Eton Pharmaceuticals Inc

Note1 — Company Overview**

Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases. The Company currently hasfive commercial rare disease products: ALKINDI SPRINKLE® for the treatment of pediatric adrenocortical insufficiency; Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency; Betaine Anhydrous for the treatment of homocystinuria; Nitisinone for the treatment of hereditary tyrosinemia type1 (HT-1); and PKU GOLIKE® medical formula for patients with phenylketonuria (“PKU”). The Company hasthree additional product candidates in late-stage development: ET-400, ET-600, and ZENEO® hydrocortisone autoinjector.

Note2 — Liquidity Considerations

The Company believes its existing cash and cash equivalents of $16,655 as of* March 31, 2024* in addition to revenues from approved products will be sufficient to fund its operating expenses and capital expenditure requirements for at least the nexttwelve months from the date of filing of this quarterly report. This estimate is based on the Company’s current assumptions, including assumptions relating to estimated sales and its ability to manage spending. The Company could use its available capital resources sooner than currently expected. Accordingly, the Company could seek to obtain additional capital through equity financings, the issuance of debt or other arrangements. However, the Company cannot make assurances that it will be able to raise additional capital if needed or under acceptable terms. The sale of additional equity* may*dilute existing stockholders and newly issued stock could contain senior rights and preferences compared to currently outstanding common shares. The Company’s existing long-term debt obligation contains covenants and limits the Company’s ability to pay dividends or make other distributions to stockholders. If the Company experiences delays in product development or sales growth, obtaining regulatory approval for its other product candidates, or is unable to secure such additional financing, it might need to scale back or discontinue operations.

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Note3 — Summary of Significant Accounting Policies

Basis of Presentation

The Company has prepared the accompanying condensed financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

Unaudited Interim Financial Information

The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of* March 31, 2024*, and the results of its operations and its cash flows for the periods ended* March 31, 2024and2023*. The financial data and other information disclosed in these notes related to thethree-month periods ended* March 31, 2024* and2023 are also unaudited. The results for thethree-month periods ended* March 31, 2024* arenot necessarily indicative of results to be expected for the year ending* December 31, 2024*, any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but arenot limited to, provisions for uncollectible receivables, chargebacks and sales returns, Medicaid program rebates, valuation of inventories, useful lives of assets and the recoverability of long-lived assets, valuation of deferred tax assets, the accrual of research and development expenses and the valuation of stock options and warrants, and restricted stock units (“RSUs”). Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.

Segment Information

The Company operates the business on the basis of a single reportable segment, which is the business of developing and commercializing prescription drug products. The Company’s chief operating decision-maker is the Chief Executive Officer (“CEO”), who evaluates the Company as a single operating segment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity ofthree months or less to be cash equivalents. All cash and cash equivalents are held in U.S. financial institutions or invested in short-term U.S. treasury bills or high-grade money market funds. As of* March 31, 2024*, the Company’s cash is in a non-interest-bearing account and a government money market fund. From time to time, amounts deposited with its bank exceed federally insured limits. The Company believes the associated credit risk to be minimal.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and are non-interest bearing. Accounts receivable are recorded net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees, chargebacks, returns, and allowances. The total for these reserves amounted to $207 and $129 as of* March 31, 2024* and* December 31, 2023*, respectively. The Company considers historical collection rates and the current financial status of its customers, as well as macroeconomic and industry-specific factors when evaluating potential credit losses. Historically, the Company's accounts receivable balances have been highly concentrated with a select number of customers, consisting primarily of specialty pharmacies and large wholesale pharmaceutical distributors. Given the size and creditworthiness of these customers, we havenot experienced and donot expect to experience material credit losses.

Inventories

The Company values its inventories at the lower of cost or net realizable value using thefirst-in,first-out method of valuation. The Company reviews its inventories for potential excess or obsolete issues on an ongoing basis and will record a write-down if an impairment is identified. Inventories at* March 31, 2024* and* December 31, 2023*, consist solely of purchased finished goods. At* March 31, 2024* and* December 31, 2023*, inventories are shown net of reserves for ALKINDI SPRINKLE® of $66 and $76, respectively, due to the risk of expiry before this entire stock of inventories is sold.

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Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is computed utilizing the straight-line method based on the following estimated useful lives: computer hardware and software is depreciated over three years; equipment, furniture and fixtures is depreciated over five years; leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter.

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

Intangible Assets

The Company capitalizes payments it makes for licensed products when the payment relates to an FDA-approved product, and the cost is recoverable based on expected future cash flows from the product. The cost is amortized on a straight-line basis over the estimated useful life of the product commencing on the approval date in accordance with Accounting Standards Codification (“ASC”)350, Intangibles — Goodwill and Other. In* November 2021,the Company purchased the rights for its Carglumic Acid product for $3,250, and that cost is being amortized overten years. In September 2022,the Company purchased the rights for its Betaine Anhydrous product for $2,125 and that cost is being amortized over five years. In October 2023,the Company purchased the rights for its Nitisinone product for $650 and that cost is being amortized over five years. In March 2024,the Company purchased the rights for its PKU GOLIKE® product which resulted in a $1,868 intangible asset that is being amortized overten years. The intangible assets, net on the Company’s balance sheet, reflected $1,506 of accumulated amortization as of March 31, 2024*. The Company recorded $220 and $181, respectively, of amortization expense for thethree-month periods ended* March 31, 2024and2023.* The table below shows the estimated remaining amortization for these products for each of thefive years from2024 to2028 and thereafter.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset* may**not* be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the Company’s statements of operations for the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment was recognized during thethree-month periods ended* March 31, 2024and2023.*

Debt Issuance Costs and Debt Discount and Detachable Debt-Related Warrants

Costs incurred to issue debt are deferred and recorded as a reduction to the debt balance in the accompanying balance sheets. The Company amortizes debt issuance costs over the expected term of the related debt using the effective interest method. Debt discounts related to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction to the debt balance and accreted over the expected term of the interest expense using the effective interest method.

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Leases

The Company accounts for leases in accordance with ASC Topic842 – Leases. The Company reviews all relevant facts and circumstances of a contract to determine if it is a lease whereby the terms of the agreement convey the right to control the direct use and receive substantially all the economic benefits of an identified asset for a period of time in exchange for consideration. The associated right-of-use assets and lease liabilities are recognized at lease commencement. The Company measures lease liabilities based on the present value of the lease payments over the lease term discounted using the rate it would pay on a loan with the equivalent payments and term for the lease. The Company doesnot include the impact for lease term options that would extend or terminate the lease unless it is reasonably certain that it will exercise any such options. The Company accounts for the lease components separately from non-lease components for its operating leases.

The Company measures right-of-use assets based on the corresponding lease liabilities adjusted for (i) any prepayments made to the lessor at or before the commencement date, (ii) initial direct costs it incurs, and (iii) any incentives under the lease. In addition, the Company evaluates the recoverability of its right-of-use assets for possible impairment in accordance with its long-lived assets policy.

Operating leases are reflected on the balance sheets as operating lease right-of-use assets, current accrued liabilities, and long-term operating lease liabilities. The Company didnot have any finance leases as of* March 31, 2024* or* December 31, 2023*.

The Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company and the operating lease expense is recognized on a straight-line basis over the term of the lease. Variable lease payments are expensed as incurred.

The Company doesnot recognize right-of-use assets or lease liabilities for leases with a term oftwelve months or less; such lease costs are recorded in the statements of operations on a straight-line basis over the lease term.

Concentrations of Credit Risk, Sources of Supply and Significant Customers

The Company is subject to credit risk for its cash and cash equivalents which are invested in high-grade money market funds and short-term U.S. treasury bills from time to time. The Company maintains its cash and cash equivalent balances withone major commercial bank, and the deposits held with the financial institution exceed the amount of insurance provided on such deposits and is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents to the extent recorded on the balance sheets. The Company believes the associated credit risk to be minimal.

The Company is dependent onthird-party suppliers for its products and product candidates. In particular, the Company relies, and expects to continue to rely, on a small number of suppliers to manufacture key chemicals, approved products and process its product candidates as part of its development programs. These programs could be adversely affected by a significant interruption in the manufacturing process.

The Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation of the customer’s financial condition, and collateral isnot required. Management monitors its exposure to accounts receivable by periodically evaluating the collectability of the account receivable based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer and historical experience. Based upon the review of these factors, the Company didnot record an allowance for doubtful accounts at* March 31, 2024or2023.* The accounts receivable balance at* March 31, 2024* and2023, and product sales revenue recognized during thethree-month periods ended* March 31, 2024and2023,* primarily consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE® and Carglumic Acid products. AnovoRx sales made up 97.7% of total net revenues recognized in thethree-month period ended* March 31, 2024and 94.8% of net accounts receivable as of March 31, 2024*, and 96.3% of total net revenues recognized in thethree-month period ended* March 31, 2023,and 97.4% of net accounts receivable as of December 31, 2023*.

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Revenue Recognition for Contracts with Customers

The Company accounts for contracts with its customers in accordance with ASC606 – Revenue from Contracts with Customers. ASC606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC606, the entity performs the followingfive steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of ASC606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations to assess whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses whether these options provide a material right to the customer and, if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.

The Company recognizes as revenue the amount of the transaction price allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method. Any amounts received prior to revenue recognition will be recorded as deferred revenue. Amounts expected to be recognized as revenue within thetwelve months following the balance sheet date will be classified as current portion of deferred revenue in the Company’s balance sheets. Amountsnot expected to be recognized as revenue within thetwelve months following the balance sheet date are classified as long-term deferred revenue, net of current portion.

Milestone Payments – If a commercial contract arrangement includes development and regulatory milestone payments, the Company will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal wouldnot occur before recognizing the associated revenue. Milestone payments that arenot within the Company’s control or the licensee’s control, such as regulatory approvals, are generallynot considered probable of being achieved until those approvals are received.

Royalties– For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Significant Financing Component– In determining the transaction price, the Company will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more thanone year.

The Company sells its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services. The Company* maysell products in the U.S. to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers. Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order. The Company uses athird*-party logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to the3PL vendor services rendered and directs the3PL vendor activities. The Company hasno significant obligations to wholesalers to generate pull-through sales.

For its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are estimated and recorded as a reduction of net revenues at the date of sale/shipment. Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs. Because of the shelf life of the product and the Company’s lengthy return period, there* may*be a significant period of time between when the product is shipped and when it issues credits on returned product.

The Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler/distributor arising from all of the above factors. The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays. When estimating these adjustments to the transaction price, the Company reduces it sufficiently to be able to assert that it is probable that there will beno significant reversal of revenue when the ultimate adjustment amounts are known.

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The Company stores its ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nisitinone, and PKU GOLIKE® inventory at its pharmacy distributor customer locations, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders. The Company* mayrecognize revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location. At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company. They also have the ability to direct sales of product to their customers on terms and at prices they negotiate. Although wholesalers have product return rights, the Company doesnot* believe they have a significant incentive to return the product.

Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable. The Company monitors actual product returns, chargebacks, discounts and fees subsequent to the sale. If these amounts end up differing from its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.

Cost of Product Sales

Cost of product sales consists of the profit-sharing and royalty fees with the Company’s product licensing and development partners, the purchase costs for finished products fromthird-party manufacturers, freight and handling/storage from the Company’s3PL logistics service providers, and amortization expense of certain intangible assets. The costs of sales for profit-sharing, royalty fees, purchased finished products, and the associated inbound freight expense are recorded when the associated product sale revenue is recognized in accordance with the terms of shipment to customers while outbound freight and handling/storage fees charged by the3PL service provider are expensed as they are incurred. Intangible assets are amortized on a straight-line basis over the estimated useful life of the product. Cost of product sales also reflects any write-downs or reserve adjustments for the Company’s inventories.

Research and development (“R&D”) expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits, stock-based compensation, and other costs to support the Company’s R&D operations. External contracted services include product development efforts such as certain product licensor milestone payments, clinical trial activities, manufacturing and control-related activities, and regulatory costs. R&D expenses are charged to operations as incurred. The Company reviews and accrues R&D expenses based on services performed and relies upon estimates of those costs applicable to the stage of completion of each project. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Upfront payments and milestone payments made for the licensing of products that arenot yet approved by the FDA are expensed as R&D in the period in which they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services are performed.

Income (Loss) Per Share

Basic net income (loss) per share of common stock is computed by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as unvested restricted stock, stock options, RSUs and warrants that are outstanding during the period. Common stock equivalents are excluded from the computation when their inclusion would be anti-dilutive. For thethree-month periods ended* March 31, 2024and2023,* common stock equivalents of 5,942,961 and 5,441,568, respectively, are excluded from the calculation of diluted net loss per shares because the effect is anti-dilutive. Included in the basic and diluted net income (loss) per share calculation are RSUs awarded to directors that have vested, but the issuance and delivery of the shares of common stock are deferred until the director retires from service as a director.

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Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC718 Compensation – Stock Compensation. The guidance under ASC718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards. Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model (“BSM”).

The Company estimates the fair value of stock-based option awards using the BSM. The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs. The risk-free interest rate was determined from the implied yields forzero-coupon U.S. government issues with a remaining term approximating the expected life of the options or warrants. Dividends on common stock are assumed to bezero for the BSM valuation of the stock options. The expected term of stock options granted is based on vesting periods and the contractual life of the options. Expected volatilities are based on the Company's historical volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions. We account for forfeitures as they occur.

Fair Value Measurements

We measure certain of our assets and liabilities at fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting requires characterization of the inputs used to measure fair value into athree-level fair value hierarchy as follows:

Level1** — Inputs based on quoted prices in active markets for identical assets or liabilities. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

*Level2 ***— Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.

*Level3 ***— Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.

Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which* may*affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values stated below take into account the market for the Company’s financials, assets and liabilities, the associated credit risk and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt obligation. The carrying amounts of these financial instruments approximate their fair values due to the short-term maturities of these instruments. Based on borrowing rates currently available to the Company, the carrying value of the debt obligation approximates its fair value.

Impact of Recent Accounting Pronouncements

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2023-07 Segment Reporting - Improving Reportable Segment Disclosures. The standard requires enhanced disclosures of a public company's significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), and any additional measures of a segment's profit or loss used by the CODM when making resource allocation decisions, including for companies with a single reportable segment. The standard is effective for public companies for annual periods after December 15, 2023and in interim periods in2025,* with early adoption permitted. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes - Improvements to Income Tax Disclosures. The standard requires enhanced income tax disclosures, including the effective tax rate reconciliation and income taxes paid, amongst others. The standard will be effective for public companies for annual periods beginning in2025, with early adoption permitted. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.

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Note4 – Property and Equipment

Property and equipment consist of the following:

Depreciation expense for thethree-month periods ended* March 31, 2024and2023* was $14 and $13, respectively.

Note5 — Long-Term Debt

SWK Loan

In* November 2019,the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK Holdings Corporation (“SWK”) which provided for up to $10,000 in financing. The Company received proceeds of $5,000 at closing and borrowed an additional $5,000 upon the FDA approval of asecond* product developed by the Company. In* March 2020,the Company and SWK amended the SWK Credit Agreement, and the Company borrowed an additional $2,000 in August**2020.* The term of the SWK Credit Agreement is forfive years, and borrowings bear interest at a rate of LIBOR3-month plus 10.0%, subject to a stated LIBOR floor rate of 2.0%. A 2.0% unused credit limit fee was assessed during thefirst twelve months after the date of the SWK Credit Agreement and loan fees include a 5.0% exit fee based on the principal amounts drawn which is payable at the end of the term of the SWK Credit Agreement. The Company was required to maintain a minimum cash balance of $3,000, only pay interest on the debt until* February 2022and then pay 5.5% of the loan principal balance commencing on February 15, 2022and then everythree* months thereafter until* November 13, 2024*at which time the remaining principal balance is due. Borrowings under the SWK Credit Agreement are secured by the Company’s assets. The SWK Credit Agreement contains customary default provisions and covenants which limit additional indebtedness.

In connection with the initial $5,000 borrowed under the SWK Credit Agreement, the Company issued warrants to SWK to purchase 51,239 shares of the Company’s common stock with an exercise price of $5.86 per share. The relative fair value of these warrants was $226 and was estimated using BSM with the following assumptions: fair value of the Company’s common stock at issuance of $5.75 per share; seven-year contractual term;95% volatility;0% dividend rate; and a risk-free interest rate of 1.8%.

In connection with the additional $2,000 borrowed in* August 2020,*the Company issued warrants for 18,141 shares of its common stock at an exercise price of $6.62 per share. The relative fair value of the 18,141 warrants was $94 and was estimated using BSM with the following assumptions: fair value of the Company’s common stock at issuance of $6.85 per share; seven-year contractual term;95% volatility;0% dividend rate; and a risk-free interest rate of 0.4%.

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Note5 — Long-Term Debt (continued)

These warrants (the “SWK Warrants”) are exercisable immediately and have a term ofseven years from the date of issuance. The SWK Warrants are subject to a cashless exercise feature, with the exercise price and number of shares issuable upon exercise subject to change in connection with stock splits, dividends, reclassifications and other conditions.

In* April 2022,the Company and SWK further amended the SWK Credit Agreement to allow for a deferral of loan principal payments until May 2023and reduce the interest rate to LIBOR3*-month plus 8.0%, subject to a stated LIBOR floor rate of 2.0%. In accordance with the change, the Company has classified $5,020 as principal due in the next12 months in its balance sheet at* March 31, 2024*. Because LIBOR was phased out as of* June 30, 2023,the Company amended the Credit Agreement in August 2023*to refer to the secured overnight financing rate ("Term SOFR"), with an interest rate of Term SOFR plus 8.26%, subject to a stated Term SOFR floor rate of 5.0%.

Interest expense of $238 was recorded during thethree months ended* March 31, 2024*, which included $25 of debt discount amortization. Interest expense of $265 was recorded during thethree months ended* March 31, 2023*, which included $29 of debt discount amortization. As of* March 31, 2024*, $354 of accrued interest is included in accrued liabilities.

The table below reflects the future payments for the SWK loan principal and interest as of* March 31, 2024*.

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Note6 — Common Stock

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

During thethree months ended* March 31, 2024*, the Company issued 2,500 shares of its common stock resulting from stock option exercises under its2018 Equity Incentive Plan as amended in* December 2020 (see Note8*). During thethree months ended* March 31, 2023*, the Company issued 202,126 shares of its common stock resulting from cash and non-cash stock option exercises under its2018 Equity Incentive Plan (see Note8). The Company withheld 50,867 shares for payroll tax obligations totaling $181 for thethree months ended* March 31, 2023.*

Note7 — Common Stock Warrants

The Company’s outstanding warrants to purchase shares of its common stock at* March 31, 2024* are summarized in the table below.

The holders of these warrants or their permitted transferees, are entitled to rights with respect to the registration under the Securities Act of1933, as amended (the “Securities Act”) for their shares that are converted to common stock, including demand registration rights and piggyback registration rights. These rights are provided under the terms of a registration rights agreement between the Company and the investors.

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Note8 — Share-Based Payment Awards

The Company adopted the Eton Pharmaceuticals, Inc.2017 Equity Incentive Plan (the*“2017* Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock, and in2018 it adopted the2018 Equity Incentive Plan as amended* December 2020 (the“2018* Plan”) which replaced the2017 Plan. The Company has granted restricted stock awards (“RSAs”), stock options and RSUs for its common stock under both plans as detailed in the tables below. There were 250,002 shares available for future issuance under the2018 Plan as of* March 31, 2024*.

Share awards that expire, terminate, are surrendered, or canceled without having been fully exercised will be available for future awards under the2018 Plan. In addition, the2018 Plan provides that commencing* January 1, 2019and through January 1, 2028,the share reserve will be increased annually by 4% of the total number of shares of common stock outstanding as of the preceding December 31,subject to a reduction at the discretion of the Company’s board of directors. The exercise price for stock options granted isnot* less than the fair value of common stock as determined by the board of directors as of the date of grant. The Company uses the closing stock price on the date of grant as the exercise price.

To date, all stock options issued have been non-qualified stock options, and the exercise prices were set at the fair value for the shares at the dates of grant. Options typically have aten-year life.

The Company’s previous Chief Financial Officer had 474,295 employee stock options with an exercise price range of $1.37 to $8.61 which were set to expirethree months after his retirement date of* May 31, 2022;however, the Company extended the expiration date to April 10, 2023.Of these options,365,858 options were exercised in Januaryand March 2023,and the remainder expired in April 2023.*No other terms were modified.

For thethree-month periods ended* March 31, 2024and2023,* the Company’s total stock-based compensation expense was $821 and $872, respectively. Of these amounts, $742 and $818 were recorded in general and administrative (“G&A”) expenses, respectively, and $79 and $54 were recorded in research and development expenses, respectively.

Stock Options

The following table summarizes stock option activity during thethree months ended* March 31, 2024*:

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Note8 — Share-Based Payment Awards (continued)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at* March 31, 2024* for those stock options that had strike prices lower than the fair value of the Company’s common stock.

Stock-based compensation related to stock options was $705 and $778 for thethree-month periods ended* March 31, 2024and2023,* respectively. As of* March 31, 2024*, there was a total of $7,129 of unrecognized compensation costs related to non-vested stock option awards. The weighted average grant date fair value of stock option awards for thethree months ended* March 31, 2024* was $2.94 per share. In thethree months ended* March 31, 2024*, there was one stock option exercise which totaled 2,500 shares at a weighted average exercise price of $2.97 per share with an intrinsic value of $2.

Restricted Stock Units (RSUs)

The following table summarizes restricted stock unit activity during thethree months ended* March 31, 2024*:

Stock-based compensation related to RSUs was $60 and $58 for thethree-month periods ended* March 31, 2024and2023,* respectively. As of* March 31, 2024*, there was $548 of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of 2.3 years.

Employee Stock Purchase Plan

The Company’s2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of 150,000 shares, and this reserve is automatically increased on* January 1of each year by the lesser of 1% of the outstanding common shares at December 31of the preceding year or 150,000 shares, subject to reduction at the discretion of the Company’s board of directors. As of March 31, 2024*, there were 773,514 shares available for issuance under the ESPP.

The annual offerings consist oftwo stock purchase periods, with thefirst purchase period ending in* Juneand thesecond* ending in* December.The terms of the ESPP permit employees of the Company to use payroll deductions to purchase stock at a price per share that is at least the lesser of (1)85% of the fair market value of a share of common stock on thefirst* date of an offering or (2)85% of the fair market value of a share of common stock on the date of purchase. After the offering period ends, subsequenttwelve-month offering periods automatically commence over the term of the ESPP on the day that immediately follows the conclusion of the preceding offering, each consisting oftwo purchase periods approximatelysix months in duration. The terms of the ESPP provide a restart feature if the Company's stock price is lower at the end of asix-month period within thetwelve-month offering period than it was at the beginning of thetwelve-month offering period.

For thethree-month periods ended* March 31, 2024and2023,* there wereno share issuances under the ESPP. The weighted average fair value of share awards in thefirst three months of2024 and2023 was $1.36 and $1.11, respectively. Employees contributed $134 and $107 via payroll deductions during thethree-month periods ended* March 31, 2024and2023,* respectively. The Company recorded an expense of $56 and $36 related to the ESPP in thethree-month periods ended* March 31, 2024and2023,* respectively. As of* March 31, 2024* and* December 31, 2023*, the accompanying condensed balance sheets include $158 and $24, respectively, in accrued liabilities for employee ESPP contributions.

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Note9 — Related-Party Transactions

Chief Executive Officer

The CEO has a partial interest in a company that the Company had partnered with for its EM-100/Alaway® Preservative Free eye allergy product as described below.

The Company acquired the exclusive rights to sell the EM-100 product in the United States pursuant to a Sales and Marketing Agreement (the “Eyemax Agreement”) dated* August 11, 2017,between the Company and Eyemax LLC (“Eyemax”), an entity affiliated with the Company’s CEO. Under the terms of the Eyemax Agreement, the Company would pay Eyemax $250 upon FDA approval, $500 upon thefirst* commercial sale of the product, and a royalty of 10% on the net sales of all products. The Eyemax Agreement was for an initial term often years from the date of the Eyemax Agreement, subject to successivetwo-year renewals unless the Company elected to terminate the Eyemax Agreement.

On* February 18, 2019,the Company entered into an Amended and Restated Agreement with Eyemax amending the Sales Agreement (the “Amended Agreement”). Pursuant to the Amended Agreement, Eyemax sold the Company all of its right, title and interest in EM-100, including any such product that incorporates or utilizes Eyemax’s intellectual property rights. Pursuant to the Amended Agreement, the Company paid Eyemaxtwo* milestone payments: (i)one milestone payment for $250 upon regulatory approval in the territory by the FDA of thefirst single agent product and (ii)one milestone payment for $500 following thefirst commercial sale of thefirst single agent product in the territory. From the effective date of the Amended Agreement, the Company has realized a total of $1,840 of the non-royalty and royalty revenue through* March 31, 2024*. The EM-100 asset and its associated product rights were sold to Bausch Health on* February 18, 2019,and future potential royalties oftwelve percent on Bausch Health sales of the product, named Alaway® Preservative Free by Bausch, which was approved by the FDA in September 2020,would be split between Eyemax and the Company. There wereno amounts due to Eyemax under the terms of the Amended Agreement as of March 31, 2024*, and Bausch Health discontinued sales of Alaway® Preservative Free effective* March 24, 2023.*

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Note10 — Leases

The Company recognizes a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, and separates lease components from non-lease components related to its office space lease.

The Company’s operating lease cost as presented as G&A in the condensed statements of operations was $20 for thethree months ended* March 31, 2024*, and $23 for thethree months ended* March 31, 2023*. Cash paid for amounts included in the measurement of operating lease liabilities was $10 for thethree months ended* March 31, 2024*, and $22 for thethree months ended* March 31, 2023*. The ROU asset amortization was $18 and $19 for thethree-month periods ended* March 31, 2024and2023,* respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows. As of* March 31, 2024*, the weighted-average remaining lease term was 1.00 years, and the weighted-average incremental borrowing rate was 8.6%.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of* March 31, 2024* (in thousands).

The Company’s future lease commitments as of* March 31, 2024*, are as indicated below:

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Note11 — Commitments and Contingencies

Legal

The Company is subject to legal proceedings and claims that* mayarise in the ordinary course of business. The Company isnot* aware of any pending or threatened litigation matters at this time that would have a material impact on the operations of the Company.

License and product development agreements

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

Thethree oral solution pediatric neurology product candidates discussed below, Topiramate, Zonisamide, and Lamotrigine were developed by the Company and its various product candidate development partners, and the Company subsequently sold certain rights and interests in thesethree products to Azurity in2021, but retained rights to certain royalties. The Company has recognized $27,500 in milestone revenues to date from thesethree products, and in* June 2023*the Company amended its asset purchase agreement with Azurity and sold the remaining royalty interests it received back to Azurity for $5,500. Azurity will assume royalty or profit share obligations owed to development partners as well as additional milestone payments based on sales volume targets.

In* March 2020,the Company entered into an Exclusive Licensing and Supply Agreement (the “Alkindi License Agreement”) with Diurnal for marketing ALKINDI SPRINKLE® in the United States. In September 2020,*ALKINDI SPRINKLE®’s New Drug Application (NDA) was approved by the FDA as a replacement therapy for pediatric patients with adrenocortical insufficiency.

For the initial licensing milestone fee, the Company paid Diurnal $3,500 in cash and issued 379,474 shares of its common stock to Diurnal which were valued at $1,264 based on the Company’s closing stock price of $3.33 on* March 26, 2020.The Company paid Diurnal $1,000 for a2023* sales milestone in* January 2024that was recorded as licensing cost of sales in December 2023,*and will also pay Diurnal $2,500 if the product obtains orphan drug exclusivity status from the FDA.

In* June 2021,the Company acquired U.S. and Canadian rights to Crossject’s ZENEO® hydrocortisone needleless autoinjector, which is under development as a rescue treatment for adrenal crisis. The Company paid Crossject $500 upon signing, $500 in March 2022*upon a completion of a successful technical batch and could pay up to $3,500 in additional development milestones and up to $6,000 in commercial milestones, as well as a 10% royalty on net sales.

In* October 2021,the Company acquired the U.S. marketing rights to Carglumic Acid Tablets. The product’s Abbreviated New Drug Application (“ANDA”), which is owned by Novitium Pharma, was approved by the FDA on October 12, 2021.The product is an AB-rated, substitutable generic version of Carbaglu®. The Company paid $3,250 upon signing and retains 50% of the product profits with the balance being distributed to the licensor and manufacturer. The Company launched this product in December 2021.*

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Note11 — Commitments and Contingencies (continued)

In* September**2022,* the Company acquired an FDA-approved ANDA for Betaine Anhydrous for oral solution. The ANDA was approved by the FDA in* January 2022.The Company paid $2,000 to the seller upon signing and an additional $125 in November 2023,*and could pay up to $1,000 in commercial milestones based on future product sales. The Company will retain 65% of the product profits with the balance being distributed to the licensor.

In* March 2023,the Company acquired rare disease endocrinology product candidate ET-600 from Tulex Pharmaceuticals. The Company paid $450 to Tulex in July 2023as a result of successful manufacturing of registration batches. The Company will pay Tulex $200 upon acceptance by the FDA of the NDA for the product, $250 uponfirst* commercial sale of the product, and tiered royalties of 12.5% to 17.0% on net sales.

In* October 2023,the Company acquired an FDA-approved ANDA for Nitisinone. The ANDA was approved by the FDA in May**2023.* The Company paid $150 to the seller and an additional $500 of cure amounts owed to the manufacturer upon signing. The Company will retain 80% of the product profits with the balance being distributed to the manufacturer.

In* March**2024,* the Company acquired the rights to PKU GOLIKE® medical formula. The Company paid $2,350 to the seller upon signing, which was allocated as $482 of inventory and $1,868 of an intangible asset (product licensing rights) based on the relative fair value of the purchased assets. The Company could pay up to $2,000 in commercial milestones based on future product sales and will pay the seller a royalty of 30% of net sales, which will include the cost of the product.

Indemnification

As permitted under Delaware law and in accordance with the Company’s Amended and Restated Bylaws, the Company is required to indemnify its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors and officers. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company hasnot recorded any liabilities for these indemnification rights and agreements as of* March 31, 2024* or* December 31, 2023*.

Note12 — Subsequent Events

The Company has evaluated subsequent events through the filing date of this Form10-Q and has determined thatno subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes thereto.

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