What changed in this filing

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Item 1. Financial Statements

2021-05-13 compared with 2020-11-12 · 888 added, 981 removed, 287 unchanged (87% of the section changed)

3 unchanged sentences

thousands, except share and per share amounts)

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Accounts receivable, net

Equipment held-for-sale

Prepaid expenses and other current assets

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Accounts payable

Current portion of long-term debt

PPP loan, current portion

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Common stock, $0.001 par value;

50,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

20,988,533 and 17,877,486 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

50,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

24,482,616 and 24,312,808 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

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For the three months ended

For the nine months ended

September 30,

Product sales, net

March 31, 2021

March 31, 2020

Licensing revenue

Total revenues

Cost of product sales

Gross (loss) profit

Product sales and royalties

Total net revenues

Cost of sales

Licensing revenue

Product sales and royalties

Total cost of sales

Gross profit (loss)

Operating expenses:

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Total operating expenses

Loss from operations

Other (expense) income:

Interest and other (expense) income, net

Loss before income tax expense

Income (loss) from operations

Other expense:

Interest and other expense, net

Income (loss) before income tax expense

Income tax expense

Net loss per share, basic and diluted

Weighted average number of common shares outstanding, basic and diluted

Net income (loss)

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted average number of common shares outstanding, basic

Weighted average number of common shares outstanding, diluted

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

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Statements of Stockholders’

the three months ended September 30, 2020 and 2019

the three months ended March 31, 2021 and 2020

thousands, except share amounts)

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Total Stockholders’

Balances at June 30, 2020

Stock-based compensation

Stock option exercises

Relative fair value of warrants to purchase common stock issued in connection with debt

Balances at September 30, 2020

Additional Paid-in

Total Stockholders’

Balances at June 30, 2019

Balances at December 31, 2020

Stock-based compensation

Stock option exercises

Balances at September 30, 2019

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

Pharmaceuticals, Inc.

Statements of Stockholders’

the nine months ended September 30, 2020 and 2019

thousands, except share amounts)

Warrant exercises

Balances at March 31, 2021

Additional Paid-in

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Stock option exercises

Employee stock purchase plan

Proceeds from sales of common stock, net of offering costs

Issuance of common stock for product candidate licensing rights

Relative fair value of warrants to purchase common stock issued in connection with debt

Balances at September 30, 2020

Additional Paid-in

Total Stockholders’

Balances at December 31, 2018

Stock-based compensation

Stock option exercises

Employee stock purchase plan

Stock warrant exercises

Balances at September 30, 2019

Balances at March 31, 2020

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

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Statements of Cash Flows

Nine months ended September 30, 2020

Nine months ended

September 30, 2019

Three months ended March 31, 2021

Three months ended

March 31, 2020

Cash flows from operating activities

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

Net income (loss)

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

Stock-based compensation

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Accrued liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash used in investing activities

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Cash flows from financing activities

Proceeds from issuance of long-term debt, net of issuance costs

Proceeds from sales of common stock, net of offering costs

Proceeds from PPP and EIDL loans

Proceeds from employee stock purchase plan and stock option exercises

Proceeds from employee stock option exercises

Net cash provided by financing activities

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Cash paid for income taxes

Supplemental disclosure of non-cash financing activity

Relative fair value of common stock warrants issued in connection with debt

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

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(“Eton”

or the “Company”) was incorporated as a Delaware corporation on April 27,

2017 and was initially set up as a wholly owned subsidiary of Harrow Health, Inc.

or “Harrow”

(fka Imprimis Pharmaceuticals,

or the “Company”) was incorporated as a Delaware “C”

corporation on

April 27, 2017 and was initially set up as a wholly-owned subsidiary of Harrow Health, Inc.

(“Harrow”, fka Imprimis Pharmaceuticals,

In June 2017, the Company raised $20,055 in start-up capital through a private sale of preferred stock and a separate management

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In November 2018, the Company completed

an initial public offering (the “IPO”) and received net proceeds of $21,960, after deducting underwriting discounts

and commissions and offering-related expenses.

In November 2019, the Company entered into a credit agreement and received net

proceeds of $4,750 and in August 2020 the Company received net proceeds of $1,965 under the credit agreement (see Note 5).

March and April 2020, Eton received net proceeds of $7,756 from the sale of shares of its common stock (see Note 6).

2020, the Company received net proceeds of approximately $21,040 from a public offering for its shares (see Note 12).

its initial public offering (the “IPO”) and received net proceeds of $21,960, after deducting underwriting discounts and

commissions and offering-related expenses.

In November 2019, the Company entered into a credit agreement and received net proceeds of

$4,750 and in August 2020 the Company received net proceeds of $1,965 under the credit agreement (see Note 5).

In March and April 2020,

Eton received net proceeds of $7,756 from the sale of shares of its common stock in a private placement and in October 2020, the Company

received net proceeds of $21,026 from a public offering for its common stock at an offering price of $7.00 per share.

is a specialty pharmaceutical company focused on developing, acquiring, and commercializing innovative products.

Eton is primarily

focused on hospital injectable and pediatric rare disease products.

The Company seeks to improve the formula, delivery system,

or safety of existing molecules in order to address unmet patient needs.

Eton pursues what it perceives to be low-risk product

candidates where existing published literature, historical clinical trials, or physician usage has established safety and/or efficacy

of the molecule, thereby reducing the incremental clinical burden required for the Company to bring the product to patients.

Eton is primarily focused

on hospital injectable and pediatric rare disease products.

The Company seeks to improve the formula, delivery system, or safety of existing

molecules in order to address unmet patient needs.

Eton pursues what it perceives to be low-risk product candidates where existing published

literature, historical clinical trials, or physician usage has established safety and/or efficacy of the molecule, thereby reducing the

incremental clinical burden required for the Company to bring the product to patients.

Company’s Biorphen®

product was approved by the FDA in October 2019 and sales commenced for this product at the end of 2019.

Eton’s EM-100 product was sold to Bausch Health and the product was approved by the FDA in September 2020.

Bausch Health launched

this product under the name of Alaway®

Preservative Free in January 2021 and Eton will receive royalties from the sale of the product.

In addition, the Company acquired the licensing rights to Alkindi Sprinkle and this product was approved by the FDA in October 2020 and

launched in December 2020.

In February 2021, the Company sold three pediatric neurology products it had under development to Azurity

Pharmaceuticals (“Azurity”) and anticipates additional revenues from Azurity based on various product-related milestones

including the commercial launch for these products which are currently under review with the FDA.

Liquidity Considerations

of September 30, 2020, the Company had an accumulated deficit of $84,471 and for the nine months ended September 30, 2020, the

Company had net cash used in operating activities of $15,164.

date, the Company has generated limited revenues and has incurred negative cash flows from operating activities since its inception

The Company received its first product approval from the U.S.

Food and Drug Administration (“FDA”), Biorphen®,

in October 2019 and currently believes its future revenues and its cash and cash equivalents of $7,332 as of September 30, 2020

combined with the $21,040 of net proceeds from its October 2020 public offering discussed in Note 1 above will be sufficient to

fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of the filing

of this Report.

This estimate is based on the Company’s current assumptions, including expected sales for Biorphen and Alkindi

Sprinkle and its ability to manage its spending.

to 2021, the Company had generated limited revenues and had incurred negative cash flows from operating activities since its inception

In the first three months of 2021, the Company generated net cash provided by operating activities of $3,715 primarily from

the initial proceeds from the sale of three neurology products.

The Company expects further growth in 2021 and beyond in accordance with

additional market penetration from its approved products plus additional revenues from licensing and additional products where it anticipates

FDA approval.

Company currently believes its existing cash and cash equivalents of $25,113 as of March 31, 2021 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.

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

its spending.

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

and accordingly, could seek to obtain additional capital through equity financings, additional drawdowns under its current credit

agreement (see Note 5), the sale of additional debt, or through other arrangements.

However, there can be no assurance that the

Company will be able to raise additional capital if needed or under acceptable terms, if at all.

Accordingly, the Company could seek

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

However, there can be no assurance

that the Company will be able to raise additional capital if needed or under acceptable terms, if at all.

The sale of additional equity

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common shares.

Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other

distributions to stockholders.

If the Company is not able to achieve significant revenues from product sales and licensing, encounters

delays in completing its product development and obtaining regulatory approval for its product candidates, and is unable to obtain

such additional financing, its operations would need to be scaled back or discontinued.

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 sales growth and completing its product

development and obtaining regulatory approval for its other product candidates and is unable to obtain such additional financing, operations

would need to be scaled back or discontinued.

Summary of Significant Accounting Policies

of Presentation

Company has prepared the accompanying financial statements in accordance with accounting principles generally accepted in the

United States of America (“GAAP”).

Interim Financial Information

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, 2020 and the results of its operations and its cash flows for the periods ended September

30, 2020 and 2019.

The financial data and other information disclosed in these notes related to the three and nine-month periods

ended September 30, 2020 and 2019 are also unaudited.

The results for the nine-month period ended September 30, 2020 are not necessarily

indicative of results to be expected for the year ending December 31, 2020, any other interim periods or any future year or period.

Company has prepared the accompanying financial statements in accordance with accounting principles generally accepted in the United

States of America (“GAAP”).

Pharmaceuticals, Inc.

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Summary of Significant Accounting Policies (continued)

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 condensed

financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and

assumptions reflected in these condensed financial statements include, but are not limited to, provisions for uncollectible receivables

and sales returns, valuation of inventories, useful lives of assets and the impairment of property and equipment, the accrual

of research and development expenses and the valuation of common stock, stock options and warrants.

Estimates are periodically

reviewed in light of changes in circumstances, facts and experience.

Changes in estimates are recorded in the period in which

they become known.

Interim Financial Information

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, 2021 and the results of its operations and its cash flows for the periods ended March 31, 2021 and 2020.

The financial

data and other information disclosed in these notes related to the three-month periods ended March 31, 2021 and 2020 are also unaudited.

The results for the three-month period ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending

December 31, 2021, any other interim periods or any future year or period.

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 and sales returns, valuation of inventories, useful

lives of assets and the impairment of property and equipment, the accrual of research and development expenses and the valuation of common

stock, stock options and warrants.

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

in estimates are recorded in the period in which they become known.

Actual results could differ from those estimates or assumptions.

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.

and Cash Equivalents

Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

cash equivalents are held in U.S.

financial institutions or invested in short-term U.S.

treasury bills.

Cash equivalents consist of an

interest-bearing checking account and a U.S.

treasury bill.

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

The Company believes the associated credit risk to be minimal.

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.

The total for these reserves

amounted to $71 and $71 as of March 31, 2021 and December 31, 2020, respectively.

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

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

Inventories at March 31, 2021 and December 31, 2020 consist solely of purchased finished goods.

At both March 31, 2021 and

December 31, 2020 inventories are shown net of a slow-moving reserve for its Biorphen product of $623 due to the risk of expiry before

this entire stock of inventories is sold.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

and Equipment

and equipment are stated at cost.

Depreciation of property and equipment is computed utilizing the straight-line method based on the

following estimated useful lives:

computer hardware and software is depreciated over three years;

equipment, furniture and fixtures is

depreciated over five years;

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

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

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

March 2021, the Company completed an evaluation of its expected needs for product development and testing activities and determined that

it would discontinue its laboratory operation in Lake Zurich, Illinois.

The Company expects to complete a sale of the lab equipment in

May 2021 at a price in excess of the book value for these assets.

Accordingly, the $551 net book value of these assets was removed from

the property and equipment classification and is classified as a current asset, Equipment held-for-sale, in the Company’s accompanying

condensed balance sheet as of March 31, 2021.

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

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A $750 payment related to the approval of the Company’s

Biorphen product has been capitalized and that cost is being amortized over five years.

Biorphen product in 2019 has been capitalized and that cost is being amortized over five years.

The intangible assets, net on

the Company’s balance sheet reflected $213 of accumulated amortization as of March 31, 2021.

The Company recorded

$38 of amortization expense for the three months ended March 31, 2021.

The Company will record amortization expense of $150 per

year for this intangible asset for 2021 through 2023 and then $125 in 2024 when it will be fully amortized.

of Long-Lived Assets

assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may

not be recoverable.

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 has been recognized since the Company’s

inception in 2017.

assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not

be recoverable.

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 has been recognized since the Company’s inception in 2017.

Issuance Costs and Debt Discount and Detachable Debt-Related Warrants

incurred to issue debt are deferred and recorded as a reduction to the debt balance in the accompanying balance sheets.

The Company amortizes

debt issuance costs over the expected term of the related debt using the effective interest method.

Debt discounts relate to the relative

fair value of warrants issued in conjunction with the debt and are also recorded as a reduction to the debt balance and accreted over

the expected term of the debt to interest expense using the effective interest method.

Recognition for Contracts with Customers

Company intends to generate its future revenues from direct sales of its approved Biorphen and Alkindi Sprinkle products as well

as other of its products which are in development.

In addition, the Company anticipates it will receive revenues from product

licensing agreements for which it has contracted for milestone payments and royalties from products it has developed or for which

it has acquired the rights to a product developed by a third party.

Company accounts for contracts with its customers in accordance with ASC 606 —

Revenue from Contracts with Customers.

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

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:

(i) identify the contract(s)

with a customer;

(ii) identify the performance obligations in the contract;

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 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:

(i) identify the contract(s) with a customer;

(ii) identify

the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate

the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies

a performance obligation.

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 and assesses 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.

(iv) allocate the transaction price to the performance

obligations in the contract;

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

Pharmaceuticals, Inc.

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Summary of Significant Accounting Policies (continued)

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.

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 and assesses 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.

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.

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.

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.

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.

To date, the Company has not

recognized any royalty revenue resulting from any of its licensing arrangements.

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.

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.

To date, the Company has not recognized any

royalty revenue resulting from any of its licensing arrangements.

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.

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.

Company sells Biorphen in the U.S.

to wholesale pharmaceutical distributors, which 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 Biorphen 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.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers

sell Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government

In addition, the Company pays fees to wholesalers for their distribution services, inventory reporting and chargeback

The Company pays GPO fees for administrative services and for access to GPO members and concluded the benefits received

in exchange for these fees are not distinct from its sales of Biorphen, and accordingly it applies these amounts to reduce revenues.

Wholesalers also have rights to return unsold product nearing or past the expiration date.

Because of the shelf life of Biorphen

and the Company’s lengthy return period, there may be a significant period of time between when the product is shipped and

when the Company issues credits on returned product.

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 arising from all of the above factors.

In September 2020, the Company reduced

its estimated selling price for Biorphen through wholesalers and recorded a $192 reduction to revenue based on the shelf stock

inventory held at its wholesale customers.

The Company has developed estimates for future returns and chargebacks of Biorphen

and the impact of the 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.

Company recognizes revenue from Biorphen product sales and related cost of sales upon product delivery to the wholesaler location.

At that time, the wholesalers take control of the product as they take title, bear the risk of loss, 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

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

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual

shipments of Biorphen 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, the Company sells its Alkindi Sprinkle product to one pharmacy distributor customer which provides

order fulfilment and inventory storage/distribution services.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell

Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

In addition, the Company pays fees to wholesalers for their distribution services, inventory reporting and chargeback processing.

Company pays GPOs fees for administrative services and for access to GPO members and concluded the benefits received in exchange for

these fees are not distinct from its sales of Biorphen, and accordingly it applies these amounts to reduce revenues.

Wholesalers also

have rights to return unsold product nearing or past the expiration date.

Because of the shelf life of Biorphen 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

For its Alkindi Sprinkle product, 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.

Pharmaceuticals, Inc.

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Summary of Significant Accounting Policies (continued)

recognition of revenue from product sales of Biorphen, the estimated amounts of credit for product returns, chargebacks, distribution

fees, prompt payment discounts, and GPO fees are included in sales reserves, accrued liabilities and net of accounts receivable.

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

If these amounts end up differing

from the Company’s 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.

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 for which it has acquired the rights to a product developed by a third

of Product Sales

of product sales consists of the profit-sharing fees with the Company’s product licensing and development partners, the

purchase costs for finished products from third-party manufacturers and freight and handling/storage costs from the Company’s

3PL logistics service provider.

The cost of sales for profit-sharing fees and costs for purchased finished products and the associated

inbound freight expense is 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.

In the case where there is a loss under the profit-sharing arrangement, the Company is able to true-up and recover the loss from

its development partners, as occurred with Biorphen in the three-month period ended September 30, 2020.

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 of Biorphen and the impact of the other discounts and fees it pays while Alkindi Sprinkle sales to its distributor

are not subject to returns.

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.

Company recognizes revenue from Biorphen product sales and related cost of sales upon product delivery to the wholesaler location.

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.

The Company stores its Alkindi Sprinkle inventory at its pharmacy distributor customer location and sales are recorded when stock is

pulled and shipped to fulfill specific patient orders.

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 of accounts receivable.

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

addition, the Company receives revenues from product licensing agreements where it has contracted for milestone payments and royalties

from products it has developed or for which it has acquired the rights to a product developed by a third party.

for the three months ended March 31, 2021 reflected $11,500 of licensing milestone fees, $254 in product sales and $143 in royalty revenue.

Revenues for the three months ended March 31, 2020 consisted solely of product sales.

of 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 and freight and handling/storage costs from the Company’s 3PL logistics

service providers.

The cost of sales for profit-sharing and royalty fees and costs for purchased finished products and the associated

inbound freight expense is 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.

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

and Development Expenses

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

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

R&D operations.

External contracted services include product development efforts including certain product licensor milestone

payments, clinical trial activities, manufacturing and control-related activities and regulatory costs.

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.

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

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.

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.

Actual results could differ from the Company’s estimates.

payments and milestone payments made for the licensing of technology on products which are not yet approved by the FDA are expensed

as R&D in the period in which they are incurred.

Milestone payments for FDA-approved products are capitalized and amortized

over the expected economic life of the product.

Nonrefundable advance payments for goods or services to be received in the future

for use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services

are performed.

(Loss) Per Share

net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding

during the period.

Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number

of common and common equivalent shares, such as unvested restricted stock awards (“RSA”), restricted stock units (“RSU’”),

stock options and warrants, 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 September 30, 2020 and 2019 were 3,308,152 and 3,573,885,

respectively, and are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive.

in the basic and diluted net loss per share calculation are RSUs awarded to directors that have vested, but the issuance and delivery

of the common shares are deferred until the director retires from service as a director.

payments and milestone payments made for the licensing of technology for products that are not yet approved by the FDA are expensed as

R&D in the period in which they are incurred.

Nonrefundable advance payments for goods or services to be received in the future for

use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services are performed.

Pharmaceuticals, Inc.

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Summary of Significant Accounting Policies (continued)

Company accounts for stock-based compensation under the provisions of ASC 718 Compensation —

(Loss) Per Share

net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders for the period by the

weighted average number of common shares 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 and warrants that are outstanding during the period.

Common stock equivalents are excluded

from the computation when their inclusion would be anti-dilutive.

Common stock equivalents (using the treasury stock and “if converted”

method) from stock options, unvested RSAs and warrants at March 31, 2021 were 2,093,952 and excluded 729,692 shares that were anti-dilutive.

For the three-month period ended March 31, 2020, common stock equivalents of 3,588,523 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 directors that have vested, but the issuance and delivery of the common shares are deferred until the director retires from

service as a director (see Note 8).

Company accounts for stock-based compensation under the provisions of ASC 718 —

Compensation —

Stock Compensation.

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”).

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.

The risk-free interest rate was determined

from the implied yields for zero-coupon U.S.

government issues with a remaining term approximating the expected life of the options

Dividends on common stock are assumed to be zero for the BSM valuation of the stock options.

The expected term of

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

Expected volatilities are based on

comparable companies’

historical volatility along with a limited weighting included for the Company’s own volatility

subsequent to its IPO, which management believes represents the most accurate basis for estimating expected future volatility

under the current conditions.

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”).

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.

The risk-free interest rate was determined from the implied yields for zero-coupon

government issues with a remaining term approximating the expected life of the options or warrants.

Dividends on common stock are

assumed to be zero for the BSM valuation of the stock options.

The expected term of stock options granted is based on vesting periods

and the contractual life of the options.

Expected volatilities are based on comparable companies’

historical volatility along with

a limited weighting included for the Company’s own volatility subsequent to its IPO, 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.

Since the IPO in November 2018, the Company

has used the closing common stock price on the date of grant for the fair value of the common stock.

Value Measurements

measure certain of our assets and liabilities at fair value.

Fair value represents the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

Fair value represents the price that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value accounting

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

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.

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.

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.

An active market is a market in

which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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.

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.

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.

Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,

PPP and EIDL loans and long-term debt obligation.

The carrying amounts of these financial instruments, except for the PPP and

EIDL loans and 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 PPP and EIDL loans and long-term debt obligation

approximate their fair values.

of New Accounting Pronouncements

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).

The new guidance removes, modifies, and adds to

certain disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

The Company adopted the new guidance

on January 1, 2020 which did not have a material impact on its financial position or results of operations.

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.

Pharmaceuticals, Inc.

2 unchanged sentences

Summary of Significant Accounting Policies (continued)

December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes.

The new guidance removes certain exceptions

to the general principles of ASC 740 in order to simplify the complexities of its application.

These changes include eliminations

to the exceptions for intraperiod tax allocation, recognizing deferred tax liabilities related to outside basis differences, and

year-to-date losses in interim periods, among others.

The Company adopted the new guidance on January 1, 2020 which did not have

a material impact on its financial position or results of operations.

Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,

PPP loan and long-term debt obligation.

The carrying amounts of these financial instruments, except for the PPP loan and 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 PPP loan and long-term debt obligation approximate their fair values.

of New Accounting Pronouncements

were no new accounting pronouncements issued by the FASB during the current period that would apply to the Company and

have a material impact on its financial position or results of operations.

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.

Property and Equipment

and equipment consist of the following:

September 30,

Computer hardware and software

1 unchanged sentence

Leasehold improvements

Construction in progress

accumulated depreciation

Property and equipment, net

expense for the three-month periods ended September 30, 2020 and 2019 was $86 and $86, respectively.

Depreciation expense for

the nine-month periods ended September 30, 2020 and 2019 was $260 and $197, respectively.

expense for the three-month periods ended March 31, 2021 and 2020 was $84 and $87, respectively.

The balances at March 31, 2021 reflect

the reclassification of laboratory equipment held for sale which had a net book value of $551.

The Company expects to complete the sale

of this equipment in May 2021.

Pharmaceuticals, Inc.

4 unchanged sentences

(“SWK”) which provided for up to $10,000 in 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.

2020, in conjunction with the Company’s Alkindi Sprinkle product licensing agreement (see Note 11) and the Company’s

March 2020 sale of additional shares of its common stock (see Note 6), the Company and SWK amended the SWK Credit Agreement.

amendment provided the Company with the option to immediately draw $2,000 and the ability to borrow an additional $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 on August 11, 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 is 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 is required to maintain a minimum

cash balance of $3,000, will only pay interest on the debt until May 2022 and then will 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 include limits on additional indebtedness.

In March 2020, SWK provided

a waiver for the Company to obtain loans with the Small Business Association.

The Company is currently in the process of negotiating

covenant targets for EBITDA and revenue for the SWK Credit Agreement.

connection with the initial $5,000 borrowed in November 2019, 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 51,239 warrants was

$226 and was estimated using the Black-Scholes-Merton option pricing model with the following assumptions:

fair value of the Company’s

common stock at issuance of $5.75 per share;

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 11) and the Company’s March 2020 sale of additional

shares of its common stock, the Company and SWK amended the SWK Credit Agreement.

The amendment provided the Company with the option

to immediately draw $2,000 and the ability to borrow an additional $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 on August 11, 2020.

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 is 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

The Company is required to maintain a minimum cash balance of $3,000, will only pay interest on the debt until February14,

2022 and then will 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 include limits on additional

indebtedness.

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

The Company is

currently in the process of negotiating covenant targets for EBITDA and revenue for the SWK Credit Agreement.

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.

connection with the initial $5,000 borrowed in November 2019, 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 51,239 warrants was $226 and was estimated using

the Black-Scholes-Merton option pricing model with the following assumptions:

fair value of the Company’s common stock at issuance

of $5.75 per share;

seven-year contractual term;

1 unchanged sentence

0% dividend rate;

and a risk-free interest

rate of 1.8%.

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.

and a risk-free interest rate of 1.8%.

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 the Black-Scholes-Merton

1 unchanged sentence

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

seven-year contractual term;

contractual term;

95% volatility;

2 unchanged sentences

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.

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.

expense of $264 was recorded during the three months ended March 31, 2021, which included $36 of debt discount amortization.

expense of $195 was recorded during the three months ended March 31, 2020, which included $27 of debt discount amortization.

31, 2021, $62 of accrued interest is included in accrued liabilities.

Pharmaceuticals, Inc.

2 unchanged sentences

Long Term Debt (continued)

expense of $617 was recorded during the nine months ended September 30, 2020 which included $85 of debt discount amortization.

As of September 30, 2020, $123 of accrued interest is included in accrued liabilities.

table below reflects the future payments for the SWK loan principal and interest as of September 30, 2020.

table below reflects the future payments for the SWK loan principal and interest as of March 31, 2021.

Total payments

2 unchanged sentences

unamortized discount

Long-term debt, net of unamortized discount

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.

The loan bears a 1.0% annual

interest rate and is payable in monthly installments commencing on November 4, 2020 until paid in full on May 4, 2022.

recorded $1 in interest expense for the nine-month period ended September 30, 2020.

The Company intends to pursue full or partial

forgiveness of the loan as permitted under the applicable SBA guidelines for PPP loans.

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

from the SBA.

The loan bears a 3.75% annual interest rate and is payable in monthly installments commencing on July 21, 2021 until

paid in full on July 21, 2050.

The Company recorded $2 in interest expense for the nine-month period ended September 30, 2020.

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

March and April 2020, the Company entered into securities purchase agreements with various investors and sold an aggregate of

2,600,000 shares of its common stock at a price of $3.00 per share and received $7,756 in net proceeds after deducting issuance

costs associated with the sale.

March 2020, the Company issued 379,474 shares of its common stock to Diurnal Limited (“Diurnal”) as a milestone fee

for acquiring the U.S.

marketing rights to Alkindi Sprinkle®, an orphan drug product currently under review with the FDA (see

The shares were valued at $1,264 based on the Company’s closing stock price on the date of issuance and this amount

was recorded as a component of the Company’s research and development expense and an addition to its paid-in-capital.

the nine months ended September 30, 2020, the Company issued 102,378 shares of its common stock resulting from stock option exercises

under its 2018 Equity Incentive Plan (see Note 8).

In April 2020, the Company issued 15,190 shares of its common stock as an RSA

to a new employee.

This RSA vests 25% every three months and will be 100% vested in April 2021.

In June 2020, the Company issued

14,005 shares of its common stock to employees in accordance with its Employee Stock Purchase Plan (“ESPP”).

Current plus long-term debt, net of unamortized discount

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.

The loan bears a 1.0% annual interest rate

and is payable in monthly installments commencing in November 2020, subject to a payment deferral period until August 2021 which the

Company has elected to use, until the loan is paid in full on May 4, 2022.

The Company recorded $1 in interest expense for the period

ended March 31, 2021.

The Company has applied for 100% forgiveness of the loan as permitted under the applicable SBA guidelines for PPP

loans and is awaiting a final determination by the SBA.

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

The loan bears a 3.75% annual interest rate and is payable in monthly installments commencing on July 21, 2021 until paid in full

on July 21, 2050.

The Company recorded $1 in interest expense for the period ended March 31, 2021.

Pharmaceuticals, Inc.

1 unchanged sentence

thousands, except share and per share amounts)

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

the three months ended March 31, 2021, the Company issued 75,000 shares of its common stock resulting from stock option exercises under

its 2018 Equity Incentive Plan (see Note 8).

the three months ended March 31, 2021, a holder of the Company’s common stock warrants exercised 135,650 warrants on a cashless

basis and the Company issued 94,808 shares of its common stock in connection with the warrant exercise.

The intrinsic value of the warrant

exercise was $806.

Common Stock Warrants

Company’s outstanding warrants to purchase shares of its common stock at September 30, 2020 are summarized in the table

Company’s outstanding warrants to purchase shares of its common stock at March 31, 2021 are summarized in the table below.

Advisory Warrants

3 unchanged sentences

Warrants –

Debt (Tranche #1)

Warrants –

Debt (Tranche #2)

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.

These rights are provided under the terms of a registration rights agreement

between the Company and the investors.

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.

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

and the investors.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

Share-Based Payment Awards

Company’s board of directors and stockholders approved the Eton Pharmaceuticals, Inc.

2017 Equity Incentive Plan in May

2017 (the “2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock.

In conjunction with the Company’s IPO in November 2018, the Company’s stockholders and board of directors approved

the 2018 Equity Incentive Plan (the “2018 Plan”) which succeeded the 2017 Plan.

The Company has granted RSAs, stock

options and RSUs for its common stock under the 2018 Plan as detailed below.

There were 453,246 shares available for future issuance

under the 2018 Plan as of September 30, 2020.

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 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.

2017 Equity Incentive Plan in May 2017 (the

“2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock.

In conjunction

with the Company’s IPO in November 2018, the Company’s stockholders and board of directors approved the 2018 Equity Incentive

Plan (the “2018 Plan”) which succeeded the 2017 Plan.

The Company has granted restricted stock awards (“RSAs”),

stock options and restricted stock units (“RSUs”) for its common stock under the 2017 Plan and 2018 Plan as detailed in the

tables below.

There were 1,370,758 shares available for future issuance under the 2018 Plan as of March 31, 2021.

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

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 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.

the third quarter of 2017, the Company issued 25,000 RSU’s to each of its four outside directors (100,000 total share units).

The RSU’s issued to the outside directors were 100% vested at June 30, 2018.

The associated 100,000 shares of the Company’s

common stock will not be issued until the individual director retires from service from the Company’s board of directors.

The Company has not issued any additional RSU’s.

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 that expire within five years if the Company is not able to file certain product submissions

RSU’s issued to the outside directors were 100% vested at June 30, 2018.

The associated 100,000 shares of the Company’s common

stock will not be issued until the individual director retires from service from the Company’s board of directors.

has not issued any additional RSU’s.

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 expire within five years if the Company is not able to file certain product submissions

to the FDA prior to the five-year expiration date.

Furthermore, these option awards to the Company’s product consultants

do not vest unless certain product submissions are made to the FDA, and accordingly, the Company has not recorded any expense

for these contingently vesting option awards to its product consultants.

the three months ended September 30, 2020 and 2019, the Company’s total stock-based compensation expense was $724 and $537,

respectively.

Of these amounts, $647 and $460 was recorded in general and administrative expenses, respectively, and $77 and $77

was recorded in research and development expenses, respectively.

the nine months ended September 30, 2020 and 2019, the Company’s total stock-based compensation expense was $1,803 and $1,387,

respectively.

Of these amounts, $1,623 and $1,150 was recorded in general and administrative expenses, respectively, and $180

and $237 was recorded in research and development expenses, respectively.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

Share-Based Payment Awards (continued)

Furthermore, these option awards to the Company’s product consultants do not

vest unless certain product submissions are made to the FDA, and accordingly, the Company has not recorded any expense for these contingently

vesting option awards to its product consultants.

the three months ended March 31, 2021 and 2020, the Company’s total stock-based compensation expense was $673 and $365, respectively.

Of these amounts, $581 and $325 was recorded in general and administrative expenses, respectively, and $92 and $40 was recorded in research

and development expenses, respectively.

summary of stock option activity is as follows:

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Forfeited/Cancelled

Options outstanding as of September 30, 2020

Options exercisable at September 30, 2020

Options vested and expected to vest at September 30, 2020

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 for those stock options that had strike prices lower than the fair value of

the Company’s common stock.

assumptions used to calculate the fair value of options granted during the nine months ended September 30, 2020 under the BSM

were as follows:

interest rate

average fair value

The Company has opted to use the “simplified method”

for estimating the expected term of options granted

to employees and directors, whereby the expected term equals the arithmetic average of the vesting term and the original contractual

term of the option (generally ten years).

The expected term of options granted to non-employees equals the contractual life of

Volatility —

Due to the Company’s limited operating history and a lack of Company-specific historical and implied

volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar

companies that are publicly traded.

The Company has continued this methodology plus given some limited weighting to its own volatility

in the periods subsequent to its November 2018 IPO.

The historical volatility data was computed using the daily closing prices

for the selected companies’

shares during the equivalent period of the calculated expected term of the stock-based awards.

Interest Rate —

The risk-free rate assumption is based on the U.S.

Treasury instruments with maturities similar to the expected

term of the Company’s stock options.

Dividend —

The Company has not issued any dividends in its history and does not expect to issue dividends over the life

of the options and therefore has estimated the dividend yield to be zero.

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

Options outstanding as of March 31, 2021

Options exercisable at March 31, 2021

Options vested and expected to vest at March 31, 2021

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 for those stock options that had strike prices lower than the fair value of the Company’s

common stock.

Pharmaceuticals, Inc.

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Share-Based Payment Awards (continued)

of September 30, 2020, there was a total of $4,810 of unrecognized compensation costs related to non-vested stock option and restricted

In the nine-month period ended September 30, 2020, there were six stock option exercises which totaled 102,378 shares

at an average exercise price of $1.37 per share with an intrinsic value of $436.

There were seven stock option exercises for 134,122

shares during the nine months ended September 30, 2019 at an average exercise price of $1.15 per share with an intrinsic value

December 2018, the Company’s board of directors approved and adopted an initial offering of the Company’s common stock

under the Company’s 2018 ESPP.

The Company’s 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

of March 31, 2021, there was a total of $3,749 of unrecognized compensation costs related to non-vested stock option awards.

In the three-month

period ended March 31, 2021, stock option exercises totaled 75,000 shares at an exercise price of $1.38 per share with an intrinsic value

In the three-month period ended March 31, 2020, stock option exercises totaled 5,000 shares at an exercise price of $6.20 per

share with an intrinsic value of $3.

December 2018, the Company’s board of directors adopted an initial offering of the Company’s common stock under the Company’s

2018 Employee Stock Purchase Plan (the “ESPP”).

The Company’s 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.

31, 2021, there were 529,335 shares available for issuance under the ESPP.

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

period ending in December.

The terms of the ESPP permit employees of the Company to use payroll deductions to purchase stock at

a price per share that is at least the lesser of (1) 85% of the fair market value of a share of common stock on the first date

of an offering or (2) 85% of the fair market value of a share of common stock on the date of purchase.

After the initial offering

period ended, subsequent twelve-month offering periods automatically commence over the term of the ESPP on the day that immediately

follows the conclusion of the preceding offering, each consisting of two purchase periods approximately six months in duration.

the first nine months of 2020 and 2019 there were 14,005 and 23,083 share issuances under the ESPP.

The weighted average grant

date fair value of share awards in the first nine months of 2020 and 2019 was $2.43 and $2.57, respectively.

Employees contributed

$100 and $199 via payroll deductions during the nine months ended September 30, 2020 and 2019, respectively.

initial offering of the ESPP began on December 17, 2018 and ended on December 10, 2019.

The annual offerings consist of two stock purchase

periods, with the first purchase period ending in June and the second purchase period ending in December.

The terms of the ESPP permit

employees of the Company to use payroll deductions to purchase stock at a price per share that is at least the lesser of (1) 85% of the

fair market value of a share of common stock on the first date of an offering or (2) 85% of the fair market value of a share of common

stock on the date of purchase.

After the initial offering period ended, subsequent twelve-month offering periods automatically commence

over the term of the ESPP on the day that immediately follows the conclusion of the preceding offering, each consisting of two purchase

periods approximately six months in duration.

accordance with the June and December stock purchase periods for the ESPP, there were no share issuances in the first three months of

2021 or 2020.

The weighted average grant date fair value of share awards in 2021 and 2020 was $2.29 and $2.64, respectively.

contributed $80 and $50 via payroll deductions during the three months ended March 31, 2021 and 2020, respectively.

The Company recorded

an expense of $38 and $93 related to the ESPP in the nine-month periods ended September 30, 2020 and 2019, respectively.

September 30, 2020 and December 31, 2019, the accompanying condensed balance sheets include $32 and $79, respectively, in accrued

liabilities for remaining employee ESPP contributions.

an expense of $19 and $21 related to the ESPP in the three-month periods ended March 31, 2021 and 2020, respectively.

As of March 31,

2021 and December 31, 2020, the accompanying condensed balance sheets include $99 and $18, respectively, in accrued liabilities for remaining

employee ESPP contributions.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

Related Party Transactions

was issued 3,500,000 shares of the Company’s common stock at the formation of the Company at the $0.001 par value per share

price as the paid-in-capital contribution from Harrow.

The Company and Harrow signed licensing agreements for two products developed

by Harrow whereby Harrow assigned the product rights to the Company.

In July 2018, the Company determined that one of the products

was not viable for its portfolio of product opportunities and cancelled the licensing agreement and the product rights were returned

part of the early start-up for the Company’s pharmaceutical business in 2017, key executives at Harrow received a total

of 1,500,000 shares of restricted common stock in the Company for consulting services, and certain Harrow managers also received

stock options to purchase a total of 130,000 shares of common stock from the Company (20,000 of these options were forfeited in

The restricted stock and stock options vested in full on April 30, 2018.

was issued 3,500,000 shares of the Company’s common stock at the formation of the Company at the $0.001 par value per share price

as the paid-in-capital contribution from Harrow.

The Company and Harrow signed licensing agreements for two products developed by Harrow

whereby Harrow assigned the product rights to the Company.

In July 2018, the Company determined that one of the products was not viable

for its portfolio of product opportunities and cancelled the licensing agreement whereby Harrow retains the product rights.

May 6, 2019, the Company entered into an Asset Purchase Agreement (the “CT-100 Asset Purchase Agreement”) with Harrow.

to the CT-100 Asset Purchase Agreement, the Company sold all of its right, title and interest in CT-100 to Harrow, including any such

product that incorporates or utilizes its intellectual property rights (a “Product”

or, collectively, “Products”).

Pursuant to the CT-100 Asset Purchase Agreement, Harrow will make certain payments to the Company upon the achievement of certain development

and commercial milestones.

In addition, Harrow is required to pay the Company a royalty in the low-single digit percentage range worldwide

on a country-by-country basis on net sales for a period of the longer of 15 years from the date of the first commercial sale of a product

in a particular country or the time that a valid intellectual property claim on such Product remains in force in the applicable country.

The CT-100 Asset Purchase Agreement also contains customary representations, warranties, covenants and indemnities by the parties.

part of the early start-up for the Company’s pharmaceutical business in 2017, key executives at Harrow received a total of 1,500,000

shares of restricted common stock in the Company for consulting services, and certain Harrow managers also received stock options to

purchase a total of 130,000 shares of common stock from the Company (20,000 of these options were forfeited in 2018).

The restricted

stock and stock options vested in full on April 30, 2018.

Additionally,

the Chief Executive Officer of Harrow is a member of the Company’s board of directors.

the Chief Executive Officer of Harrow was a member of the Company’s board of directors until March 17, 2021 when he retired from

service with the board.

Pharmaceuticals, Inc.

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Executive Officer

Company’s CEO has a partial interest in several companies that the Company is working with for product development and potential

marketing if the products are approved by the FDA as detailed below.

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 is responsible for all costs

of testing and FDA approval of the product, other than the FDA filing fee which will be paid by Eyemax.

The Company was also 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 original agreement, the Company would

pay Eyemax $250 upon FDA approval and $500 upon the first commercial sale of the product and pay Eyemax 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.

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

CEO has a partial interest in a company that the Company has partnered with for its EM-100 product as described below.

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 original agreement, the Company would pay Eyemax $250 upon FDA approval and

$500 upon the first commercial sale of the product and pay Eyemax 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.

February 18, 2019, The Company entered into an Amended and Restated Agreement with Eyemax amending the Eyemax 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.

Pursuant to the Amended Agreement, the Company remains obligated to pay Eyemax two milestones 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.

payment of the milestones, the Company is entitled to retain all of the non-royalty transaction revenues and royalties up to $2,000

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.

Pursuant to the Amended Agreement, the Company was obligated to pay 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 which was paid in October 2020 and (ii) one milestone

payment for $500 following the first commercial sale of the first single agent product in the territory which was paid in February 2021.

Following payment of the milestones, the Company is entitled to retain all of the non-royalty transaction revenues and royalties up to

$2,000 (the “Recovery Amount”).

3 unchanged sentences

and indemnities by the parties.

The EM-100 asset and its associated product rights were sold to Bausch on February 18, 2019 and

future potential royalties of twelve percent of net sales of Bausch sales of EM-100, pending an FDA approval for EM-100, will

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 EM-100, which was approved by the FDA in September 2020, will

be split between Eyemax and the Company.

The royalty from Bausch is subject to reduction if a competitive product with the same

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 EM-100 U.S market share falls below a specified target percentage.

In accordance with the FDA approval for EM-100 on September 24, 2020, the Company owed Eyemax $250 as of September 30, 2020.

were no amounts due at December 31, 2019.

There were no amounts due to Eyemax under the terms of the Amended Agreement as of March 31, 2021 or December 31, 2020.

Pharmaceuticals, Inc.

2 unchanged sentences

Company recognizes a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases,

including operating leases.

The Company separates lease components from non-lease components related to its office space lease.

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 not 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.

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.

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.

including operating leases, and separates lease components from non-lease components related to its office space lease.

Company’s operating lease cost as presented in the “Research and Development”

and “General and Administrative”

captions in the condensed statements of operations was $13 and $21, respectively, for the three months ended September 30, 2020

and $13 and $21, respectively, for the three months ended September 30, 2019.

The Company’s operating lease cost as presented

in the “Research and Development”

and “General and Administrative”

captions in the condensed statements

of operations was $41 and $62, respectively, for the nine months ended September 30, 2020 and $41 and $64, respectively, for the

nine months ended September 30, 2019.

Cash paid for amounts included in the measurement of operating lease liabilities was $99

for the nine months ended September 30, 2020.

The ROU asset amortization for the three and nine-month periods ended September

30, 2020 was $33 and $97, respectively, and is reflected within depreciation and amortization on the Company’s condensed

statements of cash flows.

The ROU asset amortization for the three and nine-month periods ended September 30, 2019 was $31 and

$90, respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows.

As of September 30, 2020, the weighted-average remaining lease term was 0.5 years, and the weighted-average incremental borrowing

captions in the condensed statements of operations was $9 and $21, respectively, for the three months ended March 31, 2021 and $14 and

$21, respectively, for the three months ended March 31, 2020.

Cash paid for amounts included in the measurement of operating lease liabilities

was $24 for the three months ended March 31, 2021.

The ROU asset amortization for the three-month periods ended March 31, 2021 and 2020

was $29 and $31, respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash

As of March 31, 2021, the weighted-average remaining lease term was 2.0 years, and the weighted-average incremental borrowing

rate was 5.4%.

table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2020 (in thousands).

table below presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2021 (in thousands).

Classification

4 unchanged sentences

operating lease liabilities

Company’s future lease commitments for its administrative offices in Deer Park, Illinois and its laboratory facility in

Lake Zurich, Illinois as of September 30, 2020 are as indicated below:

Undiscounted lease payments

Company’s future lease commitments for its administrative offices in Deer Park, Illinois as of March 31, 2021 is as indicated below:

lease payments

Imputed interest

Total lease liabilities

October 16, 2020, the Company negotiated a new two-year lease for its administrative offices in Deer Park, Illinois commencing

on April 1, 2021 and ending on March 31, 2023.

lease liabilities

Pharmaceuticals, Inc.

3 unchanged sentences

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 may have a material impact on the operations of the Company.

May 7, 2020, the Company announced that it has been confirmed as the first filer of a patent challenge against Exela Pharma Science’s

Elcys product (cysteine hydrochloride injection).

This case matter is still pending at this time.

The Company is not aware of any

pending or threatened litigation matters at this time that may have a material impact on the operations of the Company.

and product development agreements

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

Company acquired the exclusive rights to sell the DS-300 product in the United States pursuant to a sales and marketing agreement

Company acquired the exclusive rights to sell the Cysteine injection product in the United States pursuant to a sales and marketing agreement

dated November 17, 2017 with an unaffiliated third party (the “Sales Agreement”).

Pursuant to the Sales Agreement,

the licensor is responsible for obtaining FDA approval, at its expense, and the Company is responsible for commercializing the

product in the United States at its expense.

The Company will be responsible for Paragraph IV litigation management and expense

for the product and will be entitled to 62.5% of the net profit from the sale of the product.

The initial term is for the first

10 years following the first commercial sale of the product.

Company acquired the exclusive license to develop, manufacture and sell ET-103 in the United States pursuant to an Exclusive License

and Supply Agreement dated August 3, 2018 between the Company and Liqmeds Worldwide Limited (“LMW”), an unaffiliated

Pursuant to the agreement, the Company will be responsible for, and will own, all regulatory filings and approvals at

its expense, provided that it shall have the right to recoup 35% of any regulatory filing fees from the initial profits from the

sale of ET-103 and, provided further, the licensor shall be responsible for any bioequivalence study and shall be responsible

for 60% of the costs of such study.

An affiliate of the licensor shall manufacture the ET-103 and sell it to the Company at its

The Company paid the licensor $350 upon execution of the agreement and will pay the licensor $1,500 upon the FDA’s

acceptance of an NDA for review, $1,000 upon FDA approval, $1,500 upon issuance of patent covering ET-103 listed in the FDA’s

Orange Book and $500 in the event of product sales in excess of $10,000 in any calendar year.

In addition, the Company is required

to pay the licensor 35% of the net profit from product sales.

The license agreement is for an initial term of 10 years from the

date of the first commercial sale of the product, subject to two-year renewals unless either party elects to terminate no less

than 12 months prior to the then current term.

The agreement also contains customary representations, warranties, covenants and

indemnities by the parties.

January 23, 2019, the Company entered into a Licensing and Supply Agreement (the “Agreement”) with LMW for ET-104

oral liquid, a development stage product candidate (“ET-104”).

Pursuant to the terms of the Agreement, the Company

will be responsible for regulatory and marketing activities.

LMW will be responsible for development and manufacturing of ET-104.

The Company paid the licensor $350 upon execution of the Agreement and an additional $350 after receiving successful bioequivalence

study results, and will pay $325 based upon the FDA’s acceptance of the NDA for review which occurred on September 27, 2020,

$325 upon FDA approval of the NDA, $650 upon issuance of patent covering ET-104 listed in the FDA’s Orange Book and $500

in the event that product sales in excess of $10,000 are achieved within a calendar year.

In addition, the Company is required

to pay the licensor 35% of the net profit from product sales.

The Agreement is for an initial term of 10 years from the date of

the first commercial sale of the product.

The Company will retain sole ownership of the NDA after expiration of the Agreement.

February 8, 2019, the Company entered into an Exclusive Licensing and Supply Agreement (the “ET-202 License Agreement”)

with Sintetica SA (“Sintetica”) for marketing rights in the United States to Biorphen®

which is used for the treatment

of clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia.

The product was submitted

to the FDA for review and received FDA approval on October 21, 2019.

Pursuant to the Sales Agreement, the licensor

is responsible for obtaining FDA approval, at its expense, and the Company is responsible for commercializing the product in the United

States at its expense.

The Company was to pay the third party 50% of the net profit from the sale of the product, however, in February

2020, it executed an amendment to the Sales and Marketing Agreement.

Under the revised terms, the Company will be responsible for paragraph

IV related litigation and will be entitled to 62.5% of product profit.

The initial term is for the first 10 years following the first

commercial sale of the product.

February 8, 2019, the Company entered into an Exclusive Licensing and Supply Agreement (the “ET-202 License Agreement”) with

Sintetica SA (“Sintetica”) for marketing rights in the United States to Biorphen®

which is used for the treatment of

clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia.

The product was submitted to the

FDA for review and subsequently received FDA approval on October 21, 2019.

Pursuant to the terms of the ET-202 License Agreement, the

Company is responsible for marketing activities and Sintetica is responsible for development, manufacturing, and regulatory activities

for the product.

In 2019, the Company paid Sintetica a licensing payment of $2,000 upon execution of the ET-202 License Agreement

and paid $750 upon the commencement of commercial product shipments.

Sintetica supplies Biorphen to the Company at its direct

costs and the Company retains 5% of net sales as a marketing fee.

Company is responsible for marketing activities and Sintetica is responsible for development, manufacturing, and the regulatory activities

related to approval.

The Company paid Sintetica a licensing payment of $2,000 upon execution of the ET-202 License Agreement and $750

upon the commencement of commercial product shipments.

Sintetica will supply Biorphen to the Company at its direct costs and the Company

will retain 5% of net sales as a marketing fee.

Sintetica is entitled to receive the first $500 of product profits.

All additional profit

will be split 50% to the Company and 50% to Sintetica.

The ET-202 License Agreement has a ten-year term from the first commercial sale

of Biorphen which occurred in November 2019.

February 8, 2019, the Company also entered into an Exclusive Licensing and Supply Agreement (the “ET-203 License Agreement”)

with Sintetica for marketing rights in the United States to ephedrine, an injectable product candidate for use in the hospital setting.

Pursuant to the terms of the ET-203 License Agreement, the Company will be responsible for marketing activities and Sintetica will be

responsible for development, manufacturing, and regulatory activities related to obtaining regulatory approval.

The Company paid Sintetica

a licensing payment of $1,000 upon execution of the ET-203 License Agreement which was refunded to Eton in early 2020 due to the FDA

not accepting the ET-203 file submission by Sintetica.

The refund was reflected as a component of prepaid and other current assets on

the Company’s balance sheet at December 31, 2019.

The ET-203 product was successfully resubmitted in late 2020 and the Company

will pay a $600 milestone fee and will also pay $750 upon FDA approval and the commercial sale of the product candidate.

Upon approval,

Sintetica will supply ET-203 to the Company at its direct costs.

The Company will retain 5% of net sales as a marketing fee.

will be entitled to receive the first $500 of product profits.

All additional profit will be split 50% to the Company and 50% to Sintetica.

The ET-202 License Agreement has a ten-year term

commencing on November 26, 2019.

There was a gross loss for the three-month period ended September 30, 2020 due to a September

product price reduction through the Company’s wholesaler customers and the Company will true-up this amount due from Sintetica.

The ET-203 License Agreement has a ten-year term from first commercial sale of product.

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 all its rights and interests in

these three products to Azurity Pharmaceuticals, Inc.

(“Azurity”) in 2021.

the years ended December 31, 2020, 2019 and 2018, 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.

Pharmaceuticals, Inc.

2 unchanged sentences

Commitments and Contingencies (continued)

February 8, 2019, the Company also entered into an Exclusive Licensing and Supply Agreement (the “ET-203 License Agreement”)

with Sintetica for marketing rights in the United States to ET-203, an injectable product candidate for use in the hospital setting.

Pursuant to the terms of the ET-203 License Agreement, the Company will be responsible for marketing activities and Sintetica

will be responsible for development, manufacturing, and regulatory activities related to obtaining regulatory approval.

paid Sintetica a licensing payment of $1,000 upon execution of the ET-203 License Agreement and will pay $750 upon FDA approval

and the commercial sale of the product candidate.

Upon approval, Sintetica will supply ET-203 to the Company at its direct costs.

The Company will retain 5% of net sales as a marketing fee.

Sintetica will be entitled to receive the first $500 of product profits.

All additional profit will be split 50% to the Company and 50% to Sintetica.

The ET-203 License Agreement has a ten-year term

from first commercial sale of product.

June 12, 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 ET-105, a 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 will be responsible

for marketing activities and Aucta will be responsible for development, manufacturing, and regulatory activities related to obtaining

regulatory approval.

The Company paid Aucta a licensing payment of $2,000 in August 2019 upon receiving an acceptance for review

letter from the FDA and will pay $2,000 upon FDA approval and commercial sales of the product candidate and another $1,000 upon

January 23, 2019, the Company entered into a Licensing and Supply Agreement (the “Agreement”) with Liqmeds Worldwide Limited

(“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.

LMW will be responsible for development and

manufacturing of ET-104.

The Company paid the licensor $350 upon execution of the Agreement and an additional $350 after receiving successful

bioequivalence study results, and $325 upon the FDA’s acceptance of the NDA for review and will pay $325 upon FDA approval of the

NDA, $650 upon issuance of patent covering ET-104 listed in the FDA’s Orange Book and $500 in the event that product sales in excess

of $10,000 were achieved within a calendar year.

In addition, the Company was required to pay the licensor 35% of the net profit from

product sales.

The Agreement was for an initial term of 10 years from the date of the first commercial sale of the product.

was to retain sole ownership of the NDA after expiration of the Agreement.

June 12, 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

to be responsible for marketing activities and Aucta will be responsible for development, manufacturing, and regulatory activities related

to obtaining regulatory approval.

The Company paid Aucta a licensing payment of $2,000 in August 2019 upon receiving an acceptance for

review letter from the FDA and will pay $2,450 upon FDA approval and commercial sales of the product candidate and another $1,000 upon

issuance of an Orange-book listed patent.

Aucta will receive a 15% royalty on net sales and will be entitled to receive milestone

payments of up to $18,000 based on commercial success of the product, including:

If Aucta successfully completes a Lamotrigine product line extension product, Eton will pay

$1,500 upon FDA acceptance of the product filing and $1,950 upon FDA approval and commercial sales of the extension product candidate.

Aucta will receive a low double-digit royalty on net sales and will be entitled to receive milestone payments of up to $18,000 based

on commercial success of the product, including:

when net sales exceed $10 million in a calendar year

2 unchanged sentences

when net sales exceed $100 million in a calendar year

March 27, 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.

Alkindi Sprinkle’s New Drug Application (NDA) was approved

by the FDA on September 29, 2020 as a replacement therapy for pediatric adrenal insufficiency (AI), including congenital adrenal

hyperplasia (CAH) in patients from birth to less than 17 years of age.

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 (see Note 6).

The total amount of $4,764 was recorded as a component of research and development expense in the Company’s condensed statement

of operations for the nine-month period ended September 30, 2020.

The Company will pay Diurnal $2,500 after the commercial launch

subject to the product also obtaining orphan drug exclusivity status from the FDA.

Indemnifications

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

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, 2020 or December 31, 2019.

Subsequent Events

October 16, 2020, the Company completed a public offering for 3,220,000 shares of its common stock at a public offering price

of $7.00 per share.

The Company received approximately $21,040 of net proceeds from the offering.

will remain responsible for certain licensing fee obligations owed to its development partners and Azurity will assume royalty or profit

share obligations owed to development partners.

March 27, 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.

Alkindi Sprinkle’s New Drug Application (NDA) was approved by the

FDA on September 29, 2020 as a replacement therapy for pediatric adrenal insufficiency (AI), including congenital adrenal hyperplasia

(CAH) in patients from birth to less than 17 years of age.

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 total amount of $4,764 was

recorded as a component of research and development expense in the Company’s statement of operations for the three months ended

March 31, 2020.

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

Indemnification

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.

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 March 31, 2021 or December 31, 2020.

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

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, 2019 filed with

the Securities and Exchange Commission (the “SEC”) on March 5, 2020 (the “2019 10-K”).

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, 2020 filed with the Securities and Exchange

Commission (the “SEC”) on March 16, 2021 (the “2020 10-K”).

Forward-Looking

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,”

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,”

4 unchanged sentences

or similar language.

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.

Our business and financial performance are subject to substantial

risks and uncertainties.

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 2019 10-K and Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarterly periods ended March

31 and June 30, 2020.

are a specialty pharmaceutical company focused on developing and commercializing innovative pharmaceutical products and we have

particularly targeted hospital injectable and pediatric rare disease products.

We seek to improve the formula, delivery system,

or safety of existing molecules in order to address unmet patient needs.

We pursue what we perceive to be low-risk candidates

where existing published literature, historical clinical trials, or physician usage has established safety and/or efficacy of

the molecule, thereby reducing the incremental clinical burden required for us to bring the product to patients.

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.

Our business and financial performance are subject to substantial risks and uncertainties.

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 2020 10-K.

are a specialty pharmaceutical company focused on developing and commercializing innovative pharmaceutical products and we have particularly

targeted hospital injectable and pediatric rare disease products.

We seek to improve the formula, delivery system, or safety of existing

molecules in order to address unmet patient needs.

We pursue what we perceive to be low-risk candidates where existing published literature,

historical clinical trials, or physician usage has established safety and/or efficacy of the molecule, thereby reducing the incremental

clinical burden required for us to bring the product to patients.

October 2019, we received FDA approval for Biorphen®

which we are marketing in the United States.

Biorphen (phenylephrine

HCl injection) is an alpha-1 adrenergic receptor agonist indicated for the treatment of clinically important hypotension resulting

primarily from vasodilation in the setting of anesthesia.

In September 2020, the FDA approved our Alkindi Sprinkle product as

a replacement therapy for pediatric adrenal insufficiency (AI), including congenital adrenal hyperplasia (CAH) in patients from

birth to less than 17 years of age.

In addition, the FDA approved EM-100, an eye allergy product which we sold to Bausch Health

whereby we will receive royalties on sales of EM-100 which is expected to be launched in early 2021.

have established a diversified pipeline of product candidates in various stages of development, including multiple candidates

that have been submitted to the FDA for review.

Biorphen (phenylephrine HCl injection)

is an alpha-1 adrenergic receptor agonist indicated for the treatment of clinically important hypotension resulting primarily from vasodilation

in the setting of anesthesia.

In September 2020, the FDA approved our Alkindi Sprinkle product as a replacement therapy for pediatric

adrenal insufficiency (AI), including congenital adrenal hyperplasia (CAH) in patients from birth to less than 17 years of age.

the FDA approved EM-100, an eye allergy product which we sold to Bausch Health whereby we will receive royalties on sales of EM-100 which

was launched in late January 2021.

We received a $1,500 milestone payment from Bausch in accordance with the product launch for EM-100.

In February 2021, we sold three pediatric neurology products we had under development to Azurity Pharmaceuticals (“Azurity”)

and received $9,500 in proceeds.

We anticipate additional revenues from Azurity based on various product-related milestones including

the commercial launch for these products which are currently under review with the FDA.

have established a diversified pipeline of product candidates in various stages of development, including multiple candidates that have

been submitted to the FDA for review.

Our product candidates are primarily focused on two core areas:

hospital-based

products and pediatric oral liquid products.

We believe these candidates can address situations where patient needs are not being

met by current FDA-approved products.

hospital-based products and pediatric

oral liquid products.

We believe these candidates can address situations where patient needs are not being met by current FDA-approved

of Operations

received FDA approval for our Biorphen®

product in October 2019 and began commercializing the product in December 2019.

have encountered difficulty in creating significant market pull-through demand for Biorphen in 2020 as our in-person sales calls

to key personnel at hospitals and surgical centers and introductory product presentation seminars were cancelled as a result of

the COVID-19 pandemic.

We are working on other promotional efforts to drive further adoption in the market, but we expect that

our Biorphen sales and marketing efforts will continue to be adversely affected by the pandemic in 2020.

In September 2020, we

reduced the selling price for Biorphen, which we sell through wholesalers, and recognized a $192 reduction to revenue based on

the shelf stock inventory held at our wholesale customers.

Biorphen sales are currently our only source of revenue, however we

expect to receive revenue from Alkindi Sprinkle in the latter part of 2020 as well as royalty/licensing fees and sales for additional

products in future periods.

dollar amounts are listed in thousands below).

the three-month period ended September 30, 2020 we had negative net sales of $161 for Biorphen due to the $192 wholesaler price

reduction noted above combined with low sales volume primarily as a result of the COVID-19 pandemic marketing and promotion factors

discussed above.

This unfavorable sales impact was partially offset by a negative cost of sales of $144 based on the profit/(loss)

sharing agreement with our product development partner for Biorphen.

There were no revenues for the three-month period ended September

the nine-month period ended September 30, 2020 we realized a negative $42 in net sales of Biorphen mainly due to the $192 wholesaler

price reduction noted above combined with low sales volume primarily as a result of the COVID-19 pandemic marketing and promotion

factors discussed above.

Revenues for the nine-month period ended September 30, 2019 of $500 reflected the sale of our EM-100

product to Bausch Health in February 2019.

had total revenue of $11,897 for the three-month period ended March 31, 2021 which reflected the Azurity and Bausch milestones revenue

discussed above plus product sales and royalty revenues which generated a total gross profit of $10,307 for the period.

For the three-month

period ended March 31, 2020 we had $99 of sales from our Biorphen product at a negative gross profit of $3.

and Development Expenses

the three-month periods ended September 30, 2020 and 2019, we incurred $2,826 and $3,418, respectively, of research and development

(“R&D”) expenses.

The full comparative three-month detail of our R&D expense is listed in the table below

and reflects an overall $592 lower expense level in 2020 mainly due to decreased product development spending for Lamotrigine

partially offset by higher spending for Zonisamide and lower compensation and laboratory spending expense in the 2020 period.

the nine-month periods ended September 30, 2020 and 2019, we incurred $10,703 and $11,322, respectively, of R&D expense.

2020 period includes $4,764 in expense for the licensing payments for the U.S.

the three-month periods ended March 31, 2021 and 2020, we incurred $886 and $6,268 of research and development expenses (“R&D”),

respectively.

The 2021 period reflected a reduced overall R&D activity while the 2020 period included $4,764 in expense for the licensing

payments for the U.S.

rights to Alkindi®

Sprinkle and the 2019 period

includes $2,000 for licensing payments related to the U.S.

rights for Biorphen and $1,853 for Selenium product development expenses.

The full comparative nine-month detail of our R&D expense is listed in the table below and reflects an overall $619 lower

expense level in 2020.

forth in the table below is our R&D spending for our current product candidates and general product development expenses for

the three and nine-month periods ended September 30, 2020 and 2019.

We currently have five employees that support our overall

product development and laboratory product testing operations.

We do not track internal costs by product for our employees and

laboratory expenses and they are listed as indirect expenses in the table below.

Three months ended

September 30, 2020

September 30, 2019

Nine months ended

September 30, 2020

Nine months ended

September 30, 2019

Alkindi Sprinkle

Dehydrated Alcohol

Other products

Indirect expenses

The full comparative three-month detail of our R&D expense is listed in the

table below and reflects an overall $5,382 lower expense level in 2021 as we are focusing on commercial development of our Alkindi Sprinkle

and Biorphen products at this time.

forth in the table below is our research and development spending for our current product candidates and general product development

expenses for the three-month periods ended March 31, 2021 and 2020.

We do not track internal costs by product for our employees and laboratory

expenses and they are listed as indirect expenses in the table below.

In March 2021, we decided to discontinue our laboratory product

testing operations and anticipate completing a sale of our laboratory equipment in May 2021.

and Administrative Expenses

and administrative (“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.

the three-month periods ended September 30, 2020 and 2019, we incurred $3,429 and $1,624, respectively, of G&A expenses.

$1,085 increase in G&A expense was mainly due to increased spending for marketing/promotional activities towards the Alkindi

Sprinkle launch, higher marketing/distribution spending for Biorphen commercialization, legal expenses due to our initiating a

Paragraph IV patent challenge against Exela Pharma Science’s Elcys product (cysteine hydrochloride injection), and increased

compensation expenses.

the nine-month periods ended September 30, 2020 and 2019, we incurred $8,960 and $5,123, respectively, of G&A expenses.

$3,837 increase in G&A expense was mainly due to increased spending for marketing/promotional activities towards the Alkindi

Sprinkle launch, higher marketing/distribution spending for Biorphen commercialization, legal expenses due to our initiating a

Paragraph IV patent challenge against Exela Pharma Science’s Elcys product (cysteine hydrochloride injection), and increased

compensation expenses.

and other (expense) income

comparing the three-month periods ended September 30, 2020 and 2019, net interest expense increased by $309 as a result of $232

in interest expense mainly associated with borrowings under our SWK Credit Agreement and $77 in reduced interest income due to

lower interest rates and lower levels of cash and cash equivalents in 2020.

For the nine-month periods ended September 30, 2020

and 2019, net interest expense increased by $913 as a result of $620 in interest expense mainly associated with borrowings under

our SWK Credit Agreement and $293 in reduced interest income due to lower interest rates and lower levels of cash and cash equivalents

incurred a net loss of $6,504 and $4,965 for the three-month periods ended September 30, 2020 and 2019, respectively.

The increased

loss in the 2020 period was mainly a result of increased general and administrative expenses as discussed above.

incurred a net loss of $20,283 and $15,624 for the nine-month periods ended September 30, 2020 and 2019, respectively.

The increased

loss in the 2020 period was mainly a result of increased general and administrative expenses, the licensing revenue of $500 that

was realized in 2019 and increased net interest expense as discussed above.

and Capital Resources

primary source of financing has been raising equity capital in the public markets and obtaining loans through SWK to support our

product development projects along with marketing/distribution spending and working capital to support approved product launches.

We believe our existing cash balances combined with the net proceeds of approximately $21,040 from our October 2020 stock offering

will be sufficient to fund our business operations for at least the next twelve months from the date of the filing of this

We could use our available capital resources sooner than currently expected, and accordingly, would seek to obtain additional

capital through equity financings, additional drawdowns under our current credit agreement with SWK Holdings, the sale of additional

debt, or through other arrangements.

following table sets forth a summary of our cash flows for the nine-month periods ended September 30, 2020 and 2019:

Nine months ended

September 30, 2020

Nine months ended

September 30, 2019

Net cash used in operating activities

Cash used in investing activities

Cash flows provided by financing activities

Change in cash and cash equivalents

increase in cash used in operating activities was mainly due to the higher operating losses in 2020 being partially offset by

favorable working capital changes when compared to the same period in 2019.

Investing activities consisted primarily of capital

expenditures for setting up our new laboratory facility in 2019 and only nominal equipment spending requirements in 2020.

increase in financing activity was primarily the result of the sales of our common stock in March and April 2020 along with additional

loan borrowings in August 2020.

and administrative (“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.

the three-month periods ended March 31, 2021 and 2020, we incurred $4,058 and $2,610, respectively, of G&A expenses.

The $1,448 increase

in G&A expense was mainly due to $573 in increased compensation expenses and $969 in higher product marketing/distribution expenses

mainly related to Alkindi Sprinkle commercialization.

This was partially offset by decreased legal expenses mainly due to less activity

associated with our Paragraph IV patent challenge related to L-Cysteine.

and other expense, net

comparing the three-month periods ended March 31, 2021 and 2020, net interest/other expense increased by $79 primarily as a result of

higher interest expense associated with increased borrowings under our SWK Credit agreement.

realized net income of $5,116 for the three months ended March 31, 2021 and incurred a net loss of $9,049 for the three-month period

ended March 31, 2020 due to the factors discussed above.

following table sets forth a summary of our cash flows for the three-month periods ended March 31, 2021 and 2020:

cash provided by (used in) operating activities

used in investing activities

flows from financing activities

in cash and cash equivalents

increase in cash provided by (used in) operating activities was mainly a result of the net income in the 2021 period partially offset

by changes in working capital as compared to the net loss in the 2020 period.

The 2020 financing activity was primarily the result of

the sales of our common stock in March 2020.

Accounting Policies

condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of

America (“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

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.

We evaluate our estimates and assumptions on an ongoing

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

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

revenues for the first nine months of 2020 a negative $42 as a result of limited sales volumes for Biorphen and our reducing the

selling price for Biorphen, which we sell through wholesalers, and recognizing a $192 reduction to revenue based on the shelf

stock inventory held at our wholesale customers.

Sales for the nine months ended September 30, 2019 of $500 resulted from the

sale of our EM-100 product rights to Bausch Health Ireland Limited (“Bausch”) per an Asset Purchase Agreement dated

February 18, 2019 (the “Asset Purchase Agreement”).

We expect to generate future revenues from direct sales of our

FDA-approved Biorphen®

and Alkindi®

Sprinkle product as well as products we have in development which will typically require

advance review and approval by the FDA.

Additionally, we anticipate we will receive revenues from product licensing agreements

where we have contracted for milestone payments and royalties from products we have developed or for which we have acquired the

rights to a product developed by a third party.

condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of America

(“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 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.

We evaluate our estimates and assumptions on an ongoing basis.

Our actual results may differ from these estimates

under different assumptions or conditions.

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.

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 which the entity expects to receive in exchange for those goods or services.

revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following

(i) identify the contract(s) with a customer;

from Contracts with Customers.

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

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:

the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine

the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue

when (or as) the entity satisfies a performance obligation.

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 determine those that are performance obligations and assesses whether each promised good or service is

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 if 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.

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 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 consolidated 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.

(iii) determine the transaction price;

allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies

a performance obligation.

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 and assesses whether each promised good or service is distinct.

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.

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

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

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 our balance

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.

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.

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.

To date, we have not recognized

any royalty revenue resulting from any of our licensing arrangements.

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.

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.

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.

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.

sell Biorphen in the U.S.

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

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery

of individual shipments of Biorphen represent 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.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers

sell Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government

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 Biorphen represent 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.

In addition, we sell our Alkindi Sprinkle product to one pharmacy distributor customer which provides order fulfillment and inventory

storage/distribution services.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell

Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.

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

We pay GPOs fees for administrative services and for access to GPO members and concluded the benefits received in exchange for

these fees are not distinct from our sales of Biorphen, and accordingly we apply these amounts to reduce revenues.

also have rights to return unsold product nearing or past the expiration date.

Because of the shelf life of Biorphen and our lengthy

return period, there may be a significant period of time between when the product is shipped and when we issue credits on returned

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 arising from all of the above factors.

We have developed estimates for future returns

and chargebacks of Biorphen and the impact of the other discounts and fees we pay.

When estimating these adjustments to the transaction

price, we reduce 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.

We pay GPOs fees

for administrative services and for access to GPO members and concluded the benefits received in exchange for these fees are not distinct

from our sales of Biorphen, and accordingly we apply these amounts to reduce revenues.

Wholesalers also have rights to return unsold

product nearing or past the expiration date.

Because of the shelf life of Biorphen and our lengthy return period, there may be a significant

period of time between when the product is shipped and when we issue credits on returned product.

For our Alkindi Sprinkle product, we

bill at the initial product list prices 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.

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 arising from all of the above factors.

We have developed estimates for future returns and chargebacks

of Biorphen and the impact of the other discounts and fees we pay.

Our sales of Alkindi Sprinkle to our distributor are not subject to

When estimating these adjustments to the transaction price, we reduce 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.

recognize revenue from Biorphen product sales and related cost of sales upon product delivery to the wholesaler location.

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 us.

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

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, we do not believe they have a significant incentive to return the product to

recognition of revenue from product sales of Biorphen, the estimated amounts of credit for product returns, chargebacks, distribution

fees, prompt payment discounts, and GPO fees are included in sales reserves, accrued liabilities and net of accounts receivable.

We monitor actual product returns, chargebacks, discounts and fees subsequent to 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.

addition, we anticipate we will receive revenues from product licensing agreements where we have contracted for milestone payments

and royalties from products we have developed or for which we have acquired the rights to a product developed by a third party.

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

Although wholesalers

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

We store our Alkindi Sprinkle

inventory at our pharmacy distributor customer location and sales are recorded when stock is pulled and shipped to fulfill specific patient

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 of accounts receivable.

monitor actual product returns, chargebacks, discounts and fees subsequent to 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.

account for stock-based compensation under the provisions of Accounting Standards Codification (“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.

estimate the fair value of stock-based option awards using the Black-Scholes-Merton 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.

The risk-free interest

rate was determined from the implied yields for zero-coupon U.S.

government issues with a remaining term approximating the expected

life of the options or warrants.

Dividends on common stock are assumed to be zero for the BSM valuation of the stock options.

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

Expected volatilities

are based on comparable companies’

historical volatility along with limited weighting for our volatility experience from

the date of our IPO in November 2018, which management believes represents the most accurate basis for estimating expected future

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

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

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”).

estimate the fair value of stock-based option awards to our 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.

The risk-free interest rate was determined from the implied yields for zero-coupon U.S.

issues with a remaining term approximating the expected life of the options or warrants.

Dividends on common stock are assumed to be

zero for the BSM valuation of the stock options.

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

life of the options.

Expected volatilities are based on comparable companies’

historical volatility along with a limited weighting

included for our own 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.

to our initial public offering in November 2018, the fair value of the shares of common stock underlying our stock-based awards was determined

by our board of directors, with input from management.

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.

and Development Expenses

expenses include both internal R&D activities and external contracted services.

Internal R&D activity expenses include

salaries, benefits and stock-based compensation, laboratory operating costs and other expenses to support our R&D operations.

External contracted services include product development efforts including certain product licensor milestone payments, clinical

trial activities, manufacturing and control-related activities and regulatory costs.

R&D expenses are charged to operations

We review and accrue R&D expenses based on services performed and rely 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.

Internal R&D activity expenses include salaries,

benefits and stock-based compensation and other costs to support our R&D operations.

External contracted services include product

development efforts including certain product licensor milestone payments, clinical trial activities, manufacturing and control-related

activities and regulatory costs.

R&D expenses are charged to operations as incurred.

We review and accrue R&D expenses based

on services performed and rely 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.

Actual results could differ from our estimates.

payments and milestone payments made for the licensing of technology on products which are not yet approved by the FDA are expensed

as R&D in the period in which they are incurred.

Milestone payments for FDA-approved products are capitalized and amortized

over the expected economic life of the product.

Nonrefundable advance payments for goods or services to be received in the future

for use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services

are performed.

payments and milestone payments made for the licensing of technology for products that are not yet approved by the FDA are expensed as

R&D in the period in which they are incurred.

Nonrefundable advance payments for goods or services to be received in the future for

use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services are performed.

Balance Sheet Transactions

2 unchanged sentences

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.

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

Subject to certain conditions, as an emerging growth company, 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 the earlier to occur of (1) the last day of the fiscal year (a) December 31, 2023, which is the end of the

fiscal year following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenues of

at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer”

under the rules of the SEC,

which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th,

and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

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.

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

to certain conditions, as an emerging growth company, 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 the earlier to occur of (1)

the last day of the fiscal year (a) December 31, 2023, which is the end of the fiscal year following the fifth anniversary of the completion

of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a “large

accelerated filer”

under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates

exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt

during the prior three-year period.

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