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Item 8. Financial Statements and Supplementary Data

2025-03-18 compared with 2024-03-14 · 428 added, 195 removed, 628 unchanged (50% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firms (PCAOB ID:

Balance Sheets

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Eton Pharmaceuticals, Inc.

Stockholders and the Board of Directors of Eton Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Eton Pharmaceuticals, Inc.

(the “Company”) as of December 31, 2023 and 2022, the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

(the "Company") as of December 31, 2024, the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

State Medicaid Rebates and Liability

Critical Audit Matter Description

As described in Note 3 of the Notes to Financial Statements, the Company recognizes revenue from product sales net of estimated sales deductions, including state Medicaid rebates.

The state Medicaid rebate and related liability are estimated based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rebate rates and estimated lag time of the rebate invoices.

We determined that auditing management’s estimate of the state Medicaid rebates was a critical audit matter because it was especially challenging to evaluate management’s judgments related to the data and significant assumptions used to determine the rebates.

These include the identification of product sales subject to state Medicaid rebates as well as the historical rebate percentage applied to eligible sales.

Additionally, there can be timing differences between when product sales occur and when the Company receives the related state Medicaid rebate invoices, which can vary based on state Medicaid program requirements.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures over management’s estimated state Medicaid rebates and related liability included the following:

Evaluated management’s method to determine the rebate liability based on (1) product sales subject to state Medicaid rebates and (2) the applicable rebate percentages.

Tested the completeness and accuracy of state Medicaid rebate-eligible product sales by agreeing sales data to supporting documentation.

Agreed rebate percentages paid under state Medicaid programs in 2024 to corresponding invoices by product.

Recalculated the estimated rebate liability.

Assessed the reasonableness of management’s assumption of timing differences between product sales and the receipt of state Medicaid rebate invoices.

Evaluated subsequent state Medicaid rebate invoices and related payments to identify any information that might require an adjustment to the recorded liability.

Valuation of Acquired Inventory and Intangible Asset for the Increlex Acquisition

Critical Audit Matter Description

As described in Note 4 of the financial statements, on October 2, 2024, the Company entered into an asset purchase agreement to acquire Increlex from Ipsen S.A., with the transaction closing on December 19, 2024.

Management determined that the acquisition should be accounted for as a business combination under ASC 805.

We determined that auditing management’s valuation of the acquired inventory and intangible asset was a critical audit matter due to the significant judgment and estimation uncertainty involved in determining the fair value of the acquired inventory and intangible asset.

Evaluating the valuation of acquired inventory and intangible asset was complex because it involved management’s estimates and assumptions regarding:

Costs to complete and sell inventory, which required assessing expected selling prices and estimated costs to complete and sell acquired inventory.

Future cash flows, contributory asset charges and discount rates used to value the intangible asset.

Valuation methodologies and significant assumptions, which required specialized knowledge.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures over management’s valuation of the acquired inventory and intangible asset for the Increlex acquisition included:

Assessed the methodologies used to value the acquired inventory and intangible asset with assistance from valuation specialists.

Performed an inventory observation for the acquired inventory and agreed to management’s identified quantities in the inventory fair value analysis.

Assessed inventory valuation estimates by evaluating the reasonableness of management’s assumptions for costs to complete and sell acquired inventory.

Recalculated management’s analysis of the inventory value.

Assessed the reasonableness of the intangible asset valuation by evaluating projected financial data assumptions, contributory asset charges and discount rates used in valuation models.

Recalculated management’s analysis of the intangible asset value.

Evaluated financial statement disclosures to determine whether the fair value measurement considerations were adequately disclosed.

/s/ Crowe LLP

We have served as the Company’s auditor since 2024.

Oakbrook Terrace, Illinois

March 18, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Eton Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Eton Pharmaceuticals, Inc.

(the “Company”) as of December 31, 2023, the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Product Sales Deductions

Critical Audit Matter Description

As described in Note 3 to the financial statements under the caption “Revenue Recognition for Contracts with Customers,” revenues from product sales are recognized net of reductions for estimated returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees (collectively, “sales deductions”), which are established at the time of sale.

Auditing the estimation of sales deductions was challenging because of the limited sales history of the Company’s products and the subjectivity of certain assumptions required to estimate those amounts.

The product sales deductions are estimated based on current contractual and statutory requirements, market events and trends, and internal and external historical data.

Specifically, management estimates potential chargebacks, which relate to price reductions below the estimated sales price that the wholesalers provide to certain customers, based on historical industry data for competing products and adjusted for actual historical experience.

In addition, management estimates its provision for product returns based on prior experience with similar product launches and considers other factors such as levels of inventory in the distribution channel, forecasted buying patterns, product dating and expiration period.

How the Critical Audit Matter Was Addressed in the Audit

To test management’s estimated product sales deductions, we obtained management’s calculations for the respective estimates and performed the following procedures, among others.

We tested management’s estimation process for determining of product sales discounts accruals by developing an independent expectation of the estimated accrual rate, including a comparison of rates used in management’s forecast to rates in the underlying contracts and performing a retrospective review of assumptions to actual activity.

In addition, we assessed subsequent events to determine whether there was any new information that would require adjustment to the initial accruals, evaluated trends in actual sales and discount accrual balances, and compared cash receipts to product sales.

We also examined terms and conditions for a sample of contracts with the Company’s customers, tested a sample of credits issued and payments made throughout the year and agreed rates to underlying contract terms.

/s/ KMJ Corbin & Company LLP

We have served as the Company’s auditor since 2018.

Irvine, California

We served as the Company's auditor from 2018 through 2024.

Glendora, California

March 14, 2024

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Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

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Current portion of long-term debt, net of discount

Accrued Medicaid rebates

Accrued liabilities

Total current liabilities

19,947 16,241

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

Operating lease liabilities, net of current portion

Other long-term liabilities

Total liabilities

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Licensing revenue

$ 500 $ 5,500 $ 10,000

Product sales and royalties, net

38,511 26,142 11,251

Total net revenues

39,011 31,642 21,251

Cost of Sales:

Licensing revenue

270 1,000 1,640

Product sales and royalties

15,330 9,581 5,293

Total cost of sales

15,600 10,581 6,933

23,411 21,061 14,318

Operating expenses:

Research and development

3,255 3,322 3,996

General and administrative

22,753 18,931 18,582

Total operating expenses

26,008 22,253 22,578

Loss from operations

( 2,597 ) ( 1,192 ) ( 8,260 )

Other income (expense):

Interest and other income (expense), net

Gain on PPP loan forgiveness

Gain on equipment sale

Interest and other (expense) income, net

( 1,211 ) 503 ( 761 )

Loss before income tax expense

( 3,808 ) ( 689 ) ( 9,021 )

Income tax expense

$ ( 3,823 ) $ ( 936 ) $ ( 9,021 )

Net loss per share, basic and diluted

$ ( 0.15 ) $ ( 0.04 ) $ ( 0.36 )

Weighted average number of common shares outstanding, basic and diluted

25,895 25,645 25,146

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

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Balances at December 31, 2021

24,626,004 $ 25 $ 111,718 $ ( 94,113 ) $ 17,630

Stock-based compensation

— — 4,218 — 4,218

Stock option exercises

25,000 — 35 — 35

Employee stock purchase plan

69,884 — 171 — 171

Common stock issued related to restricted stock units

Stock warrant exercises

632,231 — 45 — 45

— — — ( 9,021 ) ( 9,021 )

Balances at December 31, 2022

25,353,119 25 116,187 ( 103,134 ) $ 13,078

Stock-based compensation

Stock option exercises

— — 3,137 — 3,137

Stock option exercises and vesting of restricted stock units

299,028 1 148 — 149

Employee stock purchase plan

Stock warrant exercises

86,782 — 229 — 229

Shares withheld related to net share settlement of stock option exercises

( 50,867 ) — ( 180 ) — ( 180 )

— — — ( 936 ) ( 936 )

Balances at December 31, 2023

25,688,062 26 119,521 ( 104,070 ) $ 15,477

Common stock issued in private placement offering

583,334 1 6,999 — 7,000

Stock-based compensation

— — 3,165 — 3,165

Employee stock purchase plan

80,933 0 248 — 248

Stock option exercises and vesting of restricted stock units

Shares withheld related to net share settlement of stock option exercises

356,755 0 1,191 — 1,191

Relative fair value of warrants issued in connection with debt

— — 1,170 — 1,170

— — — ( 3,823 ) ( 3,823 )

Balances at December 31, 2024

26,709,084 $ 27 $ 132,294 $ ( 107,893 ) $ 24,428

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

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Cash flows from operating activities

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

$ ( 3,823 ) $ ( 936 ) $ ( 9,021 )

Adjustments to reconcile net loss to net cash from operating activities:

Stock-based compensation

3,165 3,137 4,218

Depreciation and amortization

1,146 901 1,774

Non-cash lease expense

Debt discount amortization

Gain on forgiveness of PPP loan

Gain on sale of equipment

Changes in operating assets and liabilities:

1,109 117 127

Changes in operating assets and liabilities, net of impact of business acquisition:

Accounts receivable

( 3,118 ) ( 1,559 ) 3,619

( 1,310 ) ( 354 ) ( 7 )

Prepaid expenses and other assets

( 3,349 ) 94 1,840

Accounts payable

2,318 53 ( 8 )

Accrued Medicaid rebates

3,239 2,818 768

Accrued liabilities

Net cash provided by (used in) operating activities

Cash used in investing activities

Proceeds from sale of equipment

1,484 2,477 1,449

Other non-current assets and liabilities

Net cash from operating activities

969 6,815 4,821

Cash from investing activities

Purchases of property and equipment

( 26 ) — ( 38 )

Acquisition of business

( 30,000 ) — —

Purchase of product licensing rights

Net cash used in investing activities

( 9,988 ) ( 775 ) ( 2,750 )

Net cash from investing activities

( 40,014 ) ( 775 ) ( 2,788 )

Cash flows from financing activities

Net proceeds from employee stock purchase plan and stock option and stock warrant exercises

Net cash (used in) provided by financing activities

Net proceeds from the issuance of long-term debt

Repayment of long-term debt

( 1,155 ) ( 1,155 ) ( 385 )

Common stock issued in private placement offering

Proceeds from stock option exercises

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

Employee stock purchase plan

Stock warrant exercises

Net cash from financing activities

32,593 ( 957 ) ( 134 )

Change in cash and cash equivalents

( 6,452 ) 5,083 1,899

Cash and cash equivalents at beginning of year

21,388 16,305 14,406

Cash and cash equivalents at end of year

$ 14,936 $ 21,388 $ 16,305

Supplemental disclosures of cash flow information

Cash paid for interest

$ 665 $ 842 $ 730

Cash paid for income taxes

$ 82 $ 247 $ —

Supplemental disclosures of non-cash investing and financing activities:

Debt issuance costs

$ 386 $ — $ —

Fair value of warrants issued in connection with debt agreement

$ 1,170 $ — $ —

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

Right-of-use assets obtained in exchange for lease liabilities

$ 219 $ — $ 188

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

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

The Company currently has four commercial rare disease products:

ALKINDI SPRINKLE® for the treatment of adrenocortical insufficiency;

Carglumic Acid for the treatment of hyperammonemia due to NAGS deficiency;

Betaine Anhydrous for the treatment of homocystinuria;

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

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

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

We currently have seven commercial rare disease products:

INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone.

We have six additional product candidates in late-stage development:

ET- 400, ET- 600, Amglidia®, ET- 700, ET- 800 and ZENEO® hydrocortisone autoinjector.

Note 2 — Liquidity Considerations

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The Company has prepared the accompanying financial statements in accordance with GAAP.

Eton Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Note 3 — Summary of Significant Accounting Policies (continued)

Certain prior period amounts, have been reclassified to conform to current year presentation in the financial statements and notes to financial statements and these reclassifications had no impact to prior period financial statements.

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 recoverability of long-lived assets, valuation of deferred tax assets, the accrual of research and development expenses, and the valuation of common stock, stock options, warrants, and restricted stock units (“RSUs”).

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, Medicaid program rebates, valuation of inventories, useful lives of assets and the recoverability of long-lived assets, valuation of deferred tax assets, and the valuation of common stock, stock options, warrants, and restricted stock units (“RSUs”).

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

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Actual results could differ from those estimates or assumptions.

The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805” ), to determine whether the transaction is a business combination or an asset acquisition.

In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screening test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition.

If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

If so, the Company concludes that the acquired set is a business.

Note 3 — Summary of Significant Accounting Policies (continued)

The Company accounts for business acquisitions using the acquisition method of accounting.

Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions.

The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but these assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.

During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations.

Segment Information

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 CEO, who evaluates the Company as a single operating segment.

The Company operates the business on the basis of a single reportable segment, which includes seven commercial rare disease products:

INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone.

The Company derives revenues from product sales to specialty pharmacy customers, who then provide order fulfillment, inventory storage and distribution services.

The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer, who evaluates the Company’s financial performance and results of operations as a single operating segment.

The CODM reviews net income or loss as a measure of segment profit or loss in assessing performance and allocating resources.

Segment revenues, expenses and profit or loss is reported on the Statements of Operations.

Additionally, the measure of segment assets is reported on the Company’s balance sheet as total assets.

The Company's revenues and its accounts receivable balances are highly concentrated and consist of sales to and amounts due from AnovoRx and Optime Care for the Company's ALKINDI SPRINKLE®, Carglumic Acid, and Betaine Anhydrous products, as well as from Pentec Heath for sales of the Company’s PKU GOLIKE® product.

For the years ended December 31, 2024, 2023 and 2022, AnovoRx product sales represented 93.6 %, 78.2 % and 45.5 % of net revenues, respectively.

As of December 31, 2024 and 2023, AnovoRx product sales represented 96.2 % and 97.4 % of net accounts receivable.

For the years ended December 31, 2024, 2023 and 2022, the Company's revenues from external customers were entirely derived from U.S operations and did not include any foreign countries.

As of December 31, 2024 and 2023, all long-lived assets were domiciled within the U.S.

Cash and Cash Equivalents

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Accounts receivable are recorded at the invoiced amount and are non-interest bearing.

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

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

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.

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

The total for these reserves amounted to $ 129 and $ 262 as of December 31, 2023 and 2022 , respectively.

The total for all accounts receivable reserves was $ 238 and $ 129 as of December 31, 2024 and 2023 , respectively.

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 records a write-down if an impairment is identified.

Inventories at December 31, 2023 and 2022 consist primarily of purchased finished goods.

At December 31, 2023 and 2022, inventories are shown net of a reserve for ALKINDI SPRINKLE® inventory due to the risk of expiry prior to being sold.

As of December 31, 2024, inventories consisted of purchased finished goods, semi-finished goods and raw materials.

As of December 31, 2023, inventories consisted of purchased finished goods.

At December 31, 2024 inventories are shown net of a reserve for Nitisinone, Betaine Anhydrous, ALKINDI SPRINKLE® and PKU GOLIKE® inventory.

As of December 31, 2024, inventories included $ 5,000 in prepaid raw materials acquired in the INCRELEX® business acquisition.

At December 31, 2023, inventories are shown net of reserve for ALKINDI SPRINKLE® due to the risk of expiry prior to being sold.

There was an inventory reserve of $ 605 and $ 76 at December 31, 2024 and 2023 , respectively.

Property and Equipment

Property and equipment are stated at cost.

Property and equipment are stated at cost less accumulated depreciation.

Depreciation of property and equipment is computed utilizing the straight-line method based on the following estimated useful lives.

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The Company capitalizes payments it makes for licensed products when the payment is based on FDA approval for the 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.

The cost is amortized on a straight-line basis over the estimated useful life of the product commencing on the approval date or the product acquisition date in accordance with 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.

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

The intangible assets, net on the Company’s balance sheet reflected $ 1,286 of accumulated amortization as of December 31, 2023 .

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.

In December 2024, the Company completed a business combination of INCRELEX® (mecasermin injection) for $ 21,250 and that cost is being amortized over ten years.

In December 2024, the Company acquired GALZIN® (zinc acetate) for $ 8,119 and that cost will be amortized over ten years.

The intangible assets, net on the Company’s balance sheet reflected $ 2,381 and $ 1,286 of accumulated amortization as of December 31, 2024 and 2023.

The Company recorded $ 1,096 , $ 790 , and $ 1,617 of amortization expense for the years ended December 31, 2024, 2023 and 2022 respectively.

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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 recorded no allowance for doubtful accounts at December 31, 2023 or 2022 .

The accounts receivable balance at December 31, 2023 and 2022 and product sales revenue recognized during the year ended December 31, 2023 and 2022 consist of sales to and amounts due from AnovoRX and Optime Cares for the Company's ALKINDI SPRINKLE®, Carglumic Acid, and Betaine Anhydrous products, as well as from AmerisourceBergen Corporation, Cardinal Health Services and McKesson Corporation for sales of the Company’s Biorphen product.

AnovoRx sales made up 78.2 % of 2023 total net revenues and 97.4 % of net accounts receivable as of December 31, 2023 , and 45.5 % of 2022 total net revenues and 79.8 % of net accounts receivable as of December 31, 2022 .

The Company's accounts receivables are evaluated to determine if any allowance should be recorded based on consideration of the current economic environment, expectations of future economic conditions, specific circumstances and the Company's historical collection experience.

Additionally, 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 any prior customer credit loss experience.

Based upon the review of these factors, the Company recorded no allowance for credit losses at December 31, 2024 or 2023.

Revenue Recognition for Contracts with Customers

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

The Company recognizes 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.

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.

For the years ended December 31, 2022, 2023 and 2024, all revenues recognized in the Statements of Operations were point in time sales to the Company's customers.

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.

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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, and Nisitinone products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services.

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

The Company may sell products in the U.S.

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

For its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone 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.

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.

For its INCRELEX®, ALKINDI SPRINKLE®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone

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 recorded as a reduction of net revenues at the date of sale/shipment.

Selling prices initially billed to wholesalers may be 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.

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

The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although INCRELEX®, ALKINDI SPRINKLE®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone sales are not subject to returns.

The Company stores its INCRELEX®, ALKINDI SPRINKLE®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone 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.

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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.

Eton Pharmaceuticals, Inc.

11 unchanged sentences

R&D expenses are charged to operations as incurred.

The Company reviews and accrues R&D expenses based on services performed and relies upon estimates of those costs applicable to the stage of completion of each project.

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

The Company reviews and accrues R&D expenses based on services performed and may, from time to time, make estimates of those costs applicable as to the stage of completion of each project.

Actual results could differ from the Company’s estimates.

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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 Company estimates the fair value of stock-based option awards using the Black-Scholes option-pricing model (“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 Company accounts for income taxes under the provisions of ASC 740 - Income Taxes.

As of December 31, 2023 and 2022 , there were no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.

As of December 31, 2024, $ 382 is included in the balance sheets for unrecognized tax positions.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

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The Company’s tax losses from 2017 through 2024 are subject to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses (“NOLs”).

Current accounting standards include guidance on the accounting for uncertainty in income taxes recognized in the financial statements.

Such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company believes that the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the timing of such deductibility.

As a result, no liability for uncertain tax positions was recorded as of December 31, 2023 or 2022 .

Fair Value Measurements

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Impact of Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

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

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

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

Scope ("ASU 2021 - 01" ).

2020 - 04 and ASU No.

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

2020 - 04 and ASU No.

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

In December 2022, the FASB issued ASU No.

2022 - 06, Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848 , which extends the temporary accounting rules under Topic 848 to December 31, 2024.

The Company transitioned to the secured overnight financing rate ("Term SOFR") from LIBOR on August 22, 2023.

There are no material impacts to the consolidated financial statements.

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments-Credit Losses (Topic 316 ):

Measurement of Credit Losses on Financial Instruments , which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments.

The new standard requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard.

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

Subsequent to the issuance of ASU No.

2016 - 13, the FASB issued ASU No.

2018 - 19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses .

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

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

The FASB also subsequently issued ASU No.

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

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

The Company prospectively adopted this guidance on the effective date of January 1, 2023 and the adoption did not have a material impact to the consolidated financial statements and resulted in no adjustment to the Company’s prior year earnings.

The Company’s management has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position, results of operations and cash flows.

New Pronouncements Adopted

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses.

The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

The Company adopted the new accounting pronouncement on January 1, 2024.

The adoption of this guidance did not have an effect on the Company’s financial position, results of operations and cash flows.

New Pronouncements Issued

In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for the Company's annual periods beginning January 1, 2025, with early adoption permitted, and may be applied either prospectively or retrospectively.

The Company is assessing the guidance, noting the adoption impacts disclosure only.

In November 2024, the FASB issued ASU 2024 - 03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220 - 40 ).

Additionally, in January 2025, the FASB issued ASU 2025 - 01 to clarify the effective date of ASU 2024 - 03.

The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses.

The standard requires, in the notes to the financial statements, disclosure of specified information about certain costs and expenses, which includes purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption.

This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early adoption permitted.

The Company is assessing the guidance, noting the adoption impacts disclosure only.

Note 4 – Business Combination

On October 2, 2024, the Company and Ipsen Biopharmaceuticals, Inc.

(“Ipsen”), a subsidiary of Ipsen S.A., entered into an Asset Purchase Agreement (the “Purchase Agreement”), whereby the Company agreed to acquire Increlex® (mecasermin injection) from Ipsen.

Increlex® is a biologic product used to treat children and adolescents from two -to 18 -years-old who suffer from severe primary insulin-like growth factor 1 deficiency (SPIGFD).

The primary reason for the Increlex® product acquisition was due to the Company’s expertise and strong relationships in pediatric endocrinology in addition to leveraging the Company’s existing sales team to increase awareness of SPIGFD.

Under the terms of the Purchase Agreement, the Company acquired Increlex® for $ 22,500 at closing, plus an additional $ 7,500 for product inventory.

The Company will also make payments to Ipsen of $ 2,500 on each of the first and second anniversaries of closing.

In addition, the Company will be obligated to purchase additional inventory over 30 months, in an amount not to exceed €15,000.

The Company also entered into an amendment to its existing credit agreement with SWK Holdings Corporation (“SWK”) that was contingent upon the closing of the Purchase Agreement.

Under the terms of the amendment, the Company expanded its existing credit facility by $ 25,700 to $ 30,000 , extended the facility’s maturity to three years from closing, and reduced the facility’s annual interest rate to Secured Overnight Financing Rate (“ SOFR ”) plus 6.75 %.

- refer to Note 6, “Debt” for further details.

In connection with the closing of Purchase Agreement, the Company issued a warrant to the lender for the purchase of up to 289,736 shares of common stock at a price of $ 5.32 per share.

On December 19, 2024, the Company completed the acquisition of Increlex®.

The Company determined that the asset purchase agreement met the definition of a business under ASC 805;

therefore, the Company accounted for the Purchase Agreement as a business combination and applied the acquisition method of accounting.

Note 4 – Business Combination (continued)

The allocation of the purchase consideration was as follows:

Purchase Price

Cash consideration

Deferred payments (1)

Total consideration

Inventory (2)

Intangible assets (3)

Assets acquired

Net assets acquired

( 1 ) Deferred payments represent the acquisition date fair value of the $ 5,000 in deferred consideration to be paid to Ipsen.

The Company will make payments of $ 2,500 on each of the first and second anniversaries of closing, which the closing date of the acquisition was December 19, 2024.

The Company will accrete the $ 724 , which represents the difference between the total deferred payments amount due of $ 5,000 and the acquisition date fair value of $ 4,276 , to interest expense in its Statements of Operations over the course of the two -year period using the effective interest rate methodology.

( 2 ) Inventory consists of raw materials, semi-finished goods and finished goods.

Finished goods, semi-finished goods and raw materials inventory were valued on the acquisition date at fair value and resulted in a $ 5,510 step-up in inventory value compared to a $ 7,500 carrying value.

Determining the fair value of inventory included making estimates of costs to complete and to sell semi-finished and finished goods inventory.

( 3 ) Intangible assets consist of the transferred intellectual property as a part of the license agreement.

The estimated fair value of the intangible asset was determined using the multi-period excess earnings method (“MPEEM”), which is a form of income approach, which incorporates the estimated future cash flows to be generated from the product utilizing the existing customer base.

Excess earnings are the earnings remaining after deducting the market rates of return on the estimated value of contributory assets, including debt-free net working capital, tangible assets, other long-term assets and other identifiable intangible assets.

The excess earnings are thereby calculated from each year of a multi-year projection period and discounted to present value.

The primary components of this method consist of the discount rate and contributory asset charges.

The imputed fair value of the Increlex® intangible asset of $ 21,250 will be amortized over its useful life of ten years.

( 4 ) Goodwill represents the excess of the purchase price consideration over the fair value of the net assets acquired.

Due to the immateriality of the implied value of goodwill, the Company elected to expense the $ 16 in goodwill, which was expensed to general and administrative expenses for the year ended December 31, 2024 in the Company Statements of Operations.

Transition services agreement

Concurrent with the Purchase Agreement, the Company entered into a transition services agreement (the “TSA”) with Ipsen to govern Ipsen providing transitional pharmaceutical marketing services, distribution services and other related support and assistance with operations outside the U.S.

The services being provided under the TSA have been priced at market rates, and the Company is not receiving a discount from Ipsen for these services.

As a result, there was no portion of the purchase price allocated to the TSA consideration.

The separate consideration under the TSA will be expensed as occurred and when services are received.

Acquisition related costs

For the year ended December 31, 2024, the Company incurred acquisition related costs of $ 415 , which were expensed as incurred and included in general and administrative expenses in the Statements of Operations.

Unaudited actual and pro forma information

For the year ended December 31, 2024, the Company recognized $ 166 of net sales related to Increlex® in the Statements of Operations.

The following unaudited pro forma summary presents information of the Company, including Increlex®, as if the Purchase Agreement had occurred on January 1, 2023:

Year Ended December 31,

$ 53,206 $ 50,362

$ ( 6,590 ) $ ( 1,612 )

These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations.

The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the Purchase Agreement and are factually supportable.

The adjustments are based on information available to the Company at this time.

Accordingly, the adjustments are subject to change, and the impact of such changes may be material.

The unaudited pro forma results do not include any incremental cost savings that may result from the integration.

Note 5 – Property and Equipment

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Leasehold improvements

Construction in progress

Property and equipment, gross

accumulated depreciation and amortization

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Note 6 – 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 debt financing.

The Company received proceeds of $ 5,000 at closing and was able to borrow an additional $ 5,000 upon the FDA approval of a second product developed by the Company, excluding EM- 100.

In March 2020, in conjunction with the Company’s ALKINDI SPRINKLE® product licensing agreement (see Note 14 ) and the Company’s March 2020 sale of shares of its common stock (see Note 6 ), the Company and SWK amended the SWK Credit Agreement.

The amendment provided the Company with the option to immediately draw an additional $ 2,000 and the ability to borrow up to another $ 3,000 based upon the FDA approval of EM- 100 and ALKINDI SPRINKLE® which subsequently occurred in September 2020.

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

The Company received proceeds of $ 5,000 at closing and was able to borrow 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, which provided the Company with the option to immediately draw an additional $ 2,000 and the ability to borrow up to another $ 3,000 based upon the FDA approval of EM- 100 and ALKINDI SPRINKLE® which subsequently occurred in September 2020.

Accordingly, the Company borrowed an additional $ 2,000 in August 2020.

Under the terms of the SWK Credit Agreement, the Company was required to maintain a minimum cash balance of $ 3,000 and pay 5.5 % of the loan principal balance commencing in February 2022 and then every three months thereafter until November 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 include limits on additional indebtedness.

In February 2021, the Company notified SWK that it will not require additional borrowing capacity under the SWK Credit Agreement and terminated the additional borrowing capacity with SWK.

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In April 2022, the Company and SWK entered into an amendment to the SWK Credit Agreement which allowed for a deferral of loan principal payments until May 2023 and reduced 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 $ 1,033 as principal due in the next 12 months and the remainder classified as long-term debt in its balance sheet at December 31, 2022.

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

In September 2024, the Company and SWK entered into an amendment to the SWK Credit Agreement, which was contingent upon the closing of the INCRELEX® Purchase Agreement.

Under the terms of the amendment, the Company expanded its existing credit facility by $ 25.7 million to $ 30.0 million, extended the facility’s maturity to three years from closing with a loan maturity date of December 17, 2027, and reduced the facility’s annual interest rate to Secured Overnight Financing Rate (“SOFR”) plus 6.75 %.

In connection with the amendment to the SWK Credit Agreement, the Company issued a warrant to the SWK for the purchase of up to 289,736 shares of common stock at a price of $ 5.32 per share.

The relative fair value of these 289,7369 warrants was $ 1,170 and was estimated using the BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 6.00 per share with an exercise price of $5.32;

seven -year contractual term;

63.8 % volatility;

0 % dividend rate;

and a risk-free interest rate of 3.67 %.

Interest payments are payable quarterly, with quarterly principal payments of $ 3,000 beginning in May 2026 with a final principal payment of $ 9,000 due at maturity in December 2027.

The amended SWK Credit Agreement includes a 5.0 % exit fee payable at maturity and this exit fee payable will be accreted to interest expense in the Company's Statement of Operations using the effective interest expense method.

The amended SWK Credit Agreement contains a mandatory prepayment clause that can compel the Company to partially prepay the loan upon certain triggering events, which the Company has deemed to be remote.

Borrowing under the amended SWK Credit Agreement is secured by the Company's assets, contains customary default provisions, which include limits on additional indebtedness.

As of December 31, 2024 and 2023, the Company was in compliance with all financial covenants.

The Company recorded interest expense of $ 2,005 , $ 1,060 and $ 955 in 2024, 2023 and 2022 , respectively, which included $ 1,109 , $ 117 and $ 127 , respectively, of debt discount amortization.

For the year ended December 31, 2024, debt discount included $ 1,170 which was associated with the issuance of warrants to SWK.

The Company had accrued interest of $ 182 and $ 332 as of December 31, 2024 and 2023 , respectively, which is included in accrued liabilities in the accompanying balance sheets.

Eton Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Note 5 – Debt (continued)

The table below reflects the future annual payments for the SWK loan principal and interest as of December 31, 2023 .

The table below reflects the future annual payments for the SWK loan principal as of December 31, 2024 .

Total payments

amount representing interest

Loan payable, gross

unamortized discount

Debt, net of unamortized discount

On May 4, 2020, the Company received $ 361 in loan proceeds under the Paycheck Protection Program (“PPP”) from the Small Business Administration (“SBA”) through its banking relationship with Bank of America.

On May 20, 2021, the Company received notice that the loan principal and cumulative interest of $ 4 was forgiven in full as permitted under the applicable SBA guidelines for PPP loans.

The $ 365 gain on debt extinguishment is reflected in non-operating income for the year ended December 31, 2021 .

On July 21, 2020, the Company received $ 150 in loan proceeds under the Economic Injury Disaster Loan program (“EIDL”) from the SBA.

The Company paid off the full EIDL loan principal and its cumulative interest of $ 6 in July 2021.

accrued exit fees at December 31, 2024

Debt, net of unamortized discount and accrued exit fees

Note 7 — Common Stock

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Note 7 — Common Stock (continued)

For the years ended December 31, 2023 and 2022 , the Company issued 207,626 (net shares issued after a portion of 407,808 shares was a cashless exercise) and 25,000 shares, respectively, of its common stock resulting from stock option exercises under its 2018 Equity Incentive Plan (see Note 8 ).

For the years ended December 31, 2024, 2023 and 2022, the Company issued 266,353 , 207,626 (net shares issued after a portion of 407,808 shares was a cashless exercise) and 25,000 , respectively, of its common stock resulting from stock option exercises under its 2018 Equity Incentive Plan (see Note 9 ).

The Company withheld 50,867 shares for payroll tax obligations totaling $ 180 for the year ended December 31, 2023.

For the years ended December 31, 2023 and 2022 , the Company issued 86,782 and 69,884 shares, respectively, under the Company’s Employee Stock Purchase Plan (“ESPP”).

For the year ended December 31, 2023 , the Company issued 91,402 shares of its common stock due to the vesting of restricted stock units.

In April 2021, the Company issued 25,000 shares of its common stock to a member of its board of directors upon his retirement from the board in connection with previously vested RSUs.

During 2022, there were 1,067,242 warrants exercised, a portion of which was a cashless exercise, resulting in 632,231 shares of common stock being issued by the Company.

For the years ended December 31, 2024, 2023 and 2022 , the Company issued 80,933 , 86,782 shares and 69,884 , respectively, under the Company’s Employee Stock Purchase Plan (“ESPP”).

For the years ended December 31, 2024, 2023 and 2022, the Company issued 90,402 , 91,402 and 0 , respectively, in shares of its common stock due to the vesting of restricted stock units.

On December 10, 2024, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which the Company issued 583,334 shares of its common stock at an offering price of $ 12.00 per common share for gross proceeds to the Company of $ 7,000 before deducting any related offering expenses.

Note 8 — Common Stock Warrants

Listed below is a summary of warrants outstanding as of December 31, 2023 :

Warrants outstanding as of December 31, 2024 is listed in the table below:

Description of Warrants

Warrant Issuance Date

Exercise Price

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18,141 $ 6.62

69,380 6.05 (Avg)

SWK Warrants – Debt (Tranche #3)

289,736 $ 5.32

Total shares and weighted average exercise price

359,116 $ 5.46

The holders of these warrants or their permitted transferees, are entitled to rights with respect to the registration under the Securities Act of their shares that are converted to common stock, including demand registration rights and piggyback registration rights.

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 the 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 administration expense on the Statement of Operations for the year ended December 31, 2022.

A rollforward of the warrants outstanding is listed in the table below:

On September 30, 2024, in c onnection with the Company's amendment to expand its existing credit facility to $ 30.0 million with SWK, the Company issued 289,736 warrants to SWK at a price of $ 5.32 per share.

The relative fair value of these 289,736 warrants was $ 1,170 and was estimated using the BSM with the following assumptions:

fair value of the Company’s common stock at issuance of $ 6.00 per share with an exercise price of $5.32;

seven -year contractual term;

63.8 % volatility;

0 % dividend rate;

and a risk-free interest rate of 3.67 %.

A roll forward of warrants outstanding as of December 31, 2024 is listed in the table below:

Balance as of the beginning of the year

Expiration of National Securities Corp – November 2018 issuance

69,380 69,380

Issuance of SWK Warrants - Debt (Tranche #3)

289,736 289,736

Balance as of the end of the year

359,116 359,116

There were 1,067,242 warrants exercised on a cashless basis in 2022 resulting in 632,231 shares of common stock being issued by the Company.

There were 135,650 warrants exercised in 2021 (all on a cashless basis) resulting in 94,808 shares of common stock being issued by the Company.

The intrinsic value of the warrants exercised was $ 2,367 in 2022 and $ 806 in 2021.

There were no warrants exercised in 2023.

There were no warrants exercised in 2023 or 2024.

`Note 9 — Share-Based Payment Awards

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On January 1, 2024, the share reserve was increased by 1,027,522 shares based on the 25,688,062 shares of common stock outstanding at December 31, 2023.

On January 1, 2023, the share reserve was increased by 1,014,124 shares based on the 25,353,119 shares of common stock outstanding at December 31, 2022.

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.

7 unchanged sentences

Due to these modifications, the Company incurred a modification expense of approximately $ 104 that is included in general and administration expense on the Statement of Operations for the year ended December 31, 2022.

In August 2024, the Company’s board of directors approved a modification of certain outstanding awards of a senior executive who retired in August 2024.

The combined awards had an exercise price range of $ 3.47 to $ 8.61 which were set to expire 90 days after retirement or termination as the case may be, and the Company extended the expiration dates to November 2025 in conjunction with ongoing consulting services.

No other terms were modified.

Due to these modifications, the Company incurred a modification expense of $ 75 that is included in general and administration expense on the Statements of Operations for the year ended December 31, 2024.

For the years ended December 31, 2024, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 3,165 , $ 3,137 and $ 4,218 , respectively.

23 unchanged sentences

Note 9 — Share-Based Payment Awards (continued)

There were 207,626 and 25,000 shares issued for exercise of stock options during the years ended December 31, 2023 and 2022 , respectively, for proceeds of $ 149 and $ 35 .

For the years ended December 31, 2024, 2023 and 2022, there were 266,353 , 207,626 and 25,000 shares issued for exercise of stock options, respectively f or proceeds of $ 1,190 , $ 149 and $ 35 , respectively.

The assumptions used to calculate the estimated fair value of options granted during the years ended December 31, 2024, 2023 and 2022 under the BSM were as follows:

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Weighted Average Grant-Date

Number of Units

December 31, 2024

Fair Value Per Unit

3 unchanged sentences

( 90,402 ) $ 2.63

( 23,000 ) $ 2.63

Outstanding and unvested as of December 31, 2024

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Basic and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the period.

Common stock equivalents (using the treasury stock and “if converted” method) from stock options, unvested RSAs and RSUs, and warrants at December 31, 2023, 2022 and 2021 were 5,418,251 , 5,494,153 , and 4,286,687 , respectively, and are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive.

Common stock equivalents (using the treasury stock and “if converted” method) from stock options, RSUs, and warrants at December 31, 2024, 2023 and 2022 were 6,389,345 , 5,418,251 , and 5,494,153 respectively, and are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive.

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

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Note 11 — Related-Party Transactions

The Chief Executive Officer of Harrow Health, Inc.

(“Harrow”) was a member of the Company’s board of directors until March 17, 2021 when he retired from service with the board.

The Company issued 25,000 shares to the Harrow CEO in April 2021 after his retirement from the Company’s board associated with RSUs that were previously fully vested.

As of December 31, 2023 , Harrow owned 1,982,000 shares of Eton’s common shares which represents approximately 7.7 % of the Company’s common shares outstanding.

In March 2021, the Company closed its laboratory operation in Lake Zurich, Illinois and in May 2021 it reached an agreement for Imprimis Pharmaceuticals, a subsidiary of Harrow, to purchase its lab equipment for $ 700 which was $ 181 above the Company’s net book value of the equipment.

Chief Executive Officer

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(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.

The Company has realized $ 1,840 of the non-royalty and royalty revenue as of December 31, 2023 .

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, will be split between Eyemax and the Company.

The Company realized $ 1,840 of the non-royalty and royalty revenue throughout the life of the product.

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

Previously, the Company acquired DS- 200 and all related intellectual property pursuant to an asset purchase agreement (the “Selenix Agreement”) dated June 23, 2017 between the Company and Selenix LLC (“Selenix”), an entity affiliated with the CEO.

On August 30, 2024, the Company amended the Selenix Agreement in tandem with an agreement to sell DS- 200 in August 2024 ( see Note 15 ).

Pursuant to the terms of the amended Selenix Agreement, Selenix waived its rights to future milestone payments and 50 % of DS- 200 profit in exchange for 45 % of proceeds received by Eton from the DS- 200 sale agreement.

Selenix is 50 % owned by Messa Holdings LLC (“Messa”), which is 100 % owned by the CEO.

The Company paid $ 220 to Selenix in October 2024.

Note 12 — Leases

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.

In January 2018, the Company signed an amended lease agreement to lease additional office space adjacent to its current corporate office space in Deer Park, Illinois.

In October 2020, the Company renewed its office lease for a two -year period through March 2023 and recorded $ 195 in ROU assets and $ 195 in operating lease liabilities in association with the lease extension.

In November 2022, the Company renewed its office lease for a two -year period through March 2025 and recorded $ 188 in ROU assets and $ 188 in operating lease liabilities in association with the lease extension.

In March 2018, the Company entered into a lease for laboratory space at a complex in Lake Zurich, Illinois.

The lease commenced in March 2018.

In November 2020, this laboratory lease was extended to June 2021 and was not extended after that date as the Company completed an evaluation its laboratory operations requirements and determined it would discontinue the laboratory activities and outsource its requirements.

The Company does not have any lease contracts that contain:

( 1 ) an option to extend that the Company is reasonably certain to exercise, ( 2 ) an option to terminate that the Company is reasonably certain to exercise, or ( 3 ) an option to extend (or not to terminate) in which exercise of the option is controlled by the lessor.

Additionally, the Company does not have any leases with residual value guarantees or material restrictive covenants.

Lease liabilities and their corresponding right-of-use assets have been recorded based on the present value of the future lease payments over the expected lease term.

One of the Company’s lease agreements contains provisions for escalating rent payments over the term of the lease.

The Company’s leases do not contain readily determinable implicit discount rates, and therefore, the Company was required to use its incremental borrowing rate of 7.8 % to discount the future lease payments based on information available at lease commencement.

In October 2020, the new discount rate for the office lease extension was estimated at 5.4 %.

In November 2022, the new discount rate for an additional office lease extension was estimated at 8.6 %.

The incremental borrowing rate was estimated by determining the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

In June 2024, the Company renewed its office lease for a two -year period through March 2027 and recorded $ 219 in ROU assets and $ 219 in operating lease liabilities in association with the lease extension.

The Company’s operating lease cost as presented as G&A in the Statements of Operations was $ 82 , $ 67 and $ 82 for the years ended December 31, 2024, 2023 and 2022, respectively.

For the years ended December 31, 2024, 2023 and 2022, cash paid for amounts included in the measurement of operating lease liabilities was $ 58 , $ 88 and $ 88 , respectively.

The ROU asset non-cash lease expense was $ 70 , $ 67 and $ 62 for the years ended December 31, 2024, 2023 and 2022, respectively, and is reflected within non-cash lease expense on the Company’s Statements of Cash Flows.

As of December 31, 2024 and 2023, the weighted average remaining lease term was 2.25 and 1.25 years, respectively and as of December 31, 2024 and 2023, the weighted average discount rate was 8.6 % for each period.

Eton Pharmaceuticals, Inc.

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Note 12 — Leases (continued)

The Company’s operating lease cost as presented in the “Research and Development” and “General and Administrative” captions in the statements of operations was $ 0 , $ 0 , and $ 9 and $ 67 , $ 82 , and $ 86 for the years ended December 31, 2023, 2022 and 2021 , respectively.

For the years ended December 31, 2023, 2022 and 2021 , the Company recorded $ 77 , $ 86 , and $ 113 , respectively, in rent expense.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 88 , $ 88 , and $ 83 for the years ended December 31, 2023, 2022, and 2021, respectively.

The ROU asset amortization for years ended December 31, 2023, 2022 and 2021 was $ 67 , $ 62 , and $ 88 , respectively, and is reflected in depreciation and amortization in the Company’s statements of cash flows.

As of December 31, 2023 , the weighted-average remaining lease term was 1.25 years, and the weighted-average discount rate was 8.6 %.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2024 :

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The provision for income taxes for the Company consists of the following for the years ended December 31, 2024, 2023 and 2022 :

$ 24 $ 61 $ —

Total current expense

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Note 13 – Income Taxes (continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income taxes.

The significant components of the Company’s deferred tax assets as of December 31, 2024 and 2023 are as follows:

Net operating losses

Deferred tax assets:

Net operating loss carryforwards

$ 14,145 $ 15,447

Stock-based expenses

Stock-based compensation

Accruals and other

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( 20,589 ) ( 21,516 )

Net deferred tax assets

Based on the uncertainty of future taxable income at this time management believes a 100 % valuation reserve for the $ 21,516 and $ 21,632 deferred tax assets at December 31, 2023 and 2022 , respectively, is appropriate.

A reconciliation of the statutory federal tax rate to effective tax rate is shown below:

Provision (benefit) at statutory rate

Deferred tax assets

Deferred tax liabilities:

Deferred consideration discount

$ ( 182 ) $ —

Permanent items (primarily warrants and stock compensation)

Right-of-use assets

( 45 ) ( 27 )

State tax benefit

Other deferred tax liabilities

( 177 ) ( 142 )

Federal rate change

Increase (decrease) in valuation allowance

Deferred tax liabilities

$ ( 404 ) $ ( 169 )

Net deferred tax assets (liabilities)

In assessing the realizability of deferred tax assets, the Company considers all available positive and negative evidence to evaluate whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

As of December 31, 2024, the Company believes it is more likely than not that the Company's net deferred tax assets would not be realized and continues to record a full valuation allowance on its net deferred tax assets.

The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized.

Based on the uncertainty of future taxable income at this time, Management believes a 100 % valuation reserve for the $ 20,589 and $ 21,516 net deferred tax assets at December 31, 2024 and 2023 , respectively, is appropriate.

A reconciliation of the income tax adjustments used to derive income tax expense is shown below for the years ended December 31, 2024, 2023 and 2022 as follows:

Benefit based on federal statutory rate

$ ( 800 ) $ ( 145 ) $ ( 1,894 )

Stock-based compensation

Change in state tax rate

State income tax, net of federal tax benefit

( 31 ) ( 45 ) ( 785 )

Section 162(m) limitation

Other permanent differences

Research and development credits

Change in uncertain tax position reserve

Return to provision

Change in valuation allowance

( 927 ) ( 116 ) 3,084

Income tax expense

$ 15 $ 247 $ —

The Company has a federal and state NOL carryforward of $ 54,190 as of December 31, 2023 .

Under the Tax Act, federal NOLs incurred in taxable years ending after December 31, 2017 in the amount of $ 54,190 may be carried forward indefinitely and are subject to an 80% usage limitation.

The state NOL carry forward will begin to expire in 2029.

For the years ended December 31, 2024, 2023 and 2022, the Company's effective income tax rate was ( 0.4 %), ( 35.9 %) and 0.0 %, respectively.

As of December 31, 2024, The Company has gross federal net operating loss of $ 49,815 , which can be carried forward indefinitely, and gross state operating loss of $ 52,911 , which begin to expire in 2034.

The Company's federal net operating losses, and certain state net operating losses, are subject to an 80% annual utilization limitation.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change (by value) in its equity ownership over a three -year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited.

The Company recognizes tax benefits from uncertain positions if it is more likely than not that the tax position will be sustained by the tax authority upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position.

If a tax position meets the more likely than not threshold, the Company measures the tax position as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement.

A reconciliation of uncertain tax positions at the beginning and end of the years below is as follows:

Beginning balance

Gross increases (decreases) related to prior year positions

Gross increases (decreases) related to current year positions

Decreases related to settlements with taxing authorities

Reductions related to statute of limitation expirations

Ending balance

$ 382 $ — $ —

Note 14 - Employee Savings Plan

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For the years ended December 31, 2024, 2023 and 2022 , the Company made $ 259 , $ 242 , and $ 172 , respectively, in matching contributions.

Eton Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

Note 15 — Commitments and Contingencies

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

In March 2024, the Company acquired the U.S.

rights to PKU GOLIKE® from Relief Therapeutics Holding SA.

The Company paid $ 2,200 and could pay up to $ 2,000 in additional commercial milestones, consisting of one -time $ 500 payments when net sales in a year reach $ 4 million, $ 8 million, $ 15 million, and $ 20 million.

The Company will pay the seller a royalty of 30 % of net sales, which will include the cost of the product.

In August 2024 , the Company entered into an agreement to sell its DS- 200 product candidate.

The Company received $ 500 upfront and could receive additional payments of up to $ 6,500 based on the achievement of certain future regulatory and commercial milestones related to DS- 200.

The Company will retain 45 % of the proceeds from the transaction with the balance being distributed to other partners.

In November 2024, the Company entered into a licensing agreement with AMMTeK.

pursuant to which the Company has agreed to acquire the U.S.

rights to Amglidia (glyburide oral suspension).

Amglidia was approved by the European Medicines Agency in 2018 and has been granted Orphan Drug Designation by the U.S.

has conducted a post-approval study tracking five years of real-world safety and efficacy in European patients, which will be used to support the Company's s New Drug Application (“NDA”) submission.

The Company intends to hold a meeting with the FDA in 2025.

Under the terms of the licensing agreement, the Company will not make any upfront payments and retains the right to terminate the licensing agreement based on FDA meeting results prior to any payments being owed.

The Company could pay up to $ 2,350 as follows:

$ 500 following the receipt of FDA minutes;

$ 550 upon NDA acceptance for review by FDA;

and $ 1,300 upon NDA approval by the FDA and first commercial sale.

The Company would also be required to pay a royalty of 14 % of net sales to AMMTek.

In December 2024, the Company acquired GALZIN® (zinc acetate) from Teva Pharmaceuticals USA, Inc and assumed the commercialization of the product in the U.S.

during March of 2025.

The Company accounted for the purchase as a product acquisition and paid $ 7,000 and paid an additional $ 200 for product inventory.

The Company will pay the seller a royalty of 10 % of U.S net sales through the tenth anniversary of the Company's first commercial sales of the product in the U.S.

In December 2024, the Company acquired INCRELEX® (mecasermin injection) from Ipsen S.A.

The Company paid $ 22,500 and paid an additional $ 7,500 for product inventory.

The Company will also make payments to seller of $ 2,500 on each of the first and second anniversaries of closing.

The Company determined that the asset purchase agreement met the definition of a business under ASC 805;

therefore, the Company accounted for the asset purchase agreement as a business combination and applied the acquisition method of accounting.

See Note 4 — Business Combination for further discussion.

Indemnification

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What changed 10-K

Item 8. Financial Statements and Supplementary Data