.0 % on net sales.

In March 2023, the Company acquired rare disease endocrinology product candidate ET- 600 from Tulex Pharmaceuticals.

The Company paid $ 450 to Tulex in July 2023 as a result of successful manufacturing of registration batches.

The Company will pay Tulex $ 200 upon acceptance by the FDA of the NDA for the product, $ 250 upon first commercial sale of the product, and tiered royalties of 12.5 % to 17.0 % on net sales.

In October 2023, the Company acquired an FDA-approved ANDA for Nitisinone.

The ANDA was approved by the FDA in May 2023.

The Company paid $ 150 to the seller and an additional $ 500 of cure amounts owed to the manufacturer upon signing.

The Company will retain 80 % of the product profits with the balance being distributed to the manufacturer.

In March 2024, the Company acquired the rights to PKU GOLIKE® medical formula.

The Company paid $ 2,350 to the seller upon signing, which was allocated as $ 482 of inventory and $ 1,868 of an intangible asset (product licensing rights) based on the relative fair value of the purchased assets.

The Company could pay up to $ 2,000 in commercial milestones based on future product sales and will pay the seller a royalty of 30 % of net sales, which will include the cost of the product.

Indemnification

As permitted under Delaware law and in accordance with the Company’s Amended and Restated Bylaws, the Company is required to indemnify its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity.

The Company is also party to indemnification agreements with its directors and officers.

The Company believes the fair value of the indemnification rights and agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of September 30, 2023 or 

December 31, 2022 .

Note 12 —

Subsequent Events

Effective October 11, 

2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

The Company paid $ 150 to the seller for the acquired product and $ 500 to the manufacturer.

Eton will retain 80 % of product profit and will pay 20 % of product profit to the manufacturer.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

s discussion and analysis of financial condition and results of operations Included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “

) on March 16, 2023 (the “

2022 10-K ”

Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of March 31, 2024 or December 31, 2023 .

Note 12 — Subsequent Events

The Company has evaluated subsequent events through the filing date of this Form 10 -Q and has determined that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes thereto.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with (i) our unaudited interim condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and notes thereto and management ’ s discussion and analysis of financial condition and results of operations Included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “ SEC ” ) on March 14, 2024 (the “ 2023 10-K ” ).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “

Exchange Act ”

), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “

expect, ”

anticipate, ”

intend, ”

believe, ”

may, ”

plan, ”

seek ”

or similar language.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “ Exchange Act ” ), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “ expect, ” “ anticipate, ” “ intend, ” “ believe, ” “ may, ” “ plan, ” “ seek ” or similar language.

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

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Actual results could differ materially from those projected in the forward-looking statements.

In evaluating our business, you should carefully consider other matters set forth in our SEC filings, including the Risk Factors set forth in Part I, Item 1A of our 2022 10-K.

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing products to address unmet needs in patients suffering from rare diseases.

The Company currently has three commercial rare disease products, ALKINDI SPRINKLE®

for the treatment of adrenocortical insufficiency, Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency, and Betaine Anhydrous for the treatment of homocystinuria.

The Company has three additional product candidates in late-stage development:

hydrocortisone autoinjector for the treatment of adrenal crisis, ET-400, an innovative patent, and ET-600 for the treatment of an endocrinology condition.

As noted in Note 12, effective October 11, 2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

In evaluating our business, you should carefully consider other matters set forth in our SEC filings, including the Risk Factors set forth in Part I, Item 1A of our 2023 10-K.

Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases.

The Company currently has five commercial rare disease products:

ALKINDI SPRINKLE® for the treatment of pediatric adrenocortical insufficiency;

Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency;

Betaine Anhydrous for the treatment of homocystinuria;

Nitisinone for the treatment of hereditary tyrosinemia type 1 (HT-1);

and PKU GOLIKE® medical formula for patients with phenylketonuria (“PKU”).

The Company has three additional product candidates in late-stage development:

ET-400, ET-600, and ZENEO® hydrocortisone autoinjector.

Results of Operations (dollars in thousands)

For the three months ended September 30, 2023, we had $7,028 in total revenue that generated a gross profit of $4,403.

We had total revenue of $3,219 for the three-month period ended September 30, 2022 that generated a gross profit of $2,018 for the period.

The increase was primarily due to increased sales volume of the Company's ALKINDI SPRINKLE®

and Carglumic Acid products.

For the nine months ended September 30, 2023, we had $24,329 in total revenue that generated a gross profit of $17,431.

We had total revenue of $12,753 for nine months ended September 30, 2022 that generated a gross profit of $7,958 for the period.

The increase was primarily due to increased sales volume of the Company's ALKINDI SPRINKLE®

and Carglumic Acid products as well as a $500 increase in licensing revenue.

For the three months ended March 31, 2024, we had $7,966 in total revenue that generated a gross profit of $5,007.

We had total revenue of $5,304 for the three-month period ended March 31, 2023 that generated a gross profit of $3,346 for the period.

The increase was primarily due to increased sales volume of the Company's ALKINDI SPRINKLE® and Carglumic Acid products.

Research and Development Expenses

For the three months ended September 30, 2023, we incurred $615 of research and development (“R&D”) expenses as compared to the $744 for the same period in 2022.

The decrease was primarily due to decreased expenses associated with products sold to Dr.

Reddy's in June 2022.

For the nine months ended September 30, 2023, we incurred $2,275 of research and development (“R&D”) expenses as compared to the $3,052 for the same period in 2022.

The decrease was primarily due to decreased expenses associated with products sold to Dr.

Reddy's in June 2022.

For the three months ended March 31, 2024, we incurred $651 of research and development (“R&D”) expenses as compared to the $535 for the same period in 2023.

The increase was primarily due to increased expenses associated with ET-400 project development activities.

General and Administrative Expenses

G&A expenses consist primarily of employee compensation expenses, legal and professional fees, product marketing expenses, distribution expenses, business insurance, travel expenses, and general office expenses.

For the three-month periods ended September 30, 2023 and 2022, we incurred $4,336 and $4,169, respectively, of G&A expenses.

The slight increase in G&A expenses was mainly due to increased employee-related expenses related to our sales force expansion and was partially offset by decreased sales and marketing expenses associated with third-party sales commissions.

For the nine months ended September 30, 2023 and 2022, we incurred $14,355 and $14,228, respectively, of G&A expenses.

The slight increase in G&A expenses included incremental employee-related expenses related to our sales force expansion and was partially offset by decreased sales and marketing expenses associated with third-party sales commissions along with decreased FDA fees and legal fees associated with products sold to Dr.

Reddy's in June 2022.

Other Income and Expenses

For the nine months ended September 30, 2023, we recorded $800 of other income in accordance with a break-up fee received as the result of participating in an asset acquisition auction process where the Company was not ultimately named the winning bidder.

For the three-month periods ended March 31, 2024 and 2023, we incurred $5,156 and $5,345, respectively, of G&A expenses.

The slight decrease in G&A expenses was mainly due to decreased employee-related expenses along with decreased legal and consulting expenses.

Liquidity and Capital Resources

As of September 30, 2023, we had total assets of $31.5 million, including cash and cash equivalents of $22.1 million and working capital of $16.8 million.

We had previously capitalized our operations from the June 2017 private placement of approximately $20.1 million of Series A preferred stock which converted into shares of our common stock concurrent with our IPO in November 2018, which provided us with net proceeds of $22.0 million.

In addition, we entered into a Credit Agreement with SWK Holdings in November 2019, whereby we drew a $5.0 million loan amount at closing and an additional $2.0 million in August 2020.

In March and April 2020, we received net proceeds of approximately $7.8 million from the sale of shares of our common stock.

In October 2020, we received net proceeds of approximately $21.0 million from a public offering of our common stock at an offering price of $7.00 per share.

We believe that our existing funding and revenues from our approved products will be sufficient for at least the next twelve months of our operations.

As of March 31, 2024, we had total assets of $30.8 million, cash and cash equivalents of $16.7 million and working capital of $9.0 million.

We believe that our existing funding and revenues from our approved products will be sufficient for at least the next twelve months of our operations.

However, our projected estimates for our product development spending, administrative expenses, and our working capital requirements could be inaccurate, or we may experience growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations.

The following table sets forth a summary of our cash flows for the nine-month periods ended September 30, 2023 and 2022 (dollars in thousands):

Nine months ended

September 30, 2023

September 30, 2022

Net cash provided by operating activities

The following table sets forth a summary of our cash flows for the three-month periods ended March 31, 2024 and 2023 (dollars in thousands):

Three months ended

March 31, 2024

March 31, 2023

Net cash used in operating activities

Cash used in investing activities

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Change in cash and cash equivalents

The increase in cash provided by operating activities was primarily due to increased sales and gross profit from sales of our Alkindi Sprinkle and Carglumic Acid products.

The decrease in cash used in investing activities was due to a $2,000 payment related to the acquisition of Betaine Anhydrous in September 2022, and a $750 payment related to the approval of Rezipres, a product sold to Dr.

Reddy's in June 2022.

The increase in cash used in financing activities was primarily due to increased repayments of the Company's long-term debt and lower stock option net proceeds in the nine months ended September 30, 2023.

The increase in cash used in operating activities was primarily due to increased sales and gross profit from sales of our ALKINDI SPRINKLE® and Carglumic Acid products, offset by a $1,000 milestone payment related to 2023 ALKINDI SPRINKLE® sales and increased inventory purchases for ALKINDI SPRINKLE®, Carglumic Acid, Nitisinone, and PKU GOLIKE®.

The increase in cash used in investing activities was due to a $1,868 payment related to the acquisition of the PKU GOLIKE® product license in March 2024.

The increase in cash used in financing activities was primarily due to payments on the Company's long-term debt.

Critical Accounting Policies

Our condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

The preparation of our condensed financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs, and expenses in our condensed financial statements.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses in our financial statements.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our condensed financial statements included herein, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

While our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We account for contracts with our customers in accordance with ASC 606, Revenue from Contracts with Customers.

We account for contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers.

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

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and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations to assess whether each promised good or service is distinct.

At contract inception, once we determine the contract falls within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.

We assess whether these options provide a material right to the customer, and if so, they are considered performance obligations.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.

We assess whether these options provide a material right to the customer and, if so, they are considered performance obligations.

The exercise of a material right is accounted for as a contract modification for accounting purposes.

We recognize as revenue the amount of the transaction price allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, this is based on the use of an output or input method.

We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Any amounts received prior to revenue recognition will be recorded as deferred revenue.

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Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as long-term deferred revenue, net of current portion.

Milestone Payments –

If a commercial contract arrangement includes development and regulatory milestone payments, we will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue.

Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties –

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Significant Financing Component –

In determining the transaction price, we will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.

We sell our rare disease products to one pharmacy distributor customer, which provides order fulfillment and inventory storage/distribution services.

We may sell products in the U.S.

Milestone Payments – If a commercial contract arrangement includes development and regulatory milestone payments, we will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Significant Financing Component – In determining the transaction price, we will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.

The Company may sell products in the U.S.

to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers.

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments of products represents performance obligations under each purchase order.

We use a third-party logistics (“3PL”) vendor to process and fulfill orders and have concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

We have no significant obligations to wholesalers to generate pull-through sales.

For our rare disease products, we bill at the initial product list price, which is subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements that are recorded as a reduction of net revenues at the date of sale/shipment.

Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when products are sold at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order.

The Company uses a third-party logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

The Company has no significant obligations to wholesalers to generate pull-through sales.

In addition, we pay fees to wholesalers for their distribution services, inventory reporting, and chargeback processing.

We pay GPOs fees for administrative services and access to GPO members and concluded the benefits received in exchange for these fees are not distinct from our sales.

Accordingly we apply these amounts to reduce revenues.

Wholesalers also have rights to return eligible, unsold products nearing or past the expiration date.

We estimate the transaction price when we receive each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler/distributor arising from all of the above factors.

We have developed estimates for future returns and chargebacks and the impact of the other discounts and fees we pay, although rare disease product sales are not subject to returns.

The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays.

We store our rare disease product inventory at our pharmacy distributor customer location and record sales when stock is pulled and shipped to fulfill specific patient orders.

We may recognize revenue and cost of sales from product sold to wholesalers upon delivery to the wholesaler location.

At that time, the wholesalers take control of the product and take title, bear the risk of loss of ownership, and have an enforceable obligation to pay us.

The wholesalers also have the ability to direct sales of products to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, we do not believe they have a significant incentive to return the product.

The Company may recognize revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location.

At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company.

They also have the ability to direct sales of product to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, the Company does not believe they have a significant incentive to return the product.

Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable.

We monitor actual product returns, chargebacks, discounts, and fees after the sale.

If these amounts end up differing from our estimates, we will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.

The Company monitors actual product returns, chargebacks, discounts and fees subsequent to the sale.

Stock-Based Compensation

We account for stock-based compensation under the provisions of ASC 718, Compensation –

Stock Compensation.

The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation.

We estimate the fair value of stock-based option awards to our using the Black-Scholes-Merton option-pricing model (“BSM”).

Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed.

The Company estimates the fair value of stock-based option awards using the BSM.

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The expected term of stock options granted is based on vesting periods and the contractual life of the options.

Expected volatility is based on the Company's own volatility, along with a limited weighting of comparable companies’

historical volatilities, which management believes represents the most accurate basis for estimating expected future volatility under the current conditions.

We account for forfeitures as they occur.

We use the closing common stock price on the date of grant for the fair value of the common stock.

Because there had been no public market for our common stock prior to the IPO, our board of directors had determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors, including enterprise valuations of our common stock performed by an unrelated third-party specialist, valuations of comparable companies, sales of our convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of our capital stock, and general and industry-specific economic outlook.

Following our IPO, we use the closing stock price on the date of grant for the fair value of the common stock.

Research and Development Expenses

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We do not have any off-balance sheet transactions.

JOBS Act Transition Period

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted.

Section 107 of the JOBS Act provides that an “emerging growth company”

can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act.

As an emerging growth company, subject to certain conditions, we may rely on certain of these exemptions, including without limitation: (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

We will remain an emerging growth company until December 31, 2023.

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-Q

Item 1. Financial Statements