(2) Revenue

The Company generates most of its revenue from license and royalty arrangements. At inception of each contract, the Company identifies the goods and services that have been promised to the customer and each of those that represent a distinct performance obligation, determines the transaction price including any variable consideration, allocates the transaction price to the distinct performance obligations and determines whether control transfers to the customer at a point in time or over time. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company reassesses its reserves for variable consideration at each reporting date and makes adjustments, if necessary, which may affect revenue and earnings in periods in which any such changes become known.

See Note 8 for a description of the license agreement with Antares Pharma, Inc. (“Antares”). See Note 12 for a description of the agreement with Spriaso, a related party.

License Fees. For distinct license performance obligations, upfront license fees are recognized when the Company satisfies the underlying performance obligation. Performance obligations under these licenses, which consist of the right to use the Company’s proprietary technology, are satisfied at a point in time corresponding with delivery of the underlying technology rights to the licensee, which is generally upon transfer of the licensed technology/product to the customer. In addition, license arrangements may include contingent milestone payments, which are due following achievement by our licensee of specified sales or regulatory milestones and the licensee and/or Company will fulfill its performance obligation prior to achievement of these milestones. Because of the uncertainty of the milestone achievement, and/or the dependence on sales of our licensee, variable consideration for contingent milestones is fully constrained and is not recognized as revenue until the milestone is achieved by our licensee, to the extent collectability is reasonably certain.

Royalties. Royalties revenue consists of sales-based and minimum royalties earned under license agreements for our products. Sales-based royalties revenue represents variable consideration under the license agreements and is recognized in the period a customer sells products incorporating the Company’s licensed technologies/products. The Company estimates sales-based royalties revenue earned but unpaid at each reporting period using information provided by the licensee. The Company’s license arrangements may also provide for minimum royalties, which the Company recognizes upon the satisfaction of the underlying performance obligation, which generally occurs with delivery of the underlying technology rights to the licensee. Sales-based and minimum royalties are generally due within 45 days after the end of each quarter in which they are earned.

Contract Assets

Contract assets consist of minimum royalty revenue earned in relation to the license agreement but not yet due based on the terms of the contract. The contract asset as of June 30, 2023 is related to the Antares License Agreement. The contract asset was reduced by approximately $218,000 for royalty payments received during 2022. These royalties were received from Antares under the terms of our license agreement based on net sales of TLANDO. Based on the terms of the license agreement, the Company estimates that it will receive a royalty payment of approximately $579,000 relating to the contract asset in the third quarter of 2023.

Revenue Concentration

A major partner is considered to be one that comprises more than 10% of the Company’s total revenues. The Company recognized revenue of $0 and $500,000 for the three months ended June 30, 2023, and 2022, respectively. The Company recognized revenue of approximately $55,000 and $500,000 for the six months ended June 30, 2023, and 2022, respectively. Revenue recognized in 2023 was 100% from a related-party, Spriaso. Revenue recognized in 2022 was 100% from one major customer, Antares.