What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-16 compared with 2021-03-16 · 1012 added, 1282 removed, 246 unchanged (90% of the section changed)

2 unchanged sentences

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations

Statements of Redeemable Convertible Preferred Stock and Stockholders’

Equity (Deficit)

Statements of Stockholders’ Equity

Statements of Cash Flows

4 unchanged sentences

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

(the “Company”) as of December 31, 2020

and 2019, the related statements of operations, redeemable convertible preferred stock and stockholders’

equity (deficit),

and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement

schedule listed in the Index at Item 15(2) (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020

and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,

in conformity with accounting principles generally accepted in the United States of America.

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

Our responsibility is to express an opinion on

these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting

Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance

with the U.S.

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

(the “Company”) as of December 31, 2021 and 2020,

the related statements of operations, stockholders’ equity, and cash flows

for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of

its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles

generally accepted in the United States of America.

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

Our responsibility is to express an opinion on these financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

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

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

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

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not,

by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts

or disclosures to which it relates.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sales Deductions

Audit Matter Description

described in Note 3 to the financial statements under the caption “Revenue Recognition for Contracts with Customers,”

revenues from product sales are recognized net of reductions for estimated returns, chargebacks, distribution fees, prompt payment

discounts, state Medicaid and GPO fees (collectively “sales deductions”), which are established at the time of sale.

the estimation of sales deductions was challenging because of the limited sales history of the Company’s products and the

subjectivity of certain assumptions required to estimate those amounts.

In particular, management estimates potential chargebacks,

which relate to price reductions below the estimated sales price that the wholesalers provide to certain customers, based on historical

industry data for competitive products and adjusted for actual historical experience.

In addition, management estimates its provision

for product returns based on prior experience with similar product launches and considers other factors such as levels of inventory

in the distribution channel, forecasted buying patterns, and product dating and expiration period.

The product sales deductions

are estimated based on current contractual and statutory requirements, market events and trends, and internal and external historical

described in Note 3 to the financial statements under the caption “Revenue Recognition for Contracts with Customers,” revenues

from product sales are recognized net of reductions for estimated returns, chargebacks, distribution fees, prompt payment discounts,

state Medicaid and GPO fees (collectively “sales deductions”), which are established at the time of sale.

the estimation of sales deductions was challenging because of the limited sales history of the Company’s products and the subjectivity

of certain assumptions required to estimate those amounts.

In particular, management estimates potential chargebacks, which relate to

price reductions below the estimated sales price that the wholesalers provide to certain customers, based on historical industry data

for competitive products and adjusted for actual historical experience.

In addition, management estimates its provision for product returns

based on prior experience with similar product launches and considers other factors such as levels of inventory in the distribution channel,

forecasted buying patterns, and product dating and expiration period.

The product sales deductions are estimated based on current contractual

and statutory requirements, market events and trends, and internal and external historical data.

the Critical Audit Matter Was Addressed in the Audit

test management’s estimated product sales deductions, we obtained management’s calculations for the respective estimates

and performed the following procedures, among others.

We tested management’s estimation process for determining of product

sales discounts accruals by developing an independent expectation of the estimated accrual rate, including a comparison of rates

used in management’s forecast to rates in the underlying contracts and performing a retrospective review of assumptions

to actual activity.

In addition, we assessed subsequent events to determine whether there was any new information that would require

adjustment to the initial accruals, evaluated trends in actual sales and discount accrual balances, compared cash receipts to

product sales.

We also reviewed terms and conditions for a sample of contracts with the Company’s customers, tested a sample

of credits issued and payments made throughout the year and agreed rates to underlying contract terms.

We tested management’s estimation process for determining of product sales

discounts accruals by developing an independent expectation of the estimated accrual rate, including a comparison of rates used in management’s

forecast to rates in the underlying contracts and performing a retrospective review of assumptions to actual activity.

In addition, we

assessed subsequent events to determine whether there was any new information that would require adjustment to the initial accruals,

evaluated trends in actual sales and discount accrual balances, and compared cash receipts to product sales.

We also examined

terms and conditions for a sample of contracts with the Company’s customers, tested a sample of credits issued and payments

made throughout the year and agreed rates to underlying contract terms.

KMJ Corbin & Company LLP

have served as the Company’s auditor since 2018.

Pharmaceuticals, Inc.

thousands, except share and per share amounts)

December 31, 2020

December 31, 2019

and cash equivalents

receivable, net

expenses and other current assets

current assets

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Operating lease right-of-use assets, net

Other long-term assets, net

Liabilities and stockholders’

and equipment, net

lease right-of-use assets, net

long-term assets, net

and stockholders’ equity

loan, current portion

portion of long-term debt

current liabilities

Accounts payable

PPP loan, current portion

Accrued liabilities

Total current liabilities

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

Long-term portion of PPP and EIDL loans

Operating lease liabilities, net of current portion

Total liabilities

Commitments and contingencies (Note 15)

Stockholders’

Common stock, $0.001 par value;

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

24,312,808 and 17,877,486 shares issued and outstanding at December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

debt, net of discount and including accrued fees

portion of PPP and EIDL loans

lease liabilities, net of current portion

and contingencies (Note 14)

Stockholders’

stock, $ 0.001 par value;

50,000,000 shares authorized;

24,626,004 and 24,312,808 shares issued and outstanding at December 31, 2021

and 2020, respectively

paid-in capital

stockholders’ equity

liabilities and stockholders’ equity

accompanying notes are an integral part of these financial statements.

2 unchanged sentences

thousands, except per share amounts)

For the years ended

Product sales, net

Licensing revenue

Total net revenues

Cost of product sales

Gross (loss) profit

the years ended

sales and royalties, net

sales and royalties

cost of sales

profit (loss)

and development

and administrative

operating expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest and other income (expense), net

Change in fair value of warrant liability

Loss before income tax expense

Income tax expense

Accrued dividends on redeemable convertible preferred stock

Deemed dividends for accretion of redeemable convertible preferred stock issuance costs

Deemed dividends for beneficial conversion feature of redeemable convertible preferred stock

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders, basic and diluted

Weighted average number of common shares outstanding, basic and diluted

from operations

income (expense):

and other income (expense), net

on PPP loan forgiveness

on equipment sale

before income tax expense

loss per share, basic and diluted

average number of common shares outstanding, basic and diluted

accompanying notes are an integral part of these financial statements.

Pharmaceuticals, Inc.

OF REEDEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’

EQUITY (DEFICIT)

OF STOCKHOLDERS’ EQUITY

thousands, except share amounts)

Redeemable Convertible

Preferred Stock

Additional Paid-in

Total Stockholders’

Balances at December 31, 2017

Stock-based compensation

Accrued dividends on redeemable convertible preferred stock

Deemed dividends for accretion of redeemable convertible preferred stock issuance costs

Issuance of common stock in connection with initial public offering, including underwriter’s over-allotment, net of offering costs and underwriter’s discount

Conversion of redeemable convertible preferred stock (including accrued dividends) to common stock in connection with initial public offering

Reclassification of common stock warrants from liability to additional paid-in-capital

Beneficial conversion feature on redeemable convertible preferred stock

Balances at December 31, 2018

Stock-based compensation

Stock option exercises

Common stock issued under employee stock purchase plan

Stock warrant exercises

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

Balances at December 31, 2019

Stock-based compensation

Stock option exercises

Employee stock purchase plan

Stockholders’

at December 31, 2018

option exercises

from sales of common stock, net of offering costs

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

Issuance of common stock for product candidate licensing rights

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

Balances at December 31, 2020

of common stock for product candidate licensing rights

Issuance of common stock for product candidate licensing

rights, shares

stock issued related to restricted stock units

Common stock issued related to restricted stock units, shares

stock issued under employee stock purchase plan

warrant exercises

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

at December 31, 2019

option exercises

stock purchase plan

from sales of common stock, net of offering costs

of common stock for product candidate licensing rights

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

at December 31, 2020

option exercises

stock purchase plan

stock issued related to restricted stock units

warrant exercises

at December 31, 2021

accompanying notes are an integral part of these financial statements.

1 unchanged sentence

OF CASH FLOWS

For the years ended

Cash flows from operating activities

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

Stock-based compensation

Common stock issued for product candidate licensing rights

Depreciation and amortization

Debt discount amortization

Change in fair value of warrant liability

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued liabilities

Net cash used in operating activities

the years ended

flows from operating activities

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

stock issued for product candidate licensing rights

and amortization

discount amortization

on forgiveness of PPP loan

on sale of equipment

in operating assets and liabilities:

expenses and other assets

cash used in operating activities

used in investing activities

from sale of equipment

of property and equipment

of product licensing rights

cash used in investing activities

Purchases of property and equipment

Purchase of product licensing rights

Net cash used in investing activities

Cash flows from financing activities

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

Proceeds from initial public offering, net of underwriting discounts and commissions

Payments of initial public offering costs

Proceeds from sales of common stock, net of offering costs

Proceeds from PPP and EIDL loans

Proceeds from employee stock purchase plan and stock option exercises

Net cash provided by financing activities

Change in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information

Cash paid for interest

Cash paid for income taxes

Supplemental disclosures of non-cash investing and financing activities:

Accrued dividends on redeemable convertible preferred stock

Deemed dividends for accretion of redeemable convertible preferred stock issuance costs

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

Purchase of equipment included in accounts payable

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

Beneficial conversion feature on redeemable convertible preferred stock

Reclassification of common stock warrants from liability to additional paid-in-capital

flows from financing activities

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

from sales of common stock, net of offering costs

from PPP and EIDL loans

from employee stock purchase plan and stock option exercises

cash provided by financing activities

in cash and cash equivalents

and cash equivalents at beginning of year

and cash equivalents at end of year

disclosures of cash flow information

paid for interest

paid for income taxes

disclosures of non-cash investing and financing activities:

fair value of common stock warrants issued in connection with debt

assets obtained in exchange for lease liabilities

accompanying notes are an integral part of these financial statements.

4 unchanged sentences

Pharmaceuticals, Inc.

(“Eton”

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

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

(“Harrow”, fka Imprimis

Pharmaceuticals, Inc.).

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

and a separate management team was then established for Eton with its corporate offices located in Deer Park, Illinois.

2018, the Company completed an initial public offering (the “IPO”) and received net proceeds of $21,960, after deducting

underwriting discounts and commissions and offering-related expenses.

In November 2019, the Company entered into a credit agreement

and received net proceeds of $4,750 and in August 2020 the Company received net proceeds of $1,965 under the credit agreement

(see Note 5).

In March and April 2020, Eton received net proceeds of $7,756 from the sale of shares of its common stock and in

October 2020, the Company received net proceeds of $21,026 from a public offering for its shares at an offering price of $7.00

per share (see Note 7).

(“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

team was then established for Eton with its corporate offices located in Deer Park, Illinois.

In November 2018, the Company completed

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

and offering-related expenses.

In November 2019, the Company entered into a credit agreement and received net proceeds of $ 4,750 and

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

In March and April 2020, Eton received

net proceeds of $ 7,756 from the sale of shares of its common stock and in October 2020, the Company received net proceeds of $ 21,026

from a public offering for its shares at an offering price of $ 7.00 per share (see Note 6).

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

Eton is primarily

focused on hospital injectable and pediatric rare disease products.

The Company seeks to improve the formula, delivery system,

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

Eton pursues what it perceives to be low-risk product

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

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

Company’s Biorphen®

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

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

Health launched this product under the name of Alaway®

Preservative Free in January 2021 and Eton will receive royalties from

the sale of the product.

In addition, the Company acquired the licensing rights to Alkindi Sprinkle and this product was approved

by the FDA in October 2020 and launched in December 2020.

Eton is primarily focused

on hospital injectable and rare disease products.

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

in order to address unmet patient needs.

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

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

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

Company’s Biorphen® product was approved by the FDA in October 2019 and sales commenced for this product at the end of 2019.

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

Bausch Health launched

this product under the name of Alaway® Preservative Free in January 2021 and Eton receives royalties from the sale of the product.

The Company acquired the licensing rights to Alkindi Sprinkle and this product was approved by the FDA in October 2020 and launched in

December 2020.

The Company entered into a co-promotion agreement with Tolmar Pharmaceuticals in November 2021 whereby Tolmar will promote

Alkindi Sprinkle through its 60+ person salesforce in exchange for a royalty on net sales.

In addition, the Company launched Carglumic

Acid tablets in December 2021 as the first and only FDA-approved generic version of Carbaglu®.

2 — Liquidity Considerations

of December 31, 2020, the Company had an accumulated deficit of $92,158 and for the year ended December 31, 2020 the Company used

net cash in operating activities of $22,346.

date, the Company has generated limited revenues from three products, but expects further growth in 2021 and beyond in accordance

with additional market penetration from these products plus revenues from licensing and additional products where it anticipates

FDA approval.

The Company currently believes its existing cash and cash equivalents of $21,295 as of December 31, 2020 augmented

by the $9,500 of proceeds received from the sale of three neurology products in February 2021 (see Note 16 —

Events), will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months

from the date of issuance of these financial statements.

This estimate is based on the Company’s current assumptions, including

assumptions relating to estimated sales and its ability to manage its spending.

The Company could use its available capital resources

sooner than currently expected.

Accordingly, the Company could seek to obtain additional capital through equity financings, the

issuance of debt or other arrangements.

However, there can be no assurance that the Company will be able to raise additional capital

if needed or under acceptable terms, if at all.

The sale of additional equity may dilute existing stockholders and newly issued

shares may contain senior rights and preferences compared to currently outstanding common shares.

The Company’s existing

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

to stockholders.

If the Company experiences delays in product sales growth and completing its product development and obtaining

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

to be scaled back or discontinued.

of December 31, 2021, the Company had an accumulated deficit of $ 94,113

and for the year ended December 31, 2021 the Company used net cash in operating activities of $ 4,721 .

date, the Company has generated revenues from six products and expects further growth in 2022 and beyond in accordance with additional

market penetration from these products plus revenues from licensing and additional products where it anticipates FDA approval.

currently believes its existing cash and cash equivalents of $ 14,406

as of December 31, 2021 augmented by the $ 5,000

milestone payment received in January 2022 for

the commercial launch of EPRONTIA™ (Topiramate oral solution) by Azurity Pharmaceuticals (“Azurity”),

will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date

of issuance of these financial statements.

This estimate is based on the Company’s current assumptions, including assumptions relating

to estimated sales and its ability to manage its spending.

The Company could use its available capital resources sooner than currently

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

However, there can be no assurance that the Company will be able to raise additional capital if needed or under acceptable terms, if

The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences

compared to currently outstanding common shares.

The Company’s existing long-term debt obligation contains covenants and limits

the Company’s ability to pay dividends or make other distributions to stockholders.

If the Company experiences delays in product

sales growth and completing its product development and obtaining regulatory approval for its other product candidates and is unable

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

Pharmaceuticals, Inc.

3 unchanged sentences

of Presentation

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

United States of America (“GAAP”).

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial

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

Significant estimates and assumptions

reflected in these financial statements include, but are not limited to, provisions for uncollectible receivables and sales returns,

valuation of inventories, useful lives of assets and the impairment of property and equipment, the accrual of research and development

expenses and the valuation of common stock, stock options, warrants and derivative instruments.

Estimates are periodically reviewed

in light of changes in circumstances, facts and experience.

Changes in estimates are recorded in the period in which they become

Actual results could differ from those estimates or assumptions.

Company operates the business on the basis of a single reportable segment, which is the business of developing and commercializing

prescription drug products.

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

who evaluates the Company as a single operating segment.

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

States of America (“GAAP”).

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these financial

statements include, but are not limited to, provisions for uncollectible receivables, chargebacks and sales returns, valuation

of inventories, useful lives of assets and the impairment of property and equipment, the accrual of research and development expenses

and the valuation of common stock, stock options and warrants.

Estimates are periodically reviewed in light of changes in circumstances,

facts and experience.

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

Actual results could differ from those

estimates or assumptions.

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

drug products.

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

Company as a single operating segment.

and Cash Equivalents

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

cash and cash equivalents are held in U.S.

cash equivalents are held in U.S.

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

treasury bills.

Cash equivalents

consist of an interest-bearing checking account and a U.S.

Cash equivalents consist of an

interest-bearing checking account and a U.S.

treasury bill.

From time to time, amounts deposited with its bank exceed

federally insured limits.

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

The Company believes the associated credit risk to be minimal.

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

Accounts receivable are recorded net of allowances

for doubtful accounts, cash discounts for prompt payment, distribution fees, chargebacks and returns and allowances.

for these reserves amounted to $71 and $116 as of December 31, 2020 and 2019, respectively.

Accounts receivable are recorded net of allowances for doubtful

accounts, cash discounts for prompt payment, distribution fees, chargebacks and returns and allowances.

The total for these reserves

amounted to $ 96 and $ 71 as of December 31, 2021 and 2020, respectively.

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

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

an impairment is identified.

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

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

this entire stock of inventories is sold.

There was no inventory reserve at December 31, 2019.

At December 31, 2021, inventories are

shown net of a slow-moving reserve for its Biorphen product of $ 1,414 due to the risk of expiry before this entire stock of inventories

There was an inventory reserve of $ 1,414 and $ 623 at December 31, 2021 and 2020, respectively.

and Equipment

and equipment are stated at cost.

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

on the following estimated useful lives.

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

following estimated useful lives.

Computer hardware and software is depreciated over three years .

Equipment, furniture

and fixtures is depreciated over five years.

Leasehold improvements are amortized over their estimated useful lives or the remaining

lease term, whichever is shorter.

Equipment, furniture and fixtures is

depreciated over five years .

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

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

4 unchanged sentences

3 — Summary of Significant Accounting Policies (continued)

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 —

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 $175 and $25 of accumulated amortization as of December 31, 2020 and 2019, respectively.

The Company recorded amortization expense of $150 and $25 for the years ended December 31, 2020 and 2019, respectively and 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 .

payment related to the approval of the Company’s

Carglumic Acid product in December 2021 has been capitalized and that cost is being amortized over ten years.

The intangible assets,

net on the Company’s balance sheet reflected $ 379

of accumulated amortization as of December 31,

2021 and 2020, respectively.

The Company recorded amortization expense of $ 204 ,

$ 25 for the years ended December 31, 2021, 2020

and 2019, respectively, and will record amortization expense of $ 475

per year for these intangible assets for 2022

through 2023 and then $ 450

in 2024 when the Biorphen asset will be fully

For 2025 through 2030, the Company will incur amortization expense of $ 325

and then $ 271

in 2031 when the Carglumic Acid asset will be

fully amortized.

of Long-Lived Assets

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

not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset

to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds

its estimated future cash flows, an impairment charge is recognized in the Company’s statements of operations for the amount

by which the carrying amount of the asset exceeds the fair value of the asset.

No impairment was recognized during the years ended

December 31, 2020, 2019 and 2018.

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

be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated

undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future

cash flows, an impairment charge is recognized in the Company’s statements of operations for the amount by which the carrying amount

of the asset exceeds the fair value of the asset.

No impairment was recognized during the years ended December 31, 2021, 2020 and 2019.

Issuance Costs and Debt Discount and Detachable Debt-Related Warrants

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

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

Debt discounts relate

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

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

Classification

and Accretion of Redeemable Convertible Preferred Stock

to the Company’s IPO in November 2018, the Company classified the Series A Preferred outside of stockholders’

(deficit) because the shares contained certain redemption features that were not solely within the control of the Company.

carrying value of the Series A Preferred was accreted to its redemption value from the date of issuance through November 15, 2018,

the date of the Company’s IPO.

In conjunction with the IPO, the Series A Preferred, including accrued and unpaid dividends,

automatically converted to shares of the Company’s common stock (see Note 6).

Conversion Feature

to the IPO in November 2018, the Company classified its Series A Preferred as temporary equity due to a possible cash redemption

feature in the event that an IPO or alternate financing was not completed by December 31, 2018.

At the IPO date, the Series A

Preferred, and related accrued and unpaid dividends, automatically converted into shares of the Company’s common stock.

The conversion share calculation was based on the $3.00 initial issuance price for the Series A Preferred plus any accrued but

unpaid dividends and converted to common stock using a stated divisor conversion price equal to 50% of the IPO price to the public,

which was $6.00 per share.

In accordance with relevant accounting literature, since the stated terms of the conversion option

did not permit the Company to compute the additional number of shares that it would need to issue upon conversion of the Series

A Preferred when the contingent event occurred, the Company recorded the beneficial conversion amount of $21,747 as a deemed dividend

at the date of the IPO in November 2018.

The Company amortizes

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

Debt discounts relate to the relative

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

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

Pharmaceuticals, Inc.

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3 — Summary of Significant Accounting Policies (continued)

Company adopted ASC Topic 842 —

Leases, effective January 1, 2019, using the modified retrospective method.

results for fiscal years 2020 and 2019 reflect the application of ASC Topic 842, while the reported results for the year ended

December 31, 2018 are not adjusted and continue to be reported under the prior ASC Topic 840 guidance for leases.

Company reviews all relevant facts and circumstances of a contract to determine if it is a lease whereby the terms of the agreement

convey the right to control the direct use and receive substantially all of the economic benefits of an identified asset for a

period of time in exchange for consideration.

The associated right-of-use assets and lease liabilities are recognized at lease

commencement.

The Company measures lease liabilities based on the present value of the lease payments over the lease term discounted

using the rate it would pay on a loan with the equivalent payments and term for the lease.

The Company does not include the impact

for lease term options that would extend or terminate the lease unless it is reasonably certain that it will exercise any such

The Company accounts for the lease components separately from non-lease components for its operating leases.

Company measures right-of-use assets based on the corresponding lease liabilities adjusted for (i) any prepayments made to the

lessor at or before the commencement date, (ii) initial direct costs it incurs, and (iii) any incentives under the lease.

the Company evaluates the recoverability of its right-of-use assets for possible impairment in accordance with its long-lived

assets policy.

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

The Company reviews all relevant facts and circumstances

of a contract to determine if it is a lease whereby the terms of the agreement convey the right to control the direct use and receive

substantially all of the economic benefits of an identified asset for a period of time in exchange for consideration.

The associated

right-of-use assets and lease liabilities are recognized at lease commencement.

The Company measures lease liabilities based on the present

value of the lease payments over the lease term discounted using the rate it would pay on a loan with the equivalent payments and term

for the lease.

The Company does not include the impact for lease term options that would extend or terminate the lease unless it is reasonably

certain that it will exercise any such options.

The Company accounts for the lease components separately from non-lease components for

its operating leases.

Company measures right-of-use assets based on the corresponding lease liabilities adjusted for (i) any prepayments made to the lessor

at or before the commencement date, (ii) initial direct costs it incurs, and (iii) any incentives under the lease.

In addition, the Company

evaluates the recoverability of its right-of-use assets for possible impairment in accordance with its long-lived assets policy.

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

lease liabilities.

The Company does not have any finance leases as of December 31, 2020 and 2019.

Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company

and the operating lease expense is recognized on a straight-line basis.

The Company does no t have any finance leases as of December 31, 2021 and 2020.

Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company and

the operating lease expense is recognized on a straight-line basis.

Variable lease payments are expensed as incurred.

Company does not recognize right-of-use assets or lease liabilities for leases with a term of twelve months or less;

costs are recorded in the statements of operations on a straight-line basis over the lease term.

patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the

uncertainty about the recovery of the expenditure.

Amounts incurred are classified as general and administrative expenses.

such lease costs

are recorded in the statements of operations on a straight-line basis over the lease term.

patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty

about the successful award of a patent and the recovery of the expenditure.

Amounts incurred are classified as general and administrative

Concentrations

of Credit Risk, Sources of Supply and Significant Customers

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

The Company maintains its cash and cash equivalent balances with one major commercial bank and the deposits held with the

financial institution exceed the amount of insurance provided on such deposits and is exposed to credit risk in the event of a

default by the financial institutions holding its cash and cash equivalents to the extent recorded on the balance sheets.

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

treasury bills

from time to time.

The Company maintains its cash and cash equivalent balances with one major commercial bank and the deposits held with

the financial institution exceed the amount of insurance provided on such deposits and is exposed to credit risk in the event of a default

by the financial institutions holding its cash and cash equivalents to the extent recorded on the balance sheets.

Company is dependent on third-party suppliers for its products and product candidates.

In particular, the Company relies, and

expects to continue to rely, on a small number of suppliers to manufacture key chemicals, approved products and process its product

candidates as part of its development programs.

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

manufacturing process.

In particular, the Company relies, and expects

to continue to rely, on a small number of suppliers to manufacture key chemicals, approved products and process its product candidates

as part of its development programs.

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

Pharmaceuticals, Inc.

2 unchanged sentences

3 — Summary of Significant Accounting Policies (continued)

Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an

evaluation of the customer’s financial condition, and collateral is not required.

Management monitors its exposure to accounts

receivable by periodically evaluating the collectability of the account receivable based on a variety of factors including the

length of time the receivables are past due, the financial health of the customer and historical experience.

Based upon the review

of these factors, the Company recorded no allowance for doubtful accounts at December 31, 2020 or 2019.

The accounts receivable

balance at December 31, 2020 and 2019 and product sales revenue recognized during the year ended December 31, 2020 and 2019 consist

of sales to and amounts due from AmerisourceBergen Corporation, Cardinal Health Services and McKesson Corporation for sales of

the Company’s Biorphen product.

The December 31, 2020 accounts receivable balance and sales in 2020 also include sales to

and amounts due from AnovoRx for sales of the Company’s Alkindi Sprinkle product which launched in December 2020.

Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation

of the customer’s financial condition, and collateral is not required.

Management monitors its exposure to accounts receivable

by periodically evaluating the collectability of the account receivable based on a variety of factors including the length of time the

receivables are past due, the financial health of the customer and historical experience.

Based upon the review of these factors, the

Company recorded no allowance for doubtful accounts at December 31, 2021 or 2020.

The accounts receivable balance at December 31, 2021

and 2020 and product sales revenue recognized during the year ended December 31, 2021 and 2020 consist of sales to and amounts due from

AmerisourceBergen Corporation, Cardinal Health Services and McKesson Corporation for sales of the Company’s Biorphen product.

December 31, 2021 accounts receivable balance and sales in 2021 also include a $ 5,000

milestone from Azurity, in accordance with the

Eprontia™ (topiramate oral solution) product, amounts due from AnovoRx for sales of the Company’s Alkindi Sprinkle

product and its Carglumic Acid product, which launched in December 2021.

Recognition for Contracts with Customers

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

Revenue from Contracts with Customers.

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

Under ASC 606,

an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration

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

To determine revenue recognition for arrangements

that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

(i) identify the contract(s)

with a customer;

(ii) identify the performance obligations in the contract;

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

ASC 606 applies

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

Under ASC 606, an entity recognizes

revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity

expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines

are within the scope of ASC 606, the entity performs the following five steps:

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

(ii) identify

the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate

the transaction price to the performance obligations in the contract;

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

a performance obligation.

contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services

promised within each contract and determines those that are performance obligations and assesses whether each promised good or

service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective

performance obligation when (or as) the performance obligation is satisfied.

Arrangements that include rights to additional goods

or services that are exercisable at a customer’s discretion are generally considered options.

The Company assesses whether

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

The exercise of

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

Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when

(or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of

an output or input method.

(iv) allocate the transaction price to the performance

obligations in the contract;

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

contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised

within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation

when (or as) the performance obligation is satisfied.

Arrangements that include rights to additional goods or services that are exercisable

at a customer’s discretion are generally considered options.

The Company assesses whether these options provide a material right

to the customer and, if so, they are considered performance obligations.

The exercise of a material right is accounted for as a contract

modification for accounting purposes.

Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or

as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output

or input method.

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

Amounts expected

to be recognized as revenue within the twelve months following the balance sheet date will be classified as current portion of

deferred revenue in the Company’s balance sheets.

Amounts not expected to be recognized as revenue within the twelve months

following the balance sheet date are classified as long-term deferred revenue, net of current portion.

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.

Amounts expected to be recognized

as revenue within the twelve months following the balance sheet date will be classified as current portion of deferred revenue in the

Company’s balance sheets.

Amounts not expected to be recognized as revenue within the twelve months following the balance sheet

date are classified as long-term deferred revenue, net of current portion.

Payments – If a commercial contract arrangement includes development and regulatory milestone payments, the Company will evaluate

whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before

recognizing the associated revenue.

Milestone payments that are not within the Company’s control or the licensee’s control,

such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Pharmaceuticals, Inc.

2 unchanged sentences

3 — Summary of Significant Accounting Policies (continued)

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which

are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties

relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation

to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, the Company has not

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

Financing Component –

In determining the transaction price, the Company will adjust consideration for the effects of

the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services

to the licensees will be more than one year.

– For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the

result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate,

the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which

some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, the Company has not recognized any

royalty revenue resulting from any of its licensing arrangements.

Financing Component – In determining the transaction price, the Company will adjust consideration for the effects of the time

value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees

will be more than one year.

Company sells 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.

The Company uses a third-party

logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers

because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

The Company has no significant

obligations to wholesalers to generate pull-through sales.

In addition, the Company sells its Alkindi Sprinkle product to one

pharmacy distributor customer which provides order fulfilment and inventory storage/distribution services.

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

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

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

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

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

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

Because of the shelf life of Biorphen

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

when it issues credits on returned product.

For its Alkindi Sprinkle product, the Company bills at the initial product list price

which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a

reduction of net revenues at the date of sale/shipment.

Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the

selling price initially billed to the wholesaler/distributor arising from all of the above factors.

The Company has developed

estimates for future returns and chargebacks of Biorphen and the impact of the other discounts and fees it pays while Alkindi

Sprinkle sales to its distributor are not subject to returns.

When estimating these adjustments to the transaction price, the

Company reduces it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue

when the ultimate adjustment amounts are known.

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

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

shipments of Biorphen represent performance obligations under each purchase order.

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

vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to

the 3PL vendor services rendered and directs the 3PL vendor activities.

The Company has no significant obligations to wholesalers to

generate pull-through sales.

In addition, the Company sells its Alkindi Sprinkle and Carglumic Acid product to one pharmacy distributor

customer which provides order fulfilment and inventory storage/distribution services.

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

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

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

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

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

Wholesalers also

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

Because of the shelf life of Biorphen and the Company’s

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

For its Alkindi Sprinkle and Carglumic Acid products, the Company bills at the initial product list price which are subject

to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues

at the date of sale/shipment.

Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling

price initially billed to the wholesaler/distributor arising from all of the above factors.

The Company has developed estimates for future

returns and chargebacks of Biorphen and the impact of the other discounts and fees it pays while Alkindi Sprinkle and Carglumic Acid

sales to its distributor are not subject to returns.

When estimating these adjustments to the transaction price, the Company reduces

it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment

amounts are known.

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

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

enforceable obligation to pay the Company.

They also have the ability to direct sales of product to their customers on terms and

at prices they negotiate.

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

incentive to return the product.

The Company stores its Alkindi Sprinkle inventory at its pharmacy distributor customer location

and sales are recorded when stock is pulled and shipped to fulfill specific patient orders.

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

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

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

If these amounts

end up differing from its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product

sales revenue and earnings in the period of adjustment.

addition, the Company anticipates it will receive revenues from product licensing agreements where it has contracted for milestone

payments and royalties from products it has developed or for which it has acquired the rights to a product developed by a third

that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership, and have an enforceable

obligation to pay the Company.

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

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

The Company stores its Alkindi Sprinkle and Carglumic Acid inventory at its pharmacy distributor customer location and sales are recorded

when stock is pulled and shipped to fulfill specific patient orders.

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

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

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

If these amounts end up differing from

its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings

in the period of adjustment.

addition, the Company anticipates it will receive revenues from product licensing agreements where it has contracted for milestone payments

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

Pharmaceuticals, Inc.

3 unchanged sentences

of Product Sales

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

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

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

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

3PL logistics service providers.

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

and the associated inbound freight expense is recorded when the associated product sale revenue is recognized in accordance with

the terms of shipment to customers while outbound freight and handling/storage fees charged by the 3PL service provider are expensed

as they are incurred.

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

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

the associated inbound freight expense is recorded when the associated product sale revenue is recognized in accordance with the terms

of shipment to customers while outbound freight and handling/storage fees charged by the 3PL service provider are expensed as they are

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

and Development Expenses

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

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

R&D operations.

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

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

R&D expenses are charged

to operations as incurred.

The Company reviews and accrues R&D expenses based on services performed and relies upon estimates

of those costs applicable to the stage of completion of each project.

Significant judgments and estimates are made in determining

the accrued balances at the end of any reporting period.

Actual results could differ from the Company’s estimates.

payments and milestone payments made for the licensing of technology 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.

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

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

R&D expenses are charged to operations as incurred.

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

stage of completion of each project.

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

reporting period.

Actual results could differ from the Company’s estimates.

payments and milestone payments made for the licensing of technology 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.

(Loss) Per Share

net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted

average number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing the net loss

attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such

as Series A Preferred, unvested restricted stock, stock options and warrants that are outstanding during the period.

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

No such adjustments were made for 2020,

2019 or 2018 as the Company reported a net loss for the years ended December 31, 2020, 2019 and 2018 and including the effects

of common stock equivalents in the diluted earnings per share calculation would have been antidilutive (see Note 10).

Company estimated the fair value of certain warrants at each reporting period using Level 3 inputs.

The estimates in valuation

models were based, in part, on subjective assumptions, including but not limited to stock price volatility, the expected life

of the warrants, the risk-free interest rate and the exercise price of the warrants.

Changes in the fair value of the warrant

liability during the period were recorded as a component of other income (expense) at the end of each reporting period for changes

in fair value until the Company’s IPO in November 2018, which established a fixed number of shares for these warrants.

the date of the IPO, the warrant liability amount was reclassified as a component of additional paid-in-capital.

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

718 Compensation —

Stock Compensation.

The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of

grant and record expense over the related service periods, which are generally the vesting period of the equity awards.

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

The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected

term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs.

The risk-free interest

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

government issues with a remaining term approximating the expected

life of the options or warrants.

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

The expected term of stock options granted is based on vesting

periods and the contractual life of the options.

Expected volatilities are based on comparable companies’

historical volatility

along with a limited weighting included for the Company’s own volatility subsequent to its IPO, which management believes

represents the most accurate basis for estimating expected future volatility under the current conditions.

The Company accounts

for forfeitures as they occur.

Since the IPO in November 2018, the Company has used the closing common stock price on the date

of grant for the fair value of the common stock.

net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average

number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing the net loss attributable to

common stockholders for the period by the weighted average number of common and common equivalent shares, such as Series A Preferred,

unvested restricted stock, stock options and warrants that are outstanding during the period.

Common stock equivalents are excluded from

the computation when their inclusion would be anti-dilutive.

No such adjustments were made for 2021, 2020 or 2019 as the Company reported

a net loss for the years ended December 31, 2021, 2020 and 2019 and including the effects of common stock equivalents in the diluted

earnings per share calculation would have been anti-dilutive (see Note 9).

Basic weighted average shares for the year ended December

31, 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 per share.

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

under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense

over the related service periods, which are generally the vesting period of the equity awards.

The Company estimates the fair value of

stock-based option awards using the Black-Scholes-Merton option-pricing model (“BSM”).

The BSM requires the input of subjective

assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying

common stock on the date of grant, among other inputs.

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

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

Dividends on common stock are

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

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

and the contractual life of the options.

Expected volatilities are based on comparable companies’ historical volatility along with

a limited weighting included for the Company’s own volatility, which management believes represents the most accurate basis for

estimating expected future volatility under the current conditions.

The Company accounts for forfeitures as they occur.

The Company uses

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

Pharmaceuticals, Inc.

2 unchanged sentences

3 — Summary of Significant Accounting Policies (continued)

to the Company’s IPO, the fair value of the shares of the Company’s common stock underlying its stock-based awards

was determined by its board of directors, with input from management.

Because there had been no public market for the Company’s

common stock prior to the IPO, the 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 its common stock

performed by an unrelated third-party specialist, valuations of comparable companies, sales of its convertible preferred stock

to unrelated third parties, operating and financial performance, the lack of liquidity of the capital stock, and general and industry-specific

economic outlook.

Following the IPO in November 2018, the Company uses the closing stock price on the date of grant for the fair

value of the common stock.

part of the process of preparing the Company’s financial statements, the Company must estimate the actual current tax liabilities

and assess temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences

result in deferred tax assets and liabilities, which are included within the balance sheets.

The Company must assess the likelihood

that the deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery

is not likely, a valuation allowance must be established.

To the extent the Company establishes a valuation allowance or increase

or decrease to this allowance in a period, the impact will be included in income tax expense in the statements of operations.

As of December 31, 2020 and 2019, the Company has established a 100% valuation reserve against its deferred tax assets.

These differences result

in deferred tax assets and liabilities, which are included within the balance sheets.

The Company must assess the likelihood that the

deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely,

a valuation allowance must be established.

To the extent the Company establishes a valuation allowance or increase or decrease to this

allowance in a period, the impact will be included in income tax expense in the statements of operations.

As of December 31, 2021 and

2020, the Company has established a 100 % valuation reserve against its deferred tax assets.

Company accounts for income taxes under the provisions of ASC 740 - Income Taxes.

As of December 31, 2020 and 2019, there were

no unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.

The Company’s

practice is to recognize interest and penalties related to income tax matters in income tax expense.

The Company had no accrual

for interest or penalties in its balance sheets at December 31, 2020 or 2019, and has not recognized interest and penalties in

the statements of operations for the years ended December 31, 2020, 2019 and 2018.

As of December 31, 2020, the Company is subject

to taxation in the United States and certain individual states –

primarily Illinois and Tennessee.

The Company’s tax

losses from 2017 through 2020 are subject to examination by the federal and state tax authorities due to the carryforward of unutilized

net operating losses (“NOLs”).

Tax Cuts and Jobs Act of 2017 (the “Tax Act”) significantly revised U.S.

corporate income tax law by, among other

things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system.

In response to the Tax

Act, the SEC issued Staff Accounting Bulletin (“SAB”) 118 which allows issuers to recognize provisional estimates

of the impact of the Tax Act in their financial statements and adjust in the period in which the estimates become finalized, or

in circumstances where estimates cannot be made, to disclose and recognize within a one-year measurement period.

As of December 31, 2021 and 2020, there were no unrecognized

tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate.

The Company’s practice is

to recognize interest and penalties related to income tax matters in income tax expense.

The Company had no accrual for interest or penalties

in its balance sheets at December 31, 2021 or 2020, and has not recognized interest and penalties in the statements of operations for

the years ended December 31, 2021, 2020 and 2019.

As of December 31, 2021, the Company is subject to taxation in the United States and

certain individual states – primarily Illinois and Tennessee.

The Company’s tax losses from 2017 through 2021 are subject

to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses (“NOLs”).

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

Such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position

taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in

interim periods, disclosure and transition.

The Company believes that the ultimate deductibility of all tax positions is highly

certain, although there is uncertainty about the timing of such deductibility.

As a result, no liability for uncertain tax positions

was recorded as of December 31, 2020 or 2019.

Value Measurements

measure certain of our assets and liabilities at fair value.

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

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

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

standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken,

or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,

disclosure and transition.

The Company believes that the ultimate deductibility of all tax positions is highly certain, although there

is uncertainty about the timing of such deductibility.

As a result, no liability for uncertain tax positions was recorded as of December

31, 2021 or 2020.

Pharmaceuticals, Inc.

2 unchanged sentences

3 — Summary of Significant Accounting Policies (continued)

Value Measurements

measure certain of our assets and liabilities at fair value.

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

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

Fair value accounting

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

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

An active market is a market

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

Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability

developed based on market data obtained from sources independent from the entity.

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

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

An active market is a market in

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

2 — Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed

based on market data obtained from sources independent from the entity.

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 and liabilities and their placement within the fair value hierarchy levels.

The determination of the fair values

stated below takes into account the market for the Company’s financials, assets and liabilities, the associated credit risk

and other factors as required.

The Company considers active markets as those in which transactions for the assets or liabilities

occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

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

PPP and EIDL loans and long-term debt obligation.

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

EIDL loans and long-term debt obligation, approximate their fair values due to the short-term maturities of these instruments.

Based on borrowing rates currently available to the Company, the carrying value of the PPP and EIDL loans and long-term debt obligation

approximate their fair values.

fair values of the Company’s warrant liability at inception and for subsequent mark-to-market fair value measurements were

based on management’s valuation model and expectations with respect to the method and timing of settlement.

determined that the warrant liability fair values were classified as Level 3 measurements within the fair value hierarchy.

the date of the Company’s IPO in November 2018, the fair value was reclassified to additional paid-in-capital as the final

number of shares for the warrants previously reflected as a liability became fixed (see Note 6).

The Company’s assessment

of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets

and liabilities and their placement within the fair value hierarchy levels.

The determination of the fair values stated below takes into

account the market for the Company’s financials, assets and liabilities, the associated credit risk and other factors as required.

The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume

to provide pricing information on an ongoing basis.

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

PPP loan and long-term debt obligation.

The carrying amounts of these financial instruments, except for the PPP loan and long-term debt

obligation, approximate their fair values due to the short-term maturities of these instruments.

Based on borrowing rates currently available

to the Company, the carrying value of the PPP loan and long-term debt obligation approximate their respective fair values.

of New Accounting Pronouncements

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial

The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected

losses to estimate credit losses for most financial assets and certain other instruments that are not measured at fair value through

For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather

than a reduction in carrying value of the asset.

Entities will no longer be permitted to consider the length of time that fair

value has been less than amortized cost when evaluating when credit losses should be recognized.

The Company adopted the new guidance

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

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

The new guidance removes, modifies and adds to certain

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

The Company adopted the new guidance

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

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

The new guidance removes certain exceptions

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

These changes include eliminations

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

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

The Company adopted ASU 2019-12 in January 2020 and it did not have have

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

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.

Pharmaceuticals, Inc.

3 unchanged sentences

and equipment consist of the following:

December 31, 2020

December 31, 2019

Computer hardware and software

Furniture and fixtures

Leasehold improvements

Construction in progress

Schedule of Property and Equipment

hardware and software

and equipment, gross

accumulated depreciation and amortization

Property and equipment, net

and equipment, net

and amortization expense for the years ended December 31, 2021, 2020 and 2019 was $ 155 , $ 347 and $ 283 , respectively.

The balances at

December 31, 2021 reflect the sale of laboratory equipment in May 2021 which had a net book value of $ 519 .

Pharmaceuticals, Inc.

1 unchanged sentence

thousands, except share and per share amounts)

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 borrow an additional $5,000 upon the FDA approval of a second product developed by the Company, excluding EM-100.

2020, in conjunction with the Company’s Alkindi Sprinkle product licensing agreement (see Note 15) and the Company’s

March 2020 sale of additional shares of its common stock (see Note 7), the Company and SWK amended the SWK Credit Agreement.

amendment provided the Company with the option to immediately draw $2,000 and the ability to borrow an additional $3,000 based

upon the FDA approval of EM-100 and Alkindi Sprinkle which subsequently occurred in September 2020.

Accordingly, the Company borrowed

an additional $2,000 on August 11, 2020.

The term of the SWK Credit Agreement is for five years and borrowings bear interest at

a rate of LIBOR 3-month plus 10.0%, subject to a stated LIBOR floor rate of 2.0%.

A 2.0% unused credit limit fee is assessed during

the first twelve months after the date of the SWK Credit Agreement and loan fees include a 5.0% exit fee based on the principal

amounts drawn which is payable at the end of the term of the SWK Credit Agreement.

The Company is required to maintain a minimum

cash balance of $3,000, will only pay interest on the debt until May 2022 and then will pay 5.5% of the loan principal balance

commencing on February 15, 2022 and then every three months thereafter until November 13, 2024 at which time the remaining principal

balance is due.

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

The SWK Credit Agreement

contains customary default provisions and covenants which include limits on additional indebtedness.

In March 2020, SWK provided

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

The Company is currently in the process of negotiating

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

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

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;

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

borrow an additional $ 5,000 upon the FDA approval of a second product developed by the Company, excluding EM-100.

In March 2020, in conjunction

with the Company’s Alkindi Sprinkle product licensing agreement (see Note 14) and the Company’s March 2020 sale of additional

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

The amendment provided the Company with

the option to immediately draw $ 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.

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 , only pay interest on the debt until February

2022 and then pay 5.5% of the loan principal balance commencing on February 15, 2022 and then every three months thereafter until November

13, 2024 at which time the remaining principal balance is due.

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

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.

In February 2021, the Company

notified SWK that it will not require additional borrowing capacity under the SWK Credit Agreement and terminated the additional borrowing

capacity with SWK.

connection with the initial $ 5,000 borrowed in November 2019, the Company issued warrants to SWK to purchase 51,239 shares of the Company’s

common stock with an exercise price of $ 5.86 per share.

The relative fair value of these 51,239 warrants was $ 226 and was estimated using

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

fair value of the Company’s common stock at issuance

of $ 5.75 per share;

seven -year contractual term;

1 unchanged sentence

0 % dividend rate;

and a risk-free interest

rate of 1.8%.

connection with the additional $2,000 borrowed in August 2020, the Company issued warrants for 18,141 shares of its common stock

at an exercise price of $6.62 per share.

and a risk-free interest rate of 1.8 %.

connection with the additional $ 2,000 borrowed in August 2020, the Company issued warrants for 18,141 shares of its common stock at an

exercise price of $ 6.62 per share.

The relative fair value of the 18,141 warrants was $ 94 and was estimated using the Black-Scholes-Merton

option pricing model with the following assumptions:

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

seven-year contractual term;

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

contractual term;

95 % volatility;

1 unchanged sentence

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.

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

subject to change in connection with stock splits, dividends, reclassifications and other conditions.

Company recorded interest expense of $884 and $98 in 2020 and 2019, respectively, which included $121 and $16, respectively, of

debt discount amortization.

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

in connection with stock splits, dividends, reclassifications and other conditions.

Company recorded interest expense of $ 1,042 , $ 884 and $ 98 in 2021, 2020 and 2019, respectively, which included $ 148 $ 121 and $ 16 , respectively,

of debt discount amortization.

The Company had accrued interest of $ 134 and $ 48 as of December 31, 2021 and 2020, respectively, which

5 unchanged sentences

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

Total payments

Schedule of Future Payments of Long Term Debt

amount representing interest

Loan payable, gross

payable, gross

current portion of long-term debt

unamortized discount

Long-term debt, net of unamortized discount

May 4, 2020, the Company received $361 in loan proceeds under the Paycheck Protection Program (“PPP”) from the Small

Business Administration (“SBA”) through its banking relationship with Bank of America.

The loan bears a 1.0% annual

interest rate and is payable in monthly installments commencing 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 $2 in interest

expense for the period ended December 31, 2020.

The Company intends to pursue full or partial forgiveness of the loan as permitted

under the applicable SBA guidelines for PPP loans.

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

from the SBA.

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

paid in full on July 21, 2050.

The Company recorded $3 in interest expense for the year ended December 31, 2020.

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 year ended December 31, 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.

1 unchanged sentence

thousands, except share and per share amounts)

Redeemable Convertible Preferred Stock —

Company has 10,000,000 authorized shares of $0.001 par value preferred stock as per its Amended and Restated Certificate of Incorporation.

In June 2017, the Company issued 6,685,082 Series A Preferred at a price of $3.00 per share and all shares remained outstanding

until the Company’s IPO in November 2018.

The gross proceeds were $20,055 from the Series A Preferred stock offering.

Series A Preferred shares, including accrued and unpaid dividends, automatically converted to the Company’s common shares

at the date of the IPO (See Note 7).

of the date of the IPO on November 15, 2018, the liquidation value of the Series A Preferred was $21,746, which consisted of the

issuance amount of $20,055 plus accrued dividends of $1,691.

Series A Preferred automatically converted to common shares upon completion of the IPO in November 2018.

The conversion share

calculation was based on the $3.00 initial issue price for the Series A Preferred plus accrued and unpaid dividends, and automatically

converted into shares of the Company’s common stock using a stated divisor conversion price equal to 50% of the IPO price

to the public which was $6.00 per share.

In accordance with relevant accounting literature, since the terms of the conversion

option did not permit the Company to compute the additional number of shares that it would need to issue upon conversion of the

Series A Preferred when the contingent event occurred, the Company recorded the beneficial conversion amount of $21,747 as a deemed

dividend at the date of the IPO in November 2018.

a result of the Series A Preferred having a possible cash redemption feature in the event that an IPO or alternate financing was

not completed by December 31, 2018, the Series A Preferred was classified as temporary equity and not included as part of Company’s

stockholders’

equity (deficit) prior to the November 2018 IPO.

In accordance with that classification, the $2,534 of issuance

costs associated with the Series A Preferred offering were being ratably accreted as a deemed dividend using the effective interest

method through the expected redemption date.

6 — Common Stock

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

On January 1, 2018, the Company issued 54,745 restricted shares of its common stock to each of its four outside directors (218,980

total shares valued at $300) as part of their compensation for board service to the Company in 2018.

The restricted shares issued

to the outside directors vested 25% at each quarter-end in 2018 and were fully vested as of December 31, 2018.

The Company accounted

for the restricted stock awards (“RSAs”) in accordance with ASC 718 (see Note 9).

conjunction with the Company’s IPO in November 2018, the Series A Preferred shares, including accrued dividends, converted

into 7,248,948 shares of the Company’s common stock, and the Company issued 4,140,000 additional shares of its common stock

to investors in its IPO (see Note 1).

March and April 2020, the Company entered into securities purchase agreements with various investors and sold an aggregate of 2,600,000

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

costs associated with the sale.

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

for acquiring the U.S.

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

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

was recorded as a component of the Company’s research and development expense and a corresponding increase to its additional

paid-in-capital.

October 2020, the Company issued 3,220,000 shares of its common stock in a public offering at an offering price of $7.00 per share

and received net proceeds of $21,026.

Pharmaceuticals, Inc.

TO FINANCIAL STATEMENTS

thousands, except share and per share amounts)

Common Stock (continued)

the years ended December 31, 2020 and 2019, the Company issued 194,878 and 167,622 shares, respectively, of its common stock resulting

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

with the sale.

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

marketing rights to Alkindi Sprinkle®, an orphan drug product currently under review with the FDA (see Note 14).

were valued at $ 1,264 based on the Company’s closing stock price on the date of issuance and this amount was recorded as a component

of the Company’s research and development expense and a corresponding increase to its additional paid-in-capital.

October 2020, the Company issued 3,220,000 shares of its common stock in a public offering at an offering price of $ 7.00 per share and

received net proceeds of $ 21,026 .

the years ended December 31, 2021 and 2020, the Company issued 144,233

shares, respectively, of its common stock resulting

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

For the years ended December 31, 2020 and 2019,

the Company issued 25,780 and 44,885 shares, respectively, under the Company’s Employee Stock Purchase Program (“ESPP”).

In April 2020, the Company issued 15,190 shares of its common stock as an RSA to a new employee.

This RSA vests 25% every three

months and will be 100% vested in April 2021.

2019, there were 97,088 warrant shares exercised (all on a cashless basis) resulting in 57,051 shares of common stock being issued

by the Company.

There were no warrant exercises in the 2020 period.

Common Stock Warrants

conjunction with the closing of the Series A Preferred offering in June 2017 (see Note 6), the Company issued a warrant to purchase

649,409 shares of its common stock to the placement agent at an exercise price of $3.00 per share, provided, however, upon the

conversion of the Series A Preferred, the warrant adjusted to entitle the holder to purchase shares of common stock equal to 10.0%

of the shares of common stock issuable upon conversion of the Series A Preferred (excluding 191,000 shares of Series A Preferred

that were purchased by insiders) and the exercise price would adjust to the conversion price of the Series A Preferred.

vested at issuance in June 2017.

The Company used the BSM to value the warrant and the fair value at the date of issuance was

Prior to the Company’s IPO in November 2018, the number of common shares issuable upon the exercise of this warrant

was not fixed as it could vary by a factor of 1.000 to 1.333 common shares per warrant share in accordance with the IPO price,

and the Company considered the warrant to be a derivative instrument.

The $479 amount was recorded as a component of the issuance

costs for the Series A Preferred in June 2017.

As of December 31, 2017, the fair value of the warrant was $520.

of November 15, 2018, the fair value of the warrants was $3,103 and the $2,583 increase in fair value during 2018 was recorded

as a component of other income and expense.

The fair value assumptions included an expected term of five years, expected volatility

of 85%, a risk-free interest rate of 2.9% and estimate of the conversion rate.

These warrants were classified as warrant liability

on the Company’s balance sheets prior to the IPO in November 2018.

In connection with the Company’s IPO, the number

of shares issuable upon the exercise of these warrants became fixed at 704,184 shares which eliminated the fair value adjustment

after that date.

At the IPO date, the warrant liability was reclassified to additional paid-in-capital.

November 2018, in connection with the IPO, the Company issued warrants for 414,000 shares of its common stock to the placement

agent at an exercise price of $7.50 per share.

connection with the SWK Credit Agreement, the Company issued warrants to SWK to purchase 51,239 shares of the Company’s

common stock (the “SWK Warrants”) with an exercise price of $5.86 per share.

The SWK Warrants are exercisable immediately

and have a term of seven years ending November 13, 2026.

The SWK Warrants are subject to a cashless exercise feature, with the

exercise price and number of shares issuable upon exercise subject to change in connection with stock splits, dividends, reclassifications

and other conditions.

The relative fair value of the SWK 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;

contractual term;

95% volatility;

0% dividend rate;

and a risk-free interest rate of 1.8%.

The $226 relative fair value for these

warrants was reflected as a component of additional paid-in-capital in the Company’s balance sheet.

connection with the additional $2,000 borrowed in August 2020 under the SWK Credit Agreement, the Company issued warrants for

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

The relative fair value of the 18,141 warrants was

$94 and was estimated using the Black-Scholes-Merton option pricing model with the following assumptions:

fair value of the Company’s

common stock at issuance of $6.85 per share;

seven-year contractual term;

95% volatility;

0% dividend rate;

and a risk-free interest

rate of 0.4%.

The $94 relative fair value for these warrants was reflected as a component of additional paid-in-capital in the

Company’s balance sheet.

weighted average exercise price of the outstanding warrants for the consultant, placement agent and debt holder as of December

31, 2020 and 2019 was $3.17 and $3.13 per share, respectively.

For the years ended December 31, 2021 and 2020, the Company

issued 49,155

shares, respectively, under the Company’s

Employee Stock Purchase Program (“ESPP”).

In April 2020, the Company issued 15,190

shares of its common stock as an RSA to a new

This RSA vested 25 %

every three months and was 100 %

vested in April 2021.

In April 2021, the Company issued 25,000

shares of its common stock to a member of its

board of directors upon his retirement from the board in connection with previously vested restricted stock units (“RSUs”).

During 2021, there were 135,650

warrants exercised (all on a cashless basis)

resulting in 94,808

shares of common stock being issued by the Company.

Pharmaceuticals, Inc.

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thousands, except share and per share amounts)

Common Stock Warrants (continued)

Note 7 — Common Stock Warrants

below is a summary of warrants outstanding as of December 31, 2021:

Description of Warrants

Exercise Price

Business Advisory Warrants –

Placement Agent Warrants –

2017 Preferred Stock Offering

Placement Agent Warrants - IPO

SWK Warrants –

Debt (Tranche #1)

SWK Warrants –

Debt (Tranche #2)

Summary of Warrants Outstanding

Advisory Warrants – 2017

Agent Warrants – 2017 Preferred Stock Offering

Agent Warrants - IPO

Warrants – Debt (Tranche #1)

Warrants – Debt (Tranche #2)

holders of these warrants or their permitted transferees, are entitled to rights with respect to the registration under the Securities

Act of their shares that are converted to common stock, including demand registration rights and piggyback registration rights.

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

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

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

Balance as of the beginning of the year

Issuance of SWK Warrants with long-term debt

Balance as of the end of the year

were no warrant exercises in 2020.

During 2019, 97,088 warrants were exercised (all on a cashless basis) resulting in 57,051 shares

of common stock being issued by the Company.

Summary of Rollforward of The Warrants Outstanding

as of the beginning of the year

of Placement Agent Warrants – 2017 Preferred Stock Offering

as of the end of the year

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

There were no warrant exercises is 2020.

The intrinsic value of the warrants exercised in 2021 was $ 806 .

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 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 398,246 shares available for future issuance under the 2018 Plan as of December 31, 2020.

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

under the 2018 Plan.

In addition, the 2018 Plan provides that commencing January 1, 2019 and through January 1, 2028, the share

reserve will be increased by 4% of the total number of shares outstanding as of the preceding December 31, subject to a reduction

at the discretion of the Company’s board of directors.

On January 1, 2019, the share reserve was increased by 704,317 shares

based on the 17,607,928 shares of common stock outstanding at December 31, 2018.

On January 1, 2020, the share reserve was increased

by 715,099 shares based on the 17,877,486 shares of common stock outstanding at December 31, 2019.

The exercise price for stock

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

Prior to the IPO, the Company’s board of directors valued the Company’s common stock, taking into consideration its

most recently available valuation of common stock performed by third parties as well as additional factors which might have changed

since the date of the most recent contemporaneous valuation through the date of grant.

Following the IPO, the Company has used

the closing stock price on the date of grant as the exercise price.

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, as amended (the “2018 Plan”) which succeeded the 2017 Plan.

The Company has granted RSAs, stock options and RSUs for

its common stock under the 2017 Plan and 2018 Plan as detailed in the tables below.

There were 537,306 shares available for future issuance

under the 2018 Plan as of December 31, 2021.

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

In addition, the 2018 Plan provides that commencing January 1, 2019 and through January 1, 2028, the share reserve will be

increased by 4 % of the total number of shares outstanding as of the preceding December 31, subject to a reduction at the discretion of

the Company’s board of directors.

On January 1, 2019, the share reserve was increased by 704,317 shares based on the 17,607,928

shares of common stock outstanding at December 31, 2018.

On January 1, 2020, the share reserve was increased by 715,099 shares based

on the 17,877,486 shares of common stock outstanding at December 31, 2019.

On January 1, 2021, the share reserve was increased by 972,512

shares based on the 24,312,808 shares of common stock outstanding at December 31, 2020.

The exercise price for stock options granted

is not less than the fair value of common stock as determined by the board of directors as of the date of grant.

The Company uses the

closing stock price on the date of grant as the exercise price.

Pharmaceuticals, Inc.

2 unchanged sentences

8 — Share-Based Payment Awards (continued)

January 1, 2018, the Company issued 54,745 restricted shares of its common stock to each of its four outside directors (218,980

total shares).

The restricted shares issued to the outside directors vested 25% at each quarter-end in 2018 and became fully vested

at December 31, 2018.

In April 2020, the Company issued 15,190 shares of its common stock as an RSA to a new employee.

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

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 generally have a ten-year life, except for options to purchase 50,000 shares of the Company’s

common stock granted to product consultants that expire within five years if the Company is not able to successfully 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 years ended December 31, 2020, 2019, and 2018, the Company’s total stock-based compensation expense was $2,576, $1,888

and $1,850, respectively.

April 2020, the Company issued 15,190 shares of its common stock as an RSA to a new employee.

This RSA vested 25 % every three months

and was 100 % vested in April 2021.

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 generally have a ten -year life, except for options to purchase 50,000 shares of the Company’s common

stock granted to product consultants that expire within five years if the Company is not able to successfully 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 years ended December 31, 2021, 2020, and 2019, the Company’s total stock-based compensation expense was $ 3,381 , $ 2,576 and

$ 1,888 , respectively.

Of these amounts, $ 2,838 , $ 2,295 and $ 1,574 was recorded in general and administrative expenses, respectively,

1 unchanged sentence

summary of stock option activity is as follows:

Weighted Average Exercise

Weighted Average Remaining

Aggregate Intrinsic

Options outstanding as of January 1, 2020

Summary of Stock Option Activity

Average Exercise

Average Remaining

outstanding as of January 1, 2021

Forfeited/Cancelled

Options outstanding as of December 31, 2020

Options exercisable at December 31, 2020

Options vested and expected to vest at December 31, 2020

aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and

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

the Company’s common stock at December 31.

outstanding as of December 31, 2021

exercisable at December 31, 2021

vested and expected to vest at December 31, 2021

aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair

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

common stock at December 31.

The intrinsic value of the options exercised during 2021 was $ 682 .

were 144,233 shares issued for exercise of stock options during the year ended December 31, 2021 for proceeds of $ 339 .

assumptions used to calculate the fair value of options granted during the years ended December 31, 2020, 2019, and 2018 under

the BSM were as follows:

December 31, 2020

December 31, 2019

December 31, 2018

Expected dividends

Expected volatility

Risk-free interest rate

Expected term

Weighted average fair value

assumptions used to calculate the fair value of options granted during the years ended December 31, 2021, 2020, and 2019 under the BSM

were as follows:

Schedule of Assumptions Used to Calculate Fair Value of Options Granted

interest rate

average fair value

Pharmaceuticals, Inc.

2 unchanged sentences

8 — Share-Based Payment Awards (continued)

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 10 years).

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

Volatility —

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

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

companies that are publicly traded.

The 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.

The Company has

continued this methodology plus given some limited weighting to its own volatility in the periods subsequent to its November 2018

Interest Rate —

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

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 10 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 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.

The Company has also applied some limited weighting

to its own volatility.

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 —

Prior to the Company’s IPO in November 2018, the fair value of the shares of common stock

underlying the stock-based awards was determined by the board of directors, with input from management.

Because there was no public

market for the Company’s common stock, the board of directors 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 the Company’s

common stock performed by an unrelated third-party specialist, valuations of comparable companies, sales of the Company’s

convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s

capital stock, and general and industry-specific economic outlook.

The board of directors intended all options granted to be exercisable

at a price per share not less than the estimated per share fair value of common stock underlying those options on the date of

Following the IPO, the Company uses the closing stock price on the date of grant for the fair value of the common stock.

summary of activity for RSAs and RSUs is as follows:

Restricted Stock Awards

Number of shares

Unvested as of January 1, 2020

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.

summary of activity for RSAs is as follows:

Summary of Activity for Restricted Stock Awards

as of January 1, 2021

Forfeited/Cancelled

Unvested as of December 31, 2020

as of December 31, 2021

grant date fair value per share for the RSA issued in 2020 was $ 3.95 .

No RSAs were issued in 2019 and the weighted average grant

date fair value of the RSAs issued during the year ended December 31, 2018 was $1.37 per share.

The fair value of the RSAs vested

during the years ended December 31, 2020, 2019 and 2018 was $30, $66 and $2,784, respectively.

RSUs were issued in 2020, 2019 and 2018 and no RSU’s were unvested at December 31, 2020 or 2019.

The fair value of the RSUs

No RSAs were issued in 2021 or 2019.

The fair value of the RSAs

vested during the years ended December 31, 2021, 2020 and 2019 was $ 30 , $ 30 and $ 66 , respectively.

of December 31, 2020, there was a total of $4,375, $18 and $0 of unrecognized compensation costs related to non-vested stock option

awards, RSAs and RSUs, respectively.

of December 31, 2021, there was a total of $ 6,025 of unrecognized compensation costs related to non-vested stock option awards.

Pharmaceuticals, Inc.

2 unchanged sentences

8 — Share-Based Payment Awards (continued)

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

Company’s 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.

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

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 .

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

The initial offering consisted of two purchase periods,

with the first purchase period ended on June 10, 2019 and the second purchase period ended on December 10, 2019.

the ESPP permit employees of the Company to use payroll deductions to purchase stock at a price per share that is at least the

lesser of (1) 85% of the fair market value of a share of common stock on the first date of an offering or (2) 85% of the fair

market value of a share of common stock on the date of purchase.

After the initial offering period, subsequent twelve-month offering

periods automatically commence over the term of the ESPP on the day that immediately follows the conclusion of the preceding offering,

each consisting of two purchase periods approximately six months in duration ending on or around June 10 and December 10 each

year, subject to a restart feature if the Company’s stock price drops at the end of a six-month period within the twelve-month

offering period.

The initial offering consisted of two purchase periods, with

the first purchase period ended on June 10, 2019 and the second purchase period ended on December 10, 2019.

The terms of the ESPP permit

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

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

stock on the date of purchase.

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

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

approximately six months in duration ending on or around June 10 and December 10 each year, subject to a restart feature if the Company’s

stock price drops at the end of a six-month period within the twelve-month offering period .

Company recorded an expense of $ 73 , $ 71 and $ 112 in 2021, 2020 and 2019, respectively, related to the ESPP.

The weighted average

grant date fair value of share awards in 2020, 2019 and 2018 was $2.32, $2.56 and $2.59 per share, respectively.

The weighted average grant

date fair value of share awards in 2021, 2020 and 2019 was $ 2.50 , $ 2.32 and $ 2.56 per share, respectively.

Employees contributed $ 205

and $ 115 to the ESPP during 2021 and 2020, respectively.

Of these amounts, $18 and $16 at December 31, 2020 and 2019, respectively,

is included in accrued liabilities in the accompanying balance sheets.

Of these amounts, $ 22 and $ 18 at December 31, 2021 and 2020, respectively, is

included in accrued liabilities in the accompanying balance sheets.

9 — Basic and Diluted Net Loss per Common Share

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

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

method) from stock options, unvested

RSAs and RSUs, and warrants at December 31, 2020, 2019 and 2018 were 3,371,489, 3,590,465, and 8,262,381, respectively, and are

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

Included in the basic and diluted

net loss per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery of the shares are

deferred until the director retires from service as a director.

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

Common stock equivalents (using the treasury stock and “if converted” method) from stock options, unvested RSAs and RSUs,

and warrants at December 31, 2021, 2020 and 2019 were 4,286,687 , 3,371,489 and 3,590,465 , respectively, and are excluded from the calculation

of diluted net loss per share because the effect is anti-dilutive.

Included in the basic and diluted net loss per share calculation were

RSUs awarded to directors that had vested, but the issuance and delivery of the shares are deferred until the director retires from service

as a director.

following table shows the computation of basic and diluted net loss per common share:

December 31, 2018

Series A Preferred –

dividends (accrued and deemed)

Net loss attributable to common stockholders

Weighted average common shares outstanding (basic and diluted)

Net loss per common share (basic and diluted)

Computation of Basic and Diluted Net Loss Per Common Share

average common shares outstanding (basic and diluted)

loss per common share (basic and diluted)

Pharmaceuticals, Inc.

2 unchanged sentences

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 as the paid-in-capital contribution from Harrow.

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.

In April 2021, Harrow sold 1,518,000

shares of the Eton common stock it owned in an

underwritten public offering.

As of December 31, 2021, Harrow owned 1,982,000

shares of Eton’s common shares which represents

8.0 % of the Company’s common shares outstanding.

The Company and Harrow signed licensing agreements for two products developed

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

The Company will pay Harrow a $50 milestone payment upon

patent approval for each product and a royalty fee at a rate of six percent on the net sales of those two products.

26, 2017, one of the products had its patent approved and a $50 milestone fee was recognized as R&D expense by the Company

in 2017 and paid to Harrow in January 2018.

In July 2018, the Company determined the patent-approved product was not viable for

its portfolio of product opportunities and Harrow paid the Company $50 to cancel the licensing agreement for the one product and

retain the product rights at Harrow.

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

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

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

or, collectively, “Products”).

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

development and commercial milestones.

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

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

sale of a product in a particular country or the time that a valid intellectual property claim on such Product remains in force

in the applicable country.

The CT-100 Asset Purchase Agreement also contains customary representations, warranties, covenants

and indemnities by the parties.

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

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

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

The restricted stock and stock

options vested 100% after one year on April 30, 2018.

The Company recorded stock-based compensation expense of $0, $0 and $970

for the Harrow restricted common stock and $0, $0 and $51 for Harrow stock options, respectively, for the years ended December

31, 2020, 2019 and 2018 as a component of its general and administrative expenses.

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

not viable for its portfolio of product opportunities and cancelled the licensing agreement whereby Harrow retains the product rights.

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

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

product that incorporates or utilizes its intellectual property rights (a “Product” or, collectively, “Products”).

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

and commercial milestones.

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

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

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

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

date, there have not been any sales of the CT-100 product and therefore no earned royalties to the Company for this product.

Additionally,

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

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

service with the board.

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 purchase its lab equipment for $ 700 which was $ 181 above the Company’s net book value

of the equipment.

Executive Officer

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

Company acquired the exclusive rights to sell the EM-100 product in the United States pursuant to a sales and marketing agreement

(the “Eyemax Agreement”) dated August 11, 2017 between the Company and Eyemax LLC (“Eyemax”), an entity

affiliated with the Company’s CEO.

The Company also held a right of first refusal to obtain the exclusive license rights

for geographic areas outside of the United States.

Pursuant to the Eyemax Agreement, the Company was responsible for all costs

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

The Company was also to be

responsible for commercializing the product in the United States at its expense.

The Company paid Eyemax $250 upon execution of

the Eyemax Agreement, which was recorded as a component of R&D expense.

Under the terms of the original agreement, the Company

would pay Eyemax $250 upon FDA approval and $500 upon the first commercial sale of the product and pay Eyemax a royalty of 10%

on the net sales of all products.

The Eyemax Agreement was for an initial term of 10 years from the date of the Eyemax Agreement,

subject to successive two-year renewals unless the Company elected to terminate the Eyemax Agreement.

There were no amounts due

under the terms of the Eyemax Agreement as of December 31, 2020 or 2019.

Company acquired the exclusive rights to sell the EM-100 product in the United States pursuant to a sales and marketing agreement (the

“Eyemax Agreement”) dated August 11, 2017 between the Company and Eyemax LLC (“Eyemax”), an entity affiliated

with the Company’s CEO.

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

outside of the United States.

Pursuant to the Eyemax Agreement, the Company was responsible for all costs of testing and FDA approval

of the product, other than the FDA filing fee which was paid by Eyemax.

The Company was also to be responsible for commercializing the

product in the United States at its expense.

The Company paid Eyemax $ 250 upon execution of the Eyemax Agreement, which was recorded

as a component of R&D expense.

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

$ 500 upon the first commercial sale of the product and pay Eyemax a royalty of 10 % on the net sales of all products.

The Eyemax Agreement

was for an initial term of 10 years from the date of the Eyemax Agreement, subject to successive two-year renewals unless the Company

elected to terminate the Eyemax Agreement .

There were no amounts due under the terms of the Eyemax Agreement as of December 31, 2021

Pharmaceuticals, Inc.

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10 — Related Party Transactions (continued)

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

Agreement”).

Pursuant to the Amended Agreement, Eyemax sold the Company all of its right, title and interest in EM-100,

including any such product that incorporates or utilizes Eyemax’s intellectual property rights.

Under the Amended Agreement,

the Company assumed certain liabilities of Eyemax under its Exclusive Development & Supply Agreement with Excelvision SAS

dated as of July 11, 2013, as amended (the “Excelvision Agreement”), with respect to certain territories and arising

during certain time periods.

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

(i) one milestone payment for $250 upon regulatory approval in the territory by the FDA of the first single agent product and

(ii) one milestone payment for $500 following the first commercial sale of the first single agent product in the territory which

was paid in February 2021.

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

revenues and royalties up to $2,000 (the “Recovery Amount”).

After the Company has retained the full Recovery Amount,

it is entitled to retain half of all royalty and non-royalty transaction revenue.

The Amended Agreement also contains customary

representations, warranties, covenants and indemnities by the parties.

The EM-100 asset and its associated product rights were

sold to Bausch Health on February 18, 2019 and future potential royalties of twelve percent on Bausch Health sales of EM-100,

which was approved by the FDA in September 2020, will be split between Eyemax and the Company.

The royalty from Bausch Health

is subject to reduction if a competitive product with the same active pharmaceutical ingredient is launched in the U.S.

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

There were no amounts due under the terms of the Amended

Agreement as of December 31, 2020 or 2019.

February 18, 2019, the Company entered into an Amended and Restated Agreement with Eyemax amending the Sales 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 paid Eyemax two milestone payments:

(i) one milestone payment for $ 250 upon regulatory

approval in the territory by the FDA of the first single agent product and (ii) one milestone payment for $ 500 following the first commercial

sale of the first single agent product in the territory.

Following payment of the milestones, the Company is entitled to retain all of

the non-royalty transaction revenues and royalties up to $ 2,000 (the “Recovery Amount”).

After the Company has retained the

full Recovery Amount, it is entitled to retain half of all royalty and non-royalty transaction revenue.

The Company has realized $ 1,735

of the non-royalty and royalty revenue as of December 31, 2021.

The Amended Agreement also contains customary representations, warranties,

covenants and indemnities by the parties.

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

2019 and future potential royalties of twelve percent on Bausch Health sales of EM-100, which was approved by the FDA in September 2020,

will be split between Eyemax and the Company.

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

same active pharmaceutical ingredient is launched in the U.S.

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

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

January 12, 2018, the Company signed an amended lease agreement to lease additional office space adjacent to its current corporate

office space in Deer Park, Illinois.

January 12, 2018, the Company signed an amended lease agreement to lease additional office space adjacent to its current corporate office

space in Deer Park, Illinois.

The amended lease was scheduled to expire at the end of March 2021.

In October 2020, the

Company renewed its office lease for a two-year period through March 31, 2023 and recorded $195 in ROU assets and $195 in operating

lease liabilities associate with the lease extension.

On March 7, 2018, the Company entered into a lease for laboratory space

at a complex in Lake Zurich, Illinois.

In October 2020, the Company renewed

its office lease for a two-year period through March 31, 2023 and recorded $ 195 in ROU assets and $ 195 in operating lease liabilities

associate with the lease extension.

On March 7, 2018, the Company entered into a lease for laboratory space at a complex in Lake Zurich,

The lease commenced on March 7, 2018 and was scheduled to expire in February 2021.

2020, this laboratory lease was extended to June 2021 as the Company evaluates its future laboratory operations requirements.

In November 2020, this laboratory lease

was extended to June 2021 and was not extended after that date as the Company completed an evaluation its laboratory operations requirements

and determined it would discontinue the laboratory activities and outsource its requirements.

Company does not have any lease contracts that contain:

(1) an option to extend that the Company is reasonably certain to exercise, (2)

(2) an option to terminate that the Company is reasonably certain to exercise, or (3) an option to extend (or not to terminate)

in which exercise of the option is controlled by the lessor.

Additionally, the Company does not have any leases with residual

value guarantees or material restrictive covenants.

Lease liabilities and their corresponding right-of-use assets have been recorded

based on the present value of the future lease payments over the expected lease term.

One of the Company’s lease agreements

contains provisions for escalating rent payments over the term of the lease.

Company’s leases do not contain readily determinable implicit discount rates, and therefore, the Company was required to

use its incremental borrowing rate of 7.8% to discount the future lease payments based on information available at lease commencement.

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

The incremental borrowing rate was

estimated by determining the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar

term an amount equal to the lease payments in a similar economic environment.

an option to terminate that the Company is reasonably certain to exercise, or (3) an option to extend (or not to terminate) in which

exercise of the option is controlled by the lessor.

Additionally, the Company does not have any leases with residual value guarantees

or material restrictive covenants.

Lease liabilities and their corresponding right-of-use assets have been recorded based on the present

value of the future lease payments over the expected lease term.

One of the Company’s lease agreements contains provisions for

escalating rent payments over the term of the lease.

Company’s leases do not contain readily determinable implicit discount rates, and therefore, the Company was required to use its

incremental borrowing rate of 7.8 % to discount the future lease payments based on information available at lease commencement.

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

The incremental borrowing rate was estimated by determining

the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the

lease payments in a similar economic environment.

the years ended December 31, 2021, 2020 and 2019, the Company recorded $ 113 , $ 139 , and $ 140 , respectively, in rent expense.

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

and “General and Administrative”

captions in the statements of operations was $55 and $84 and $55 and $85 for the years ended December 31, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $131 and $120 for years ended December 31,

2020 and 2019, respectively.

The ROU asset amortization for years ended December 31, 2020 and 2019 was $129 and $121, respectively,

and is reflected in depreciation and amortization in the Company’s statements of cash flows.

As of December 31, 2020, the

weighted-average remaining lease term was 2.2 years, and the weighted-average discount rate was 5.4%.

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

captions in the statements of operations was $ 9 ,

for the years ended December 31, 2021, 2020 and

2019, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 83

for years ended December 31, 2021 and 2020, respectively.

The ROU asset amortization for years ended December 31, 2021, 2020 and 2019 was $ 88 ,

respectively, and is reflected in depreciation and amortization in the Company’s statements of cash flows.

As of December 31, 2021,

the weighted-average remaining lease term was 1.25

years, and the weighted-average discount rate

table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2021:

Schedule of Lease-related Assets and Liabilities

Classification

Operating lease right-of-use assets

Operating lease right-of-use assets, net

Total leased assets

Operating lease liabilities, current

Accrued liabilities

Operating lease liabilities, noncurrent

Operating lease liabilities, net of current portion

Total operating lease liabilities

Company’s future annual lease commitments as of December 31, 2020 are as indicated below:

Undiscounted lease payments

lease right-of-use assets

lease right-of-use assets, net

leased assets

lease liabilities, current

lease liabilities, noncurrent

lease liabilities, net of current portion

operating lease liabilities

Company’s future annual lease commitments as of December 31, 2021 are as indicated below:

of Future Lease Commitments

lease payments

Imputed interest

Total lease liabilities

lease liabilities

Pharmaceuticals, Inc.

1 unchanged sentence

thousands, except share and per share amounts)

12 – Income Taxes

provision for income taxes for the Company consists of the following for the years ended December 31, 2021, 2020 and 2019:

Total current expense

Change in valuation allowance

Total deferred expense

Total provision

Schedule of Provision for Income Taxes

current expense

in valuation allowance

deferred expense

income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for income tax purposes.

significant components of the Company’s deferred tax assets as of December 31, 2020 and 2019 are as follows:

Net operating losses

Stock-based expenses

Accruals and other

Total deferred tax assets

Valuation allowance

Net deferred tax assets

on the uncertainty of future taxable income at this time management believes a 100% valuation reserve for the $17,903 and

$9,731 deferred tax assets at December 31, 2020 and 2019, respectively, is appropriate.

significant components of the Company’s deferred tax assets as of December 31, 2021 and 2020 are as follows:

Schedule of Deferred Tax Assets

operating losses

deferred tax assets

on the uncertainty of future taxable income at this time management believes a 100 %

valuation reserve for the $ 18,548

deferred tax assets at December 31, 2021 and

2020, respectively, is appropriate.

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

Year ended December 31

Year ended December 31,

Benefit at statutory rate

Permanent items (primarily warrants and stock compensation)

State tax benefit

Federal rate change

Establishment of valuation allowance

Income tax expense

Schedule of Reconciliation of Statutory Federal Tax Rate

ended December 31

ended December 31,

at statutory rate

items (primarily warrants and stock compensation)

Establishment

of valuation allowance

Pharmaceuticals, Inc.

2 unchanged sentences

12 – Income Taxes (continued)

Company has a federal and state NOL carryforward of $57,008 as of December 31, 2020.

Under the Tax Act, federal NOLs incurred

in taxable years ending after December 31, 2017 in the amount of $51,356 may be carried forward indefinitely, but the deductibility

of federal NOLs generated in tax years beginning before December 31, 2017 in the amount of $5,652 will expire in 2037.

state NOL carry forward will begin to expire in 2029.

addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law,

if a corporation undergoes an “ownership change,”

which is generally defined as a greater than 50% change (by value)

in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and

other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited.

Company has a federal and state NOL carryforward of $ 55,675

as of December 31, 2021.

Under the Tax Act,

federal NOLs incurred in taxable years ending after December 31, 2017 in the amount of $ 50,023

may be carried forward indefinitely, but

the deductibility of federal NOLs generated in tax years beginning before December 31, 2017 in the amount of $ 5,652

will expire in 2037.

The state NOL carry forward

will begin to expire in 2029.

addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if

a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 % change (by value) in its

equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change

tax attributes (such as research tax credits) to offset its post-change income may be limited.

13 - Employee Savings Plan

Company established an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code, effective January 1, 2018.

The plan allows participating employees to deposit into tax deferred investment accounts up to 100% of their salary, subject to

annual limits.

The Company makes certain matching contributions to the plan in amounts up to 4% of the participants’

cash compensation, subject to annual limits.

For the years ended December 31, 2020, 2019 and 2018, the Company made $117, $113

and $62, respectively, in matching contributions.

Commitments and Contingencies

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

The Company is not aware

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

plan allows participating employees to deposit into tax deferred investment accounts up to 100 % of their salary, subject to annual limits.

The Company makes certain matching contributions to the plan in amounts up to 4 % of the participants’ annual cash compensation,

subject to annual limits.

For the years ended December 31, 2021, 2020 and 2019, the Company made $ 154 , $ 117 and $ 113 , respectively, in

matching contributions.

Pharmaceuticals, Inc.

1 unchanged sentence

thousands, except share and per share amounts)

Commitments and Contingencies (continued)

14 — Commitments and Contingencies

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

The Company is not aware of any

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

and Product Development Agreements

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

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

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

Pursuant to the Sales

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

the product in the United States at its expense.

The Company was to pay the third party 50% of the net profit from the sale of

the product, however, in February 2020, it executed an amendment to the Sales and Marketing Agreement.

Under the revised terms,

the Company will be responsible for paragraph IV related litigation and will be entitled to 62.5% of product profit.

term is for the first 10 years following the first commercial sale of the product.

Company acquired the exclusive license to develop, manufacture and sell oral solution Levothyroxine in the United States pursuant

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

an unaffiliated entity.

Pursuant to the agreement, the Company was to be responsible for, and would own, all regulatory filings

and approvals at its expense, provided that it would have the right to recoup 35% of any regulatory filing fees from the initial

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

be responsible for 60% of the costs of such study.

An affiliate of the licensor was to manufacture the ET-103 and sell it to the

Company at its cost.

The Company paid the licensor $350 upon execution of the agreement and was to pay the licensor $1,500 upon

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

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

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

The license agreement was for an initial

term of 10 years from the date of the first commercial sale of the product, subject to two-year renewals unless either party elects

to terminate no less than 12 months prior to the then current term.

The agreement also contained customary representations, warranties,

covenants and indemnities by the parties.

In November 2020, the Company terminated the development agreement with LMW due to new

adverse market competitive factors.

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

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

which is used for the treatment

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

The product was submitted

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

Pursuant to the terms of the ET-202 License

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

the regulatory activities related to approval.

The Company paid Sintetica a licensing payment of $2,000 upon execution of the

ET-202 License Agreement and $750 upon the commencement of commercial product shipments.

Sintetica will supply Biorphen to the

Company at its direct costs and the Company will retain 5% of net sales as a marketing fee.

Sintetica is entitled to receive the

first $500 of product profits.

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

The ET-202 License

Agreement has a ten-year term from the first commercial sale of Biorphen which occurred in November 2019.

There was a gross loss

for Biorphen for the year ended December 31, 2020 due to slower than anticipated sales and a product price reduction through the

Company’s wholesale customers.

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

Agreement”) with Sintetica for marketing rights in the United States to ephedrine, an injectable product candidate for

use in the hospital setting.

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

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

obtaining regulatory approval.

The Company paid Sintetica a licensing payment of $1,000 upon execution of the ET-203 License

Agreement which was refunded to Eton in early 2020 due to the FDA not accepting the ET-203 file submission by Sintetica.

refund was reflected as a component of prepaid and other current assets on the Company’s balance sheet at December 31,

The ET-203 product was successfully resubmitted in late 2020 and the Company will pay a $600 milestone fee and will

also pay $750 upon FDA approval and the commercial sale of the product candidate.

Upon approval, Sintetica will supply ET-203

to the Company at its direct costs.

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

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

Pursuant to the Sales Agreement, the licensor

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

States at its expense.

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

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

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

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

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

commercial sale of the product.

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

Sintetica SA (“Sintetica”) for marketing rights in the United States to Biorphen® which is used for the treatment of

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

The product was submitted to the

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

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

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

related to approval.

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

upon the commencement of commercial product shipments.

Sintetica supplies Biorphen to the Company at its direct costs and the Company

retains 5 % of net sales as a marketing fee.

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

All additional profit

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

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

of Biorphen which occurred in November 2019.

There was a gross loss for Biorphen for the years ended December 31, 2021 and 2020 due to

slower than anticipated sales and a product price reduction through the Company’s wholesale customers.

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 HCl (brand name Rezipres®), an injectable product candidate

for use in the hospital setting.

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

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

The Company paid Sintetica a licensing payment of $ 1,000 upon execution of the ET-203 License Agreement which was refunded

to Eton in early 2020 due to the FDA not accepting the ET-203 file submission by Sintetica.

The Rezipres product was successfully resubmitted

in late 2020 and the Company paid a $ 600 milestone fee in July 2021 and will pay $ 750 upon the commercial sale of the product.

supplies Rezipres to the Company at its direct costs.

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

Sintetica will be entitled to

receive the first $500 of product profits.

Sintetica will be entitled

to receive the first $ 500 of product profits.

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

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

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

Pharmaceuticals, Inc.

2 unchanged sentences

14 — Commitments and Contingencies (continued)

three oral solution pediatric neurology product candidates discussed below, Topiramate, Zonisamide and Lamotrigine were developed

by the Company and its various product candidate development partners and the Company subsequently sold all its rights

and interests in these three products to Azurity Pharmaceuticals, Inc.

(“Azurity”) in 2021 (see Note 16 —

Subsequent Events).

three oral solution pediatric neurology product candidates discussed below, Topiramate, Zonisamide and Lamotrigine were developed by

the Company and its various product candidate development partners and the Company subsequently sold all its rights and interests in

these three products to Azurity in 2021.

The Company has recognized $ 17,000 in milestone

revenues to date from these three products and may receive up to $ 25,000 in additional milestone revenues related to FDA product approvals

and the future sales levels for the products.

the years ended December 31, 2021, 2020 and 2019, the Company worked with Tulex Pharmaceuticals, Inc.

(“Tulex”)

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

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

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

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

Pursuant to the terms of the Agreement, the Company

was to be responsible for regulatory and marketing activities.

(“Tulex”) as a third-party

contract manufacturer to develop an oral solution for Topiramate (fka ET-101) which targets a neurological condition.

The Company subsequently

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

In November 2021, the product received approval from the

FDA and was launched by Azurity in December 2021.

The Company recognized a $ 5,000 milestone revenue at launch which was reflected in

accounts receivable on the Company’s balance sheet at December 31, 2021 and subsequently collected in January 2022.

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

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

Pursuant to the terms of the Agreement, the Company was to be responsible

for regulatory and marketing activities.

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

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

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

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

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

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

net profit from product sales.

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

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

June 12, 2019, the Company entered into an Exclusive Licensing and Supply Agreement (the “ET-105 License Agreement”)

with Aucta Pharmaceuticals, Inc.

(“Aucta”) for marketing rights in the United States to Lamotrigine, an oral suspension

product candidate for use as an adjunct therapy for partial seizures, primary generalized tonic-clonic seizures, and generalized

seizures of Lennox-Gastaut syndrome in patients two years of age and older.

Pursuant to the terms of the ET-105 License Agreement,

the Company was to be responsible for marketing activities and Aucta will be responsible for development, manufacturing, and regulatory

activities related to obtaining regulatory approval.

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

receiving an acceptance for review letter from the FDA and will pay $2,450 upon FDA approval and commercial sales of the

product candidate and another $1,000 upon issuance of an Orange-book listed patent.

If Aucta successfully completes a Lamotrigine

product line extension product, Eton will pay $1,500 upon FDA acceptance of the product filing and $1,950 upon FDA approval and

commercial sales of the extension product candidate.

Aucta will receive a low double-digit royalty on net sales and will be

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

when net sales exceed $10 million in a calendar year

when net sales exceed $20 million in a calendar year

The Company paid the licensor

$ 350 upon execution of the Agreement and an additional $ 350 after receiving successful bioequivalence study results, and $ 325 upon the

FDA’s acceptance of the NDA for review and will pay $ 325 upon FDA approval of the NDA, $ 650 upon issuance of patent covering ET-104

listed in the FDA’s Orange Book and $ 500 in the event that product sales in excess of $ 10,000 were achieved within a calendar year.

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

The Agreement was for an initial

term of 10 years from the date of the first commercial sale of the product.

The Company was to retain sole ownership of the NDA after

expiration of the Agreement.

June 12, 2019, the Company entered into an Exclusive Licensing and Supply Agreement (the “ET-105 License Agreement”) with

Aucta Pharmaceuticals, Inc.

(“Aucta”) for marketing rights in the United States to Lamotrigine, an oral suspension product

candidate for use as an adjunct therapy for partial seizures, primary generalized tonic-clonic seizures, and generalized seizures of

Lennox-Gastaut syndrome in patients two years of age and older.

Pursuant to the terms of the ET-105 License Agreement, the Company was

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

to obtaining regulatory approval.

The Company paid Aucta a licensing payment of $ 2,000

in August 2019 upon receiving an acceptance for

review letter from the FDA and will pay $ 2,450

upon FDA approval and commercial sales of the

product candidate and another $ 1,000

upon issuance of an Orange-book listed patent.

If Aucta successfully completes a Lamotrigine product line extension product, Eton will pay $ 1,500

upon FDA acceptance of the product filing,

upon FDA approval and commercial sales of the

extension product candidate and $ 450 if the intellectual property for the extension product is transferred to Azurity.

Aucta will be entitled to receive milestone payments from the Company of up to $ 3,000

based on commercial success of the product, including:

when net sales exceed $10 million in a calendar year

when net sales exceed $20 million in a calendar year

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

or profit share obligations owed to development partners

Azurity will assume royalty

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

Pharmaceuticals, Inc.

2 unchanged sentences

14 — Commitments and Contingencies (continued)

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

with Diurnal for marketing Alkindi Sprinkle in the United States.

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

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

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

the initial licensing milestone fee, the Company paid Diurnal $3,500 in cash and issued 379,474 shares of its common stock to

Diurnal which were valued at $1,264 based on the Company’s closing stock price of $3.33 on March 26, 2020 (see Note 7).

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 year ended December 31, 2020.

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

status from the FDA.

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

Diurnal for marketing Alkindi Sprinkle in the United States.

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

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

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

the initial licensing milestone fee, the Company paid Diurnal $ 3,500 in cash and issued 379,474 shares of its common stock to Diurnal

which were valued at $ 1,264 based on the Company’s closing stock price of $ 3.33 on March 26, 2020 (see Note 6).

The total amount

of $ 4,764 was recorded as a component of research and development expense in the Company’s statement of operations for the year

ended December 31, 2020.

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

June 15, 2021, the Company acquired U.S.

and Canadian rights to Crossject’s ZENEO® hydrocortisone needleless autoinjector,

which is under development as a rescue treatment for adrenal crisis.

The Company expects to submit the New Drug Application (NDA) to

the FDA in 2023 and plans to request orphan drug designation.

The Company paid Crossject $ 500 upon signing and could pay up to $ 4,500

in development milestones and up to $ 6,000 in commercial milestones, as well as a 10 % royalty on net sales.

October 28, 2021, the Company acquired the U.S.

marketing rights to Carglumic Acid Tablets.

The product’s Abbreviated New Drug

Application (“ANDA”), which is owned by Novitium Pharma, was approved by the FDA on October 12, 2021.

The product is an AB-rated,

substitutable generic version of Carbaglu®.

The Company paid $ 3,250 upon signing and will retain 50 % of future product profits with

the balance being distributed to the licensor and manufacturer.

Indemnification

permitted under Delaware law and in accordance with the Company’s Amended and Restated Bylaws, the Company is required to

indemnify its officers and directors for certain events or occurrences while the officer or director is or was serving in such

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

The Company believes the fair

value of the indemnification rights and agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these

indemnification rights and agreements as of December 31, 2020 or 2019.

Subsequent Events

February 2021, the Company sold its pediatric neurology portfolio to Azurity Pharmaceuticals (“Azurity”).

The portfolio

included the Company’s Lamotrigine (ET-105), Zonisamide (ET-104), and Topiramate (ET-101) product candidates, which have

all been submitted to the U.S.

Food and Drug Administration as new drug applications and are currently under review by the FDA.

will assume control of all three products and will be responsible for commercialization following regulatory approval.

will support Azurity in the transition and through regulatory approval.

Under the terms of the transaction, the Company will receive

up to $45,000 in payments from Azurity under the following schedule:

at closing, of which $9,500 was received in February 2021 and $5,500 is held in escrow until certain product-related milestones

are achieved;

upon achievement of FDA approval and product launch milestones;

upon achievement of commercial sales milestones.

addition, the Company will receive a single digit percentage royalty on Azurity’s net sales of the products.

will remain responsible for certain licensing fee obligations owed to its development partners (see Note 15) and Azurity will

assume royalty or profit share obligations owed to the development partners.

The Company paid milestones of $550 to Aucta

Pharmaceuticals and $200 to Tulex Pharmaceuticals in February 2021 in conjunction with the sale of the pediatric neurology

products to Azurity.

The Company’s proceeds from the transaction will be used for business development activities targeting

additional late-stage orphan drug products.

Pharmaceuticals, Inc.

and Qualifying Accounts

Balance at Beginning of Period

End of Period

For the year ended December 31, 2020

Accounts receivable allowances (1)

Inventories reserve

For the year ended December 31, 2019

Accounts receivable allowances (1)

For the year ended December 31, 2018

Accounts receivable allowances (1)

are for chargebacks, prompt payment discounts, distribution fees, and returns & allowances related to Biorphen and Alkindi

Sprinkle product sales.

The inventories reserve is for Biorphen that is at risk of expiry before it can be sold.

permitted under Delaware law and in accordance with the Company’s Amended and Restated Bylaws, the Company is required to indemnify

its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity.

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

The Company believes the fair value of the indemnification

rights and agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements

as of December 31, 2021 or 2020.

II (CONTINUED)

1 unchanged sentence

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data