Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the historical financial statements, the notes thereto included in Item 8 “Financial Statements and Supplementary Data” and included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the Item 1A “Risk Factors” section of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and Item 1A “Risk Factors.”

Overview

We are a performance beauty company with a customer-centric approach focused on delivering breakthrough products in the self-pay aesthetic market. In February 2019, we received the approval of our first product Jeuveau® (prabotulinumtoxinA-xvfs) from the U.S. Food and Drug Administration, or FDA. In May 2019, we commercially launched Jeuveau® in the United States.

Jeuveau® is a proprietary 900 kDa purified botulinum toxin type A formulation indicated for the temporary improvement in the appearance of moderate to severe glabellar lines, also known as “frown lines,” in adults. Our primary market is the self-pay aesthetic market, which includes medical products purchased by physicians and other customers that are then sold to consumers or used in procedures for aesthetic indications that are not reimbursed by any third-party payor, such as Medicaid, Medicare or commercial insurance. We believe we offer customers and consumers a compelling value proposition with Jeuveau®. Currently, onabotulinumtoxinA (BOTOX) is the neurotoxin market leader, and prior to the approval of Jeuveau®, was the only known 900 kDa botulinum toxin type A complex approved in the United States. We believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kDa neurotoxin complex and are accustomed to injecting this formulation.

In August 2018, we received approval from Health Canada for the temporary improvement in the appearance of moderate to severe glabellar lines in adult patients under 65 years of age. We began marketing Jeuveau® in Canada in October 2019 through our distribution partner Clarion Medical Technologies, Inc., or Clarion. In September 2019, we also received approval from the European Commission, to market the product in all 28 EU member states, Iceland, Norway and Liechtenstein. In January 2021, we received a positive decision from the European Commission to add the 50 unit product to the existing approval obtained in September 2019. We plan to launch Jeuveau® in Europe in early 2022.

Impact on Our Business of Final Ruling by the U.S. International Trade Commission and the Subsequent Settlements

On January 30, 2019, Allergan and Medytox filed a complaint against us and Daewoong Pharmaceuticals Co., Ltd., or Daewoong in the ITC alleging that Jeuveau® is manufactured based on misappropriated trade secrets of Medytox and therefore the importation of Jeuveau® is an unfair act. The ITC matter, which we refer to herein as the ITC Action, is entitled In the Matter of Certain Botulinum Toxin Products. The ITC instituted an investigation as ITC Inv. No. 337-TA-1145.

On December 16, 2020, the ITC issued a final determination in the ITC Action and issued (1) a limited exclusion order prohibiting the importation of Jeuveau® into the United States for a period of 21 months and (2) a cease and desist order preventing the Company from, among other things, selling, marketing, or promoting such imported Jeuveau® in the United States for a period of 21 months. We refer to the limited exclusion order and the cease and desist order collectively as the remedial orders. The Final Determination was subject to a 60-day presidential review period before taking effect. During the presidential review period, we were permitted to continue importation and sales of Jeuveau® subject to payment of a bond of $441 per vial. During the Presidential Review period, we increased customer pricing significantly due to the bond amount required to keep Jeuveau® on the market. As a result, we generated nominal revenue from mid-December 2020 through mid-February 2021.

Effective February 18, 2021, we entered into a Settlement and License Agreement with Medytox and Allergan, which we refer to as the U.S. Settlement Agreement and another Settlement and License Agreement with Medytox which we refer to as the ROW Settlement Agreement. We refer to the U.S. Settlement Agreement and the ROW Settlement Agreement collectively as the Medytox/Allergan Settlement Agreements.

Under the Medytox/Allergan Settlement Agreements, we obtained (i) a license to commercialize, manufacture and to have manufactured for us certain products identified in the Medytox/Allergan Settlement Agreements, including Jeuveau® (the “Licensed Products”), in the United States and other territories where we license Jeuveau®, (ii) the dismissal of outstanding

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litigation against us, including the ITC Action, a rescission of the related remedial orders, and the dismissal of a civil case in the Superior Court of California against us, which we refer to together with any claims (including claims brought in Korean courts) with a common nexus of fact as the Medytox/Allergan Actions, and (iii) releases of claims against us for the Medytox/Allergan Actions. In exchange, we agreed to (i) make cash payments of $35.0 million in multiple payments over two years to Allergan and Medytox, (ii) pay to Allergan and Medytox certain royalties on the sale of Jeuveau®, based on a certain dollar amount per vial sold of Licensed Product by or on behalf of the Company in the United States, from December 16, 2020 to September 16, 2022, (iii) from December 16, 2020 to September 16, 2022, pay to Medytox a low-double digit royalty on net sales of Jeuveau® sold by us or on our behalf in territories we have licensed outside the United States; (iv) from September 16, 2022 to September 16, 2032, pay to Medytox a mid-single digit royalty percentage on net sales of Jeuveau® in the United States and all territories we have licensed outside the United States, (v) issue to Medytox of 6,762,652 shares of our common stock, par value $0.00001 per share, which we issued on February 18, 2021, and (vi) entered into a Registration Rights Agreement pursuant to which we granted certain registration rights to Medytox with respect to such shares of common stock beginning as of March 31, 2022. In addition, under the Medytox/Allergan Settlement Agreements, we made certain representations and warranties and agreed to positive and negative covenants.

On March 23, 2021, we entered into a Confidential Settlement and Release Agreement with Daewoong Pharmaceuticals Co. Ltd., or Daewoong, which we refer to as the Daewoong Settlement Agreement, a Convertible Promissory Note Conversion Agreement, which we refer to as the Conversion Agreement and the Third Amendment to the Supply Agreement (which amends the Daewoong Agreement), which we refer to as the Daewoong Agreement Amendment. We refer the Daewoong Settlement Agreement, the Conversion Agreement and the Daewoong Agreement Amendment collectively as the 2021 Daewoong Arrangement.

Under the 2021 Daewoong Arrangement, (i) Daewoong agreed to (a) pay us an amount equal to $25.5 million, (b) pay certain reasonable legal fees incurred by our litigation counsel in connection with its defense of the ITC Action (including any appeal of the resulting remedial orders), (c) cancel all remaining milestone payments up to $10.5 million in aggregate under our Daewoong Agreement, and (d) reimburse us certain amounts (calculated on a dollar amount per vials sold basis in the United States) for sales of certain products with respect to which we are required to pay Medytox and Allergan royalties pursuant to the U.S. Settlement Agreement; and (ii) we agreed to (y) release certain claims we may have against Daewoong or certain of its affiliates and representatives related to the allegations made in or the subject matter of the Medytox/Allergan Actions, or any orders, remedies and losses resulting from the Medytox/Allergan Actions, and (z) coordinate with Daewoong on certain matters related to the Medytox/Allergan Actions. In the Conversion Agreement, among other things, the parties agreed that (i) the principal balance of the $40.0 million aggregate principal amount convertible promissory note we issued to Daewoong on July 30, 2020, which we refer to as the Daewoong Convertible Note, and accrued and unpaid interest thereon shall be automatically converted, at the conversion price of $13.00 per share, into 3,136,869 shares of our common stock; and (ii) the Daewoong Convertible Note shall be deemed cancelled and satisfied in full in connection with such conversion.

Under the Daewoong Agreement Amendment, the Daewoong Agreement was amended to: (i) expand the territory within which we may distribute Jeuveau® to certain countries in Europe; (ii) reduce the period of time with respect to which we are required to deliver binding forecasts to Daewoong; (iii) introduce certain limitations on Daewoong’s ability to convert our exclusive license for certain territories to a non-exclusive license in the event we fail to meet certain minimum purchase requirements for such territory; (iv) adjust the minimum purchase requirements and reduce the transfer price per vial of Jeuveau® applicable to various territories; (v) require that any Jeuveau® supplied by Daewoong match certain shelf-life thresholds; and (vi) prohibit us from sharing certain confidential information regarding Daewoong with Medytox or its affiliates or representatives.

As a result of the royalty payments that we are required to pay under the Medytox/Allergan Settlement Agreements, after giving effect to the offset by a certain portion thereof that will be reimbursed to us under the 2021 Daewoong Arrangement, we expect that our cost of sales and gross margin will be materially negatively impacted through September 2022 and negatively impacted to a lesser extent from September 2022 to September 2032.

Daewoong License and Supply Agreement

In 2013, we and Daewoong entered into the Daewoong Agreement pursuant to which we have an exclusive distribution license to Jeuveau® from Daewoong for aesthetic indications in the United States, EU, Great Britain, Canada, Australia, Russia, C.I.S., and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. Under the Daewoong Agreement, we are required to make certain minimum annual purchases in order to maintain the exclusivity of the license. These minimum purchase obligations are contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions. In connection with our entry into the Daewoong Agreement,

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we made an upfront payment to Daewoong of $2.5 million. We further agreed to make milestone payments upon achievement of certain confidential development and commercial milestones, including a confidential payment to Daewoong upon each of the U.S. Food and Drug Administration, or FDA, and the European Medicines Agency, or the EMA, approval of Jeuveau®. Under the Daewoong Agreement, the maximum aggregate amount of milestone payments that could be owed to Daewoong upon the satisfaction of all milestones is $13.5 million. Upon FDA approval in February 2019 and EMA approval in September 2019, the Company paid $2.0 million and $1.0 million milestone payments, respectively. As of December 31, 2020, Daewoong was eligible to receive remaining contingent milestone payments of up to $10.5 million, all of which were cancelled under the 2021 Daewoong Arrangement in March 2021. Under the Daewoong Agreement, Daewoong is responsible for all costs related to the manufacturing of Jeuveau®, including costs related to the operation and upkeep of its manufacturing facility, and we are responsible for all costs related to obtaining regulatory approval, including clinical expenses, and commercialization of Jeuveau®. For additional information about the Daewoong Agreement, see Item 1 “Business—Daewoong License and Supply Agreement.”

Daewoong Convertible Note

On July 6, 2020, pursuant to a Convertible Promissory Note Purchase Agreement with Daewoong, we issued to Daewoong a Convertible Promissory Note for the principal amount of $40.0 million, which we refer to as the Daewoong Convertible Note, which was funded on July 30, 2020. On March 23, 2021, the outstanding principal balance, together with all accrued and unpaid interest thereon, in the amount of $40.8 million was converted, at the conversion price of $13.00 per share, into the right to receive 3,136,869 shares of our common stock under the Conversion Agreement. See “—Liquidity and Capital Resources—Daewoong Convertible Note” for further information.

Royalties and Notes Payable to Evolus Founders

We are obligated to make the following future payments to the founders of Evolus (i) quarterly royalty payments of a low single digit percentage of net sales of Jeuveau® and (ii) a $20.0 million promissory note that matures in November 2021. The obligations set forth in (i) above will terminate in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau® in the United States. The fair value of the obligations set forth in items (i) and (ii) are valued quarterly and are referred to in our financial statements as the “contingent royalty obligation.”

Impact of COVID-19 Outbreak on Our Business

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. The COVID-19 outbreak has caused economic and social disruption on an unprecedented scale. This disruption has resulted in business closures across the United States and significant job loss due to quarantines, government-mandated actions, stay-at-home orders and other restrictions. While it is not possible to know the full extent of these impacts as of the date this filing, we are disclosing potentially material items of which we are aware.

Health and Safety

In response to the COVID-19 outbreak, we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees, including requiring our employees and sales professionals, to work remotely if required by their local government and maintaining social distancing during any in-person work-related meetings. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, business partners and third-party service providers.

Financial position and results of operations

The COVID-19 outbreak and restrictions intended to slow the spread of COVID-19 have resulted in temporary business closures for many of our customers and, starting in mid-March 2020, negatively affected our sales. Jeuveau® is utilized in elective procedures, the costs of which are borne by the consumer and not third-party payors. As a result of the COVID-19 outbreak and restrictions intended to slow its spread, these elective procedures declined dramatically in March 2020 due to the temporary business closures or deferment of the elective procedures. While the impact of the COVID-19 outbreak on the U.S. aesthetic neurotoxin market was significant during the first half of 2020, we experienced an increase in sales starting in June 2020 that continued throughout the rest of 2020 as many states started easing restrictions on elective procedures and many of our customers re-opened their businesses. However, due to the uncertainty of the recovery and the increase in COVID-19 infections at the end of the 2020 and early in the first quarter of 2021, new variants of COVID-19 that have emerged and the possibility of further resurgences, and the availability, distribution and efficacy of vaccines and therapeutics

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for COVID-19, we cannot reasonably estimate the immediate and full impact of the COVID-19 outbreak on our ongoing business, results of operations and overall financial performance. Furthermore, even after the current COVID-19 outbreak has subsided, we may continue to experience negative impacts to our business and financial results if customers continue to defer or avoid altogether elective procedures to administer Jeuveau® due to the continued perceived risk of infection or concern of a resurgence of the COVID-19 outbreak as well as COVID-19’s global economic impact, including decreases in consumer discretionary spending and any economic slowdown or recession that has occurred or may occur in the future.

In light of the negative impacts of the COVID-19 outbreak, we took the following measures in April 2020 to reduce our operating expenses to conserve our cash resources:

•delaying non-essential projects and suspending discretionary spending;

•reducing our headcount by over 100 employees;

•temporarily reducing executive salaries and Board of Directors fees;

•reducing the size of our Board by two members; and

•delaying the European launch of Jeuveau®, which is now expected in early 2022.

Asset and liability valuation

As of December 31, 2020, we did not have any impairment with respect to our goodwill or long-lived assets, including intangible assets. Because the full extent of the impact of the COVID-19 outbreak and restrictions intended to slow the spread of COVID-19 are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash impairment charge being recorded in future periods.

Any continued adverse impact of the COVID-19 outbreak and restrictions intended to slow its spread could also cause us to make further adjustments in the future to the fair value of our contingent royalty obligation payable to Evolus Founders, which is based on Level 3 inputs using a discounted cash flows method, and these adjustments could be significant. Such Level 3 inputs that might be further impacted by uncertainties due to the COVID-19 outbreak include projected and timing of net revenues during the payment period, which terminates in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau® in the United States, the discount rate and the timing of payments.

Other estimates used in the preparation of financial statements

Additionally, any continued adverse impact of the COVID-19 outbreak and restrictions intended to slow its spread might also impact other estimates and assumptions utilized to prepare our financial statement in conformity with GAAP. Such significant estimates relate to net revenues, allowance for doubtful accounts, fair value measurements, inventory valuations, income tax valuations, and stock-based compensation, among others.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the full impact of COVID-19 on our financial condition, results of operations or cash flows in the future. In addition, see Part I. Item 1A, “Risk Factors,” included herein for updates to our risk factors regarding risks associated with the COVID-19 outbreak.

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Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

The following table summarizes our results of operations for the periods indicated:

Year Ended December 31,

Revenue:

Service revenue 0.7 0.7 —

Operating expenses:

Product cost of sales (excludes amortization of intangible assets) 18.3 8.0 10.3

Selling, general and administrative 98.2 113.6 (15.4)

Research and development 1.7 4.0 (2.3)

Revaluation of contingent royalty obligation to Evolus Founders (2.0) 4.2 (6.2)

Depreciation and amortization 7.0 4.1 2.9

Litigation settlement expenses 83.4 0.0 83.4

Restructuring costs 3.0 0.0 3.0

Non operating expense, net (9.9) (6.1) (3.8)

Income tax expense (benefit) 0.1 (15.0) 15.1

Net Revenues

We commercially launched Jeuveau® and began shipping to customers in the United States in May 2019 and launched through a distribution partner in Canada in October 2019. We record the sale of Jeuveau® in Canada as service revenue on a net basis. We currently operate in one reportable segment and all of our net revenues are derived from sales of Jeuveau®. Net revenues consist of revenues, net of adjustments primarily for customer rebates, coupon program, rewards related to the consumer loyalty program. Revenues are recognized when the control of the promised goods is transferred to the customer in an amount that reflects the consideration allocated to the related performance obligations and to which we expect to be entitled in exchange for those products or services.

Net revenues of Jeuveau® sales increased by $21.6 million to $56.5 million for the year ended December 31, 2020 from $34.9 million for the year ended December 31, 2019, primarily due to higher sales volume in the United States as partially offset by lower net average selling price. In addition, during the Presidential Review period from mid-December 2020 to mid-February 2021 of the ITC final determination, we generated nominal revenue as a result of significantly increased customer pricing due to the bond amount of $441 per 100U vial of Jeuveau® required to keep Jeuveau® on the market. As a result, we generated nominal revenue from mid-December 2020 through mid-February 2021. We anticipate that our net revenues will continue to fluctuate as we implement new marketing programs or make changes to existing programs.

Cost of Sales

Our cost of sales, primarily consist of the cost of inventory purchased from Daewoong, increased by $10.3 million to $18.3 million for the year ended December 31, 2020 from $8.0 million from the year ended December 31, 2019 primarily due to higher sales volume in 2020 as well as the depletion of inventory purchased at the one-time launch pricing in 2019. As a result of the Medytox/Allergan Settlement Agreements, cost of sales for the year ended December 31, 2020 also included royalties payable to Allergan and Medytox on the sale of Jeuveau® commencing December 16, 2020. We anticipate that our

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cost of sales will increase materially as we pay royalty payments to Allergan and Medytox pursuant to the Medytox/Allergan Settlement Agreements during the initial royalty period through September 2022 and will fluctuate as our revenues fluctuate, although a portion of these royalty payments will be reimbursed to us by Daewoong pursuant to the Daewoong Settlement Agreement.

Our gross profit, calculated as total net revenues less product cost of sales, as a percentage of net revenues decreased to 67.6% for the year ended December 31, 2020 from 77.1% for the year ended December 31, 2019, primarily due to changes in marketing programs in 2020, royalties under the Medytox/Allergan Settlement Agreements for the sales starting December 16, 2020 and the depletion of inventory purchased at the one-time launch pricing in 2019. We anticipate that our gross profit as a percentage of net revenues will decrease materially in the future as we pay royalty payments to Allergan and Medytox pursuant to the Medytox/Allergan Settlement Agreements during the initial royalty period through September 2022 and will fluctuate as we implement various marketing programs that may affect the average selling price of Jeuveau®. A portion of these royalty payments to Allergan and Medytox will be reimbursed to us by Daewoong pursuant to the Daewoong Settlement Agreement.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $15.4 million to $98.2 million for the year ended December 31, 2020 from $113.6 million for the year ended December 31, 2019, primarily resulting from delaying non-essential projects and suspending discretionary spending to minimize the impact of COVID-19 on our business. During the year ended December 31, 2019, we also incurred expenses under the Jeuveau® Experience Treatment, or J.E.T., program that ended in August 2019. Selling, general and administrative expenses may fluctuate in the future primarily due to potential changes in sales and marketing strategies and future launches internationally.

Research and Development

Research and development expenses decreased by $2.3 million to $1.7 million for the year ended December 31, 2020 from $4.0 million for the year ended December 31, 2019. The decrease was primarily attributable to the completion of the U.S. clinical trial activities related to Jeuveau® and delaying non-essential projects and suspending discretionary spending to minimize the impact of COVID-19 on our business. We expect that our overall research and development expense will increase if and when we seek to develop further product candidates and as we pursue regulatory approvals in other jurisdictions.

Revaluation of Contingent Royalty Obligation Payable to Evolus Founders

The change in the fair value of the contingent royalty obligation payable to Evolus Founders is recorded in operating expenses in each reporting period. During the year ended December 31, 2020 and 2019, the revaluation gain of $2.0 million and charge of $4.2 million, respectively, were primarily driven by changes in management assumptions related to revenue forecasts including the impact of the COVID-19 outbreak, discount rate reflecting changes in our cost of capital, developments in the ITC litigation and timing of cash flows.

Depreciation and Amortization

Depreciation and amortization increased to $7.0 million for the year ended December 31, 2020 from $4.1 million for the year ended December 31, 2019. This was primarily attributable to amortization of the distribution right asset related to Jeuveau® over 20 years as well as amortization of the internal-use software costs over two years.

Litigation Settlement Expenses

Pursuant to settlement agreements we entered into with Allergan and Medytox in connection with the settlement of claims relating to certain intellectual property disputes related to Jeuveau® on February 18, 2021, we recorded a charge in operating expenses and related liability of $83.4 million in December 2020, of which $35.0 million will be paid in cash over the next two years and $48.4 million was settled with the issuance of 6,762,652 of shares of our common stock on February 18, 2021.

Restructuring Costs

Restructuring costs primarily included $3.0 million of termination benefits for employees we separated in April 2020 to minimize the impact of COVID-19 on our business.

Non-Operating Expense, Net

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Non-operating expenses, net, increased by $3.8 million to $9.9 million for the year ended December 31, 2020 from $6.1 million for the year ended December 31, 2019, primarily due to higher interest expense on the long-term debt from Oxford Finance, LLC borrowed in March 2019 and lower interest income on our short-term investments. On January 4, 2021, we entered into a letter agreement with Oxford Finance, LLC, and paid Oxford Finance, LLC $76.4 million to discharge in full all outstanding obligations, included accrued interest.

Income Taxes (Benefit) Expense

Income tax expense was $0.1 million for the year ended December 31, 2020 compared to a benefit of $15.0 million for the year ended December 31, 2019. Upon the reclassification of the indefinite-lived IPR&D intangible asset to a definite-lived distribution right intangible asset in the first quarter of 2019 upon FDA approval of Jeuveau®, the related deferred tax liability became a source of future taxable income in the assessment of the realization of deferred tax assets, and as a result, $15.0 million of the previously existing valuation allowance was released in the year ended December 31, 2019.

Liquidity and Capital Resources

As described elsewhere in this Annual Report, we believe that our current capital resources are not sufficient to meet our obligations and fund operations through at least the next 12 months. We will be required to raise additional capital to meet our operating, debt and settlement obligations coming due. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly scale back or discontinue the commercialization of Jeuveau®, or relinquish or otherwise dispose of rights to Jeuveau® on unfavorable terms. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have a limited history of generating revenue from Jeuveau® and have never been profitable. As of December 31, 2020, we had an accumulated deficit of $376.1 million. We incurred net losses of $163.0 million and $90.0 million in the years ended December 31, 2020 and 2019, respectively. We expect to continue to incur significant expenses for the foreseeable future as we increase marketing efforts for Jeuveau® and maintain our regulatory approvals. As of December 31, 2020, we had cash and cash equivalents of $102.6 million and short-term investments of $5.0 million.

On January 4, 2021, we entered into an agreement with Oxford Finance LLC, or Oxford, pursuant to which the Company paid Oxford $76.4 million to pay off the Oxford Term Loan. On February 18, 2021, we entered into settlement agreements with Medytox, Inc., or Medytox, Allergan, Inc. and Allergan Limited, or collectively as Allergan, in connection with the ITC Action, for which we agreed to pay $15.0 million in 2021, $15.0 million in 2022 and $5.0 million in 2023 with additional terms as described below. Additionally, we are obligated to pay the Evolus Founders the promissory note of $20.0 million in November 2021.

Our financial statements as of December 31, 2020 have been prepared under the assumption that we will continue as a going concern for the next 12 months, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.

Follow-On Public Offering

In November 2019, we closed a follow-on public offering and sold 5,999,550 shares of our common stock at a price of $13.00 per share, inclusive of 782,550 shares of common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The net proceeds were approximately $73.3 million after deducting underwriting discounts and commissions, excluding other offering expenses.

The Oxford Loan and Security Agreement

On March 15, 2019, we entered into a Loan and Security Agreement, or the credit facility, with Oxford Finance, LLC, as collateral agent, or Oxford, and the lenders party thereto from time to time, pursuant to which the lender would make term loans available to us of up to $100.0 million, or the credit facility. The credit facility provided that the term loans would be funded in two advances. The first tranche of $75.0 million was funded on the closing date, and the second tranche of $25.0

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million was not borrowed. The credit facility bore an annual interest rate equal to the greater of 9.5%, or the 30-day U.S. Dollar LIBOR rate plus 7.0%.

On January 4, 2021, we entered into a letter agreement, or Payoff Letter, with Oxford, pursuant to which (i) on January 4, 2021, we paid Oxford $76.4 million, or the Payoff Amount, to discharge in full all outstanding obligations, included accrued interest, under the Loan and Security agreement, and (ii) effective upon such repayment, the Loan and Security Agreement, and all unfunded commitments thereunder, guarantees and other security interests granted to Oxford, and all other obligations of and restrictions on us under the Loan and Security Agreement, terminated.

As a condition to entering into the Payoff Letter, Oxford agreed to waive a total of approximately $4.3 million of fees comprised of (i) approximately $2.8 million of the Final Payment (as defined under the Loan and Security Agreement) and (ii) the prepayment fee of $1.5 million otherwise payable pursuant to the terms of the Loan and Security Agreement.

Contingent Promissory Note Payable to Evolus Founders

We were acquired by Strathspey Crown Holdings Group, LLC, or SCH, in 2013 and subsequently by its subsidiary, Alphaeon Corporation, or Alphaeon, by means of a stock purchase agreement, or Stock Purchase Agreement, pursuant to which Alphaeon assumed certain payment obligations related to the acquisition. On December 14, 2017, the Stock Purchase Agreement was amended, or Amended Stock Purchase Agreement, and, as a result, effective upon the closing of the our initial public offering in 2018, the Company assumed all of Alphaeon’s payment obligations under the Amended Stock Purchase Agreement. Among the payment obligations under the Amended Stock Purchase Agreement is a $20.0 million promissory note that matures in November 2021.

Contingent Royalty Obligation Payable to the Evolus Founders

On February 12, 2018, related to the acquisition of Evolus in 2013 by SCH and Alphaeon, the Company recognized a contingent royalty obligation payable to the Evolus Founders. As of December 31, 2020 and 2019, we recorded an aggregate balance of $41.5 million and $44.7 million, respectively, on our balance sheet for the payment obligation.

The Daewoong Convertible Note

On July 6, 2020, we entered into a Convertible Promissory Note Purchase Agreement with Daewoong for the purchase and sale of a Convertible Promissory Note for the principal amount of $40.0 million, which we refer to as the Daewoong Convertible Note, which was funded on July 30, 2020. Additionally, on July 6, 2020, we, Daewoong, and Oxford Finance, LLC entered into a Subordination Agreement pursuant to which the Convertible Note will be subordinated to our obligations under that certain Loan and Security Agreement, dated as of March 15, 2019, by and between Oxford and us.

The Daewoong Convertible Note bore interest at a rate of 3.0% payable semi-annually in arrears on June 30th and December 31st of each year and matures on July 30, 2025, subject to earlier conversion as provided below.

As described in “—Overview—Impact on Our Business of Final Ruling by the U.S. International Trade Commission and the Subsequent Settlements,” under the Conversion Agreement, the outstanding principal balance, together with all accrued and unpaid interest thereon, in the amount of $40.8 million was converted, at the conversion price of $13.00 per share, into 3,136,869 shares of our common stock on March 23, 2021.

Litigation Settlement

On February 18, 2021, upon entering into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes related to Jeuveau®, we agreed to pay to Allergan and Medytox $35.0 million in multiple payments over two years and also issued 6,762,652 shares its common stock to Medytox. In addition, during period from December 16, 2020 to September 16, 2022, we agreed to pay to Allergan and Medytox royalties on the sale of Jeuveau®, based on a certain dollar amount per vial sold in the United States, and a low-double digit royalty on net sales of Jeuveau® sold in other Evolus territories. During the period from September 17, 2022 to September 16, 2032, we agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau®. The royalty payments will be made quarterly.

Operating Leases

Our corporate headquarters is located in Newport Beach, California, in a facility that we subleased until January 2020 under a non-cancelable operating lease for a fixed amount each month. On May 15, 2019, we entered into a non-cancelable operating lease for the same office facility with the original lessor. This non-cancelable operating lease commenced on February 1,

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2020 and expires on January 31, 2025 with an option to extend the term for an additional 60 months. Lease payments increase based on an annual rent escalation clause that occurs on each February 1 anniversary. We may, under certain circumstances, terminate the lease on the 36 months anniversary of the lease commencement date by providing a written notice 12 months prior to such anniversary and paying a termination fee equal to six months basic rent plus certain other expenses. We have an option to extend the term of the lease for an additional 60 months.

License and Supply Agreement

In connection with the Daewoong Agreement, we are obligated to make future milestone payments to Daewoong for certain confidential development and commercial milestones associated with Jeuveau®. As of December 31, 2020, Daewoong was eligible to receive contingent milestone payments of up to $10.5 million, all of which were cancelled under the Daewoong Agreement Amendment in March 2021.

The Daewoong Agreement also includes certain minimum annual purchases we are required to make in order to maintain the exclusivity of the license. We may, however, meet these minimum purchase obligations by achieving certain market share in its covered territories. These potential minimum purchase obligations were contingent upon the occurrence of future events, including receipt of governmental approvals and our future market share in various jurisdictions.

Current and Future Capital Requirements

We have determined that our current financial condition raises substantial doubt about our ability to continue as a going concern and, as described above, we believe that our current capital resources are not sufficient to meet our obligations and fund operations through at least the next 12 months.

Until such time, if ever, as we can generate substantial product revenue to cover our costs of operations, we expect to finance our cash needs through entering into licensing or collaboration agreements with partners, other debt or equity financings or other sources of financing. Sufficient funds may not be available to us at all or on attractive terms when needed from these sources. To the extent that we raise additional capital through the future sale of equity, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. If we are unable to obtain additional funding from these or other sources when needed, we may need to significantly reduce our controllable and variable expenditures and current rate of spending through reductions in staff and delaying, scaling back, or suspend certain research and development, sales and marketing programs and other operational goals.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources, which consist of cash, cash equivalents and short-term investments, sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of our products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the timing and amounts of the royalty and other payments in connection with the settlement agreements with Medytox and Allergan;

•the timing and amounts of the royalty and other payments to Evolus Founders;

•the number and characteristics of any future product candidates we develop or acquire;

•our ability to forecast demand for our products, scale our supply to meet that demand and manage working capital effectively;

•the cost of manufacturing our product or any future product candidates and any products we successfully commercialize, including costs associated with our supply chain;

•the cost of commercialization activities for Jeuveau® or any future product candidates are approved or cleared for sale, including marketing, sales and distribution costs;

•the cost of maintaining a sales force, the productivity of that sales force, and the market acceptance of our products;

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•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;

•any product liability or other lawsuits related to our products;

•the expenses needed to attract and retain skilled personnel;

•the costs associated with being a public company;

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents and any other future patent litigation we may be involved in; and

•the timing, receipt and amount of sales of any future approved or cleared products, if any.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in millions)

Net cash (used in) provided by:

Change in cash and cash equivalents (7.3) 16.7 $ (24.0)

Cash and cash equivalents, beginning of period 109.9 93.2

Cash and cash equivalents, end of period $ 102.6 $ 109.9

Operating Activities

Cash used in operating activities decreased by $35.5 million to $57.9 million for the year ended December 31, 2020 from $93.4 million for the year ended December 31, 2019. The decrease in net cash used in operating activities reflects the decrease in net loss as adjusted for non-cash items as well as timing of receipts from customers and payments to vendors in the ordinary course of business.

For the year ended year ended December 31, 2020, operating activities used $57.9 million of cash, which primarily resulted from our net loss of $163.1 million as adjusted for certain non-cash charges including $10.6 million of stock-based compensation expense, $2.1 million of provision of allowance for doubtful accounts, $2.7 million of amortization of debt discount and issuance costs, $7.0 million of depreciation and amortization and $48.4 million of non-cash portion of accrued settlement expenses, partially offset by a gain of $2.0 million in revaluation of our contingent royalty obligation. In addition, net operating assets and liabilities changed by $35.6 million primarily driven by $35.0 million of accrued settlement expenses and various timing of inventory purchases and payments, collections from customers and payments to vendors.

For the year ended year ended December 31, 2019, operating activities used $93.4 million of cash, which primarily resulted from our net loss of $90.1 million as adjusted for certain non-cash charges including $9.5 million of stock-based compensation expense, a charge of $4.2 million in revaluation of our contingent royalty obligation, $2.2 million of amortization of debt discount and issuance costs and $4.1 million of depreciation and amortization, partially offset by a gain of $15.1 million of deferred income tax provision. Net operating assets and liabilities changed by $8.5 million primarily driven by the timing of inventory purchases and payments, collections from customers and payments to vendors.

Investing Activities

Cash provided by investing activities was $12.2 million for the year ended December 31, 2020 compared to $23.4 million of cash used for the year ended December 31, 2019. The change in cash provided or used in investing activities was attributable to a decrease in purchases of short-term investments and their maturities in 2020.

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Financing Activities

Cash provided by financing activities decreased by $95.2 million to $38.3 million for the year ended December 31, 2020 from $133.5 million for the year ended December 31, 2019.

For the year ended December 31, 2020, financing activities consisted of the proceeds of $40.0 million received from the Convertible Note in July 2020 as partially offset by royalty payments to Evolus Founders and debt obligations.

For the year ended year ended December 31, 2019, financing activities consisted of the proceeds of $71.7 million received from our Oxford credit facility net of discounts and issuance costs and $73.1 million from a follow-on equity offering, partially offset by a $9.7 million in royalty and milestone payments to Evolus Founders and a $3.0 million payment to Daewoong upon FDA approval of Jeuveau® in February 2019.

Indebtedness

See “—Liquidity and Capital Resources” for a description of our credit facility with Oxford and convertible note with Daewoong.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for any other contractually narrow or limited purpose.

Contractual Obligations and Commitments

Not applicable.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements as well as the expenses incurred during the reporting period. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and such differences could be material to the financial position and results of operations. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience.

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when the Company satisfies the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.

We currently operate in one reportable segment and all of our net revenue is derived from sales of Jeuveau®. We generate product revenue from the sale of Jeuveau® in the United States and service revenue from the sale of Jeuveau® through a distribution partner in Canada. For product revenue, we recognize revenue when control of Jeuveau® is transferred to a

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customer upon receipt. We do not accept product returns except under limited circumstances such as damages in transit or ineffective product. Any amounts related to taxes assessed by governmental authorities are excluded from revenue measurement. Shipping and handling costs associated with outbound product freight are accounted for as fulfillment costs and are included in selling, general, and marketing expenses on the condensed statements of operations and comprehensive loss. Payment terms are short-term and customer contracts do not include significant financing components. For service revenue, we are determined to be the agent in the distribution of Jeuveau® in Canada and record the sale as service revenue on a net basis.

We provide customers with trade and volume discounts and prompt pay discounts that are directly reflected in the invoice price. Revenues are recorded net of sales-related adjustments, wherever applicable, for the volume rebates, coupon programs and consumer loyalty program. Volume rebates are contractually offered to certain customers. Generally, the rebates payable to each customer are determined based on the contract and quarterly purchase volumes. Through the coupon program, customers receive coupons redeemable into gift cards funded by us for the benefit of consumers. The coupons are accounted for as variable consideration. We estimate the coupon redemption rates based on historical data and expectations of future redemptions prior to the coupon expiration date. The coupons are accrued based on estimated redemption rates and the volume of products purchased and recorded as a reduction to revenues on product delivery. The consumer loyalty program allows participating customers to earn rewards for qualifying treatments to their patients (i.e. consumers) using Jeuveau® and redeem the rewards for Jeuveau® in the future at no additional cost. The loyalty program represents a customer option that provides a material right and, accordingly, is a performance obligation. At the time Jeuveau® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward, or Reward, that the customer might redeem in the future. The standalone selling price of the Reward is measured based on historical sales data, average selling price of Jeuveau® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers. The portion of invoice price allocated to the Reward is initially recorded as deferred revenue. Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is reversed and included in net revenue.

Accounts receivable are recorded at the invoiced amount and do not bear interest. We assess the probability that we will collect the entitled consideration in exchange for the goods sold, by considering the customer’s ability and intention to pay when consideration is due. On a recurring basis, we estimate the amounts of receivables considered uncollectible to reflect an allowance for doubtful accounts.

Litigation Settlement

On February 18, 2021, we entered into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes relating to Jeuveau®. Pursuant the settlement agreements, we agreed to pay to Allergan and Medytox cash payments over two years and issued our common stock to Medytox. In addition, for the period from December 16, 2020 to September 16, 2022, we agreed to pay to Allergan and Medytox a royalty on the sale of Jeuveau®, based on a certain dollar amount per vial sold in the United States and a low-double digit royalty on net sales of Jeuveau® sold in other territories. For the period from September 17, 2022 to September 16, 2032, we agreed to pay to Medytox a mid-single digit royalty percentage on net sales of Jeuveau® in the United States and other territories. The royalty payments will be made quarterly. See Item 8. Financial Statements and Supplementary Data - Note 9 Commitments and Contingenciesfor additional details on the settlement agreements.

We recorded the costs associated with the cash payments and the issuance of our common stock in litigation settlement expenses in the statements of operations and comprehensive loss for the year ended December 31, 2020 and related liabilities in accrued litigation settlement expenses on the balance sheet as of December 31, 2020. A portion of the liabilities was settled with the issuance of our common stock subsequently in February 2021. The royalty payments are recorded as cost of sales in the statements of operations and comprehensive loss at the time the corresponding sales are recognized starting on December 16, 2020.

Contingent Royalty Obligation and Promissory Note Payable to Evolus Founders

We determine the fair value of the contingent royalty obligation payable to the Evolus Founders under the Amended Purchase Agreement based on significant unobservable inputs using a discounted cash flows method. Changes in the fair value of this contingent royalty obligation are determined each period end and recorded in operating expenses in the statements of operations and comprehensive loss and in the current and non-current liabilities in the balance sheets. The significant unobservable input assumptions that can significantly change the fair value includes (i) projected net revenues during the payment period, (ii) the discount rate and (iii) the timing of payments.

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We also determined the fair value of the contingent promissory note payable at present value using a discount rate for similar rated debt securities and is based on an estimated date that we believe the contingent promissory note will mature. Accretion related to the contingent promissory note is recorded in interest expense of the statements of operations and comprehensive loss with a corresponding increase to the non-current liabilities section of the balance sheets.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. We perform an annual qualitative assessment of goodwill in the fourth quarter each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, we perform a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, we have determined that there is one reporting unit. There has been no impairment of goodwill for any of the periods presented.

Intangible Assets

Upon FDA approval of Jeuveau® in February 2019, in process research and development (“IPR&D”) related to Jeuveau® was evaluated as completed and reclassified to a definite-lived distribution right intangible asset, which is amortized over the period the asset is expected to contribute to our future cash flows. We determined the pattern of this intangible asset’s future cash flows could not be readily determined with a high level of precision. As a result, the distribution right intangible asset is being amortized on a straight-line basis over the estimated useful life of 20 years.

We capitalize certain internal-use software costs associated with the development of its mobile and web-based customer platforms. These costs include personnel expenses and external costs that are directly associated with the software projects. These costs are included as intangible assets in the accompanying condensed balance sheets. The capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful life of two years upon being placed in service.

We review long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed. An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value for assets to be held and used or fair value less cost to sell for assets to be disposed of. We also review the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life. Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized. There was no material impairment of long-lived assets for any periods presented.

Recently Issued and Adopted Accounting Pronouncements

We describe the recently issued accounting pronouncements that apply to us in Item 8. Financial Statements and Supplementary Data -Note 2, Basis of Presentation and Summary of Significant Accounting Policies-Recent Accounting Pronouncements.

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Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable.

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Item 8. Financial Statements and Supplementary Data.

Evolus, Inc.

Index to Financial Statements

Page

Report of Independent Registered Public Accounting Firm 64

Financial Statements:

Balance Sheets 65

Statements of Operations and Comprehensive Loss 66

Statements of Stockholders’ Equity (Deficit) 67

Statements of Cash Flows 68

Notes to Financial Statements 70

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Evolus, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Evolus, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Irvine, California

March 25, 2021

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Evolus, Inc.

Balance Sheets

(in thousands, except par value and share data)

December 31,

ASSETS

Current assets

Prepaid expenses and other current assets 7,016 5,326

Property and equipment, net 1,297 902

Operating lease right-of-use assets 3,414 4,068

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current Liabilities

Accrued litigation settlement expenses 63,421 —

Contingent royalty obligation payable to Evolus Founders 3,446 3,483

Contingent promissory note payable to Evolus Founders 19,068 —

Term loan, net of discount and issuance costs 74,384 —

Accrued litigation settlement expenses 20,000 —

Contingent royalty obligation payable to Evolus Founders 38,100 41,200

Contingent promissory note payable to Evolus Founders — 17,945

Term loan, net of discounts and issuance costs — 73,508

Deferred tax liability 25 —

Commitments and contingencies (Note 9)

Stockholders’ (deficit) equity

Accumulated other comprehensive gain — 6

Total stockholders’ (deficit) equity (72,958) 79,457

Total liabilities and stockholders’ (deficit) equity $ 209,068 $ 240,442

See accompanying notes to financial statements.

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Evolus, Inc.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Year Ended December 31,

Revenue:

Operating expenses:

Product cost of sales (excludes amortization of intangible assets) 18,299 8,014

Revaluation of contingent royalty obligation to Evolus Founders (2,007) 4,160

Depreciation and amortization 7,027 4,132

Litigation settlement expenses 83,421 —

Restructuring costs 2,956 —

Other income (expense):

Income tax expense (benefit) 77 (15,027)

Other comprehensive gain:

Unrealized (loss) gain on available-for-sale securities, net of tax (6) 6

Net loss per share, basic and diluted $ (4.83) $ (3.19)

See accompanying notes to financial statements.

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Evolus, Inc.

Statements of Stockholders’ (Deficit) Equity

(in thousands, except share data)

Shares Amount Shares Amount

Stock-based compensation — — — — 9,624 — — 9,624

Other comprehensive gain — — — — — 6 — 6

Other comprehensive loss — — — — — (6) — (6)

See accompanying notes to financial statements.

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Evolus, Inc.

Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities

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

Depreciation and amortization 7,027 4,132

Amortization of discount on short-term investments (427) (1,038)

Amortization of operating lease right-of-use assets 654 873

Amortization of debt discount and issuance costs 2,691 2,156

Paid-in-kind interest on convertible note 506 —

Revaluation of contingent royalty obligation to Evolus Founders (2,007) 4,160

Non-cash portion of accrued settlement expenses 48,421 —

Changes in assets and liabilities:

Prepaid expenses and other current assets (1,690) (1,874)

Accrued settlement expenses 35,000 —

Operating lease liabilities (734) (654)

Net cash used in operating activities (57,871) (93,383)

Cash flows from investing activities

Purchases of property and equipment (815) (345)

Additions to capitalized software (2,323) (4,222)

Net cash provided by (used in) investing activities 12,194 (23,434)

Cash flows from financing activities

Payment of contingent royalty obligation to Evolus Founders (1,131) (9,677)

Proceeds from issuance of convertible note 40,000 —

Milestone payment for intangible assets — (3,000)

Proceeds from issuance of long-term debt, net of discounts — 73,906

Payments for debt issuance costs — (2,205)

Payment for debt obligation (522) (1,044)

Proceeds from follow-on offering, net of underwriting fees — 73,315

Payments for offering costs — (203)

Issuance of common stock in connection with incentive equity plan — 2,455

Net cash provided by financing activities 38,347 133,547

Change in cash and cash equivalents (7,330) 16,730

Cash and cash equivalents, beginning of period 109,892 93,162

See accompanying notes to financial statements.

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Evolus, Inc.

Statements of Cash Flows (Continued)

(in thousands)

Year Ended December 31,

Supplemental disclosure of cash flow information

Cash paid for income taxes $ 65 $ 4

Non-cash investing and financing information:

Landlord paid tenant improvements $ — $ 781

Financed D & O insurance payment $ — $ 1,561

Capitalized software recorded in accounts payable and accrued expenses $ — $ 87

Accrued offering costs, unpaid $ — $ (90)

See accompanying notes to financial statements.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Note 1. Description of Business

Description of Business

Evolus, Inc., (“Evolus” or the “Company”) is a performance beauty company focused on delivering products in the self-pay aesthetic market. The Company received the approval of its first product Jeuveau® (prabotulinumtoxinA-xvfs) from the U.S. Food and Drug Administration (the “FDA”) in February 2019. The product was also approved by Health Canada in August 2018 and the European Commission (“EC”) in September 2019. Jeuveau® is a proprietary 900 kDa purified botulinum toxin type A formulation indicated for the temporary improvement in the appearance of moderate to severe glabellar lines, also known as “frown lines,” in adults. The Company commercially launched Jeuveau® in the United States in May 2019 and in Canada through a distribution partner in October 2019. The Company currently generates all of its net revenues from Jeuveau®. The Company is headquartered in Newport Beach, California.

In November 2019, the Company completed a follow-on public offering and issued 5,999,550 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase an additional 782,550 shares of common stock, at a price to the public of $13.00 per share. The Company received net proceeds of approximately $73,315 from the offering, after deducting underwriting discounts and commissions, excluding other offering expenses.

Liquidity and Financial Condition

The Company believes that its current capital resources are not sufficient to meet its obligations and fund operations through at least the next 12 months from the date the accompanying financial statements are issued. The Company will be required to raise additional capital to meet its operating, debt and settlement obligations coming due. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. If the Company is unable to raise additional capital when required or on acceptable terms, the Company will be required to take action to address the Company’s liquidity needs, which may include significantly scaling back or discontinuing the commercialization of Jeuveau®, or relinquish or otherwise dispose of rights to Jeuveau® on unfavorable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Since inception, the Company has incurred recurring net operating losses and negative cash flows from operating activities and management expects operating losses and negative cash flows to continue for at least the next 12 months. As of December 31, 2020, the Company had $102,562 in cash and cash equivalents plus $5,000 in short-term investments and an accumulated deficit of $376,072. On January 4, 2021, the Company and Oxford Finance LLC (“Oxford”) entered into an agreement, pursuant to which the Company paid Oxford $76,447 to pay off the Oxford Term Loan. See Note 6. Oxford Term Loan for additional information. On February 18, 2021, the Company, Medytox, Inc. (“Medytox”), Allergan, Inc. and Allergan Limited (together, “Allergan”) entered into settlement agreements in connection with the International Trade Commission (“ITC”) action, for which the Company agreed to pay $15,000 in 2021, $15,000 in 2022 and $5,000 in 2023 with additional terms including specified royalty payments as described below and in Note 9. Commitments and Contingencies —Legal Proceedings. Additionally, the Company is obligated to pay the Evolus Founders the promissory note of $20,000 in November 2021. See Note 13. Related Party Transactions for more information.

On December 16, 2020, the ITC issued its final determination in the ITC Action (as defined in Note 9. Commitments and Contingencies). The final determination partially affirmed the ALJ’s ruling in the initial determination that found a violation of Section 337 of the Tariff Act of 1930 had occurred by reason of a misappropriation of certain manufacturing process trade secrets. The ITC also reversed the ALJ’s finding that a trade secret exists with respect to a bacterial strain. As a result, the ITC issued (1) a limited exclusion order prohibiting the importation of Jeuveau® into the United States for a period of 21 months and (2) a cease and desist order preventing the Company from, among other things, selling, marketing, or promoting such imported Jeuveau® in the United States for a period of 21 months (collectively, the “Remedial Orders”). The Final Determination was subject to a 60-day presidential review period before taking effect. During the presidential review period, the Company was permitted to continue importation and sales of Jeuveau® subject to payment of a bond. Effective February 18, 2021, the Company, Medytox and Allergan entered into certain agreements in connection with the settlement of certain claims relating to or arising from the Remedial Orders, the ITC Investigation, the California Litigation, the Korea Actions (as each of such terms are defined in Note 9) and certain other matters related thereto. On March 23, 2021, the Company and

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Daewoong entered into certain agreements in connection with the ITC Action, the California Litigation, the Korea Action and the Medytox/Allergan Settlement Agreements (as each of such terms are defined in Note 9). See Note 9. Commitments and Contingencies —Legal Proceedings for additional information.

The COVID-19 outbreak that was first detected in Wuhan, China, in December 2019, has negatively impacted and disrupted the global economy and financial markets on an unprecedented scale, which could interfere with the Company’s ability to access financing when and on terms that the Company desires. In an effort to reduce operating expenses and conserve cash resources, the Company separated approximately 100 employees, temporarily reduced executive salaries and Board of Directors fees and reduced the size of its Board of Directors by two members during the year ended December 31, 2020.

The accompanying financial statements as of December 31, 2020 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate sufficient revenue. The accompanying financial statements as of December 31, 2020 did not include any adjustments that might result from the outcome of this uncertainty.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Use of Estimates

Management is required to make certain estimates and assumptions in order to prepare financial statements in conformity with GAAP. Such estimates and assumptions affect the reported financial statements. The Company’s most significant estimates relate to net revenues, allowance for doubtful accounts, fair value measurements, goodwill and long-lived asset valuations and impairment assessments, inventory valuations, income tax valuations, stock-based compensation and royalty obligations, among others. Management bases estimates on historical experience and on assumptions that management believes are reasonable. The Company’s actual results could differ materially from those estimates.

Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, where possible, management has made appropriate accounting estimates with respect to certain accounting matters, which include the fair value of royalty obligations, allowance for doubtful accounts, inventory valuation and impairment assessments of goodwill and other long-lived assets, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.

Risks and Uncertainties

In 2013, Evolus and Daewoong Pharmaceuticals Co. Ltd. (“Daewoong”) entered into an agreement (“Daewoong Agreement”), pursuant to which, the Company has an exclusive distribution license to Jeuveau® from Daewoong for aesthetic indications in the United States, European Union, Great Britain, Canada, Australia, Russia, Commonwealth of Independent States, and South Africa, as well as co-exclusive distribution rights with Daewoong in Japan. Jeuveau® is manufactured by Daewoong in a facility in South Korea. The Company also has the option to negotiate first with Daewoong to secure a distribution license for any product that Daewoong directly or indirectly develops or commercializes that is classified as an injectable botulinum toxin (other than Jeuveau®) in a territory covered by the Daewoong Agreement. The Company relies on Daewoong, its exclusive and sole supplier, to manufacture Jeuveau®. Any termination or loss of significant rights, including exclusivity, under the Daewoong Agreement would materially and adversely affect the Company’s commercialization of Jeuveau®. The Daewoong Agreement, and Daewoong’s rights relating to Jeuveau®, are subject to litigation. See Note 9. Commitments and Contingencies for additional information regarding such litigation.

The Company commercially launched Jeuveau® in the United States in May 2019 and in Canada through its distribution partner in October 2019 and, as such, has a limited history of sales. If any previously granted approval is retracted or the

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Company is denied approval or approval is delayed by any other regulators, it may have a material adverse impact on the Company’s business and its financial statements.

The Company is also subject to risks common to companies in the pharmaceutical industry including, but not limited to, dependency on the commercial success of Jeuveau®, the Company’s sole commercial product, significant competition within the medical aesthetics industry, its ability to maintain regulatory approval of Jeuveau®, the need for additional financing to achieve its goals, third party litigation and challenges to its intellectual property, uncertainty of broad adoption of its product by physicians and patients, its ability to in-license, acquire or develop additional product candidates and to obtain the necessary approvals for those product candidates, and the need to scale manufacturing capabilities over time.

The COVID-19 outbreak and restrictions intended to slow the spread of COVID-19, including quarantines, government-mandated actions, stay-at-home orders and other restrictions, have adversely affected the Company’s business in a number of ways, which have resulted, and may continue to result, in a period of business disruption and in reduced sales and operations. In addition, any disruption and volatility in the global capital markets may increase the Company’s cost of capital and adversely affect its ability to access financing when and on terms that we desire. Any of these events could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker. The Company has determined that it operates in a single operating and reportable segment. The Company’s chief operating decision maker is its Chief Executive Officer who manages operations and reviews the financial information as a single operating segment for purposes of allocating resources and evaluating its financial performance.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term investments and accounts receivable. Substantially all of the Company’s cash is held by financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. To date, the Company has not experienced any losses associated with this credit risk and continues to believe that this exposure is not significant. The Company invests its excess cash, in line with its investment policy, primarily in money market funds and debt instruments of U.S. government agencies.

The Company’s accounts receivable is derived from customers located principally in the United States. Concentrations of credit risk with respect to trade receivables are limited due to the Company’s credit evaluation process. The Company does not typically require collateral from its customers. Credit losses historically have not been material. The Company continuously monitors customer payments and maintains an allowance for doubtful accounts based on its assessment of various factors including historical experience, age of the receivable balances, and other current economic conditions or other factors that may affect customers’ ability to pay.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities at purchase of three months or less that can be liquidated without prior notice or penalty. Cash and cash equivalents may include deposits, money market funds and debt securities. Amounts receivable from credit card issuers are typically converted to cash within two to four days of the original sales transaction and are considered to be cash equivalents.

Short-Term Investments

Short-term investments consist of available-for-sale U.S. Treasury securities with original maturities greater than three months and remaining maturities of less than twelve months. These investments are recorded at fair value based on quoted prices in active markets, with unrealized gains and losses reported in other comprehensive gain (loss) in the Company’s statements of operations and comprehensive loss. Purchase premiums and discounts are recognized in interest expense using the effective interest method over the terms of the securities. Realized gains and losses and declines in fair value that are

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

deemed to be other than temporary are reflected in the statements of operations and comprehensive loss using the specific-identification method.

The Company periodically reviews all available-for-sale securities for other than temporary declines in fair value below the cost basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company also evaluates whether it has plans or is required to sell short-term investments before recovery of their amortized cost bases. To date, the Company has not identified any other than temporary declines in fair value of its short-term investments.

Inventories

Inventories consist of finished goods held for sale and distribution. Cost is determined using the first‐in, first‐out method with prioritization of the items with the earliest expiration dates. Inventory valuation reserves are established based on a number of factors including, but not limited to, finished goods not meeting product specifications, product excess and obsolescence, or application of the lower of cost or net realizable value concepts. The determination of events requiring the establishment of inventory valuation reserves, together with the calculation of the amount of such reserves may require judgment. No material inventory valuation reserves have been recorded for the periods presented. Adverse changes in assumptions utilized in the Company’s inventory reserve calculations could result in an increase to its inventory valuation reserves.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in an orderly transaction between market participants in a principal market on the measurement date.

The fair value hierarchy defines a three-tiered valuation hierarchy for disclosure of fair value measurement is classified and disclosed by the Company in one of the three categories as follows:

•Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, or can be corroborated by observable market data for substantially the full term of the asset or liability; and

•Level 3—Prices or valuation techniques that require inputs that are unobservable that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of approximately five years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the related lease.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company performs an annual qualitative assessment of its goodwill in the fourth quarter of each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, the Company performs a two-step process. The first step involves comparing the fair value of the Company’s reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, the Company has determined that it has one reporting unit. There was no impairment of goodwill for any of the periods presented.

Intangible Assets

Upon FDA approval of Jeuveau® in February 2019, the in process research and development (“IPR&D”) related to Jeuveau® was evaluated as completed and reclassified to a definite-lived distribution right intangible asset, which is amortized over the period the asset is expected to contribute to the future cash flows of the Company. The Company determined the pattern of this intangible asset’s future cash flows could not be readily determined with a high level of precision. As a result, the distribution right intangible asset is being amortized on a straight-line basis over the estimated useful life of 20 years.

The Company capitalizes certain internal-use software costs associated with the development of its mobile and web-based customer platforms. These costs include personnel expenses and external costs that are directly associated with the software projects. These costs are included as intangible assets in the accompanying balance sheets. The capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful life of two years upon being placed in service.

The Company reviews long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed. An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value for assets to be held and used or fair value less cost to sell for assets to be disposed of. The Company also reviews the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life. Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized. There was no material impairment of long-lived assets for any periods presented.

Leases

In accordance with Accounting Standards Codification 842, Leases (“ASC 842”), at the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, upon lease commencement, the Company records a lease liability which represents the Company’s obligation to make lease payments arising from the lease, and a corresponding right-of-use (“ROU”) asset which represents the Company’s right to use an underlying asset during the lease term. Operating lease assets and liabilities are included in ROU assets, current portion of operating lease liabilities and noncurrent operating lease liabilities in the accompanying balance sheets.

Operating lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the underlying asset unless the implicit rate is readily determinable. Operating lease ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received, if any. The Company determines the lease term as the noncancellable period of the lease and may include options to extend or terminate the lease

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

when it is reasonably certain that the Company will exercise such options. The Company’s leases do not contain any residual value guarantees. Leases with a term of 12 months or less are not recognized on the balance sheets. For operating leases, the Company recognized rent expense on a straight-line basis over the lease term. There were no significant finance leases as of December 31, 2020.

Contingent Royalty Obligation Payable to the Evolus Founders

The Company determines the fair value of the contingent royalty obligation payable at each reporting period end based on Level 3 inputs using a discounted cash flows method. Changes in the fair value of the contingent royalty obligation payable are determined at each reporting period end and recorded in operating expenses in the accompanying statements of operations and comprehensive loss and as a liability in the accompanying balance sheets.

Contingent Promissory Note Payable to Evolus Founders

On February 12, 2018, the Company recognized a contingent promissory note payable at present value using a discount rate for similar rated debt securities based on an estimated date that the Company believed the contingent promissory note will mature. Discount amortization related to the contingent promissory note is recorded in interest expense in the accompanying statements of operations and comprehensive loss with a corresponding increase to the non-current liabilities in the accompanying balance sheets.

Long-term Debt

Long-term debt represents the debt balance with Oxford (see Note 6. Oxford Term Loan) and the Daewoong Convertible Note (as defined in Note 7. Daewoong Convertible Note), net of debt issuance costs. Debt issuance costs represent legal, lender and consulting costs or fees associated with debt financing. Debt discounts and issuance costs are amortized into interest expense over the term of the debt.

Revenue Recognition

The Company applies Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), to account for revenue generated since the commercial launch of Jeuveau® in May 2019.

The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when the Company satisfies the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.

General

The Company generates product revenue from the sale of Jeuveau® in the United States and service revenue from the sale of Jeuveau® through a distribution partner in Canada.

For product revenue, the Company recognizes revenue when control of the promised goods under a contract is transferred to a customer, in an amount that reflects the consideration the Company expects to receive in exchange for those goods as specified in the customer contract. The transfer of control occurs upon receipt of the goods by the customer since that is when the customer has obtained control of the goods’ economic benefits. The Company does not provide any service-type warranties and does not accept product returns except under limited circumstances such as damages in transit or ineffective product. The Company also excludes any amounts related to taxes assessed by governmental authorities from revenue measurement. Shipping and handling costs associated with outbound product freight are accounted for as fulfillment costs and are included in selling, general and marketing expenses in the accompanying statements of operations and comprehensive loss.

For service revenue, the Company evaluated the arrangement with the distribution partner in Canada and determined that it acts as an agent in the distribution of Jeuveau® in Canada as it does not control the product before control is transferred to a

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

customer. The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and discretion in establishing the price. Accordingly, the Company records the sale as service revenue on a net basis. Revenue from services is recognized in the period the service is performed for the amount of consideration expected to be received. For the year ended December 31, 2020 and 2019, the Company recognized $738 and $688 of revenue related to Canada sales.

Disaggregation of Revenue

The Company’s disaggregation of revenue is consistent with its operating segment as disclosed above.

Gross-to-Net Revenue Adjustments

The Company provides customers with discounts, such as trade and volume discounts and prompt pay discounts, that are directly reflected in the invoice price. Revenues are recorded net of sales-related adjustments, wherever applicable, primarily for the volume based rebates, coupon and consumer loyalty programs.

•Volume-based Rebates — Volume-based rebates are contractually offered to certain customers. The rebates payable to each customer are determined based on the contract and quarterly purchase volumes.

•Coupons — The Company issued customers coupons redeemable into gift cards funded by the Company for the benefit of patients. The coupons are accounted for as variable consideration. The Company estimates the coupon redemption rates based on historical data and future expectations. The coupons are accrued based on estimated redemption rates and the volume of products purchased and are recorded as a reduction to revenues on product delivery. All issued coupons expired on June 30, 2020.

•Consumer Loyalty Program — In May 2020, the Company announced the launch of a consumer loyalty program, which allows participating customers to earn rewards for qualifying treatments to their patients (i.e. consumers) using Jeuveau® and redeem the rewards for Jeuveau® in the future at no additional cost. The loyalty program represents a customer option that provides a material right and, accordingly, is a performance obligation. At the time Jeuveau® product is sold to customers, the invoice price is allocated between the product sold and the estimated material right reward (“Reward”) that the customer might redeem in the future. The standalone selling price of the Reward is measured based on historical sales data, average selling price of Jeuveau® at the time of redemption, expected customer and consumer participation rates in the loyalty program, and estimated number of qualifying treatments to be performed by customers. The portion of invoice price allocated to the Reward is initially recorded as deferred revenue. Subsequently, when customers redeem the Reward and the related product is delivered, the deferred revenue is recognized in net revenue at that time.

As of December 31, 2020 and 2019, the accrued revenue contract liabilities, primarily related to volume-based rebates, coupons and consumer loyalty program, were $3,081 and $1,709, respectively, which were recorded in the accrued expenses in the accompanying balance sheets. For the years ended December 31, 2020 and 2019, provisions for rebate, coupon and consumer loyalty programs were $16,896 and $12,325, respectively, which were offset by related payments, redemptions and adjustments of $15,524 and $10,616, respectively.

Contract balances

A contract with a customer states the terms of the sale, including the description, quantity and price of each product purchased. Amounts are recorded as accounts receivable when the Company’s right to consideration becomes unconditional. The Company does not have any significant financing components in customer contracts given the expected time between transfer of the promised products and the payment of the associated consideration is less than one year. As of December 31, 2020 and 2019, all amounts included in accounts receivable, net on the accompanying balance sheets are related to contracts with customers.

The Company did not have any contract assets nor unbilled receivables as of December 31, 2020 or 2019. Sales commissions are included in selling, general and administrative expenses when incurred.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Contract liabilities reflect estimated amounts that the Company is obligated to pay to customers or patients primarily under the rebate and coupon programs and deferred revenue associated with Reward under the consumer loyalty program. The Company’s contract liabilities are included in accounts payable and accrued expenses in the accompanying condensed balance sheets.

During the years ended December 31, 2020 and 2019, the Company did not recognize any revenue related to changes in transaction prices regarding its contracts with customers and did not recognize any material changes in revenue related to amounts included in contract liabilities at the beginning of the period.

Collectability

Accounts receivable are recorded at the invoiced amount and do not bear interest. At the time of contract inception or new customer account set-up, the Company performs a collectability assessment of the customer’s creditworthiness. The Company assesses the probability that the Company will collect the entitled consideration in exchange for the goods sold, by considering the customer’s ability and intention to pay when consideration is due. On a recurring basis, the Company estimates the amount of receivables considered uncollectable to reflect an allowance for doubtful accounts. The Company writes off accounts receivable balances when it is determined that there is no possibility of collection. As of December 31, 2020 and 2019, allowance for doubtful accounts was $2,118 and $387, respectively. For the years ended December 31, 2020 and 2019, provision for bad debts was $2,066 and $387, respectively, and write-offs were $335 and $0, respectively.

Practical Expedients

The Company expenses sales commissions when incurred as the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses in the accompanying statements of operations and comprehensive loss. The Company does not adjust the amount of promised consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays within one year.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses include personnel-related costs, costs associated with pre-clinical and clinical development activities, costs associated with and costs for prototype products that are manufactured prior to market approval for that prototype product, internal and external costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs, including allocated facility related expenses.

Restructuring Costs

In April 2020, in response to the impact of COVID-19 on its business, the Company announced plans to reduce its operating expenses and separate over 100 employees. As of December 31, 2020, all separations were completed and for the year ended December 31, 2020, the Company recorded $2,956 of termination benefits as restructuring costs within operating expenses on the accompanying statements of operations and comprehensive loss.

Litigation Settlement

On February 18, 2021, upon entering into certain agreements in connection with the settlement of claims relating to certain intellectual property disputes relating to Jeuveau® (See Note 9. Commitments and Contingencies), the Company agreed to pay to Allergan and Medytox $35,000 in multiple payments over two years and issued 6,762,652 shares its common stock to Medytox. In addition, for the period from December 16, 2020 to September 16, 2022, the Company agreed to pay to Allergan and Medytox a certain royalty on the sale of Jeuveau®, based on a certain dollar amount per vial sold in the United States and a low-double digit royalty on net sales of Jeuveau® sold in other Evolus territories. For the period from September 17, 2022 to September 16, 2032, the Company agreed to pay to Medytox a mid-single digit royalty percentage on all net sales of Jeuveau®. The royalty payments will be made quarterly.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

The settlement agreements resulted in an $83,421 charge for the year ended December 31, 2020, which consisted of $35,000 in cash payments and $48,421 from the issuance of 6,762,652 shares of the Company’s common stock in February 2021 and was recorded as litigation settlement expenses in the accompanying statements of operations and comprehensive loss. The related current liability of $63,421 and non-current liability of $20,000 were recorded in the accompanying balance sheets as of December 31, 2020. The royalty payments are recorded as cost of sales in the accompanying statements of operations and comprehensive loss at the time the corresponding sales are recognized starting on December 16, 2020.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for employees, consultants and members of the Board of Directors based on the fair value at the date of grant.

The Company uses the Black-Scholes option pricing model to value stock option grants. The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected volatility of the Company’s common stock, expected risk-free interest rate, and the option’s expected life. The fair value of the Company’s restricted stock units (“RSUs”) is based on the fair value on the grant date of the Company’s common stock. The Company also evaluates the impact of modifications made to the original terms of equity awards when they occur.

The fair value of equity awards that are expected to vest is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recognized net of actual forfeitures when they occur, as an increase to additional paid-in capital in the balance sheets and in the selling, general and administrative or research and development expenses in the statements of operations and comprehensive loss.

Advertising Costs

Advertising costs are expensed as incurred and primarily include costs related to social media ads. For the years ended December 31, 2020 and 2019, the Company incurred advertising costs of $4,979 and $1,407, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A valuation allowance is recorded against deferred tax assets, to reduce the net carrying value, when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

Additionally, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. Accordingly, the Company establishes reserves for uncertain tax positions. The Company has not recognized interest or penalties in its statement of operations and comprehensive loss.

The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions. The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. An amount is accrued for the estimate of additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available.

The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential revisions and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period including contingently issuable shares. Diluted earnings per share includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options, the vesting of restricted stock units and the conversion of the Daewoong Convertible Note. The dilutive effect of stock options and restricted stock units is computed under the treasury stock method. The dilutive effect of the Daewoong Convertible Note is computed under the if-converted method. Potentially dilutive securities are excluded from the computations of diluted net loss per share if their effect would be antidilutive.

For the years ended December 31, 2020 and 2019, excluded from the dilutive net loss per share computation were stock options of 4,407,498 and 3,977,401, respectively, non-vested RSUs of 1,173,741 and 179,758, respectively, and 3,076,923 shares and 0 shares issuable upon conversion of the Daewoong Convertible Note, respectively, because their inclusion would have been anti-dilutive. Although these securities were anti-dilutive for these periods, they could be dilutive in future periods.

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancelable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The guidance is effective for interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company adopted the guidance using the prospective method on January 1, 2020, and such adoption did not have a material impact on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The update is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The guidance is effective for interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted. The Company adopted the guidance in the current period, and such adoption did not have a material impact on its financial statements.

Recent Accounting Pronouncements Issued But Not Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the accounting for goodwill impairment by removing step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will be the amount by which a reporting unit’s carrying amount, including goodwill, exceeds its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. As amended by ASU 2019-10, the updated guidance is effective for the

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Company as a smaller reporting company beginning January 1, 2023. The standard requires prospective application. Early adoption is permitted. The Company is evaluating the effect of this standard on its financial statements and related disclosures as well as whether to early adopt the new guidance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The new standard requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. The FASB also subsequently issued ASU 2019-04 which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off and expected to be written off. As amended by ASU 2019-10, the updated guidance is effective for the Company as a smaller reporting company beginning January 1, 2023. The Company is in the process of determining the effects the adoption will have on its financial statements and reviewing credit loss models to assess the impact of the adoption of the standard on the financial statements. Based on initial assessments, the Company believes that while adoption will modify the way it analyzes financial instruments, it does not expect adoption of this guidance will have a material impact to its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future financial position, results of operations or cash flows.

Note 3. Fair Value Measurements and Short-Term Investments

Short-Term Investments

As of December 31, 2020 and 2019, all of the Company’s investments had remaining maturities of less than 12 months.

The following is a summary of the Company’s short-term investments, considered available-for-sale:

Amortized Gross Unrealized Estimated

Cost Gains Losses Fair Value

Available-for-sale securities

U.S treasury securities $ 5,000 $ — $ — $ 5,000

Amortized Gross Unrealized Estimated

Cost Gains Losses Fair Value

Available-for-sale securities

As of December 31, 2020, no investments had been in a continuous unrealized loss position for more than 12 months, and the Company did not record any other-than-temporary impairments on these securities.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The fair value of these instruments was as follows:

Fair Value Level 1 Level 2 Level 3

Available-for-sale debt securities

U.S treasury securities $ 5,000 $ 5,000 $ — $ —

Liabilities

Fair Value Level 1 Level 2 Level 3

Available-for-sale debt securities

Liabilities

The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the year ended December 31, 2020.

The Company determines the fair value of the contingent royalty obligation payable to Evolus Founders based on Level 3 inputs using a discounted cash flow method. The significant unobservable input assumptions that can significantly change the fair value include (i) projected amount and timing of net revenues during the payment period, which terminates in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau® in the United States, (ii) the discount rate and (iii) the timing of payments. During the years ended December 31, 2020 and 2019, the Company utilized discount rates between 13.0% and 20.0%, reflecting changes in the Company’s risk profile. Net revenue projections were also updated to reflect changes in the timing of expected sales. Significant increases (decreases) in discount rate would result in a significantly lower (higher) fair value measurement, which could impact materially the fair value reported on the balance sheet.

The following table shows a reconciliation of the beginning and ending fair value measurements of the contingent royalty obligation payable:

Year Ended December 31,

Change in fair value recorded in operating expenses (2,007) 4,160

Other Financial Assets and Liabilities

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term available-for-sale debt securities, accounts receivable, accounts payable, accrued expenses, lease liabilities, and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments.

The Company estimates the fair value of the contingent promissory note payable to the Evolus Founders, long-term debt and operating lease liabilities using the discounted cash flow analysis based on the interest rates for similar rated debt securities (Level 2). As of December 31, 2020, the fair value of the contingent promissory note and long-term debt was estimated to be

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

$19,284 and $76,368, respectively. As of December 31, 2019, the fair value of the contingent promissory note and long-term debt was estimated to be $16,696 and $76,203, respectively. The fair value of operating lease liabilities as of December 31, 2020 and 2019 approximated their carrying value.

Note 4. Goodwill and Intangible Assets

The table below shows the weighted-average life, original cost, accumulated amortization and net book value by major intangible asset classification:

Definite-lived intangible assets

Indefinite-lived intangible asset

Definite-lived intangible assets

Indefinite-lived intangible asset

* Intangible assets with indefinite lives have an indeterminable average life.

The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2020 that are subject to amortization:

Fiscal year

Distribution right represents the license and associated distribution right to develop Jeuveau®, the initial term of which expires in September 2023 and is automatically extended for unlimited additional three-year terms provided that the Company meets certain performance requirements. Additionally, upon FDA approval of Jeuveau® on February 1, 2019, the IPR&D project was completed and reclassified as a definite-lived distribution right intangible asset, which is amortized on a

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

straight-line basis over the estimated useful life of 20 years. The Company paid Daewoong a $2,000 milestone payment, pursuant to the Daewoong Agreement, which increased the cost basis of the distribution . In connection with EU approval of Jeuveau®, the Company paid a $1,000 milestone payment to Daewoong in the fourth quarter of fiscal year 2019, which increased the cost basis of the distribution right. Under the 2021 Daewoong Arrangement (as defined in Note 9.), there is no additional cash consideration due to Daewoong. See Note 9. Commitments and Contingencies for additional information.

For the years ended December 31, 2020 and 2019, the Company capitalized $2,266 and $4,415, respectively, related to costs of computer software developed for internal use. The software is amortized over a two-year period using the straight-line method. For the years ended December 31, 2020 and 2019, total intangible assets amortization expense of $3,635 and $3,853, respectively, was recorded within depreciation and amortization on the accompanying statements of operations and comprehensive loss.

Note 5. Accrued Expenses

Accrued expenses consisted of the following:

Year Ended December 31,

Accrued payroll and related benefits $ 4,076 $ 5,229

Accrued revenue contract liabilities 3,081 1,709

Accrued professional services 895 5,794

Note 6. Oxford Term Loan

On March 15, 2019, the Company entered into a credit facility of up to $100,000 with Oxford (“Loan Agreement”). Pursuant to the terms of the Loan Agreement, the lender extended term loans (the “Oxford Term Loans”), available in two advances, to the Company. The first tranche of $75,000 was funded on the closing date. The second tranche of $25,000 could have been drawn, at the request of the Company, no later than September 30, 2020, upon achieving specified minimum net sales milestones based on a trailing six-month basis and no event of default. The Company did not meet the net sales milestone to draw the second tranche. The credit facility bears an annual interest rate equal to the greater of 9.5%, or the 30-day U.S. Dollar LIBOR rate plus 7.0%. The Company agreed to pay interest-only for the first 36 months until May 2022, which is followed by a 23-month amortization period.

Upon the earliest to occur of the maturity date, the acceleration of the Oxford Term Loan, or the prepayment of the Oxford Term Loan, the Company was required to pay to Oxford a final payment of 5.5% of the full principal amount of the Oxford Term Loan funded (“Final Payment”). The Company could elect to prepay all amounts owed prior to the maturity date, provided that a prepayment fee was also paid, which would be equal to 2.0% of the amount prepaid if the prepayment occurred after March 15, 2020 and on or prior to March 15, 2021, or 1.0% of the amount prepaid if the prepayment occurred thereafter (“Prepayment Fee”). If the Oxford Term Loan was accelerated following the occurrence of an event of default, the Company was required to immediately pay to Oxford an amount equal to the sum of all outstanding principal of the Oxford Term Loan plus accrued and unpaid interest thereon through the prepayment date, the Final Payment, the Prepayment Fee and all other obligations that were due and payable, including payment of Oxford’s expenses and interest at the default rate with respect to any past due amounts.

The credit facility was secured by substantially all of the Company’s assets. The credit facility included affirmative and negative covenants applicable to the Company and any subsidiaries it may create in the future. The affirmative covenants included, among others, covenants requiring the Company to maintain its legal corporate existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. The negative covenants included, among others, restrictions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

The credit facility also included events of default, the occurrence and continuation of which could cause interest to be charged at a default interest rate equal to the applicable rate plus 5.0% and Oxford, as collateral agent, with the right to exercise remedies against the Company and the collateral securing the credit facility, including foreclosure against the property securing the credit facility, including the Company’s cash. These events of default included, among other things, any failure by the Company to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility, the Company’s insolvency, a material adverse change, the occurrence of any default under certain other indebtedness and one or more judgments against the Company, the institution of certain temporary or permanent relief in connection with pending litigation, or the breach, termination or other adverse events under the Daewoong Agreement. As of December 31, 2020, the Company was in compliance with its debt covenants.

At the closing date, the Company incurred $1,094 and $2,205 in debt discounts and issuance costs related to the Oxford Term Loan, respectively. Debt discounts and issuance costs related to the entire Oxford Term Loan have been allocated pro rata between the funded and unfunded portions. Debt discounts and issuance costs related to the Oxford Term Loan have been presented as a deduction to the debt balance and are amortized into interest expense using the effective interest method. The overall effective interest rate was approximately 11.6% as of December 31, 2020.

On January 4, 2021, the Company and Oxford entered into an agreement (“Payoff Letter”), pursuant to which (i) on January 4, 2021, the Company paid Oxford $76,447 to discharge in full all outstanding obligations, included accrued interest by and between Oxford, in its capacity as collateral agent and lender, and the Company, and (ii) effective upon such repayment, the Loan Agreement, and all unfunded commitments thereunder, guarantees and other security interests granted to Oxford in connection with the Loan Agreement and all other obligations of and restrictions on the Company under the Loan Agreement, terminated. As a condition to entering into the Payoff Letter, Oxford agreed to waive a total of $4,300 of fees comprised of (i) $2,800 of the Final Payment and (ii) the Prepayment Fee of $1,500.

As of December 31, 2020 and 2019, the borrowings outstanding under the Oxford Term Loan was classified as current liabilities and long-term debt, respectively, in the accompanying balance sheets.

Note 7. Daewoong Convertible Note

On July 6, 2020, the Company entered into a Convertible Promissory Note Purchase Agreement with Daewoong for the purchase and sale of a Convertible Promissory Note for the principal amount of $40,000 (the “Daewoong Convertible Note”), which was funded on July 30, 2020. Additionally, on July 6, 2020, the Company, Daewoong and Oxford Finance, LLC entered into a Subordination Agreement pursuant to which the Daewoong Convertible Note is subordinated to the Company’s obligations under that certain Loan and Security Agreement, dated as of March 15, 2019, by and between the Company and Oxford.

The Daewoong Convertible Note bears interest at a rate of 3.0% payable semi-annually in arrears on June 30th and December 31st of each year and matures on July 30, 2025, subject to earlier conversion as provided below. Interest is initially paid in kind by adding the accrued amount thereof to the outstanding principal amount on a semi-annual basis on June 30th and December 31st of each calendar year for so long as any principal amount under the Oxford Term Loan remains outstanding and the Subordination Agreement has not been terminated. Interest will begin to be paid in cash after the Oxford Term Loan was repaid in full and the Subordination Agreement was terminated on January 4, 2021.

During the term, the Daewoong Convertible Note is convertible at the option of Daewoong beginning 12 months from the date of issuance, subject to certain suspensions of that conversion right in the event of a final determination of the ITC Action resulting in an exclusion order with respect to Jeuveau® as further set forth in the Daewoong Convertible Note. The initial conversion price of the Daewoong Convertible Note is $13.00 per share, which is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The Daewoong Convertible Note and the shares of the Company’s common stock issuable upon conversion of the Daewoong Convertible Note have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Starting 27 months from the date of issuance, the Company may prepay the Daewoong Convertible Note without penalty, provided the Company provides Daewoong with at least ten business days’ written notice during which Daewoong may convert all or any portion of the Daewoong Convertible Note at the conversion price.

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Evolus, Inc.

Notes to Financial Statements

(in thousands, except share and per share data)

Further, in the event the Company is awarded any recovery pursuant to a final, non-appealable award or judgment issued by a court of competent jurisdiction over the parties, or pursuant to any settlement acceptable in the sole and absolute discretion of each of the Company and Daewoong, for any indemnification or other claim for damages by the Company under the Daewoong Agreement, the amount of Daewoong’s or its affiliate’s indemnification obligation with respect to such award, judgment or settlement shall be reduced on a dollar-for-dollar basis and will be offset by the amount of the then-outstanding principal amount of the Daewoong Convertible Note and any accrued but unpaid interest thereon.

EOLS US Equity

EOLS · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Item 8. Financial Statements and Supplementary Data.

EOLS US Equity☆

EOLS · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Item 8. Financial Statements and Supplementary Data.

EOLS US Equity