ZEVRA THERAPEUTICS INC

Organization

Zevra Therapeutics, Inc. (the "Company") is a rare disease company combining science, data and patient needs to create transformational therapies for diseases with limited orno treatment options. The Company has a diverse portfolio of products and product candidates, which includes preclinical development programs, clinical stage pipeline and commercial stage assets. The Company’s pipeline includes arimoclomol, an orally-delivered,first-in-class investigational product candidate being developed for Niemann-Pick disease type C (“NPC”), which has been granted orphan drug designation, Fast-track designation, Breakthrough Therapy designation and rare pediatric disease designation for the treatment of NPC by the U.S. Food and Drug Administration ("FDA") and orphan medical product designation for the treatment of NPC by the European Medicines Agency ("EMA"). The arimoclomol NDA for NPC was resubmitted to the FDA on* December 21, 2023,and has been assigned a PDUFA date of September 21, 2024.*KP1077 is the Company's lead clinical development product candidate which is being developed as a treatment for idiopathic hypersomnia ("IH"), a rare neurological sleep disorder, and narcolepsy.KP1077 is comprised solely of serdexmethylphenidate (“SDX”), the Company's proprietary prodrug of d-methylphenidate ("d-MPH"). The FDA has grantedKP1077 orphan drug designation for the treatment of IH. OLPRUVA® (sodium phenylbutyrate) for oral suspension is approved by the FDA for the treatment of urea cycle disorders ("UCDs"). The Company also has a pipeline of investigational product candidates, including celiprolol for the treatment of vascular Ehlers-Danlos syndrome in patients with a confirmed type III collagen mutation.

The Company changed its name from KemPharm, Inc. to Zevra Therapeutics, Inc. effective as of* February 21, 2023.On March 1, 2023,*following its name change, the Company's common stock began trading on the Nasdaq Global Select Market under the ticker symbol "ZVRA".

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the year ended* December 31, 2023,the Company incurred a net loss of $46.0 million and, as of December 31, 2023,has an accumulated deficit of $399.8 million as well as cash and investments on hand of $67.7 million. The Company has sustained operating losses for the majority of its corporate history and expects to continue to incur operating losses and negative operating cash flows until revenues reach a level sufficient to support ongoing operations. The Company’s liquidity needs will be largely determined by the success of operations through the progression of its product candidates in the future. The Company also mayconsider other sources to fund operations including: (1) out-licensing rights to certain of its technologies and product candidates, pursuant to which the Company would receive cash royalties and milestones; (2) raising additional capital through equity or debt financings or from other sources; (3) obtaining product candidate regulatory approvals, which would generate revenue, milestones and cash flow; (4) reducing spending onone* or more research and development programs, including by discontinuing development; and/or (5) restructuring operations to change its overhead structure.

The Company’s ability to continue operating as a going concern is contingent upon its ability to secure sufficient financing and/or reduce spending to maintain operations. Unless the Company is able to restructure the amounts outstanding on its margin loan facility, we* maybe required to repay the loan and thereby deplete the cash available to fund our operations. If this occurs, our forecasts reflect a shortfall in cash available for operations as early as mid-2024. While the Company expects to obtain the necessary financing that is needed, there isno* assurance that the Company will be successful in obtaining the necessary funding for future operations. These factors raise substantial doubt as to the Company’s ability to continue as a going concern for at leastone year from the date these financial statements are being issued. The financial statements donot include any adjustments that might result from the outcome of these uncertainties.

Basis of Presentation

The Company prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the Company’s opinion, reflect all adjustments, including normal recurring items that are necessary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Merger

On* August 30, 2023,the Company and Aspen Z Merger Sub, Inc., a wholly-owned subsidiary of Zevra (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Acer Therapeutics Inc. (“Acer”), a pharmaceutical company focused on development and commercialization of therapies for rare and life-threatening diseases. On November 17, 2023 (*the "Closing Date"), the Company completed the acquisition of Acer. Pursuant to the Merger Agreement, on the Closing Date, Merger Sub was merged with and into Acer (the "Merger"), with Acer continuing as the surviving entity and as a wholly-owned subsidiary of Zevra. In connection therewith, Zevra has also purchased Acer’s secured debt from Nantahala Capital Management, LLC ("NCM”), certain of its affiliates and certain other parties (collectively with NCM, “Nantahala”) through a series of transactions and Zevra agreed to provide Acer with a bridge loan facility for up to $18.0 million ("Bridge Loan"), subject to certain terms and conditions. The Merger has expanded Zevra's rare disease portfolio, as well as increased and diversified its revenues with the addition of a U.S. commercial asset, OLPRUVA, indicated for the treatment of UCDs. See Note R for further discussion related to the Merger.

Arimoclomol Acquisition

On* May 15, 2022,the Company and Zevra Denmark A/S (“Zevra DK”), a newly formed Danish company and wholly-owned subsidiary of the Company entered into an asset purchase agreement (the “Arimoclomol Purchase Agreement”) with Orphazyme A/S in restructuring, a Danish public limited liability company (“Orphazyme”). The Arimoclomol Purchase Agreement closed on May 31, 2022.*Under the terms of the Arimoclomol Purchase Agreement, Zevra DK purchased all of the assets and operations of Orphazyme related to arimoclomol and settled all of Orphazyme’s actual outstanding liabilities to its creditors with a cash payment of $12.8 million. In addition, Zevra DK agreed to assume an estimated reserve liability of $5.2 million related to revenue generated from Orphazyme’s Expanded Access Program in France.

The Company accounted for the arimoclomol acquisition as an asset acquisition as the majority of the value of the assets acquired related to the arimoclomol acquired in-process research and development (“IPR&D”) asset. The intangible asset associated with IPR&D relates to arimoclomol. The estimated fair value of $17.7 million was determined using the excess earnings valuation method, a variation of the income valuation approach. The excess earnings valuation method estimates the value of an intangible asset equal to the present value of the incremental after-tax cash flows attributable to that intangible asset over its remaining economic life. Some of the more significant assumptions utilized in our asset valuations included projected revenues, probability of commercial success, and the discount rate. The fair value using the excess earnings valuation method was determined using an estimated weighted average cost of capital of 42%, which reflects the risks inherent in future cash flow projections and represents a rate of return that a market participant would expect for this asset. This fair value measurement was based on significant inputsnot observable in the market and thus represent Level3 fair value measurement.

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In accordance with Accounting Standards Codification (ASC) Subtopic730-10-25, Accounting for Research and Development Costs, the up-front payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired IPR&D in transactions other than a business combination provided that the drug hasnot achieved regulatory approval for marketing and, absent obtaining such approval, hasno alternative future use. Therefore, the portion of the purchase price that was allocated to the IPR&D assets acquired was immediately expensed. Other assets acquired and liabilities assumed, were recorded at fair value. The company also recorded a $0.8 million income tax benefit for the year-ended* December 31, 2022,*related to research and development credits that are expected to be realized from the local jurisdiction in Denmark.

The following represents the consideration paid and purchase price allocation for the acquisition of arimoclomol (in thousands):

(1) As a result of the asset acquisition accounting, the transaction costs associated with the acquisition should be included in the costs of the assets acquired and allocated amongst qualifying assets using the relative fair value basis. The transaction costs primarily included financial advisor fees and legal expenses.

(2) The primary asset acquired, the IPR&D asset, was expensed and the allocated transaction related costs were included with and expensed with this asset.

Amendment to Registration Statement on Form S-3

On* January 25, 2022,the Company filed an amendment to the registration statement on Form S-1 (FileNo.* 333-250945) on Form S-3 covering the issuance of the shares of our common stock issuable upon the exercise of the warrants issued in the Public Offering and remaining unexercised as of the date of the amendment, which was declared effective on* February 1, 2022.*

In connection with the Merger, Zevra and Nantahala (as defined in Note R) concurrently entered into a registration rights agreement, pursuant to which Zevra agreed to file a resale registration statement with respect to the resale of the Zevra common stock issuable to Nantahala. On* February 5, 2024,Zevra filed a registration statement on Form S-3 (FileNo.* 333-276856) registering an aggregate of 2,269,721 shares of Zevra’s common stock.

Entry into 2021 ATM Agreement

On* July**2,* 2021, the Company entered into an equity distribution agreement (the*“2021* ATM Agreement”) with JMP Securities LLC (“JMP”) and RBC Capital Markets, LLC (“RBCCM”) under which the Company* mayoffer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through JMP and RBCCM as its sales agents. The issuance and sale, if any, of common stock by the Company under the2021* ATM Agreement will be made pursuant to a registration statement on Form S-3. JMP and RBCCM* maysell the common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule415* of the Securities Act of1933, as amended. JMP and RBCCM will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company* mayimpose). The Company will pay JMP and RBCCM a commission equal to 3.0% in the aggregate of the gross sales proceeds of any common stock sold through JMP and RBCCM under the2021* ATM Agreement. The Company filed a registration statement on Form S-3 covering the sale of the shares of its common stock up to $350.0 million, $75.0 million of which was allocated to the sales of the shares of common stock issuable under the2021 ATM Agreement, which was declared effective on* July 12, 2021.As of December 31, 2023and2022,* no shares have been issued or sold under the2021 ATM Agreement.

Share Repurchase Program

On* December 20, 2021,the Company initiated a share repurchase program (the “Share Repurchase Program”) pursuant to which the Company mayrepurchase up to $50 million of shares of its common stock through December 31, 2023.On December 31, 2023,*the Share Repurchase Program ended, and the Company had repurchased 1,575,692 shares of its common stock for approximately $11.0 million.

Reclassifications

Certain reclassifications were made to the2022 consolidated financial statements to conform to the classifications used in2023. These reclassifications hadno impact on the consolidated net loss, changes in stockholder's equity, or cash flows previously reported.

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Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, the useful lives of property and equipment, the recoverability of long-lived assets, the incremental borrowing rate for leases, and assumptions used for purposes of determining stock-based compensation, income taxes, the fair value of long-term investments, the fair value of the derivative and warrant liability and discount and rebate liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit and investments with multiple financial institutions, the balances of which frequently exceed insured limits, and accounts receivable, which are concentrated amongst a limited number of customers.

Cash and Cash Equivalents

The Company considers any highly liquid investments with an original maturity ofthree months or less to be cash equivalents.

Investments

The Company maintains investment securities that are classified as available-for-sale securities for which the Company has elected the fair value option under ASC825, Financial Instruments. As such, these securities are carried at fair value with unrealized gains and losses included in fair value adjustment related to investments on the consolidated statements of operations. The securities primarily consist of U.S. Treasury securities and U.S. government-sponsored agency securities and are included in securities at fair value in the consolidated balance sheets. As of* December 31, 2023,and2022,* the Company held securities with an aggregate fair value of $24.7 million and $16.9 million, respectively, that contained aggregate unrealized gains of approximately$0.6 million and unrealized losses of $0.6 million, respectively. Applying fair value accounting to these debt securities more accurately represents the Company's investment strategy due to the fact that excess cash is currently being invested for the purpose of funding future operation s. In addition, the Company held certificates of deposit totaling $20.5 million as of* December 31, 2022,which are included in investments - other in the consolidated balance sheet as of December 31, 2022.These certificates of deposit matured in May 2023.*Interest income is recognized as earned using an effective yield method giving effect to the amortization of premium and accretion of discount and is based on the economic life of the securities Interest income is included in Interest and other income, net in the consolidated statements of operations.

Variable Interest Entities

The primary beneficiary of a variable interest entity ("VIE") is required to consolidate the assets and liabilities of the VIE. When the Company obtains a variable interest in another entity, it assesses at the inception of the relationship and upon occurrence of certain significant events whether the entity is a VIE, and if so, whether the Company is the primary beneficiary of the VIE based on its power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the Company's obligation to absorb losses or the rights to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, the Company considers all the facts and circumstances, including the Company's role in establishing the VIE and the Company's ongoing rights and responsibilities. The assessment includes identifying the activities that most significantly impact the VIE's economic performance and identifying which party, if any, has the power to direct those activities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the Board of Directors) are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the rights to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests that are deemed to be variable interests in the VIE.

This assessment requires judgement in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. As of* December 31, 2023,the Company identified Acer to be the Company's sole interest in a VIE (Note R). As Zevra is the final decision maker for all of Acer's research, development, and commercialization of drug candidates that it is producing, the Company directs the activities of Acer that most significantly impact its performance. Therefore, the Company is the primary beneficiary of this VIE for accounting purposes. The Company didnot identify any interests in VIE's as of December 31, 2022.*

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Goodwill and Intangible Assets

Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired when accounted for using the acquisition method of accounting for business combinations. Goodwill isnot amortized but is evaluated for impairment within the Company’s single reporting unit on an annual basis, during thefourth quarter, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company’s reporting unit below its carrying amount. The Company establishes its reporting units based on the organizational structure and has determined it hasone reporting unit. In performing its analysis, in accordance with ASC35, the Company has the option tofirst assess qualitatively whether it is more likely thannot that the fair value of a reporting unit is less than its carrying amount, including goodwill. In performing qualitative assessments, the Company considers, among other factors, macroeconomic conditions, the Company’s overall financial performance (including, butnot limited to, comparisons to prior periods, current period internal expectations, and comparable peer companies), broader industry and market considerations, and the trading price performance of the Company’s common stock.

The Company's goodwill balance was $4.7 million as of* December 31, 2023.There wasno goodwill recorded as of December 31,2022. As of December 31, 2022,the Company completed its annual qualitative assessment under ASC350* to determine whether the existence of events or circumstances indicated that it was more likely thannot that the fair value of its reporting unit was less than its respective carrying value. The Company concluded that based on the relevant events and circumstances, it was more likely thannot that the reporting unit’s fair value exceeded its related carrying value and thereforeno quantitative assessment was required. No goodwill impairment charges were recorded for the year ended* December 31, 2023.*

Acquired in-process research and development (“IPR&D”) that the Company acquires in conjunction with the acquisition of a business represents the fair value assigned to incomplete research projects which, at the time of acquisition, havenot reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each IPR&D project, the Company will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated and begin amortization. The Company evaluates IPR&D for impairment on an annual basis, during thefourth quarter, or more frequently if impairment indicators exist. The Company’s IPR&D balancewas $2.0 million as of* December 31, 2023.There wasno IPR&D asset included in the consolidated balance sheet as of December 31, 2022,as the IPR&D asset acquired in May 2022under the Arimoclomol Purchase Agreement was immediately expensed (Note A). No IPR&D impairment charges were recognized for the years ended December 31,*2023, or2022.

As of* December 31, 2023,the Company had a$67.2 million definite-lived intangible asset, net related to the acquisition of OLPRUVA as a result of the Merger. This is amortized on a straight-line basis over its estimated economic life ofeleven* years and is reviewed periodically for impairment. Amortization expense is recorded as a component of cost of revenue in the consolidated statements of operations and was $0.8 million for the year-ended* December 31, 2023.*

For intangible assets subject to amortization, estimated amortization expense for thefive fiscal years subsequent to* December 31, 2023,*is as follows (in thousands):

Property and Equipment

The Company records property and equipment at cost less accumulated depreciation and amortization. Costs of renewals and improvements that extend the useful lives of the assets are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three toten years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the related lease. Upon retirement or disposition of assets, the costs and related accumulated depreciation and amortization are removed from the accounts with the resulting gains or losses, if any, reflected in the consolidated statements of operations.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets* may* not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying values, an impairment loss is recorded for the difference between the carrying values and fair values of the asset. No such impairment occurred for the years ended* December 31, 2023,or2022.*

Revenue Recognition

The Company recognizes revenue in accordance with ASC606, Revenue from Contracts with Customers (“ASC606”) and, as a result, follows thefive-step model when recognizing revenue:1) identifying a contract;2) identifying the performance obligations;3) determining the transaction price;4) allocating the price to the performance obligations; and5) recognizing revenue when the performance obligations have been fulfilled.

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Arimoclomol Expanded Access Program

Net revenue includes revenue from the sale of arimoclomol for the treatment of NPC under the remunerated expanded access compassionate use program in France (“French nATU”). An expanded access compassionate use program is a program giving specific patients access to a drug, which isnot yet approved for commercial sale. Only drugs targeting serious or rare indications and for which there is currentlyno appropriate treatment are considered for expanded access compassionate use programs. Further, to be considered for the expanded access compassionate use program, the drug must have proven efficacy and safety and must either be undergoing price negotiations or seeking marketing approval.

In accordance with ASC606, the Company recognizes revenue when fulfilling its performance obligation under the Arimoclomol Expanded Access Program ("Arimoclomol EAP") by transferring control of promised goods or services to its customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining when the customer obtains control of the product, the Company considers certain indicators, including whether the Company has a present right to payment from the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and whether customer acceptance has been received. Revenue is recognized net of sales deductions, including discounts, rebates, applicable distributor fees, and revenue-based taxes.

The French Health Authorities and the manufacturer have agreed to a price for sales during the French nATU, but the final transaction price depends on the terms and conditions in the contracts with the French Health Authorities, following market approval. Any excess in the price charged by the manufacturer compared to the price agreed with the health authorities once the drug product is approved in France must be repaid. The repayment is considered in the clawback liability (rebate). An estimate of net revenue and clawback liability are recognized using the ‘expected value’ method. Accounting for net revenue and clawback liability requires determination of the most appropriate method for the expected final transaction price. This estimate also requires assumptions with respect to inputs into the method, including current pricing of comparable marketed products within the rare disease area in France. Management has considered the expected final sales price as well as the price of similar drug products. The Company is operating within a rare disease therapeutic area where there is unmet treatment need and hence a limited number of comparable commercialized drug products. The limited available relevant market information for directly comparable commercialized drugs within rare disease increases the uncertainty in management's estimate.

For the years ended* December 31, 2023,and2022,* the Company recognized revenue related to the Arimoclomol EAP in France of $8.7 million and $4.8 million, respectively, which is net of newly accrued clawback liability for each respective year of $5.1 million and $3.8 million, respectively, and other gross to net adjustments. As part of the Arimoclomol Purchase Agreement the Company assumed an estimated reserve liability of $5.2 million related to revenue generated from the Arimoclomol EAP in France. The total estimate reserve liability as of* December 31, 2023,and December 31, 2022,including the additional clawback liability for the year ended December 31, 2023,and December 31, 2022,was $12.2 million and $9.0 million, respectively. As of December 31, 2023,and2022,* this estimated reserve liability is recorded as discount and rebate liabilities in the consolidated balance sheets and is separated into current and long-term based upon the timing of the expected payment to the French regulators.

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Licensing Agreements

The Company enters into licensing agreements with licensees that fall under the scope of ASC606.

The terms of the Company’s licensing agreements typically includeone or more of the following: (i) upfront fees; (ii) milestone payments related to the achievement of development, regulatory, or commercial goals; and (iii) royalties on net sales of licensed products. Each of these payments* may*result in licensing revenues.

As part of the accounting for these agreements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. Generally, the estimation of the stand-alone selling price* may*include such estimates as, independent evidence of market price, forecasted revenues or costs, development timelines, discount rates, and probability of regulatory success. The Company evaluates each performance obligation to determine if they can be satisfied at a point in time or over time, and it measures the services delivered to the licensee which are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g., milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Up front Fees: If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

Milestone Payments: At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal wouldnot occur, the associated milestone value is included in the transaction price. Milestone payments that arenot within the Company’s or the licensee’s control, such as non-operational developmental and regulatory approvals, are generallynot considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of milestones that are within its or the licensee’s control, such as operational developmental milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. Revisions to the Company’s estimate of the transaction price* may*also result in negative licensing revenues and earnings in the period of adjustment.

AZSTARYS License Agreement

The Company entered into a Collaboration and License Agreement (the "AZSTARYS License Agreement") with Commave Therapeutics SA (“Commave”), an affiliate of GPC. Under the AZSTARYS License Agreement, as amended, the Company granted to Commave an exclusive, worldwide license to develop, manufacture and commercialize the Company’s product candidates containing SDX and d-methylphenidate (“d-MPH”), including AZSTARYS, or any other product candidate developed by the Company containing SDX and developed to treat ADHD or any other CNS disorder. Corium was tasked by Commave, to lead all commercialization activities for AZSTARYS under the AZSTARYS License Agreement. Pursuant to the AZSTARYS License Agreement, Corium agreed to pay milestone payments up to an aggregate of $590.0 million upon the occurrence of specified regulatory milestones related to AZSTARYS, additional fixed payments upon the achievement of specified U.S. sales milestones, and quarterly, tiered royalty payments based on a range of percentages of net sales (as defined in the AZSTARYS License Agreement). Commave is obligated to make such royalty payments on a product-by-product basis until expiration of the royalty term for the applicable product.

The AZSTARYS License Agreement is within the scope of ASC606, as the transaction represents a contract with a customer where the participants function in a customer / vendor relationship and arenot exposed equally to the risks and rewards of the activities contemplated under the AZSTARYS License Agreement. The Company concluded that these regulatory milestones, sales milestones and royalty payments each contain a significant uncertainty associated with a future event. As such, these milestone and royalty payments are constrained at contract inception and arenot included in the transaction price as the Company couldnot conclude that it is probable a significant reversal in the amount of cumulative revenue recognized willnot occur surrounding these milestone payments. At the end of each reporting period, the Company updates its assessment of whether the milestone and royalty payments are constrained by considering both the likelihood and magnitude of the potential revenue reversal. For the year ended* December 31, 2023,the Company recognized revenue under the AZSTARYS License Agreement of $18 .5 million, which includes $15.0 million in net sales milestone payments earned during the year then ended. For the year ended December 31, 2022,the Company recognized $0.9 million under the AZSTARYS License Agreement. There wasno deferred revenue related to this agreement as of December 31, 2023,and2022.*

In accordance with the terms of the Company’s Termination Agreement with Aquestive Therapeutics dated* March 20, 2012,Aquestive Therapeutics ("Aquestive") has the right to receive an amount equal to 10% of any royalty or milestone payments made to the Company related to AZSTARYS,KP879 orKP1077* under the AZSTARYS License Agreement. The Company recorded $1.8 million and $0.1 million in royalty payments owed to Aquestive as of* December 31, 2023,and2022,* respectively, which is included in cost of revenue in the consolidated statements of operations.

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Relief License Agreement

As a condition to entering into the Merger Agreement, Acer and Relief Therapeutics, Inc. ("Relief") entered into an exclusive license agreement on* August 30, 2023 (the “Relief License Agreement”). Pursuant to the Relief License Agreement, Relief will hold exclusive development and commercialization rights for OLPRUVA in the European Union, Liechtenstein, San Marino, Vatican City, Norway, Iceland, Principality of Monaco, Andorra, Gibraltar, Switzerland, United Kingdom, Albania, Bosnia, Kosovo, Montenegro, Serbia and North Macedonia ("Geographical Europe"). The Company will have the right to receive a royalty of up to 10.0% of the net sales of OLPRUVA in Geographical Europe. For the year ended December 31, 2023,the Company didnot recognize any revenue under the Relief License Agreement. There wasno deferred revenue related to this agreement as of December 31, 2023.*For further discussion of the Relief License Agreement, see Note R.

Product Revenue, net

On* December 27, 2022,the FDA approved OLPRUVA (sodium phenylbutyrate), a prescription medicine used along with certain therapy, including changes in diet, for the long-term management of adults and children with UCDs weighing44* pounds (20 kg) or greater and with a body surface area of1.2m**2 or greater, On* November 17, 2023,the Company acquired OLPRUVA in connection with the Merger (Note R). To commercialize OLPRUVA for oral suspension in the U.S. the Company is building marketing, sales, medical affairs, distribution, managerial and other non-technical capabilities or making arrangements withthird* parties to perform these services. The Company's current distributor for sales of OLPRUVA is a single specialty pharmacy provider. However, the Company intends to establish additional distributors such as other retail pharmacies and certain medical centers or hospitals. In addition to distribution agreements, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates with respect to the purchase of it products. For the year ended* December 31, 2023,*the Company recognized negligible revenue related to sales of OLPRUVA.

Consulting Arrangements

The Company enters into consulting arrangements withthird parties that fall under the scope of ASC606. These arrangements* mayrequire the Company to deliver various rights, services, including research and development services, regulatory services and/or commercialization support services. The underlying terms of these arrangements generally provide for consideration to the Company in the form of consulting fees and reimbursements of out-of-pocketthird*-party research and development, regulatory and commercial costs.

Corium Consulting Agreement

In* July 2020,*the Company entered into a consultation services arrangement (the “Corium Consulting Agreement”) with Corium, Inc. (“Corium”) under which Corium engaged the Company to guide the product development and regulatory activities for certain current and potential future products in Corium’s portfolio, as well as continue supporting preparation for the potential commercial launch of AZSTARYS (together, “Corium Consulting Services”). Corium is a portfolio company of GPC and was tasked by Commave to lead all commercialization activities for AZSTARYS under the AZSTARYS License Agreement, as discussed above.

Under the Corium Consulting Agreement, the Company received payments from Corium of $15.6 million, $13.6 million of which was paid in quarterly installments through* March**31,* 2022. The remaining $2.0 million was received in thefirst quarter of2022 upon the approval by the FDA of Corium's product known as ADLARITY. The Corium Consulting Agreement is within the scope of ASC606, as the transaction represents a contract with a customer where the participants function in a customer/vendor relationship and arenot exposed equally to the risks and rewards of the activities contemplated under the Corium Consulting Agreement. The Company identified the performance of consulting services, which includes the reimbursement to the Company ofthird-party pass-through costs, as its only performance obligation at inception. The Company further determined that the transaction price, at inception, under the agreement was $13.6 million which is the fair value of the consulting services, including the reimbursement ofthird-party pass-through costs. The Company concluded that the regulatory milestone contains a significant uncertainty associated with a future event. As such, this milestone is constrained at contract inception and isnot included in the transaction price as the Company couldnot conclude that it is probable a significant reversal in the amount of cumulative revenue recognized willnot occur surrounding these milestone payments.

The Company determined that the performance of consulting services, including reimbursement ofthird-party pass-through costs, is a performance obligation that is satisfied over time as the services are performed and the reimbursable costs are paid. As such, the revenue related to the performance obligation will be recognized as the consulting services are performed and the services associated with the reimbursablethird-party pass-through costs are incurred and paid by the Company, in accordance with the practical expedient allowed under ASC606 regarding an entity’s right to consideration from a customer in an amount that corresponds directly to the value to the customer of the entity’s performance completed to date. As of* December 31, 2022,the Company has recognized approximately all of the consulting services andthird*-party pass-through costs under the Corium Consulting Agreement.

For the years ended* December 31, 2023,and2022* the Company recognized revenue under the Corium Consulting Agreement of $0.2 million and $4.7 million, respectively. As of* December 31, 2023,and2022,* the Company hadno deferred revenue related to this agreement. The Corium Consulting Agreement expired on* March 31, 2023.*

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Cost of Revenue

The components of cost of revenue are royalties and expenses directly attributable to revenue. To date, the Company has generated revenue from the AZSTARYS License Agreement, sales of arimoclomol under the Arimoclomol EAP, reimbursement of out-of-pocketthird-party costs and the performance of consulting services. In connection with the AZSTARYS License Agreement, the Company pays Aquestive a royalty equal to 10% of all regulatory milestone and royalty payments. In addition, the Company capitalized incremental costs directly attributable to the AZSTARYS License Agreement. These costs are amortized to royalties and contract costs as revenue is recognized.

Accounts and Other Receivables

Accounts and other receivables consist of receivables under the AZSTARYS License Agreement and Arimoclomol EAP, as well as receivables related to consulting arrangements, income tax receivables and other receivables due to the Company. Receivables under the AZSTARYS License Agreement are recorded for amounts due to the Company related to reimbursablethird-party costs as well as milestones and royalties on product sales. Receivables under the Arimoclomol EAP are recorded for product sales under the French nATU. The Company provides reserves against receivables for estimated losses that* may*result from a customer's inability to pay. Receivables are evaluated to determine if any reserve or allowance should be recorded based on consideration of the current economic environment, expectations of future economic conditions, specific circumstances and the Company’s own historical collection experience. Amounts determined to be uncollectible are charged or written-off against the reserve.

Inventory

As discussed in Note A, a portion of the purchase price for Arimoclomol was allocated to inventory acquired representing the value of inventory associated with forecasted EAP revenues, which is recorded at its net realizable value. The Company determines the cost of its other inventories, which includes amounts related to materials and manufacturing overhead, on afirst-in,first-out basis.

The Company* mayscale-up and make commercial quantities of its product candidates prior to the date it anticipates that such product will receive final regulatory approval. The scale-up and commercial production of pre-launch inventory involves the risk that such products may**not* be approved for marketing on a timely basis, or ever. This risk notwithstanding, the Company* mayscale-up and build pre-launch inventory of product that havenot* received final regulatory approval when the Company believes such action is appropriate in relation to the commercial value of the product launch opportunity. Inventory manufactured prior to regulatory approval is recorded as research and development expense until regulatory approval for the product is obtained. Inventory used in clinical trials is also expensed as research and development expense, when selected for such use. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign. The cost of finished goods inventory that is shipped to a customer to support the Company’s patient assistance programs is expensed when those shipments take place. As of* December 31, 2023and2022,* the Company didnot have pre-launch inventory that qualified for capitalization.

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment isfirst identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory* maybe required. Additionally, the Company’s product is subject to strict quality control and monitoring that it performs throughout the manufacturing process. In the event that certain batches or units of product donot* meet quality specifications, the Company will record a charge to cost of product sales, to write-down any unmarketable inventory to its estimated net realizable value. The components of inventory are summarized as follows:

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Research and Development

Major components of research and development costs include cash compensation, stock-based compensation, depreciation and amortization expense on research and development property and equipment, costs of preclinical studies, clin ical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf. Costs incurred in research and development are expensed as incurred.

The Company records nonrefundable advance payments it makes for future research and development activities as prepaid expenses. Prepaid expenses are recognized as expense in the statements of operations as the Company receives the related goods or services.

The Company enters into contractual agreements withthird-party vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period of time. The Company records liabilities under these contractual commitments when an obligation has been incurred. This accrual process involves reviewing open contracts and purchase orders, communicating with the applicable personnel to identify services that have been performed and estimating the level of service performed and the associated cost when the Company hasnot yet been invoiced or otherwise notified of actual cost. The majority of the service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of the accrued expenses as of each balance sheet date based on the facts and circumstances known. The Company periodically confirms the accuracy of the estimates with the service providers and make adjustments, if necessary.

Patent Costs

Patent costs, including related legal costs, are expensed as incurred and recorded within general and administrative expenses on the statements of operations.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are recorded to reduce deferred tax assets to the amount the Company believes is more likely thannot to be realized.

Uncertain tax positions are recognized only when the Company believes it is more likely thannot that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized income tax uncertainties in income tax expense. The Company didnot have any accrued interest or penalties associated with uncertain tax positions as of* December 31, 2023,and2022*.

The Company files income tax returns in the United States for federal and various state jurisdictions. With few exceptions, the Company isno longer subject to U.S. federal and state and local income tax examinations for years prior to2015, although carryforward attributes that were generated prior to2017 maystill be adjusted upon examination by the Internal Revenue Service if used in a future period. No income tax returns are currently under examination by taxing authorities.

On* December**22,* 2017, the U.S. government enacted H.R.1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year2018” ("Tax Act"). Effective* January 1, 2018,the Tax Act provides for a new global intangible low-taxed income ("GILTI") provision. Under the GILTI provision, certain foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets are included in U.S. taxable income. The Company hasnot* recorded any deferred taxes for future GILTI inclusions as any future inclusions are expected to be treated as a period expense and offset by net operating loss carryforwards in the U.S.

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Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, officers and directors based on the estimated fair values of the awards as of the grant date. The Company records the value of the portion of the award that is ultimately expected to vest as expense over the requisite service period. The Company also accounts for equity instruments issued to non-employees using a fair value approach under Accounting Standards Codification ("ASC") subtopic505-50. The Company values equity instruments and stock options granted using the Black-Scholes option pricing model.

Basic and Diluted Net Loss per Share of Common Stock

The Company uses thetwo-class method to compute net loss per common share because the Company has issued securities, other than common stock, that contractually entitle the holders to participate in dividends and earnings of the Company. Thetwo-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. Holders of each series of the Company’s convertible preferred stock and select warrants are entitled to participate in distributions, when and if declared by the board of directors, that are made to common stockholders and, as a result, are considered participating securities.

Segment and Geographic Information

Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company views its operations and manages its business as a single operating and reporting segment. The Company holds assets in both the United States and Europe as of* December 31, 2023and2022*.

Foreign currency

Assets and liabilities are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive income/loss in the accompanying consolidated statements of stockholders’ equity.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic480, Distinguishing Liabilities from Equity (ASC480) and FASB ASC Topic815, Derivatives and Hedging (ASC815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC480, meet the definition of a liability pursuant to ASC480, and whether the warrants meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to our own stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For warrants that meet all criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital, on the consolidated statement of stockholders’ deficit at the time of issuance. For warrants that donot meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and on each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss in other expense, net, on the consolidated statement of operations. The fair value of the warrants was estimated using the Black-Scholes option pricing model.

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In connection with the preparation of the Company's consolidated financial statements as of and for the fiscal year ended* December 31, 2023,the Company discovered that in the prior years it hadnot* appropriately accounted for the liability associated with warrants to purchase the Company's common stock. The error resulted in an understatement of accumulated deficit of approximately $59.5 million, additional paid in capital of approximately $34.5 million, derivative and warrant liabilities of $10.2 million, an understatement of the fair value adjustment of derivative and warrant liability of $14.8 million, and an understatement in total other income of approximately $14.8 million, respectively, for the year ended* December 31, 2022.*

The misstatements were material to the previously issued financial statements of the Company and as a result, the Company has restated its consolidated balance sheet, consolidated statement of operations, consolidated statement of stockholder's equity, and consolidated statement of cash flows as of and for the fiscal year ended* December 31, 2022,presented herein. The restatement includes adjustments to additional paid-in capital, accumulated deficit, derivative and warrant liabilities, fair value adjustment related to derivative and warrant liability, loss before income taxes, net loss, and net loss per share. The adjustments didnot* impact other comprehensive income for the year ended* December 31, 2022.Therefore, the impact of the adjustments results in a decrease to comprehensive loss of $14.8 million (equal to the impact of adjustments on net loss in the table below), and the restated comprehensive loss is $26.6 million (previously reported as $41.4 million). The impact of the correction of the misstatements is summarized below. The Company has also corrected other errors which impacted various financial statement line items for the year ended December 31, 2022,as summarized below. Such additional corrections werenot* material individually or in the aggregate.

All referenced amounts for prior periods in these financial statements and the notes herein reflect the balances and amounts on a restated basis.

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Restatement of Interim Financial Information (Unaudited)

Due to the misstatements described above, the Company has restated its unaudited condensed consolidated balance sheets, condensed consolidated statements of stockholder's equity, condensed consolidated statements of operations, and condensed consolidated statement of cash flows for the quarterly periods ended* March 31, 2022,** June 30, 2022,** September 30, 2022,** March 31, 2023,** June 30, 2023,and September 30, 2023.The adjustments didnot* impact other comprehensive loss for any of the periods presented. Therefore, the impact of the adjustments on comprehensive loss equals the impact of adjustments on net loss for each period as detailed in the tables below.

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Accounts and other receivables consist of the following (in thousands):

Prepaid expenses and other current assets consist of the following (in thousands):

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Property and equipment consists of the following (in thousands):

The estimated useful lives of property and equipment are as follows:

Depreciation and amortization expense, including amounts pertaining to assets held under finance leases, was approximately $245,000 and $257,000 for the years ended* ** December 31, 2023and2022*, respectively.

Accounts payable and accrued expenses consistof the following (in thousands):

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Secured Promissory Note

In connection with the Merger (Note R), on* August 30, 2023,the Company and Nantahala, entered into a secured promissory note payable by Zevra to Nantahala in the original principal amount of $5.0 million (the "Nantahala Note"). The Nantahala Note will initially bear interest at 9.0% per annum, payable quarterly in arrears in cash. The interest rate will increase to 12.0% per annum if the Nantahala Note remains unpaid aftersix* months from its issue date. The additional 3.0% interest will be paid in shares of Zevra's common stock based on the volume weighted average trading price ("VWAP") of Zevra's common stock during thetwenty consecutive trading days ending on the date before such interest payment date. Beginning on thefirst interest payment date following thesecond anniversary of the Nantahala Note, and on each interest payment date thereafter, Zevra is required to make $0.6 million amortization payments on the Nantahala Note until it is paid in full. All principal and unpaid interest on the Nantahala Note is due on* August 30, 2026,thethird* anniversary of the Nantahala Note, and therefore is included in long-term liabilities as of* December 31, 2023.Zevra mayprepay the Nantahala Note at any time without penalty. The Nantahala Note is secured by Zevra’s interest in (i) the loan assets under the Loan Purchase Agreement described in Note R; (ii) the note assets under the Note Purchase Agreement described in Note R; (iii) the Bridge Loan described in Note R; and (iv) the proceeds therefrom. The Company used the proceeds from the Nantahala Note, along with $12.0 million in cash and 98,683 shares of Zevra's common stock, to acquire Acer's term loans, as more fully described inNot*e R.

Asof December31, 2023, the Company's secured promissory note outstanding, in the aggregate principal amount, was as follows (in thousands):

Future minimum principal payments under the secured promissory note as of* December 31, 2023,*were as follows (in thousands):

Line of Credit

On* May 31, 2022,the Company and Ameris Bank, as lender, entered into a $20.0 million revolving loan agreement (the “Line of Credit”). Proceeds of the revolving facility provided by the Line of Credit are to be used for general corporate purposes. Loans under the Line of Credit bear interest at the Secured Overnight Financing Rate ("SOFR") plus 1.60%, with a SOFR floor of0.00%.*

The revolving facility under the Line of Credit is secured by a perfected security interest in deposit accounts. The revolving facility under the Line of Credit is subject to customary affirmative and negative covenants.

The latest maturity date of the loans under the Line of Credit is* May 31, 2025,and therefore is included in long-term liabilities as of December 31, 2022.The Line of Credit contains customary events of default that could lead to an acceleration of the loans, including cross-default, bankruptcy and payment defaults. As of December 31, 2022,the Company had drawn $12.8 million from the Line of Credit to finance the transactions under the Arimoclomol Purchase Agreement, and this amount is supported by a $12.8 million certificate of deposit which is shown as long-term investments - other in the consolidated balance sheet. The remaining $7.2 million under the Line of Credit is in a separate interest-bearing certificate of deposit and is also recorded as long-term investments - other in the consolidated balance sheet as of December 31, 2022.These certificates of deposit were pledged as collateral against the Line of Credit and cannot be redeemed so long as the $20.0 million remains available under the Line of Credit. The total value of the certificates of deposit held with Ameris Banks must meet or exceed the amount available to borrow under the Line of Credit so long as the Line of Credit remains active. On January 31, 2023,the Company repaid the $12.8 million outstanding under the Line of Credit in full and subsequently closed the Line of Credit. In conjunction with closing the Line of Credit, the maturity dates of the certificates of deposit were modified to May 7, 2023.*

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On* January 26, 2023,the Company and Wells Fargo, as lender, entered into a margin account agreement. The Company'sinvestments are used as collateral for the loan and the amount the Company is able to borrow is limited to 80-90% of its outstanding investment balance held with Wells Fargo (the "Collateral Requirement"). The margin account bears interest at the Prime rate minus 225 basis-points. As of December 31, 2023,$37.7 million was outstanding under the margin account and the remaining borrowing capacity was approximately $6.4 million. The margin loan is included in current liabilities as of December 31, 2023,as the Company expects the outstanding balance to be due and payable in the coming year based on the anticipated level of investment balance that will be available over the course of fiscal year2024* to meet the Collateral Requirement.

Legal Matters

From time to time, the Company is involved in various legal proceedings arising in the normal course of business. For some matters, a liability isnot probable, or the amount cannot be reasonably estimated and, therefore, an accrual hasnot been made. However, for such matters when it is probable that the Company has incurred a liability and can reasonably estimate the amount, the Company accrues and discloses such estimates.

APADAZ License Agreement

On* May 31, 2023,the Company and KVK-Tech, Inc. ("KVK") terminated the Collaboration and License Agreement (the “Agreement”) that the parties entered into on October 25, 2018.In conjunction with the termination of the Agreement, the Company agreed to pay a settlement to KVK of $0.9 million, which is included in research and development in the consolidated statement of operations for the year ended December 31, 2023,and was paid in October 2023.*

Stockholder Litigation Related to the Merger

On* October 12, 2023,Brodsky & Smith, purporting to act as counsel for Jerry Beavee, who was asserted to be a stockholder of Acer, filed a complaint entitled Jerry Beavee v. Acer Therapeutics Inc., et al.,No. 1:23-cv-08995 in the United States District Court for the Southern District of New York alleging that defendants violated Section14*(a) and20(a) of the Securities Exchange Act of1934 by filing the Preliminary Merger Registration Statement which allegedly omitted certain information that such counsel asserts is material to the Acer’s required disclosure. The complaint prays that, if asserted omissions arenot adequately corrected, then Beavee will seek to enjoin Acer from holding a stockholder meeting to approve Merger and, if the Merger closes, will seek to rescind it and seek an award of damages. On* October 17, 2023,the court set an initial pretrial conference for December 13, 2023.*

On* October 20, 2023,Long Law, LLC and Acocelli Law, PLLC, purporting to act as counsel for Kevin Turner, who was asserted to be a stockholder of Acer, filed a complaint entitled Kevin Turner v. Acer Therapeutics Inc., et al.,No. 1:23-cv-01185 in the United States District Court for the District of Delaware alleging that defendants violated Section14*(a) and20(a) of the Securities Exchange Act of1934 as well as SEC Rule14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to Acer’s required disclosure. The complaint prays that, if asserted omissions arenot adequately corrected, then Turner will seek to enjoin Acer from holding a stockholder meeting to approve the Merger and, if the Merger closes, will seek to rescind it and seek an award of damages.

On* October 20, 2023,Long Law, LLC, purporting to act as counsel for Matthew Jones, who was asserted to be a stockholder of Acer, filed a complaint entitled Matthew Jones v. Acer Therapeutics Inc., et al.,No. 1:23-cv-01186 in the United States District Court for the District of Delaware alleging that defendants violated Section14*(a) and20(a) of the Securities Exchange Act of1934 as well as SEC Rule14a-9 by filing the Definitive Proxy Statement which allegedly omitted certain information that such counsel asserts is material to the Acer’s required disclosure. The complaint prays that, if asserted omissions arenot adequately corrected, then Jones will seek to enjoin Acer from holding a stockholder meeting to approve the Merger and, if the Merger closes, will seek to rescind it and seek an award of damages.

As of* December 31, 2023and2022,* no accruals have been made related to commitments and contingencies. The Company intends to vigorously defend these lawsuits and believes that it has meritorious defenses to each. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against the Company or any adverse settlement could adversely affect the Company’s business, results of operations and financial condition.

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Authorized, Issued, and Outstanding Common Shares

As of* December 31, 2023,and2022,* the Company had authorized shares of common stock of 250,000,000 shares. Of the authorized shares,43,110,360 and 35,450,257 shares of common stock were issued as of* December 31, 2023,and2022,* respectively, and 41,534,668 and 34,540,304 shares of common stock were outstanding as of* December 31, 2023,and2022,* respectively.

As of* December 31, 2023,and2022,* the Company had reserved authorized shares of common stock for future issuance as follows:

Common Stock Activity

The following table summarizes common stock activity for the years ended* ** December 31, 2023,and2022*:

Authorized, Issued, and Outstanding Preferred Stock

As of* December 31, 2023,and2022,* the Company had 10,000,000 shares of authorized, unallocated and unissued preferred stock. As of* December 31, 2023,and2022,* no shares of preferred stock were designated, issued or outstanding.

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Warrants to Purchase Common Stock

In prior periods, the Company issued warrants to purchase common stock to variousthird parties, of which 4,221,240 remain outstanding as of* December 31, 2023,and are immediately exercisable. Of the outstanding and exercisable warrants,120,192 qualify as participating securities under ASC Topic260,* Earnings per Share, and are treated as such in the net loss per share calculation (Note N). The Company* may*be required to redeem these warrants for a cash amount equal to the Black-Scholes value of the portion of the warrants to be redeemed (the “Put Option”).

In connection with the Merger (Note R), in* November 2023,the Company directly issued to certain investors an aggregate of 1,382,489 shares of its common stock, par value $0.0001 per share, and accompanying warrants to purchase up to 1,382,489 shares of its common stock (the"2023* Warrants") at a combined offering price of $4.34 per share of common stock and the Warrants and an aggregate of 917,934 shares of its common stock in exchange for the cancellation of a warrant to purchase 2,920,306 shares of common stock of Acer. The Warrants are immediately exercisable and expire on* November 22, 2028.The Company intends to use the net proceeds of approximately $6.0 million from the offering for general corporate purposes. These warrants are separately exercisable by the warrant holders. While the warrants are outstanding (but unexercised), the warrant holders will participate in any dividend or other distribution of the Company’s assets to its common stockholders by way of return of capital or otherwise. As of December 31, 2023,none of the warrants have been exercised. The warrants have been evaluated to determine the appropriate accounting and classification pursuant to ASC Topic480,* Distinguishing Liabilities from Equity, and ASC Topic815, Derivatives and Hedging. Generally, freestanding warrants should be classified as (i) liabilities if the warrant terms allow settlement of the warrant exercise in cash and (ii) equity if the warrant terms only allow settlement in shares of common stock. Based on the terms of the warrants issued in* November 2023,*management concluded that they should be classified as a liability with subsequent remeasurement to fair value as of the end of each reporting period. The Company recorded a $4.5 million liability at inception.

Based on the conclusion reached regarding the liability classification of the2023 Warrants, management re-evaluated the classification of the common stock warrants originally issued in2021 (“2021 Warrants"), of which 4.1 million remain outstanding as of* December 31, 2022,and2023.* As a result of this analysis, management identified a settlement term that was consistently present in both the2021 Warrants and the2023 Warrants, resulting in a conclusion that the2021 Warrants should have originally been classified as a liability at inception with subsequent remeasurement to fair value as of the end of each reporting period. This resulted in a restatement of the consolidated financial statements as of and for the year ended* December 31, 2022,*as discussed in Note C.

As noted above, the Company determined that these warrants and the Put Option should be recorded as a liability and stated at fair value at each reporting period. Changes to the fair value of the warrant liability are recorded through the consolidated statements of operations as a fair value adjustment. As of* December 31,2023, and2022, the fair value of the liability associated with these warrants and the Put Option was approximately $16.1 million and $10.2 million, respectively. The fair value adjustment related to these warrants and the Put Option was approximately $(1.4) million for the ended December 31, 2023,and approximately $14.8 million for the year ended December 31, 2022.*

The Company maintains a stock-based compensation plan (the “Incentive Stock Plan”) that governs stock awards made to employees and directors prior to completion of the IPO.

In* November 2014,the Board of Directors of the Company ("the Board"), and in April 2015,the Company’s stockholders, approved the Company’s2014* Equity Incentive Plan (the*“2014* Plan”), which became effective in* April 2015.The2014* Plan provides for the grant of stock options, other forms of equity compensation, and performance cash awards. In* June 2021,the Company's stockholders approved an Amended and Restated2014* Equity Incentive Plan (the "A&R2014 Plan"), following its adoption by the Board in* April 2021,which among other things added 4,900,000 shares to the maximum number of shares of common stock to be issued under the plan and extended the annual automatic increases (discussed further below) until January 1, 2031and eliminated individual grant limits that applied under the2014* Plan to awards that were intended to comply with the exemption for "performance-based compensation" under Code Section162(m). The maximum number of shares of common stock that* maybe issued under the A&R2014* Plan is 8,271,497 as of* December 31, 2023.The number of shares of common stock reserved for issuance under the A&R2014* Plan will automatically increase on* January 1of each year, beginning on January 1, 2016,and ending on and including January 1, 2031,by 4% of the total number of shares of the Company’s capital stock outstanding on December 31of the preceding calendar year, or a lesser number of shares determined by the Board. Pursuant to the terms of the A&R2014* Plan, on* January 1, 2024,the common stock reserved for issuance under the A&R2014* Plan automatically increased by 1,661,386 shares.

During the year ended* December 31, 2023,7,500 stock options were exercised. During the year ended December**31,2022,* no stock options were exercised.

In* June 2021,the Company's stockholders approved an Employee Stock Purchase Plan (the "ESPP"), following its adoption by the Board in April 2021.The maximum number of shares of common stock that maybe issued under the ESPP is 1,500,000. Thefirst* offering period under the ESPP began on* October 1, 2021,and thefirst* purchase date occurred on* May 31, 2022.As of December 31, 2023,159,828* shares have been issued under the ESPP.

In* January 2023,our Board approved the2023* Employment Inducement Award Plan (as amended, the*“2023* Plan”). The maximum number of shares of common stock that* maybe issued under the2023* Plan is 1,500,000. In* February 2024,our Board approved an amendment to the2023* Plan to increase the aggregate number of shares of common stock available for issuance under the2023 Plan from 1,500,000 shares to 4,500,000 shares.

In* May 2023,the Board approved the Ninth Amended and Restated Non-Employee Director Compensation Policy (the "Non-Employee Director Compensation Policy"). The equity compensation made pursuant to the Non-Employee Director Compensation Policy will be granted under the A&R2014* Plan.

Stock-based compensation expense recorded under the Incentive Stock Plan, A&R2014 Plan, ESPP, and2023 Plan is included in the following line items in the accompanying consolidated statements of operations (in thousands):

There wasno stock-based compensation expense related to performance-based awards recognized during the year ended* December 31, 2023.There was $0.4 million of stock-based compensation related to performance-based awards recognized during the year ended December 31, 2022.*

As a result of the Mickle Transition Agreement and the Pascoe Transition Agreement, as further discussed in Note P, certain stock options were modified, resulting in a net decrease in stock-based compensation expense of $1.2 million for the year ended* December**31,* 2023. The effects of these modifications are reflected in the table above within selling, general and administrative expenses.

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Stock Option Awards

The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires the use of subjective assumptions, including the expected term of the option, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, the Company uses the simplified method to estimate the expected term for its “plain vanilla” stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Some options, for example those that have exercise prices in excess of the fair value of the underlying stock, arenot considered “plain vanilla” stock options. For these options, the Company uses an expected term equal to the contractual term of the option. Expected volatility is based on the Company’s historical volatility over the estimated expected term of the stock options. The Company assumesno dividend yield because dividends arenot expected to be paid in the near future, which is consistent with the Company’s history ofnot paying dividends.

The Company recognizes compensation expense related to stock-based payment transactions upon satisfaction of the requisite service or vesting requirements. Forfeitures are estimated at the time of grant and revised based on actual forfeitures, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Using the Black-Scholes option-pricing model, the weighted-average fair value of awards granted during the years ended* December 31, 2023,and2022,* fair value was $3.65 and $5.01 per share, respectively. The assumptions used to estimate fair value are as follows:

The activity under the Incentive Stock Plan, A&R2014 Plan, and2023 Planfor the year ended* * * December 31, 2023* *,*is summarized as follows:

Information regarding currently outstanding and exercisable options as of* December 31, 2023**,*is as follows:

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The total fair value of stock options vested during the years ended* ** December 31, 2023and2022*, was$9.2 million and $3.7 million, respectively.

Unvested stock options as of* ** December 31, 2023and2022*, were as follows:

As of* December 31, 2023**,there was$13.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the A&R2014* Plan and2023 Plan. That compensation cost is expected to be recognized over a weighted-average period of 2.87 years. There wasno stock-based compensation expense related to performance-based awards recognized during the year ended* December 31, 2023.There was $0.4 million of stock-based compensation expense related to performance-based awards recognized during the year ended December 31, 2022.*

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as 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, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

The Company uses athree-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. Thethree tiers are defined as follows:

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued expenses, the Nantahala Note, and the margin account approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached regarding fair value measurements as of* December 31, 2023and2022* (in thousands):

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The common stock warrant liabilities were recorded at fair value using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the warrant liabilities valued using the Black-Scholes option pricing model as of* December**31,* 2023, and2022:

The following table is a reconciliation for the common stock warrant liabilities measured at fair value using Level3 unobservable inputs (in thousands):

For the years ended* December 31, 2023,and2022,* the changes in fair value of the warrant liabilities primarily resulted from the volatility of the Company's common stock and the change in the risk-free interest rates.

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The Company’s financial statements include a total state tax expense of$31,000 related to research and development credits on a loss before income taxes of approximately $26.8 million for the year ended* December 31, 2022*. The Company didnot recognize any state tax expense during the year ended* December 31, 2023.The Company met the requirements to receive a tax credit of $0.8 million for losses in Denmark resulting from research and development costs, which is included in interest and other income, net for the year ended December 31, 2022.*A reconciliation of the difference between the (expense)/benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows (in thousands, except amounts pertaining to rate which are shown as a percentage):

The components of deferred tax assets and liabilities are as follows (in thousands):

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In assessing the realizability of deferred tax assets, management considers whether it is more likely thannot that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income (losses) and projections for future taxable income (losses) over the periods in which the deferred tax assets are deductible, management believes it is more likely thannot that material amount of the Company's net DTA willnot be realized and as such valuation allowance has been recorded excluding the portion of the indefinite lived DTLs cannot be utilized as future source of income against indefinite lived DTAs.

The Company recorded refundable research and development tax credit as other income andnot income tax under ASC740 in the consolidated statement of operations for the years ended* December 31, 2022,and2023.* These refundable tax credits are a result of increased qualified research and development spending in certain jurisdictions which allow for a refundable credit even when the Company hasno current period income tax expense.

In accordance with the Tax Cuts and Jobs Act of2017, the Company evaluated its plans for reinvestment or repatriation of current and future earnings of foreign operations and determined to indefinitely reinvest current and future earnings of foreign operations in the foreign operation. The Company hasnot repatriated funds to the U.S. to satisfy domestic liquidity needs, nor does the Company anticipate the need to do so. If in the foreseeable future, the Company canno longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized.

The Company has federal operating loss carryforwards totaling $350 million, $145.3 million of which, ifnot utilized, will begin to expire in 2027 and $204.7 million of which haveno expiration date. The Company also has certain state net operating loss carryforwards totaling $340.3 million, which, ifnot utilized, will begin to expire in 2027. The Company also has Denmark net operating loss carryforwards totaling $4.7 million which has indefinite carryforward period in Denmark. Due to potential ownership changes that* mayhave occurred or would occur in the future, Internal Revenue Code Section382* * may*place additional limitations on the Company’s ability to utilize the net operating loss carryforward.

ASC740-10, Accounting for Uncertainty in Income Taxes, uses the term “more likely thannot” to evaluate whether ornot a tax position will be sustained upon examination. The Company hasnot identified any tax positions that donot meet the more likely thannot threshold.

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For all periods presented herein, the Company didnot use thetwo-class method to compute net loss attributable to common stockholders per share of common stock, even though it had issued securities, other than common stock, that contractually entitled the holders to participate in dividends and earnings, because these holders arenot obligated to participate in a loss. Thetwo-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.

Under thetwo-class method, for periods with net income attributable to common stockholders, basic net income attributable to common stockholders per share of common stock is computed by dividing the undistributed net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Undistributed net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed and subtracting the actual or deemed dividends declared.No such adjustment to earnings is made during periods with a net loss as the holders of the participating securities haveno obligation to fund losses. Diluted net income attributable to common stockholders per share of common stock is computed under thetwo-class method by using the weighted average number of shares of common stock outstanding plus the potential dilutive effects of stock options and warrants. In addition to analyzing under thetwo class method, the Company analyzes the potential dilutive effect of stock options and warrants, under the treasury-stock method when calculating diluted income (loss) attributable to common stockholders per share of common stock, in which it is assumed that the stock options and warrants convert into common stock at the beginning of the period or date of issuance, if the stock option or warrant was issued during the period. The Company reports the more dilutive of the approaches (two-class or treasury-stock/if-converted) as its diluted net income (loss) attributable to common stockholders per share of common stock during the period.

As noted above, for all periods presented herein, the Company didnot utilize thetwo-class approach as the Company was in a net loss position and the holders of the participating securities haveno obligation to fund losses. The Company did analyze diluted net loss attributable to common stockholders per share of common stock under the treasury-stock/if-converted method and noted that all outstanding stock options and warrants were anti-dilutive for the periods presented. For all periods presented, basic net loss attributable to common stockholders per share of common stock was the same as diluted net loss attributable to common stockholders per share of common stock.

The following securities, presented on a common stock equivalent basis, have been excluded from the calculation of weighted average number of shares of common stock outstanding because their effect is anti-dilutive:

A reconciliation from net loss to basic net loss attributable to common stockholders per share of common stock and diluted net loss attributable to common stockholders per share of common stock for the years ended* December 31,*2023 and2022, is as follows (in thousands):

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The Company has operating and finance leases for office space, laboratory facilities and various laboratory equipment, furniture and office equipment and leasehold improvements. The Company determines if an arrangement is a lease at contract inception. Lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company doesnot separate lease and non-lease components. Leases with a term of12 months or less at commencement arenot recorded on the consolidated balance sheets. Lease expense for these arrangements is recognized on a straight-line bases over the lease term. The Company’s leases have remaining lease terms of less than 1 year to approximately 4 years, some of which include options to extend the leases for up to 5 years, and some which include options to terminate the leases within 1 year.

Effective* June 1, 2021,the Company agreed to sublease office space in Florida, comprised ofone* of thetwo contiguous suites, under a non-cancelable operating lease, which expires in* February 2026.*

The components of lease expense were as follows (in thousands):

Supplemental cash flow information related to leases was as follows (in thousands):

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Supplemental balance sheet information related to leases was as follows (in thousands, except weighted average remaining lease term and weighted average discount rate):

Maturities on lease liabilities were as follows (in thousands):

The Company has a401(k) retirement plan (the*“401*(k) Plan”) that covers substantially all employees. The Company* mayprovide a discretionary match with a maximum amount of 4% of the participant’s compensation, which vests immediately. The Company made matching contributions under the401*(k) Plan of approximately $0.3 millionand $0.2 million for the years ended* December 31, 2023and2022,* respectively.

The Company has a discretionary profit-sharing plan (the “Profit Sharing Plan”) that covers all employees. Employees become eligible participants in the Profit Sharing Plan once they have provided three years of service to the Company. The Company madeno contributions to the Profit Sharing Plan in2023 or2022.

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On* January 6, 2023,the Company's Board of Directors (the "Board") appointed Richard W. Pascoe to serve as the Company’s Chief Executive Officer, effective immediately. Concurrently with his appointment as Chief Executive Officer, Mr. Pascoe stepped down as the Company’s Executive Chairman. Mr. Pascoe continued to serve as a member of the Board until the date of the Company's2023* Annual Meeting of Stockholders (the "Annual Meeting"), which was held on* April 25, 2023.Mr. Pascoe was designated as the Company’s principal executive officer, succeeding Travis C. Mickle, Ph.D., the Company’s President and former Chief Executive Officer, in such role. On January 6, 2023,Dr. Mickle resigned from his role (i) as Chief Executive Officer, effective immediately, and (ii) as President and as a member of the Board, in each case, effective as of the date of the Annual Meeting. Additionally, on January 6, 2023,*the Board appointed Matthew R. Plooster, a member of the Board, as the Chairman of the Board.

In connection with Mr. Pascoe’s appointment as the Company’s Chief Executive Officer, the Company and Mr. Pascoe entered into an amendment to the employment agreement, dated* November 5, 2021,by and between the Company and Mr. Pascoe (the “Amendment”). Pursuant to the Amendment, Mr. Pascoe became entitled to receive an option under the A&R2014* Plan to purchase 700,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on* January 9, 2023.The option will vest infour equal annual installments, with thefirst* such installment occurring on* January 6, 2024 (*subject to Mr. Pascoe’s continued service to the Company through the applicable vesting date).

In connection with the management transition, the Company entered into (i) a transition agreement with Dr. Mickle (the “Mickle Transition Agreement”) and (ii) a consulting agreement with Dr. Mickle (the “Consulting Agreement”). Pursuant to the terms of the Mickle Transition Agreement, subject to his timely delivering a release of claims in the Company’s favor, Dr. Mickle will receive severance payments and benefits consisting of (i) continued payment of his base salary for 18 months following the date on which Dr. Mickle’s employment with the Company ends (the “Separation Date”), (ii) up to 18 months of continued medical, dental and vision coverage pursuant to COBRA and (iii) aone-time, lump sum bonus payment equal to a pro rata amount of his annual performance-based target bonus for the year in which the Separation Date occurs. In addition, immediately prior to the Separation Date, all outstanding options to purchase the Company’s common stock held by Dr. Mickle will be vested in full, and such accelerated vested options* maybe exercised through the later of (i) the18*-month anniversary of the date of the Transition Agreement and (ii) the date of the termination of the Consulting Agreement. Pursuant to the terms of the Consulting Agreement, Dr. Mickle has agreed to provide consulting services until thefirst anniversary of the Annual Meeting. In exchange for such services, Dr. Mickle will receive consulting fees of $40,000 per month. In addition, Dr. Mickle was granted, under the A&R2014 Plan,547,945 performance-based restricted stock units, which will vest in full upon the timely achievement of a clinical and development milestone, subject to forfeiture upon certain disqualifying events. As of* December 31, 2023,*the Company had accrued severance expense recorded within accounts payable and accrued expenses of approximately $0.6 million in connection with the Mickle Transition Agreement.

At the Annual Meeting, each of John B. Bode, Douglas W. Calder, and Corey Watton was elected as a director of the Company and each of Richard W. Pascoe, Christopher A. Posner, and David S. Tierney ceased serving on the Company's Board of Directors. After the Annual Meeting, the Company's Board of Directors accepted the resignation of Richard W. Pascoe from his role as Chief Executive Officer on* May 5, 2023,effective June 1, 2023,and appointed Tamara A. Favorito as the Chair of the Board of Directors. In connection with Mr. Pascoe’s resignation, the Company entered into a transition agreement with Mr. Pascoe (the “Pascoe Transition Agreement”). Pursuant to the terms of the Pascoe Transition Agreement, Mr. Pascoe is entitled to receive severance payments and benefits consisting of (i) continued payment of his base salary for12* months following the date on which Mr. Pascoe’s employment with the Company ends (the “Separation Date”), (ii) up to12 months of continued medical, dental and vision coverage pursuant to COBRA, (iii) an amount equal to Mr. Pascoe’s target annual bonus, pro-rated through the Separation Date and (iv) accelerated vesting of his outstanding equity awards. In addition, the exercise period of vested options to purchase the Company’s common stock held by Mr. Pascoe will be extended through thenine-month anniversary of the Separation Date. As of* December 31, 2023,*the Company had accrued severance expense recorded within accounts payable and accrued expenses of approximately $0.3 million in connection with the Pascoe Transition Agreement.

On* May 3, 2023,Matthew R. Plooster and Joseph B. Saluri indicated to the Board of Directors that they donot* intend to stand for re-election at the Company's2024 Annual Meeting of Stockholders, and that they intend to step down from the Board of Directors as soon as replacements are found.

In* May 2023,the Board of Directors appointed Christal M. M. Mickle, Co-Founder and Chief Development Officer, to serve as interim President and Chief Executive Officer effective on June 1, 2023.*

On* August 7, 2023,the Board of Directors appointed Thomas D. Anderson as a Class III director, with a term expiring at the Company's annual meeting of stockholders to be held in2024* or until his earlier death, resignation, or removal.

On* August 7, 2023,*Mr. Plooster resigned from the Board of Directors effective immediately after Mr. Anderson's appointment.

On* October 7, 2023,the Board of Directors appointed Neil F. McFarlane to serve as the Company’s President and Chief Executive Officer, effective October 10, 2023.Concurrently with his appointment as President and Chief Executive Officer, Mr. McFarlane was appointed to serve as a member of the Board of Directors. Mr. McFarlane was designated as the Company’s principal executive officer, succeeding Christal M.M. Mickle, the Company’s former interim President and Chief Executive Officer. Ms. Mickle continues to serve in her role as Chief Development Officer. In connection with Mr. McFarlane’s appointment as the Company’s President and Chief Executive Officer, the Company and Mr. McFarlane entered into an employment agreement, effective October 10, 2023 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. McFarlane is entitled to (i) an annual base salary of $700,000, (ii) an annual performance-based bonus targeted at 60% of his annual base salary, (iii) an option to purchase 600,000 shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on October 10, 2023,and (iv) restricted stock units covering 200,000 shares of the Company's common stock. The option and restricted stock units were granted to Mr. McFarlane as inducement awards under the2023* Plan. The option and restricted stock units will vest infour equal annual installments, with thefirst such installment occurring on* October 10, 2024 (subject to Mr. McFarlane’s continued service to the Company through the applicable vesting date). In addition, Mr. McFarlane will receive commuting and relocation assistance in connection with his move to Florida. Upon a termination of Mr. McFarlane’s termination without cause by the Company or resignation for good reason, Mr. McFarlane is entitled to receive (i) an amount of cash equal to 1.0 times annual base salary, (ii) a pro-rated target annual bonus for the year in which termination occurs, (iii)twelve months of Company paid COBRA continuation coverage, and (iv) full vesting of his outstanding and unvested equity awards. However, if any such termination occurs withinone* month prior to orsix months after a change in control, he will instead receive (i) an amount of cash equal to 1.5 times annual base salary, (ii) a target annual bonus for the year in which termination occurs, (iii)eighteen months of Company paid COBRA continuation coverage, and (iv) full vesting of his outstanding and unvested equity awards. Upon Mr. McFarlane’s termination due to death or disability, Mr. McFarlane will receive a pro-rated target annual bonus. Mr. McFarlane is also subject to 12-month post-termination non-competition and non-solicitation restrictions.

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On* October 10, 2023,*Joseph B. Saluri, a member of the Board of the Company, retired from such position, effective immediately after the appointment of Mr. McFarlane.

In* January 2024,*the Board of Directors appointed Adrian Quartel, M.D, FFPM, as Chief Medical Officer.

On January20, 2**024, the Board of Directors appointed Alvin Shih, M.D., M.B.A as a Class III director, with a term expiring at the Company's2024 Annual Meeting of Stockholders or until his earlier death, resignation, or removal.

On* August 30, 2023,*in connection with the Merger Agreement with Acer, the following transactions occurred prior to Closing:

In connection with the closing of the Merger on* November 17, 2023,each share of common stock of Acer was converted into the right to receive (i)0.1210 fully paid and non-assessable shares of common stock of Zevra, par value $0.0001 per share , and (ii)one non-transferable contingent value right (“CVR”) to be issued by Zevra, which will represent the right to receiveone* or more contingent payments up to an additional $76 million upon the achievement, if any, of certain commercial and regulatory milestones for Acer’s OLPRUVA and celiprolol products within specified time periods. Certain additional cash payments are also possible pursuant to the CVRs with respect to milestones involving Acer’s early-stage program ACER-2820 (emetine).

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The assets acquired and liabilities assumed were recorded based on their acquisition date fair values. Consideration for the Merger was $72.6 million and consists of (i) approximately 2.96 million shares of Zevra common stock valued at $12.8 million, (ii) the Bridge Loan advances of $17.8 million, (iii) $12.0 million in cash paid to Nantahala; (iv)2.27 million shares of Zevra Common Stock issued to Nantahala valued at $11.5 million based on the VWAP of shares of Zevra Common Stock during the 20 consecutive trading days ending on the trading date prior to* August 30, 2023; (*v) a secured promissory note payable by Zevra to Nantahala in the original principal amount of $5.0 million, as disclosed in Note C, (vi) $8.5 million in the estimated fair value of contingent consideration related to the CVRs, (vii) approximately 0.9 million shares of Zevra Common Stock issued to a former holder of Acer warrants valued at $4.0 million based on Zevra's common stock price on the Effective Date and (viii) $1.0 million in notes payable paid by the Company on Acer's behalf. In addition, effective as of immediately prior to the Effective Time, all of the outstanding and unexercised Acer stock options were automatically cancelled and ceased to exist without any cash or other consideration being paid or provided in respect thereof. The following purchase price allocation reflects the preliminary estimates of and assumptions related to the fair values of assets acquired and liabilities assumed:

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The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined using an income approach based on management’s estimates and assumptions, as well as other information compiled by management, includingthird-party valuations that utilize customary valuation procedures and techniques. These preliminary fair values are subject to change within theone-year measurement period. The estimated fair values were developed by discounting future net cash flows to their present value at market-based rates of return. The goodwill acquired represents the excess of the purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired. The useful lives of the intangible assets for amortization purposes were determined by considering the period of expected cash flows used to measure the fair values of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic and other factors that* maylimit the useful life. The marketed product asset is amortized on a straight-line basis over its estimated useful life. As of December**31,* 2023, the IPR&D project hadnot been completed or abandoned and, therefore, the IPR&D intangible asset isnot currently subject to amortization.

The results of operations and changes in stockholders' equity for Acer were included in the Company's consolidated financial statements beginning* November 18*,2023. Acer had total operating revenue of$42,000 and a net loss of $6.8 million for the period from* November 18, 2023,through December 31, 2023.*

The following pro forma combined results of operations present the acquisition as if it had occurred on* January 1, 2022.Thepro forma combined results of operations donot* necessarily represent the Company's consolidated results of operations had the acquisition occurred on the date assumed, nor are these results necessarily indicative of the Company's future consolidated results of operations. The Company expects to realize certain benefits from integrating Acer into the Company and to incur certainone-time costs. The pro forma combined results of operations donot reflect these benefits or costs.

The Company expensed approximately $2.2 million of acquisition-related costs during the year ended* December 31, 2023,*which is included in selling, general, and administrative expenses in the consolidated statement of operations.

Cancellation of Acer Warrant

On* November 22, 2023,*the Company sold an aggregate of 917,934 shares of its common stock to a healthcare focused investment fund (the "Investor") to cancel a warrant held by the Investor to purchase 2,920,306 shares of common stock of Acer. The shares of common stock were offered and sold to the Investor in a registered direct offering without an underwriter or placement agent.

Contingent Consideration

Contingent consideration liabilities relate to our liabilities arising in connection with the CVRs issued as a result of the Merger. The contingent consideration is classified as Level3 in the fair value hierarchy. The fair value is measured based on a Monte Carlo simulation or a scenario-based method, depending on the earn-out achievement objectives, utilizing projections about future performance. Significant inputs include volatility and projected financial information, including projections representative of a market participant's view of the expected cash payments associated with the agreed upon regulatory milestones based on probabilities of technical success, timing of the potential milestone events for the compounds, and estimated discount rates.

The following table provides a reconciliation of the beginning and ending balances related to the contingent consideration liabilities for the CVRs (dollars in thousands):

For the year ended* December**31,* 2023, the Company recorded a $1.3 million gain on the change in fair value of contingent consideration, primarily due to changes in market data and revenue projections.

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The Company evaluated events and transactions occurring subsequent to* December 31, 2023,through April*,2024, the date the accompanying financial statements were issued. During this period, there wereno subsequent events that required recognition in the accompanying consolidated financial statements nor were there any additional nonrecognized subsequent events that required disclosure.

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EXHIBITS