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Note 8 - Share-based Payment Awards

6 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 8 — 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 in 2018 it adopted the 2018 Equity Incentive Plan as amended December 2020 (the “2018 Plan”) which replaced the 2017 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 248,773 shares available for future issuance under the 2018 Plan as of June 30, 2024.

Share awards that expire, terminate, are surrendered, or canceled without having been fully exercised will be available for future awards under the 2018 Plan. In addition, the 2018 Plan provides that commencing January 1, 2019 and through January 1, 2028, the share reserve will be increased annually by 4% of the total number of shares of common stock outstanding as of the preceding December 31, subject to a reduction at the discretion of the Company’s board of directors. The exercise price for stock options granted is not less than the fair value of common stock as determined by the board of directors as of the date of grant. The Company uses the closing stock price on the date of grant as the exercise price.

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 a ten-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 expire three 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 on a cashless basis in January and March 2023, and the remainder expired in April 2023. No other terms were modified.

For the six-month periods ended June 30, 2024 and 2023, the Company’s total stock-based compensation expense was $1,661 and $1,657, respectively. Of these amounts, $1,459 and $1,534 were recorded in general and administrative (“G&A”) expenses, respectively, and $202 and $123 were recorded in research and development expenses, respectively.

Stock Options

The following table summarizes stock option activity during the six months ended June 30, 2024:

										*Weighted*
						*Weighted*				*Average*
						*Average*				*Remaining*				*Aggregate*
						*Exercise*				*Contractual*				*Intrinsic*
		*Shares*				*Price*				*Term (Yrs)*				*Value*
Outstanding as of December 31, 2023			4,839,226			$	4.57
Issued			1,471,118			$	4.41
Exercised			(2,500	)		$	2.97
Forfeited/Cancelled			(25,771	)		$	4.38
Outstanding as of June 30, 2024			6,282,073			$	4.54				7.4			$	634
Exercisable as of June 30, 2024			3,866,990			$	4.72				6.5			$	604
Vested and expected to vest at June 30, 2024			6,282,073			$	4.54				7.4			$	634

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 June 30, 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 $727 and $698 for the three-month periods ended June 30, 2024 and 2023, respectively. Stock based compensation related to stock options was $1,432 and $1,476 for the six-month periods ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was a total of $6,409 of unrecognized compensation costs related to non-vested stock option awards. The weighted average grant date fair value of stock option awards for the six months ended June 30, 2024 was $2.93 per share. In the six months ended June 30, 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 the six months ended June 30, 2024:

		*Number of Units*				*Weighted Average Grant-Date Fair Value Per Unit*
Outstanding and unvested as of December 31, 2023			274,204			$	2.63
Granted			—			$	—
Vested			—			$	—
Forfeited			(3,000	)		$	—
Outstanding and unvested as of June 30, 2024			271,204			$	2.63

Stock-based compensation related to RSUs was $117 and $118 for the six-month periods ended June 30, 2024 and 2023, respectively. As of June 30, 2024, there was $483 of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of approximately 2.0 years.

Employee Stock Purchase Plan

The Company’s 2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of 150,000 shares, and this reserve is automatically increased on January 1 of each year by the lesser of 1% of the outstanding common shares at December 31 of the preceding year or 150,000 shares, subject to reduction at the discretion of the Company’s board of directors. As of June 30, 2024, there were 718,274 shares available for issuance under the ESPP.

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

For the six-month periods ended June 30, 2024 and 2023, there were 55,240 and 57,616 share issuances, respectively, under the ESPP. The weighted average fair value of share awards in the first six months of 2024 and 2023 was $1.35 and $1.14, respectively. Employees contributed $182 and $133 via payroll deductions during the six-month periods ended June 30, 2024 and 2023, respectively. The Company recorded an expense of $112 and $63 related to the ESPP in the six-month periods ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the accompanying condensed balance sheets include $19 and $24, respectively, in accrued liabilities for employee ESPP contributions.