What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-13 · 514 added, 606 removed, 569 unchanged (66% of the section changed)

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thousands, except share and per share amounts)

March 31, 2021

December 31, 2020

Current assets:

Cash and cash equivalents

Cash and cash

Accounts receivable, net

Equipment held-for-sale

Prepaid expenses and other current assets

expenses and other current assets

Total current assets

Property and equipment, net

Property and equipment,

Intangible assets, net

Operating lease right-of-use assets, net

Other long-term assets, net

Liabilities and stockholders’

Operating lease right-of-use

long-term assets, net

Liabilities and stockholders’

Current liabilities:

Accounts payable

Current portion of long-term debt

Current portion of long-term

PPP loan, current portion

Accrued liabilities

Total current liabilities

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

Long-term debt, net of discount and including

Long-term portion of PPP and EIDL loans

Operating lease liabilities, net of current portion

Total liabilities

Commitments and contingencies (Note 11)

Stockholders’

Operating lease liabilities,

net of current portion

Commitments and contingencies

Stockholders’ equity

Common stock, $ 0.001 par value;

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

50,000,000 shares authorized as of June

30, 2021 and December 31, 2020;

24,600,175 and 24,312,808 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

stockholders’ equity

liabilities and stockholders’ equity

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

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thousands, except per share amounts)

For the three months ended

March 31, 2021

March 31, 2020

the three months ended

the six months ended

Licensing revenue

Product sales and royalties

Total net revenues

sales and royalties

Cost of sales:

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Product sales and royalties

Total cost of sales

Gross profit (loss)

cost of sales

profit (loss)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Income (loss) from operations

Other expense:

Interest and other expense, net

Income (loss) before income tax expense

and administrative

operating expenses

(Loss) income from operations

Other (expense) income:

Interest and other (expense)

Gain on PPP loan forgiven

on equipment sale

(Loss) income before income

Income tax expense

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

(loss) income

loss (income) per share, basic

loss (income) 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.

Pharmaceuticals, Inc.

Statements of Stockholders’

the three months ended March 31, 2021 and 2020

Statements of Stockholders’ Equity

the three months ended June 30, 2021 and 2020

thousands, except share amounts)

Additional Paid-in

Total Stockholders’

Balances at December 31, 2020

Stockholders’

Balances at March 31, 2021

Stock-based compensation

Stock option exercises

Employee stock purchase plan

Common stock issued related to restricted

Proceeds from sales of common stock, net of offering costs

Proceeds from sales of common stock, net of offering costs, shares

Warrant exercises

Warrant exercises, shares

Issuance of common stock for product candidate licensing rights

Issuance of common stock for product candidate licensing rights, shares

Balances at June 30,

Stockholders’

Balances at March 31, 2020

Additional Paid-in

Total Stockholders’

Stock-based compensation

Stock option exercises

Employee stock purchase plan

Proceeds from sales of common stock, net of

offering costs

Balances at June 30,

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

Pharmaceuticals, Inc.

Statements of Stockholders’ Equity

the six months ended June 30, 2021 and 2020

thousands, except share amounts)

Stockholders’

Balances at December 31, 2020

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Stock option exercises

Proceeds from sales of common stock, net of offering costs

Issuance of common stock for product candidate licensing rights

Balances at March 31, 2020

Employee stock purchase plan

Common stock issued related to restricted

Warrant exercises

Balances at June 30,

Stockholders’

Balances at December 31, 2019

Beginning balance

Stock-based compensation

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

Balances at June 30,

Ending balance

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

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Statements of Cash Flows

Three months ended March 31, 2021

Three months ended

March 31, 2020

Cash flows from operating activities

Net income (loss)

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

months ended June 30, 2021

Cash flows from operating

Adjustments to reconcile net income (loss)

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

Stock-based compensation

Common stock issued for product candidate licensing rights

Common stock issued for

product candidate licensing rights

Depreciation and amortization

Debt discount amortization

Gain on forgiveness of

Gain on sale of equipment

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Prepaid expenses and other

Accounts payable

Accrued liabilities

Net cash provided by (used in) operating activities

Cash used in investing activities

Purchases of property and equipment

Cash flows from financing activities

Proceeds from sales of common stock, net of offering costs

Proceeds from employee stock option exercises

Net cash provided by financing activities

Change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosures of cash flow information

cash used in operating activities

Cash provided by (used in)

investing activities

Proceeds from sale of equipment

of property and equipment

cash provided by (used in) financing activities

Cash flows from financing

Proceeds from sales of

common stock, net of offering costs

Proceeds from PPP loan

from employee stock purchase plan and stock option exercises

cash provided by financing activities

Change in cash and cash

Cash and cash equivalents

at beginning of period

Cash and cash equivalents

at end of period

Supplemental disclosures

of cash flow information

Cash paid for interest

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Pharmaceuticals, Inc.

(“Eton”

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

corporation on

(“Eton” 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

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

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

commissions and offering-related expenses.

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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.

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.

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

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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.

2 — Liquidity Considerations

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

In the first six

months of 2021, the Company generated net cash provided by operating activities of $ 3,346

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.

Prior to 2021,

the Company had generated limited revenues and had incurred negative cash flows from operating activities since its inception in 2017.

Company currently believes its existing cash and cash equivalents of $ 25,802 as of June 30, 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.

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common shares.

The Company’s existing long-term debt obligation contains covenants and limits the Company’s ability to pay

dividends or make other distributions to stockholders.

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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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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.

and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position

as of June 30, 2021 and the results of its operations and its cash flows for the periods ended June 30, 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.

data and other information disclosed in these notes related to the three and six-month periods ended June 30, 2021 and 2020 are also

The results for the six-month period ended June 30, 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

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drug products.

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

Company as a single operating segment.

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The total for these reserves

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

amounted to $ 85 and $ 71 as of June 30, 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

Inventories at June 30, 2021 and December 31, 2020 consist solely of purchased finished goods.

At both June 30, 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

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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

cost is recoverable based on expected future cash flows from the product.

The cost is amortized on a straight-line basis over

the estimated useful life of the product commencing on the approval date in accordance with Accounting Standards Codification

(“ASC”) 350 —

The Company completed a sale of the lab equipment in May 2021

at a price of $ 700

which was $ 181

in excess of the book value for these assets.

Accordingly, the $ 519 net

book value of these assets was removed from the property and equipment accounts and the $ 181

gain is reflected in the Company’s statements

of operations for the three and six-month periods ended June 30, 2021.

In conjunction with the closing of its laboratory operation,

the Company scrapped various furniture and equipment which had a net book value of $ 31

which has been included in research and development

expense in the statements of operations.

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

recoverable based on expected future cash flows from the product.

The cost is amortized on a straight-line basis over the estimated useful

life of the product commencing on the approval date in accordance with Accounting Standards Codification (“ASC”) 350 —

Intangibles - Goodwill and Other.

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

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.

payment related to the approval of the Company’s 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 $ 250

of accumulated amortization as of June 30, 2021.

The Company recorded $ 37 and $ 75

of amortization expense for the three and six months

ended June 30, 2021, respectively.

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

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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

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Recognition for Contracts with Customers

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

Revenue from Contracts with Customers.

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

ASC 606 applies

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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

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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

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.

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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

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

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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

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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.

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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

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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

for the three months ended June 30, 2021 reflected $ 2,500

of licensing milestone fees, $ 493

in product sales and $ 74

in royalty revenue.

Revenues for the six

months ended June 30, 2021 reflected $ 14,000

of licensing milestone fees, $ 747

in product sales and $ 217

in royalty revenue.

Revenues for the three

and six months ended June 30, 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.

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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

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

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

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reporting period.

Actual results could differ from the Company’s estimates.

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

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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.

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

method) from stock options, unvested RSAs and warrants at June 30, 2021 were 1,352,879

and excluded 1,624,598

shares that were anti-dilutive (see Note

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).

Basic weighted average shares for the three

and six months ended June 30, 2021 include 600,000 vested warrants to purchase common shares.

As the shares underlying these warrants

can be purchased for little to no consideration ($ 0.01 per share exercise price), they are included in the computation of basic earnings

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

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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

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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

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.

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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

3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would

use in pricing the asset or liability developed based on the best information available.

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

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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

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3 — Summary of Significant Accounting Policies (continued)

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

PPP loan and long-term debt obligation.

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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.

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, except as disclosed in the

notes to these condensed financial statements.

4 — Property and Equipment

and equipment consist of the following:

Schedule of Property and Equipment

Computer hardware and software

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Leasehold improvements

accumulated depreciation

Property and equipment, net

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.

to Condensed Financial Statements

thousands, except share and per share amounts)

Property and equipment,

and equipment, net

expense for the three-month periods ended June 30, 2021 and 2020 was $ 24

respectively.

Depreciation expense for the six-month periods ended June 30, 2021 and 2020 was $ 108

respectively.

The balances at June 30, 2021 reflect the sale of laboratory equipment in May 2021 which had a net book value of $ 519 .

In conjunction with the closing of its laboratory operation, the Company scrapped various furniture and equipment which had a net book

value of $ 31,

which is included in research and development

expense in the statements of operations.

5 — Long-Term Debt

November 13, 2019, the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Holdings Corporation

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

November 13, 2019, the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Holdings Corporation

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

The Company received proceeds of $ 5,000 at closing and was able to

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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

with the Company’s Alkindi Sprinkle product licensing agreement (see Note 12) 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.

to immediately draw an additional $ 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

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 February14,

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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;

95% volatility;

Company’s assets.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

5 — Long Term Debt (continued)

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

The relative fair value of the

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

contractual term;

dividend rate;

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option pricing model with the following assumptions:

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

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

contractual term;

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and a risk-free interest rate of 0.4 %.

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

Warrants are subject to a cashless exercise feature, with the exercise price and number of shares issuable upon exercise subject to change

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

Warrants contain 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.

expense of $ 513 was recorded during the six months ended June 30, 2021, which included $ 73 of debt discount amortization.

Interest expense

of $ 386 was recorded during the six months ended June 30, 2020, which included $ 50 of debt discount amortization.

As of June 30, 2021,

$ 64 of accrued interest is included in accrued liabilities.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

Long Term Debt (continued)

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

table below reflects the future payments for the SWK loan principal and interest as of June 30, 2021.

Schedule of Future Payments of Long Term Debt

Total payments

amount representing interest

amount representing

Loan payable, gross

current portion of long-term debt

unamortized discount

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.

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.

On May 20, 2021, the Company received notice

that the loan principal and cumulative interest of $ 4 was forgiven in full as permitted under the applicable SBA guidelines for PPP loans.

The $ 365 gain on debt extinguishment is reflected in non-operating income for the three and six-month periods ended June 30, 2021.

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

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

Pharmaceuticals, Inc.

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thousands, except share and per share amounts)

6 — Common Stock

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 six months ended June 30, 2021, the Company issued 138,233

shares of its common stock resulting from stock

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

In April 2021, the Company issued 25,000

shares of common stock

to a member of its board of directors upon his retirement from the board in connection with previously vested restricted stock units

the six months ended June 30, 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 .

June 2021, the Company issued 29,326 shares of its common stock to employees in accordance with its Employee Stock Purchase Plan (“ESPP”).

7 — Common Stock Warrants

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

Advisory Warrants

Agent Warrants –

2017 Preferred Stock Offering

Agent Warrants - IPO

Warrants –

Company’s outstanding warrants to purchase shares of its common stock at June 30, 2021 are summarized in the table below.

Summary of Warrants Outstanding

Business Advisory Warrants

Placement Agent Warrants – 2017 Preferred

Stock Offering

Placement Agent Warrants - IPO

SWK Warrants – Debt – Tranche #1

SWK Warrants –

Debt – Tranche #2

$ 3.18 (Avg )

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.

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8 — 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 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.

“2017 Plan”), which authorized the issuance of up to 5,000,000

shares of the Company’s common stock.

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

Equity Incentive Plan (as amended in January 2021, the “2018 plan”) which succeeded the 2017 Plan.

The Company has

granted restricted stock awards (“RSAs”), stock options and RSUs for its common stock under the 2017 Plan and 2018

Plan as detailed in the tables below.

There were 481,160

shares available for future issuance under the

2018 Plan as of June 30, 2021.

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

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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

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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).

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.

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

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

In April 2021, 25,000

of these vested RSU shares were issued to a director after his retirement from the Company’s board.

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 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 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.

the three months ended June 30, 2021 and 2020, the Company’s total stock-based compensation expense was $ 836

respectively.

Of these amounts, $ 691

was recorded in general and administrative expenses,

respectively, and $ 145

was recorded in research and development expenses,

respectively.

the six months ended June 30, 2021 and 2020, the Company’s total stock-based compensation expense was $ 1,509 and $ 1,079 , respectively.

Of these amounts, $ 1,272 and $ 976 was recorded in general and administrative expenses, respectively, and $ 237 and $ 103 was recorded in

research and development expenses, respectively.

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

8 — Share-Based Payment Awards (continued)

summary of stock option activity is as follows:

Weighted Average Exercise

Weighted Average Remaining Contractual Term (Yrs)

Aggregate Intrinsic

Summary of Stock Option Activity

Average Exercise

Average Remaining Contractual Term (Yrs)

Options outstanding as of December

Forfeited/Cancelled

Options outstanding as of March 31, 2021

Options exercisable at March 31, 2021

Options vested and expected to vest at March 31, 2021

Options outstanding

as of June 30, 2021

Options exercisable at June 30, 2021

Options vested and expected to vest at June

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 six months ended June 30, 2021 under the BSM were as

Schedule of Assumptions Used to Calculate Fair Value of Options Granted

interest rate

average fair value

Term — 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 the options.

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.

Pharmaceuticals, Inc.

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8 — Share-Based Payment Awards (continued)

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.

of June 30, 2021, there was a total of $ 8,242

of unrecognized compensation costs related

to non-vested stock option and restricted awards.

In the six-month period ended June 30, 2021, there were four stock option exercises

which totaled 138,233

shares at an average exercise price of $ 2.39

per share with an intrinsic value of $ 661 .

There were four stock option exercises for 69,878

shares during the six months ended June 30, 2020

at an average exercise price of $ 1.39

per share with an intrinsic value of $ 139 .

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 June 30, 2021, there were 500,009 shares

available for issuance under the ESPP.

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

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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 $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)

the first six months of 2021 and 2020 there were 29,326 and 14,005 share issuances under the ESPP.

The weighted average grant date fair

value of share awards in the first six months of 2021 and 2020 was $ 2.83 and $ 2.43 , respectively.

Employees contributed $ 135 and $ 66

via payroll deductions during the six months ended June 30, 2021 and 2020, respectively.

The Company recorded an expense of $ 46 and $ 33

related to the ESPP in the six-month periods ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and December 31, 2020, the

accompanying condensed balance sheets include $ 19 and $ 9 , respectively, in accrued liabilities for remaining employee ESPP contributions.

Eton Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

( in thousands, except share and per share amounts)

9 — Earnings (Loss) Per Share

Basic and diluted

net income (loss) per share was calculated as follows:

of Basic and Diluted Net Income (Loss) Per Share

Three months ended June 30,

Six months ended June 30,

Basic net income (loss) per share:

Net income (loss)

Weighted-average number of common shares outstanding,

Net income (loss) per share, basic

Diluted net income (loss) per share:

Net income (loss)

Weighted-average number of common shares outstanding, basic

Dilutive effect of stock awards and warrants

Weighted-average number of common shares outstanding,

Net income (loss) per share, diluted

Potential shares of common stock that were excluded from the computation of diluted

earnings per common share as their effect was anti-dilutive:

Stock awards and warrants

There was no difference between the Company’s

net income (loss) and the net income (loss) attributable to common stockholders for all periods presented.

10 — 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

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.

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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”).

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

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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

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

Additionally,

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.

2 unchanged sentences

10 — Related Party Transactions (continued)

Additionally,

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.

The Company issued 25,000 shares to the Harrow CEO in April 2021 after his retirement from the Company’s

board associated with RSU’s that were previously fully vested.

late March 2021, the Company closed its laboratory operation in Lake Zurich, Illinois and in May 2021 it reached an agreement

for Imprimis Pharmaceuticals, a subsidiary of Harrow, to its our lab equipment for $ 700

which was $ 181

above the Companys’s net book value

of the equipment.

Executive Officer

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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.

“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

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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”).

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

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:

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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”).

$ 2,000 (the “Recovery Amount”).

After the Company has retained the full Recovery Amount, it is entitled to retain half of

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

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

There were no amounts due to Eyemax under the terms of the Amended Agreement as of June 30, 2021 or December 31, 2020.

Pharmaceuticals, Inc.

1 unchanged sentence

thousands, except share and per share amounts)

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

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

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

and “General and Administrative”

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 March 31, 2021 (in thousands).

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

captions in the condensed statements of operations was $ 0 and $ 22 , respectively, for the three months ended June 30, 2021 and $ 14 and

$ 20 , respectively, for the three months ended June 30, 2020.

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 $ 9 and $ 43 ,

respectively, for the six months ended June 30, 2021 and $ 28 and $ 41 , respectively, for the six months ended June 30, 2020.

for amounts included in the measurement of operating lease liabilities was $ 43 for the six months ended June 30, 2021.

The ROU asset

amortization for the three and six-month periods ended June 30, 2021 was $ 20 and $ 49 , 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 six-month periods

ended June 30, 2020 was $ 33 and $ 64 , respectively, and is reflected within depreciation and amortization on the Company’s condensed

statements of cash flows.

As of June 30, 2021, the weighted-average remaining lease term was 1.75 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 June 30, 2021 (in thousands).

Schedule of Lease-related Assets and Liabilities

Classification

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lease liabilities, current

lease liabilities, noncurrent

lease liabilities, net of current portion

operating lease liabilities

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

Company’s future lease commitments for its administrative offices in Deer Park, Illinois as of June 30, 2020 are as indicated below:

Schedule of Future Lease Commitments

lease payments

4 unchanged sentences

thousands, except share and per share amounts)

Commitments and Contingencies

12 — Commitments

and Contingencies

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

4 unchanged sentences

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

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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

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.

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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.

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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

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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.

5 unchanged sentences

12 — Commitments and Contingencies (continued)

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”).

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

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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

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.

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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

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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.

March 27, 2020, the Company entered into an Exclusive Licensing and Supply Agreement (the “Alkindi License Agreement”) with

Diurnal Limited (“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.

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.

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

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

June 15, 2021, the Company entered into a Distribution and Promotion License Agreement with Crossject S.A.

(“Crossject”)

and Canadian rights to Crossject’s ZENEO ® hydrocortisone needleless autoinjector, which is under development

as a rescue treatment for adrenal crisis.

The product complements the Company’s Alkindi Sprinkle product which addresses pediatric

adrenal insufficiency.

The Company paid Crossject $ 500

upon execution of the agreement which has

been included in research and development expense in the statements of operations and will pay an additional $ 500

for technical batches of the product if the technical

batches are completed by December 31, 2021 and then another $ 500

for registration batches if those are completed

by December 31, 2022.

The Company will pay Crossject $ 1,500

upon FDA acceptance of the product filing and

upon FDA approval of the product.

The acceptance

and approval fees are subject to reduction if other hydrocortisone autoinjector intramuscular products receive FDA approval prior to

the Crossject product.

In addition, the Company will pay Crossject a ten

percent royalty on net sales and one-time net

sales milestone fees of up to $ 6,000

as indicated in the table below:

Pharmaceuticals, Inc.

to Condensed Financial Statements

thousands, except share and per share amounts)

12 — Commitments and Contingencies (continued)

when net sales exceed $10 million in any four consecutive quarters

when net sales exceed $20 million in any four consecutive quarters

when net sales exceed $30 million in any four consecutive quarters

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 capacity.

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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, 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,”

“anticipate,”

“intend,”

“believe,”

“may,”

“plan”, “seek”

or similar language.

All forward-looking

statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update

any such forward-looking statements.

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.

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

of Operations

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 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®

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 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 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 —

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;

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.

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.

sell Biorphen in the U.S.

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

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

of 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.

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.

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 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

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 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 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

do not have any off-balance sheet transactions.

Act Transition Period

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 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.

as of June 30, 2021 or December 31, 2020.

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