What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 764 added, 1168 removed, 476 unchanged (80% of the section changed)

Financial Statements

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

CONSOLIDATED BALANCE SHEETS

thousands, except share data)

June 30, 2020

December 31, 2019

Current assets

9 unchanged sentences

Investment in Melt Pharmaceuticals

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

2 unchanged sentences

Deferred revenue and customer deposits

Current portion of note payable, net of unamortized debt discount

Current portion of operating lease obligations

Current portion of paycheck protection program loan payable

Current portion of loan payable, net of unamortized debt discount

Current portion of operating lease liabilities

Current portion of finance lease obligations

Total current liabilities

Operating lease obligations, net of current portion

Operating lease liabilities, net of current portion

Finance lease obligations, net of current portion

Accrued expenses, net of current portion

Note payable, net of current portion and unamortized debt discount

Paycheck protection program loan payable, net of current portion

Loan payable, net of current portion and unamortized debt discount

TOTAL LIABILITIES

COMMITMENTS AND CONTIGENCIES STOCKHOLDERS’

Common stock, $0.001 par value, 50,000,000 shares authorized, 25,618,918 and 25,526,931

shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Common stock, $ 0.001

par value, 50,000,000 shares authorized,

25,649,171 and 25,526,931

shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated deficit

TOTAL HARROW HEALTH STOCKHOLDERS’

TOTAL HARROW HEALTH STOCKHOLDERS’ EQUITY

Noncontrolling interests

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND EQUITY

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)

Three Months Ended

License revenues

accompanying notes are an integral part of these unaudited condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except for share and per share data)

For the Three Months

Ended June 30 2020

For the Three Months

Ended June 30 2019

For the Six Months

Ended June 30 2020

For the Six Months

Ended June 30 2019

Product sales, net

Total revenues

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Research and development

Impairment of intangible assets

Total operating expenses

3 unchanged sentences

Investment (loss) gain from Melt Pharmaceuticals, net

Investment (loss) gain from Surface Pharmaceuticals, net

Investment (loss) gain from Eton Pharmaceuticals, net

Other income (expense), net

Investment loss from Surface Pharmaceuticals, net

Investment gain (loss) from Eton Pharmaceuticals, net

Other income, net

Total other (expense) income, net

(Loss) income before income

(Loss) income before income taxes

Income tax benefit, net

Total net (loss) income including noncontrolling interests

Net loss attributable to noncontrolling interests

income attributable to Harrow Health, Inc.

Net loss attributable to noncontrolling interest

Net (loss) income attributable to Harrow Health, Inc.

Basic net (loss) income per share of common stock

2 unchanged sentences

Weighted average number of shares of common stock outstanding, diluted

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

the three months ended March 31, 2020 and 2019

(In thousands, except for share data)

Harrow Health, Inc.

Stockholders’

accompanying notes are an integral part of these unaudited condensed consolidated financial statements

STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three

and Six Months Ended June 30, 2020 and 2019

thousands, except for share data)

Stockholders’

Noncontrolling

Stockholders’

Balance at December 31, 2018

Stockholders’

Balance at March 31, 2019

Issuance of common stock in connection with:

Exercise of warrants

Exercise of employee stock-based options

Vesting of RSUs

Vesting of RSUs, shares

Stock-based payment for services provided

Stock-based payment for services provided, shares

Stock-based compensation expense

Balance at June 30, 2019

Stockholders’

Noncontrolling

Stockholders’

Balance at March 31, 2020

Issuance of common stock in connection with:

Exercise of employee stock-based options

Stock-based payment for services provided

Stock-based compensation expense

Balance at June 30, 2020

accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Stockholders’

Noncontrolling

Stockholders’

Balance at December 31, 2018

Issuance of common stock in connection with:

Exercise of warrants

Exercise of employee stock-based options

Stock-based payment for services provided

Stock-based compensation expense

Net income (loss)

Balance at June 30, 2019

Stockholders’

Noncontrolling

Stockholders’

Balance at December 31, 2019

Issuance of common stock in connection with:

Exercise of employee stock-based options

Vesting of RSUs

Stock-based payment for services provided

Stock-based compensation expense

Balance at March 31, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

Balance at June 30, 2020

accompanying notes are an integral part of these unaudited condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

Ended June 30 2020

For the Six Months

Ended June 30 2019

CASH FLOWS FROM OPERATING ACTIVITIES

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Amortization of debt issuance costs and discount

Provision for bad debt expense

Investment loss (gain) from Eton, net

Investment loss (gain) from Surface, net

Investment loss from Surface, net

Investment loss (gain) from Melt, net

Gain on sale and disposal of assets

Loss on sale and disposal of assets

Interest paid-in-kind on loan payable

Impairment of intangible assets

Stock-based payment of consulting services

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CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds on sale and disposal of assets

Investment in patent and trademark assets

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Payments on finance lease obligations

Principal payments on note payable

Proceeds from SWK debt

Principal payments on loan payable

Payments of costs related to amendment of loan payable

Net proceeds from Payroll Protection Program loan payable

Net proceeds from exercise of warrants

NET CASH USED IN FINANCING ACTIVITIES

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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Right-of-use asset obtained in exchange for lease obligation

Changes in accrued property and equipment purchases

Acquisition of property, plant and equipment with finance lease obligations

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Purchase of property, plant and equipment included in accounts payable and accrued expenses

accompanying notes are an integral part of these consolidated financial statements.

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the three months ended March 31, 2020 and 2019

For the Three and

Six Months Ended June 30, 2020 and 2019

amounts in thousands, except share and per share data)

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(together with its subsidiaries, partially owned companies and royalty arrangements unless the context indicates

or otherwise requires, the “Company”

or “Harrow”) specializes in the development, production and sale

or otherwise requires, the “Company” or “Harrow”) specializes in the development, production and sale

of innovative medications that offer unique competitive advantages and serve unmet needs in the marketplace through its subsidiaries

and deconsolidated companies.

The Company owns one of the nation’s leading ophthalmology-focused pharmaceutical businesses,

In addition to wholly owning ImprimisRx, the Company also has equity positions in Eton Pharmaceuticals, Inc.

(“Eton”),

Surface Pharmaceuticals, Inc.

(“Surface”), and Melt Pharmaceuticals, Inc.

(“Melt”), all companies that

(“Surface”), and Melt Pharmaceuticals, Inc.

(“Melt”), all companies that

began as subsidiaries of Harrow.

More recently, the Company founded drug development subsidiaries Mayfield Pharmaceuticals, Inc.

(“Mayfield”), Radley Pharmaceuticals, Inc.

(“Radley”), and Stowe Pharmaceuticals, Inc.

(“Stowe”).

In 2020, Harrow created Visionology, Inc., which intends to launch an online eye health platform business.

Harrow also owns royalty

rights in various drug candidates being developed by Surface, Melt, Radley and Mayfield.

The Company intends to continue to create,

and hold equity and royalty rights in, new businesses that commercialize drug candidates that are internally developed or otherwise

acquired or licensed from third parties.

(“Mayfield”) and Stowe Pharmaceuticals, Inc.

(“Stowe”), among others.

In 2020, Harrow created Visionology,

Inc., which intends to launch an online eye health platform business.

Harrow also owns royalty rights in various drug candidates

being developed by Surface, Melt and Mayfield.

The Company intends to continue to create, and hold equity and royalty rights

in, new businesses that commercialize drug candidates that are internally developed or otherwise acquired or licensed from third

of Presentation

The Company has prepared the accompanying

unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United

States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of

Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles

generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with

the rules and regulations of the U.S.

Securities and Exchange Commission.

Accordingly, they do not include all of the information and footnotes required

by GAAP for audited financial statements.

In the opinion of management, all adjustments (consisting of only normal recurring adjustments)

considered necessary for a fair presentation have been included.

Operating results for the three months ended March 31, 2020 are

not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any other period.

For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Accordingly, they do not include all of the information

and footnotes required by GAAP for audited financial statements.

In the opinion of management, all adjustments (consisting of

only normal recurring adjustments) considered necessary for a fair presentation have been included.

Operating results for the

three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year

ending December 31, 2020 or for any other period.

For further information, refer to the Company’s audited consolidated financial

statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries,

as well as Mayfield, 79% majority controlled, and Stowe, 70% majority controlled, each subsidiaries of Harrow as of March 31,

The remaining 21% of Mayfield is owned by Elle Pharmaceutical, LLC (“Elle”), TGV-Health, LLC and its affiliated

entities (collectively “TGV”) or other consultants.

Mayfield was organized to develop women’s health-focused

drug candidates.

The remaining 30% of Stowe is owned by TGV.

as well as Mayfield ( 79%

majority controlled) and Stowe ( 70%

majority controlled) each subsidiaries of Harrow as of June 30, 2020.

The remaining 21 %

of Mayfield is owned by Elle Pharmaceutical, LLC (“Elle”), TGV-Health, LLC and its affiliated entities (collectively

“TGV”) or other consultants.

Mayfield was organized to develop women’s health-focused drug candidates.

The remaining

of Stowe is owned by TGV.

Stowe was organized to develop ophthalmic drug candidates.

All inter-company

accounts and transactions have been eliminated in consolidation.

All inter-company accounts and transactions

have been eliminated in consolidation.

consolidates entities in which it has a controlling financial interest.

We consolidate subsidiaries in which we hold and/or

control, directly or indirectly, more than 50% of the voting rights.

All intercompany accounts and transactions have been eliminated

in consolidation.

condensed consolidated balance sheets at March 31, 2020 and December 31, 2019 and the condensed consolidated statements of operations,

stockholders’

equity and cash flows for the periods ended March 31, 2020 and 2019 include our accounts and those

of our wholly owned subsidiaries as well as Mayfield and Stowe.

We consolidate subsidiaries in which we hold and/or control,

directly or indirectly, more than 50% of the voting rights.

All intercompany accounts and transactions have been eliminated in

consolidation.

condensed consolidated balance sheets at June 30, 2020 and December 31, 2019 and the condensed consolidated statements of operations,

stockholders’ equity and cash flows for the periods ended June 30, 2020 and 2019 include our accounts and those of our wholly

owned subsidiaries as well as Mayfield and Stowe.

Uncertainties and Liquidity

1 unchanged sentence

On March 18, 2020, the Centers for Medicare

& Medicaid Services (“CMS”) released guidance for U.S.

healthcare providers to limit all elective medical procedures

5 unchanged sentences

volatility in financial markets.

of the Company’s customers use its drugs in procedures impacted by the CMS guidance to limit elective procedures.

the Company and our business partners need access to healthcare providers and facilities to conduct clinical trials and other

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Company believes reductions in elective procedures in response to CMS guidance have had, and will continue to have, an adverse

impact, which may be material, to the Company’s financial condition, liquidity and results of operations.

The severity of

the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited

to, the duration and severity of the pandemic and the extent and severity of the impact on its customers, all of which are uncertain

and cannot be predicted.

As of the date of issuance of this Quarterly Report, the extent to which the COVID-19 pandemic may materially

impact the Company’s financial condition, liquidity or results of operations is uncertain.

impact, which may be material, on the Company’s financial condition, liquidity and results of operations.

of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not

limited to, the duration and severity of the pandemic and the extent and severity of the impact on its customers, all of which

are uncertain and cannot be predicted.

As of the date of issuance of this Quarterly Report, the extent to which the COVID-19 pandemic

may materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

For further information,

refer to “Risk Factors”

in Part II, Item 1A of this Quarterly Report.

refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report and information in the Company’s other

filings with the Securities and Exchange Commission.

Company has incurred significant operating losses and negative cash flows from operations since its inception.

The Company incurred

operating losses of $628 and $556 for the three months ended March 31, 2020 and 2019, respectively, and had an accumulated deficit

of $86,950 and $74,043 as of March 31, 2020 and December 31, 2019, respectively.

In addition, the Company used cash in operating

activities of $550 and $1,476 for the three months ended March 31, 2020 and 2019, respectively.

there is no assurance, management of the Company believes existing cash resources and restricted cash of $4,124 at March 31, 2020,

along with $2,967 in aggregate proceeds received from loan arrangements in April 2020 (see Note 16), will be sufficient

to sustain the Company’s planned level of operations for at least the next twelve months.

However, estimates of operating

expenses and working capital requirements could be incorrect, and the Company could use its cash resources faster than anticipated.

Further, some or all of the ongoing or planned activities may not be successful and could result in further losses.

operating losses of $ 3,838

for the six months ended June 30, 2020

and 2019, respectively, and had an accumulated deficit of $ 87,187

as of June 30, 2020 and December 31, 2019,

respectively.

In addition, the Company used cash in operating activities of $ 3,201

for the six months ended June 30, 2020

and 2019, respectively.

there is no assurance, management of the Company believes existing cash resources and restricted cash of $ 4,102

at June 30, 2020 together with cash

generated from revenues, will be sufficient to sustain the Company’s planned level of operations for at least the next

twelve months.

However, estimates of operating expenses and working capital requirements could be incorrect, and the Company could

use its cash resources faster than anticipated.

Further, some or all of the ongoing or planned activities may not be successful

and could result in further losses.

Company may seek to increase liquidity and capital resources through a variety of means which may include, but are not limited

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

following represents an update for the three months ended March 31, 2020 to the significant accounting policies described in the

Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses

following represents an update for the three and six months ended June 30, 2020 to the significant accounting policies described

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses

performance based on financial information presented as operating segments.

1 unchanged sentence

as reportable segments.

See Note 15 for more information regarding the Company’s reportable segments.

Noncontrolling

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condensed consolidated statements of operations.

Company provides in the condensed consolidated statements of stockholders’

equity a reconciliation at the beginning and

Company provides in the condensed consolidated statements of stockholders’ equity a reconciliation at the beginning and

the end of the period of the carrying amount of total equity, equity attributable to the parent, and equity attributable to the

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shares, such as stock options and warrants, outstanding during the period.

and diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during

Common stock equivalents (using the treasury stock or “if converted”

method) from deferred acquisition

obligations, stock options, unvested restricted stock units (“RSUs”) and warrants were 5,253,638 and 5,838,230 at

March 31, 2020 and 2019, respectively, and, except for the three months ended March 31, 2019, are excluded from the calculation

of diluted net income (loss) per share for the periods presented, because the effect is anti-dilutive.

Included in the basic and

diluted net income (loss) per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery

of the shares are deferred until the director resigns.

The number of shares underlying vested RSUs at March 31, 2020 and 2019

was 244,460 and 270,783, respectively.

following table shows the computation of basic net income (loss) per share of common stock for the three months ended March 31,

and diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding

during the period.

Common stock equivalents (using the treasury stock or “if converted” method) from stock

options, unvested restricted stock units (“RSUs”) and warrants were 5,414,504

and 5,331,883

For the Three Months Ended March 31,

Numerator –

net (loss) income attributable to Harrow Health, Inc.

Denominator –

weighted average number of shares outstanding, basic

at June 30, 2020 and 2019, respectively, and, except for the six months ended June 30, 2019, are excluded from the

calculation of diluted net income (loss) per share for the periods presented, because the effect is anti-dilutive.

in the basic and diluted net income (loss) per share calculation were RSUs awarded to directors that had vested, but the

issuance and delivery of the shares are deferred until the director resigns.

The number of shares underlying vested RSUs at

June 30, 2020 and 2019 was 251,746

and 304,873 ,

respectively.

following table shows the computation of basic net income (loss) per share of common stock for the three and six months

ended June 30, 2020 and 2019:

SCHEDULE OF BASIC EARNINGS PER COMMON SHARE

the Three Months Ended

the Six Months Ended

Numerator – net (loss) income attributable

to Harrow Health, Inc.

Denominator – weighted average number of shares outstanding, basic

Net (loss) income per share, basic

the three months ended March 31, 2019, the Company had net income.

the six months ended June 30, 2019, the Company had net income.

As a result, the Company computed diluted net income per share

using the weighted-average number of common shares and dilutive common equivalent shares outstanding during those periods.

common equivalent shares for the three months ended March 31, 2019, consisted of the following:

March 31, 2019

using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period.

Diluted common equivalent shares for the six months ended June 30, 2019, consisted of the following:

SCHEDULE OF DILUTED COMMON EQUIVALENT SHARES

June 30, 2019

Diluted shares related to:

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Dilutive common equivalent shares

following table shows the computation of diluted net income (loss) per share of common stock for the three months ended March

31, 2020 and 2019:

For the Three Months Ended March 31,

Numerator –

net (loss) income attributable to Harrow Health, Inc.

Denominator –

weighted average number of shares outstanding, basic

Dilutive common equivalent shares

Number of shares used for diluted earnings per share computation

Net (loss) income per share, diluted

following table shows the computation of diluted net income (loss) per share of common stock for the three and six months ended

June 30, 2020 and 2019:

SCHEDULE OF DILUTED EARNINGS PER COMMON SHARE

the Three Months Ended

the Six Months Ended

Numerator – net (loss) income attributable to

Harrow Health, Inc.

Denominator – weighted average number of shares outstanding, basic

Dilutive common equivalents

Number of shares used for diluted income (loss) per share computation

Net (loss) income per share, basic

in Eton Pharmaceuticals, Inc.

– Related Party

The Company owns 3,500,000 shares of Eton

common stock, which represents approximately 16.9% of the equity and voting interests of Eton as of March 31, 2020.

2020, the last trading day of the period ended March 31, 2020 , the fair market value of Eton’s common stock was $4.10

In accordance with the Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall

Company owns 3,500,000 shares

of Eton common stock, which represents approximately 16.7 %

of the equity and voting interests of Eton as of June 30, 2020.

At June 30, 2020 the fair market value of Eton’s common

stock was $ 5.45 per

In accordance with the Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall

(Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , the Company recorded an unrealized

investment loss from its Eton common stock position of $10,850 and an unrealized investment gain of $6,580 during the

three months ended March 31, 2020 and 2019, respectively, related to the change in fair market value of the Company’s investment

in Eton during the measurement period.

As of March 31, 2020, the fair market value of the Company’s investment in Eton was

Baum, the Company’s Chief Executive Officer, is a member of the board of directors of Eton.

Recognition and Measurement of Financial Assets and Financial Liabilities , for the three and six

months ended June 30, 2020, the Company recorded an investment gain (loss) from its Eton common stock position of $ 4,725 and

respectively , related to the change

in fair market value of the Company’s investment in Eton during the measurement periods.

As of June 30, 2020, the fair

market value of the Company’s investment in Eton was $ 19,075 .

Baum, the Company’s Chief Executive Officer, is a member of the board of directors of Eton.

in Melt Pharmaceuticals, Inc.

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In January and March of 2019, Melt entered into definitive stock

purchase agreements (collectively, the “Melt Series A Preferred Stock Agreement”) with certain investors and closed

on the purchase and sale of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately

$11,400 of proceeds (collectively the “Melt Series A Round”) at a purchase price of $5.00 per share.

the Company lost voting and ownership control of Melt and ceased consolidating Melt’s financial statements.

purchase agreements (collectively, the “Melt Series A Preferred Stock Agreement”) with certain investors and closed

on the sale of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $ 11,400

of proceeds (collectively the “Melt

Series A Round”) at a purchase price of $ 5.00

As a result, the Company lost

voting and ownership control of Melt and ceased consolidating Melt’s financial statements.

January 2019, the Company deconsolidated Melt and recorded a gain of $ 5,810 and adjusted the carrying value in Melt to reflect

the increased valuation of Melt and the Company’s new ownership interest in accordance with Accounting Standard Codification

(“ASC”) 810-10-40-4(c), Consolidation .

The Company owns 3,500,000 common shares (which

is approximately 44% of the equity interests as of March 31, 2020) of Melt and uses the equity method of accounting for

this investment, as management has determined that the Company has the ability to exercise significant influence over the operating

and financial decisions of Melt.

Under this method, the Company recognizes earnings and losses in Melt in its condensed

consolidated financial statements and adjusts the carrying amount of its investment in Melt accordingly.

The Company’s share

of earnings and losses are based on the Company’s ownership interest of Melt.

the increased valuation of Melt and the Company’s new ownership interest in accordance with Accounting Standard Codification

(“ASC”) 810-10-40-4(c), Consolidation .

Company owns 3,500,000

common shares of Melt (which is approximately

of the equity interests as of June 30, 2020) and uses the equity method of accounting for this investment, as management has determined

that the Company has the ability to exercise significant influence over the operating and financial decisions of Melt.

method, the Company recognizes earnings and losses in Melt in its condensed consolidated financial statements and adjusts the

carrying amount of its investment in Melt accordingly.

The Company’s share of earnings and losses are based on the Company’s

ownership interest of Melt.

Any intra-entity profits and losses are eliminated.

During the three months ended March 31, 2020 and 2019, the Company recorded equity in the net losses of Melt of

$546 and $285, respectively.

As of March 31, 2020, the carrying value of the Company’s investment in Melt was $3,422.

The Company recorded equity in the net loss of

Melt of $690 and $ 1,236

during the three and six months ended

June 30, 2020, respectively.

The Company recorded equity in the net loss of Melt of $ 326

during the three and six months ended

June 30, 2019, respectively.

As of June 30, 2020, the carrying value of the Company’s investment in Melt was $ 2,732 .

Note 4 for more information and related party disclosure regarding Melt.

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– Related Party

The Company owns 3,500,000 common shares (which

is approximately 30% of the equity interests as of March 31, 2020) of Surface and uses the equity method of accounting

for this investment, as management has determined that the Company has the ability to exercise significant influence over the

operating and financial decisions of Surface.

Under this method, the Company recognizes earnings and losses in Surface

in its condensed consolidated financial statements and adjusts the carrying amount of its investment in Surface accordingly.

Company’s share of earnings and losses are based on the Company’s ownership interest of Surface.

Any intra-entity

profits and losses are eliminated.

The Company recorded equity in the net losses of Surface of $339 and $243 during

the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, the carrying value of the Company’s

investment in Surface was $3,408.

Company owns 3,500,000

common shares (which is approximately

of the equity interests as of June 30, 2020) of Surface and uses the equity method of accounting for this investment, as management

has determined that the Company has the ability to exercise significant influence over the operating and financial decisions of

Under this method, the Company recognizes earnings and losses in Surface in its condensed consolidated financial statements

and adjusts the carrying amount of its investment in Surface accordingly.

The Company’s share of earnings and losses are

based on the Company’s ownership interest of Surface.

Any intra-entity profits and losses are eliminated.

The Company recorded

equity in the net loss of Surface of $ 599

during the three and six months ended

June 30, 2020, respectively.

The Company recorded equity in the net loss of Surface of $ 261

during the three and six months ended

June 30, 2019, respectively.

As of June 30, 2020, the carrying value of the Company’s investment in Surface was $ 2,809 .

Note 5 for more information and related party disclosure regarding Surface.

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The Company adopted ASU 2016-13 on January 1, 2020, and adoption of the standard did not have a

material effect on the Company’s consolidated financial position, results of operations and cash flows.

August 2018, the FASB issued ASU 2018-13, Changes to Disclosure Requirements for Fair Value Measurements , which improved

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The Company adopted ASU 2018-13 on January 1, 2020, and adoption of the standard did

not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04,

Intangibles-Goodwill and Other .

This guidance simplifies the accounting for goodwill impairment for all entities by requiring

impairment charges to be based on the first step in the current two-step impairment test under ASC 350.

The updated standard eliminates

the requirement to calculate a goodwill impairment charge using Step 2.

If a reporting unit’s carrying amount exceeds its

fair value, an entity will record an impairment charge based on that difference.

The impairment charge will be limited to the

amount of goodwill allocated to that reporting unit.

ASU 2017-04 is effective for reporting periods beginning after December 31,

2019 on a prospective basis, and early adoption is permitted.

The Company adopted ASU 2017-04 on January 1, 2020, and adoption

of the standard did not have a material effect on the Company’s consolidated financial position, results of operations

and cash flows.

not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.

January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other .

This guidance simplifies the accounting for

goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment

test under ASC 350.

The updated standard eliminates the requirement to calculate a goodwill impairment charge using Step 2.

a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference.

The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.

ASU 2017-04 is effective for

reporting periods beginning after December 31, 2019 on a prospective basis, and early adoption is permitted.

The Company adopted

ASU 2017-04 on January 1, 2020, and adoption of the standard did not have a material effect on the Company’s consolidated

financial position, results of operations and cash flows.

Issued Accounting Pronouncements

December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , as part of its initiative

to reduce complexity in accounting standards.

December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , as part of its initiative to reduce

complexity in accounting standards.

The amendments in the ASU are effective for fiscal years beginning after December 15, 2020,

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Early adoption of the standard is permitted.

The Company does not expect ASU 2019-12

to have a material impact on its consolidated financial position, results of operations and cash flows.

The Company does not expect ASU 2019-12 to have

a material impact on its consolidated financial position, results of operations and cash flows.

Company accounts for contracts with customers in accordance with ASC 606, Revenues from Contracts with Customers .

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division includes:

(i) the portion of the price the client pays directly to us, net of any volume-related or other discounts

paid back to the client, (ii) the price paid to us by individuals, and (iii) customer copayments made directly to the pharmacy

(i) the portion of the price the client pays directly to us, net of any volume-related or other discounts paid

back to the client, (ii) the price paid to us by individuals, and (iii) customer copayments made directly to the pharmacy network.

Sales taxes are not included in revenue.

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the contract(s) with a customer:

A contract exists with a customer at the time the prescription

or order is received by the Company.

A contract exists with a customer at the time the prescription or order is received by the

the performance obligations in the contract:

The order received contains the performance

obligations to be met, in almost all cases the product the customer is wishing to receive.

If we are unable to be meet the performance obligation, the customer is notified.

The order received contains the performance obligations to be met, in almost

all cases the product the customer is wishing to receive.

If we are unable to be meet the performance obligation, the customer

the transaction price:

the transaction price is based on the product being sold to the

customer, and any related customer discounts.

These amounts are pre-determined and built

into our order management software.

the transaction price is based on the product being sold to the customer, and any related customer

These amounts are pre-determined and built into our order management software.

the transaction price to the performance obligations in the contract:

The transaction

price associated with the product(s) being ordered is allocated according to the pre-determined

The transaction price associated with the product(s)

being ordered is allocated according to the pre-determined amounts.

revenue when (or as) the entity satisfies a performance obligation:

At the time of shipment

from the pharmacy or outsourcing facility, the performance obligation has been met.

At the time of shipment from the pharmacy or outsourcing

facility, the performance obligation has been met.

following revenue recognition policy has been established for the pharmacy services division:

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Determination of criteria (3) and (4)

is based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability

of those amounts.

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Property License Revenues

Company currently holds five intellectual property license and related agreements in which the Company has promised to grant a

license or sale which provides a customer with the right to access the Company’s intellectual property.

License arrangements

may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights

to patented or patent pending compounds, technology access fees, and various performance or sales milestones.

These arrangements

can be multiple-element arrangements, the revenue of which is recognized at the point of time the performance obligation is met.

The Company currently holds five intellectual

property license and related agreements in which the Company has sold or granted a license which provides a customer with

the right to access the Company’s intellectual property.

License arrangements may include or require non-refundable

upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights to patented or patent pending

compounds, technology access fees, and various performance or sales milestones.

These arrangements can be multiple-element arrangements,

the revenue of which is recognized at the point of time the performance obligation is met.

Non-refundable

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fees if it has continuing performance obligations without which the technology, right, product or service conveyed in conjunction

with the non-refundable fee has no utility to the licensee and that are separate and independent of the Company’s performance

under the other elements of the arrangement.

In addition, if the Company’s continued involvement is required, through research

and development services that are related to its proprietary know-how and expertise of the delivered technology or can only be

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Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.

disaggregated by revenue source for the three months ended March 31, 2020 and 2019, consists of the following:

For the Three Months Ended

Product sales, net

License revenues

Total revenues

revenue and customer deposits at March 31, 2020 and December 31, 2019, was $60 and $57, respectively.

All deferred revenue

and customer deposit amounts at December 31, 2019 were recognized as revenue during the three months ended March 31, 2020.

disaggregated by revenue source for the three and six months ended June 30, 2020 and 2019, consists of the following:

OF DISAGGREGATED REVENUE

the Three Months Ended

the Six Months Ended

revenue and customer deposits at June 30, 2020 and December 31, 2019, was $ 53 and $ 57 , respectively.

All deferred revenue and

customer deposit amounts at December 31, 2019 were recognized as revenue during the six months ended June 30, 2020.

INVESTMENT IN MELT PHARMACEUTICALS, INC.

AND AGREEMENTS - RELATED PARTY TRANSACTIONS

December 2018, the Company entered into an asset purchase agreement with Melt (the “Melt Asset Purchase Agreement”).

Pursuant to the terms of the Melt Asset Purchase Agreement, Melt was assigned certain intellectual property and related rights

from the Company to develop, formulate, make, sell, and sub-license certain Company conscious sedation and analgesia related formulations

(collectively, the “Melt Products”).

Under the terms of the Melt Asset Purchase Agreement, Melt is required to make

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In January and March 2019, the Company entered into the Melt Series A Preferred Stock Agreement.

February 2019, the Company and Melt entered into a Management Services Agreement (the “Melt MSA”), whereby the Company

provides to Melt certain administrative services and support, including bookkeeping, web services and human resources related

activities, and Melt pays the Company a monthly amount of $ 10 .

of March 31, 2020, the Company was due $754 from Melt for reimbursable expenses and amounts due under the Melt MSA and are

included in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

three months ended March 31, 2020, Melt paid the Company $0.

Company’s Chief Executive Officer, Mark L.

of June 30, 2020, the Company was due $ 785 from Melt for reimbursable expenses and amounts due under the Melt MSA and are included

in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets.

During the three and six

months ended June 30, 2020, Melt paid the Company $ 0 .

Company’s Chief Executive Officer, Mark L.

Baum, and Chief Medical Officer, Larry Dillaha, are members of the Melt board

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unaudited condensed results of operations information of Melt is summarized below:

Three Months Ended

March 31, 2020

SCHEDULE OF CONDENSED INCOME STATEMENT

Revenues, net

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unaudited condensed balance sheet information of Melt is summarized below:

SCHEDULE OF CONDENSED BALANCE SHEET

Current assets

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Total liabilities

Total preferred stock and stockholders’

Total liabilities and stockholders’

Total preferred stock and stockholders’ equity

Total liabilities and stockholders’ equity

INVESTMENT IN SURFACE PHARMACEUTICALS, INC.

AND AGREEMENTS - RELATED PARTY TRANSACTIONS

Company entered into an asset purchase and license agreement in 2017, and amended it in April 2018 (the “Surface License

Agreements”) with Surface.

Pursuant to the terms of the Surface License Agreements, the Company assigned and licensed to

Surface certain intellectual property and related rights to develop, formulate, make, sell, and sub-license ophthalmic formulations

(collectively, the “Surface Products”).

Surface is required to make royalty payments to the Company of 4%-6% of net

sales of the Surface Products while any patent rights remain outstanding.

of March 31, 2020, the Company owned 3,500,000 shares of Surface common stock (approximately 30% of the issued and outstanding

equity interests).

A Company director, Richard L.

Lindstrom, and the Company’s Chief Executive Officer, Mark L.

directors of Surface.

Company entered into an asset purchase and license agreement with Surface in 2017, and amended it in April 2018 (the “Surface

License Agreements”).

Pursuant to the terms of the Surface License Agreements, the Company assigned and licensed

to Surface certain intellectual property and related rights to develop, formulate, make, sell, and sub-license ophthalmic formulations

(collectively, the “Surface Products”).

Surface is required to make royalty payments to the Company of 4 %- 6 %

of net sales of the Surface Products while any patent rights remain outstanding.

Company director, Richard L.

Lindstrom, and the Company’s Chief Executive Officer, Mark L.

Baum, are directors of Surface.

Surface is required to make royalty payments to Dr.

Lindstrom of 3% of net sales of certain Surface products

while certain patent rights remain outstanding.

Lindstrom is also a principal of Flying L Partners, an affiliate of the funding

investor who purchased the Surface Series A Preferred Stock.

Lindstrom of 3 %

of net sales of certain Surface Products while certain patent rights remain outstanding.

Lindstrom is also a principal

of Flying L Partners, an affiliate of the funding investor who purchased the Surface Series A Preferred Stock.

unaudited condensed results of operations information of Surface is summarized below:

Three Months Ended

March 31, 2020

OF CONDENSED INCOME STATEMENT

Revenues, net

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unaudited condensed balance sheet information of Surface is summarized below:

OF CONDENSED BALANCE SHEET

Current assets

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Total liabilities

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

are comprised of finished compounded formulations, over-the-counter and prescription retail pharmacy products, commercial pharmaceutical

products, related laboratory supplies and active pharmaceutical ingredients.

The composition of inventories as of March 31, 2020

The composition of inventories as of June 30, 2020

and December 31, 2019 was as follows:

SCHEDULE OF INVENTORIES

Raw materials

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expenses and other current assets consisted of the following:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid insurance

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plant and equipment, net consisted of the following:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net:

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Leasehold improvements

Property, plant and equipment, gross

Accumulated depreciation and amortization

the three months ended March 31, 2020 and 2019, depreciation and amortization related to the property, plant and equipment

was $448 and $390, respectively.

Property, plant and equipment, Net

the three and six months ended June 30, 2020, depreciation and amortization related to the property, plant and equipment was $ 465

respectively.

For the three and six months ended June 30, 2019, depreciation and amortization related to the property,

plant and equipment was $ 491

respectively.

INTANGIBLE ASSETS AND GOODWILL

Company’s intangible assets at March 31, 2020 consisted of the following:

Company’s intangible assets at June 30, 2020 consisted of the following:

OF INTANGIBLE ASSETS

Carrying value

17 - 19 years

Customer relationships

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State pharmacy licenses

expense for intangible assets for the three months ended March 31, 2020 and 2019 was as follows:

the three and six months ended June 30, 2020, the Company recorded impairment charges of $ 363

related to patent filings associated with

the products that the Company was no longer actively selling.

expense for intangible assets for the three and six months ended June 30, 2020 and 2019 was as follows:

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

Three Months Ended

Six Months Ended

Customer relationships

State pharmacy licenses

future amortization expense for the Company’s intangible assets at March 31, 2020 is as follows:

future amortization expense for the Company’s intangible assets at June 30, 2020 is as follows:

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Remainder of 2020

Intangible assets

have been no changes in the carrying value of the Company’s goodwill during the three and six months ended June 30, 2020.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

payable and accrued expenses consisted of the following:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable

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Non-current total accrued expenses

In July 2017, the Company entered into a term

loan and security agreement in the principal amount of $16,000 (the “SWK Loan Agreement”

or “SWK Loan”)

with SWK Funding LLC and its partners (collectively, “SWK”), as lender and collateral agent.

July 2017, the Company entered into a term loan and security agreement in the principal amount of $ 16,000

(the “SWK Loan Agreement”

was fully funded at closing with a five-year term;

however, such term could be reduced to four years if certain revenue requirements

are not achieved.

The SWK Loan is secured by substantially all of the Company’s assets, including its intellectual

property rights.

The SWK Loan was subsequently amended in May 2019 and again in April 2020 (see Note 16).

The SWK Loan bears

an interest rate that is equal to the three-month London Inter-Bank Offered Rate (subject to a minimum of 2.00%), plus an applicable

margin of 10.00% (the “Margin Rate”);

provided that, if, two days prior to a payment date, the Company provides SWK

evidence that the Company has achieved a leverage ratio as of such date of less than 4.00:1:00, the Margin Rate shall equal 9.00%;

and if the Company has achieved a leverage ratio as of such date of less than 3.00:1:00, the Margin Rate shall equal 7.00%.

leverage ratio means, as of any date of determination, the ratio of:

(a) indebtedness as of such date to (b) EBITDA (as defined

in the SWK Loan), of the Company for the immediately preceding 12 month period, adding-back (i) actual litigation expenses for

the immediately preceding 12 month period, minus (ii) actual litigation expenses for the immediately preceding 3 month period

multiplied by 4.

March 31, 2020, future minimum payments under the Company’s note payable were as follows:

or “SWK Loan”) with SWK Funding LLC and its partners (collectively, “SWK”), as lender and collateral agent.

The SWK Loan Agreement was fully funded at closing with a five-year term;

however, such term could be reduced to four years if

certain revenue requirements are not achieved.

The SWK Loan is secured by substantially all of the Company’s assets, including

its intellectual property rights.

The SWK Loan was subsequently amended in May 2019 and again in April 2020 (see below).

The SWK Loan bears an interest rate that is equal to the three-month London Inter-Bank Offered Rate (subject to a minimum of 2.00 %),

plus an applicable margin of 10.00 %

(the “Margin Rate”);

provided that, if, two days prior to a payment date, the Company provides SWK evidence that the

Company has achieved a leverage ratio as of such date of less than 4.00:1:00, the Margin Rate shall equal 9.00%;

and if the Company

has achieved a leverage ratio as of such date of less than 3.00:1:00, the Margin Rate shall equal 7.00%.

The leverage ratio means,

as of any date of determination, the ratio of:

(a) indebtedness as of such date to (b) EBITDA (as defined in the SWK Loan), of

the Company for the immediately preceding 12 month period, adding-back (i) actual litigation expenses for the immediately preceding

12 month period, minus (ii) actual litigation expenses for the immediately preceding 3 month period multiplied by 4.

Amendment to SWK Loan

April 1, 2020, the Company and several of its wholly owned subsidiaries entered into a second amendment (the “SWK Amendment”)

to the SWK Loan, with SWK.

A summary of the material changes contained in the SWK Amendment are as follows:

agreed to make available to the Company, and the Company drew down on, an additional principal amount of $ 1,000 ;

definition of the first amortization date was changed to August 14, 2020, permitting the Company to pay interest only on the

principal amount loaned for the next payment (payments are due on a quarterly basis) following the SWK Amendment;

interest payment due May 14, 2020 will be paid in kind by increasing the principal amount

of the term loans by an amount equal to the interest accrued as of such date.

Protection Program Loan

April 2020, the Company entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender,

for a loan (the “PPP Loan”) in the principal amount of $ 1,967 and received cash proceeds of the same amount, pursuant

to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act

(the “CARES Act”), which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

the terms of the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0 % per annum.

The term of the PPP Loan

is two years, unless sooner required in connection with an event of default under the PPP Loan.

To the extent the PPP Loan amount

is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven

months from the date of the PPP Loan, until the maturity date.

CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.

Under the PPP, the Company may apply

for and be granted forgiveness for all or part of the PPP Loan.

The amount of loan proceeds eligible for forgiveness is based

on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the

eight-week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations,

rent payments on certain leases, and certain qualified utility payments ( it being anticipated that at least 75% of the loan amount

will be required to be used for eligible payroll costs );

the employer maintaining or rehiring employees and maintaining salaries

at certain levels;

and other factors.

Subject to the other requirements and limitations on loan forgiveness, only loan proceeds

spent on payroll and other eligible expenses during the covered eight-week period will qualify for forgiveness.

While the Company

intends to use proceeds from the PPP Loan for such qualifying expenses, in particular maintaining continuity of its payroll and

workforce (including staff critical to the timely production and dispensing of medicines the Company produces), no assurance can

be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

June 30, 2020, future minimum payments under the Company’s debt agreements were as follows:

SUMMARY OF FUTURE MINIMUM PAYMENTS

Remainder of 2020

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amount representing estimated interest

Notes payable, gross

Loans payable, gross

unamortized discount

Notes payable

current portion, net of unamortized discount

Note payable, net of current portion and unamortized debt discount

the three months ended March 31, 2020, debt discount amortization related to the note payable was $160.

Company adopted Topic 842 on January 1, 2019.

Topic 842 allows the Company to elect a package of practical expedients, which include:

(i) an entity need not reassess whether any expired or existing contracts are or contain leases;

(ii) an entity need not reassess

the lease classification for any expired or existing leases;

and (iii) an entity need not reassess any initial direct costs for

any existing leases.

Another practical expedient allows the Company to use hindsight in determining the lease term when considering

lessee options to extend or terminate the lease and to purchase the underlying asset.

The Company has elected to utilize the package

of practical expedients and has not elected the hindsight methodology in its implementation of Topic 842.

Company elected to adopt this standard using the optional modified retrospective transition method and recognized a cumulative-effect

adjustment to the condensed consolidated balance sheet on the date of adoption.

Comparative periods have not been restated.

the adoption of Topic 842, the Company’s condensed consolidated balance sheets now contains the following line items:

assets, Operating lease liabilities—short-term and Operating lease liabilities—long-term.

Company determined that it held the following significant operating leases of office and laboratory space as of January 1, 2019:

operating lease for 10,200 square feet of office space in San Diego, California that

expires in December 2021, with an option to extend the term for a five-year period;

operating lease for 4,500 square feet of office and lab space in Irvine, California that

expires in December 2020, with an option to extend the term for up to two five-year periods.

As part of the Company’s restructuring of the Park Compounding, Inc.

(“Park”)

business, the Company assessed its obligations under this lease.

As of the date of this

Quarterly Report, the Company expects to sublease this space and has determined that

there is a practical ability to do so, and as a result did not recognize any impairment

costs related to this lease and the Company’s right to use asset;

operating lease for 25,000 square feet of lab, warehouse and office space in Ledgewood,

New Jersey that expires in July 2024, with an option to extend the term for two additional

Loans payable, net of current portion and unamortized debt discount

the three and six months ended June 30, 2020, debt discount amortization related to the SWK Loan was $ 83 and

respectively.

For the three and six months ended June 30, 2019, debt discount amortization related to the SWK Loan was

respectively.

The Company leases office and laboratory

space under the non-cancelable operating leases listed below.

These lease agreements have remaining lease terms

between one to four years and contain various clauses for renewal at our option.

operating lease for 10,200 square feet of office space in San Diego, California that expires in December 2021 , with an option

to extend the term for a five-year period ;

operating lease for 4,500

square feet of office and lab space

in Irvine, California that expires in December

2020 , with an option to extend the

term for up to two

five-year periods .

operating lease for 5,500 square feet of office space in Nashville, Tennessee that expires

in December 2024, with an option to extend the term for two additional five-year periods.

extensions within the San Diego, California and Ledgewood, New Jersey operating lease agreements were included within the Company’s

calculation of the new lease standard as the Company is reasonably certain it will exercise its option to extend these leases.

The Company has elected to not recognize right-of-use assets and lease liabilities arising from short-term leases, which are leases

that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying

asset that the lessee is reasonably certain to exercise.

previously classified capital leases are now classified as finance leases under the new standard.

The Company has determined that

the identified finance leases did not contain non-lease components and require no further allocation of the total lease cost.

The Company has determined that the identified operating leases did contain non-lease components and elected an accounting policy

to combine non-lease and lease components to determine the total lease cost.

Additionally, the operating agreements in place did

not contain information to determine the rate implicit in the leases.

As such, the Company calculated the incremental borrowing

rate based on the assumed remaining lease term for each lease in order to calculate the present value of the remaining lease payments.

At March 31, 2020, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating

As part of the

Company’s restructuring of the Park Compounding, Inc.

(“Park”) business, the Company assessed its obligations

under this lease.

As of the date of this Quarterly Report, management expects the Company to sublease this space

and has determined that there is a practical ability to do so, and as a result did not recognize any impairment costs related

to this lease and the Company’s right to use the asset;

operating lease for 25,000 square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July 2024 ,

with an option to extend the term for two additional five-year periods ;

operating lease for 5,500 square feet of office space in Nashville, Tennessee that expires in December 2024 , with an option

to extend the term for two additional five-year periods .

March 2020, the Company amended its New Jersey lease for the expansion of an additional 1,400

square feet of space which is expected

to commence in September 2020 and expire in July

The March 2020 lease is not included

below since the new lease term has not commenced as of June 30, 2020.

June 30, 2020, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating

leases held by the Company were 6.32 % and 9.85 years, respectively.

adoption of Topic 842, the Company recorded a $6,325 increase in operating lease right-of-use assets, a $388 decrease in accounts

payable and accrued expenses and a $6,712 increase in operating lease liability.

The Company did not record any cumulative effect

adjustments to opening stockholders’

As of March 31, 2020, right-of-use assets and liabilities arising from operating

leases were $6,431 and $6,846, respectively.

During the three months ended March 31, 2020 and 2019, cash paid for amounts included

for the operating lease liabilities was $271 and $223 and the Company recorded operating lease expense of $278 and $234 included

the three and six months ended June 30, 2020, cash paid for amounts included for the operating lease liabilities was $ 276

and the Company recorded operating lease

expense of $ 280 and

$ 555 included

in selling, general and administrative expenses, respectively.

lease payments under operating leases as of March 31, 2020 were as follows :

Operating Leases

lease payments under operating leases as of June 30, 2020 were as follows :

OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

Remainder of 2020

4 unchanged sentences

Operating lease liabilities, net of current portion

Company also has an additional finance lease that is included in its lease accounting but is not considered significant.

lease payments under non-cancelable finance leases as of March 31, 2020 were as follows :

Finance Leases

Company also has a lease that is included in its lease accounting but is not considered significant.

lease payments under finance leases as of June 30, 2020 were as follows :

OF FUTURE LEASE PAYMENT UNDER FINANCE LEASE

Remainder of 2020

4 unchanged sentences

Finance lease obligation, net of current portion

March 31, 2020, the weighted average incremental borrowing rate and the weighted average remaining lease term for the finance

lease held by the Company were 6.36% and 3.83 years, respectively.

the three months ended March 31, 2020, depreciation expense related to the equipment held under the finance lease obligation was

the three months ended March 31, 2020, cash paid and expense recognized for interest expense related to the finance lease obligation

STOCKHOLDERS’

EQUITY AND STOCK-BASED COMPENSATION

February 2020, the Company accrued for the issuance of 15,000 shares of its restricted common stock, with a fair value of $83,

as consideration for commission expenses incurred during the three months ended March 31, 2020.

Issuance of these shares had

not occurred as of March 31, 2020.

the three months ended March 31, 2020, the Company issued 91,987 shares of its common stock underlying RSUs issued to a director

June 30, 2020, the incremental borrowing rate and the remaining lease term for the finance lease

held by the Company were 6.36 % and 3.58 years, respectively.

the three and six months ended June 30, 2020, depreciation expense related to the equipment held under the finance lease obligation

respectively.

each of the three and six months ended June 30, 2020, cash paid and expense recognized for interest expense related to

the finance lease obligation was $ 0

respectively.

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

May 2020, the Company issued 30,000 shares of its restricted common stock, with a fair value of $ 167 , as consideration for commission

expenses incurred during the year ended December 31, 2019 and the six months ended June 30, 2020.

the six months ended June 30, 2020, the Company issued 253

shares of its common stock upon the cashless

exercise of options to purchase 750 shares of common stock, with an exercise price of $ 3.04

per share, net of 69

shares of common stock withheld for payroll

tax withholdings.

the six months ended June 30, 2020, the Company issued 91,987 shares of its common stock underlying RSUs issued to a director

that resigned.

The RSUs had previously vested, including 2,429 RSUs during the three months ended March 31, 2020, but the issuance

The RSUs had previously vested, including 2,429 RSUs during the six months ended June 30, 2020, but the issuance

and delivery of the shares were deferred until the director resigned.

the three months ended March 31, 2020, 9,715 shares of the Company’s common stock underlying RSUs issued to directors vested,

the six months ended June 30, 2020, 17,001 shares of the Company’s common stock underlying RSUs issued to directors vested,

but the issuance and delivery of these shares are deferred until the director resigns.

September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and

Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27,

2013 (as amended, the “2007 Plan”).

The 2007 Plan reached its term in September 2017, and we can no longer issue additional

1 unchanged sentence

reach their maturity or are otherwise cancelled/forfeited.

On June 13, 2017, the Company’s Board of Directors and stockholders

adopted the Company’s 2017 Incentive Stock and Awards Plan (the “2017 Plan”

together with the 2007 Plan, the

“Plans”).

As of March 31, 2020, the 2017 Plan provides for the issuance of a maximum of 2,000,000 shares of the Company’s

On June 13, 2017, the Company’s Board of Directors and stockholders

adopted the Company’s 2017 Incentive Stock and Awards Plan (the “2017 Plan” together with the 2007 Plan, the

As of June 30, 2020, the 2017 Plan provides for the issuance of a maximum of 2,000,000 shares of the Company’s

common stock.

1 unchanged sentence

services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in

the Company’s development and financial success.

Under the Plans, the Company is authorized to issue incentive stock options

intended to qualify under Section 422 of the Internal Revenue Code, non-qualified stock options, restricted stock units and restricted

The Plans are administered by the Compensation Committee of the Company’s Board of Directors.

The Company had 414,382

shares available for future issuances under the 2017 Plan at March 31, 2020.

summary of stock option activity under the Plans for the three months ended March 31, 2020 is as follows:

Number of shares

shares available for future issuances under the 2017 Plan at June 30, 2020.

summary of stock option activity under the Plans for the six months ended June 30, 2020 is as follows:

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

Exercise Price

Weighted Avg.

Remaining Contractual Life

Aggregate Intrinsic Value

Options outstanding - January 1, 2020

Options granted

Options exercised

Options cancelled/forfeited

Options outstanding - March 31, 2020

Options exercisable

Options vested and expected to vest

Intrinsic Value

outstanding - January 1, 2020

cancelled/forfeited

outstanding - June 30, 2020

exercisable – June 30, 2020

vested and expected to vest – June 30, 2020

aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which

would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise

price lower than the market price on March 31, 2020, based on the closing price of the Company’s common stock of $3.82 on

During the three months ended March 31, 2020,

the Company granted stock options to certain employees and a consultant.

The stock options were granted with an exercise price

equal to the current market price of the Company’s common stock, as reported by the securities exchange on which the common

stock was then listed, at the grant date and have contractual terms of 10 years.

Vesting terms for options granted to employees

and consultants during the three months ended March 31, 2020 typically included one of the following vesting schedules:

the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75%

of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over three years;

100% of the shares subject to the option vest on a quarterly basis in equal installments over three years.

Certain option

awards provide for accelerated vesting if there is a change in control (as defined in the Plan) and in the event of certain modifications

to the option award agreement.

The fair value of each option award is estimated

on the date of grant using the Black-Scholes-Merton option pricing model.

The expected term of options granted to employees and

directors was determined in accordance with the “simplified approach,”

as the Company has limited, relevant, historical

data on employee exercises and post-vesting employment termination behavior.

The expected risk-free interest rate is based on

Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

The financial

statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from

those estimates.

For option grants to employees and directors, the Company assigns a forfeiture rate of 10%.

These factors

could change in the future, which would affect the determination of stock-based compensation expense in future periods.

these assumptions, the fair value is determined at the date of grant.

price lower than the market price on June 30, 2020, based on the closing price of the Company’s common stock of $ 5.21 on

the six months ended June 30, 2020, the Company granted stock options to certain employees and a consultant.

The stock options

were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the

securities exchange on which the common stock was then listed, at the grant date and have contractual terms of 10

terms for options granted to employees and consultants during the three months ended June 30, 2020 generally included one of the

following vesting schedules:

25% of the shares subject to the option vest and become exercisable on the first anniversary of the

grant date and the remaining 75% of the shares subject to the option vest and become exercisable quarterly in equal installments

thereafter over three years;

and 100% of the shares subject to the option vest on a quarterly basis in equal installments over

Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans)

and in the event of certain modifications to the option award agreement.

July 31, 2015, the Company granted to its Chief Executive Officer, Mark Baum, an option (the “Baum Performance Option”)

to purchase 600,000

shares of the Company’s common stock

at an exercise price of $ 7.87

per share under the 2007 Plan subject

to the satisfaction of certain market-based vesting criteria.

The market-based vesting criteria are separated into five tranches

and require that the Company achieve and maintain certain average stock price targets ranging from $ 9

per share to $ 15

per share during the five year period

following the grant date.

On June 4, 2020, the Company amended the Baum Performance Option, to extend the vesting and contractual

The Company treated this amendment

as a modification to the Baum Performance Option for accounting purposes.

The fair value of the modification was $ 1 ,876

using a Monte Carlo Simulation with a five year life, 70 %

volatility and a risk-free interest rate of 0.40 %.

The fair value of the modification will be recognized as stock-based compensation expense over the service period.

the exception of the Baum Performance Option, the fair value of each option award is estimated on the date of grant using the

Black-Scholes-Merton option pricing model.

The expected term of options granted to employees and directors was determined in accordance

with the “simplified approach,” as the Company has limited, relevant, historical data on employee exercises and post-vesting

employment termination behavior.

The expected risk-free interest rate is based on the U.S.

Treasury yield for a period consistent

with the expected term of the option in effect at the time of the grant.

The financial statement effect of forfeitures is estimated

at the time of grant and revised, if necessary, if the actual effect differs from those estimates.

For option grants to employees

and directors, the Company assigns a forfeiture rate of 10 %.

These factors could change in the future, which would affect the

determination of stock-based compensation expense in future periods.

Utilizing these assumptions, the fair value is determined

at the date of grant.

table below illustrates the fair value per share determined by the Black-Scholes-Merton option pricing model with the following

assumptions used for valuing options granted to employees:

SCHEDULE OF FAIR VALUE ASSUMPTIONS

Weighted-average fair value of options granted

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Risk-free interest rate

1.32% - 1.64%

Dividend yield

following table summarizes information about stock options outstanding and exercisable at March 31, 2020:

Options Outstanding

Options Exercisable

Exercise Prices

Life in Years

following table summarizes information about stock options outstanding and exercisable at June 30, 2020:

OF STOCK OPTION OUTSTANDING AND EXERCISABLE

$ 1.47 - $ 2.60

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$ 5.49 - $ 6.36

of March 31, 2020, there was approximately $4,887 of total unrecognized compensation expense related to unvested stock

options granted under the Plans.

That expense is expected to be recognized over the weighted-average remaining vesting period

of 1.75 years.

The stock-based compensation expense for all stock options was $263 during the three months ended March 31, 2020.

$ 6.64 - $ 8.99

$ 1.47 - $ 42.80

of June 30, 2020, there was approximately $ 6,383

of total unrecognized compensation expense

related to unvested stock options granted under the Plans.

That expense is expected to be recognized over the weighted-average

remaining vesting period of 4.09

The stock-based compensation

expense for all stock options was $ 271

during the three and six months ended

June 30, 2020, respectively.

awards are granted subject to certain vesting requirements and other restrictions, including performance and market-based vesting

The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s

common stock on the grant date, is expensed over the vesting period of the RSUs.

Unvested portions of RSUs issued to consultants

are remeasured on an interim basis until vesting criteria is met.

the three months ended March 31, 2020, 111,000 RSUs with a fair market value of $810 were issued to certain employees;

vest in full on the third anniversary of the grant date.

During the three months ended March 31, 2020, the Company granted 10,000 RSUs to a new member of its board of directors, with

a fair market value of $39 which vests on the one year anniversary of date granted.

summary of the Company’s RSU activity and related information for the three months ended March 31, 2020 is as follows:

Number of RSUs

Weighted Average Grant Date Fair Value

the three and six months ended June 30, 2020, the Company’s board of directors were granted 68,024 RSUs with a fair market

value $ 400 which vest on a quarterly basis, over one year in equal installments.

the three and six months ended June 30, 2020, 161,000 RSUs with a fair market value of $ 1,025 were issued to certain employees;

the RSUs vest in full on the third anniversary of the grant date.

During the six months ended June 30, 2020, the Company granted 10,000

RSUs to a new member of its board of directors,

with a fair market value of $ 39

which vest on the one-year anniversary

of the date granted.

summary of the Company’s RSU activity and related information for the six months ended June 30, 2020 is as

OF RESTRICTED STOCK UNITS ACTIVITY

Average Grant Date Fair Value

RSUs unvested - January 1, 2020

RSUs cancelled/forfeited

RSUs unvested at March 31, 2020

of March 31, 2020, the total unrecognized compensation expense related to unvested RSUs was approximately $1,621, which is expected

RSUs unvested at June 30, 2020

of June 30, 2020, the total unrecognized compensation expense related to unvested RSUs was approximately $ 1,967 , which is expected

to be recognized over a weighted-average period of 0.5 years, based on estimated and actual vesting schedules of the applicable

The stock-based compensation for RSUs during the three months ended March 31, 2020 and 2019 was $259 and $709,

respectively.

time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, lenders, underwriters

The stock-based compensation for RSUs during the three and six months ended June 30, 2020 was $ 268 and $ 527 , respectively.

time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, lenders, underwriters

and other non-employees for services rendered or to be rendered in the future, or pursuant to settlement agreements.

summary of warrant activity for the three months ended March 31, 2020 is as follows:

Number of Shares Subject to Warrants Outstanding

Weighted Avg.

summary of warrant activity for the six months ended June 30, 2020 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

of Shares Subject to Warrants Outstanding

Exercise Price

Warrants outstanding - January 1, 2020

Warrants outstanding and exercisable - March 31, 2020

Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2020

outstanding and exercisable as of March 31, 2020 are

Warrant Series

Warrants outstanding and exercisable - June 30, 2020

Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2020

outstanding and exercisable as of June 30, 2020 are as follows:

SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

Lender warrants

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Pharmaceuticals, Inc.

the three months ended March 31, 2020, Mayfield re-purchased 650,000 shares of its common stock from Elle, for an aggregate purchase

the three months ended March 31, 2020, Mayfield issued 475,000 shares of its restricted common stock that vest upon various performance-based

milestones and service periods to consultants of Mayfield, including Mayfield’s CEO candidate.

the three months ended March 31, 2020, 500,000 shares of Mayfield’s restricted common stock were forfeited by a consultant.

the six months ended June 30, 2020, Mayfield repurchased 650,000

shares of its common stock from Elle,

for an aggregate purchase price of $ 1 .

the six months ended June 30, 2020, Mayfield issued 475,000

shares of its restricted common stock,

with a fair value of $ 11 ,

that vest upon various performance-based milestones and over a four-year service period to Mayfield’s Chief Executive

Officer candidate.

During the three and six months ended June 30, 2020, the Company recognized $ 6

respectively, in stock-based compensation tied to the Mayfield

stock options.

the six months ended June 30, 2020, 500,000 shares of Mayfield’s restricted common stock were forfeited by a consultant.

Compensation Summary

Company recorded stock-based compensation related to equity instruments granted to employees, directors and consultants as follows:

For the Three Months Ended March 31

SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Employees - selling, general and administrative

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Drug Solutions et al.

April 2018, Novel Drug Solutions, LLC and Eyecare Northwest, PA (collectively “NDS”) filed a lawsuit against the Company

District Court of Delaware asserting claims for breach of contract.

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NDS is seeking unspecified damages,

interest, attorney’s fees and other costs.

The Company believes the claims are meritless and has previously and will continue

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Nonetheless, the Company

cannot predict the eventual outcome of this litigation and it could result in substantial costs, losses and a diversion of management’s

resources and attention, which could harm the Company’s business and the value of its common stock.

cannot predict the eventual outcome of this litigation and it could result in substantial costs, losses and a diversion of management’s

resources and attention, which could harm the Company’s business and the value of its common stock.

and Professional Liability

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coverage at any given time reflects current market conditions, including cost and availability, when the policy is written.

January 2018, John Erick and Deborah Ferrell, successors-in-interest and heirs of Jade Erick, (collectively “Erick”)

filed a lawsuit in the San Diego County Superior against Kim Kelly, ND, MPH asserting claims related to the death of Jade

January 2018, John Erick and Deborah Ferrell, successors-in-interest and heirs of Jade Erick, (collectively “Erick”)

filed a lawsuit in the San Diego County Superior against Kim Kelly, ND, MPH asserting claims related to the death of Jade Erick.

In April 2018, Erick filed an amendment to the lawsuit, naming us as a co-defendant.

In September 2018, co-defendant Dr.

Kelly filed a cross-complaint against the Company and various entities affiliated with Spectrum Laboratory Products, Inc., Spectrum

filed a cross-complaint against the Company and various entities affiliated with Spectrum Laboratory Products, Inc., Spectrum

Chemical Manufacturing Corp.

and Spectrum Pharmacy Products, Inc.

(collectively “Spectrum”).

The cross-complaint seeks

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The case is currently in the discovery phase.

Erick is seeking unspecified damages, interest, attorney’s fees and other

The Company believes the claims are meritless and has previously and will continue to dispute all claims asserted against

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Nonetheless, the Company cannot predict the eventual outcome of

this litigation, it could result in substantial costs, losses and a diversion of management’s resources and attention, which

could harm the Company’s business and the value of its common stock.

this litigation, it could result in substantial costs, losses and a diversion of management’s resources and attention, which

could harm the Company’s business and the value of its common stock.

the ordinary course of business, the Company may face various claims brought by third parties and it may, from time to time, make

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Any of these claims could subject the Company to litigation.

addition to the indemnification provisions contained in the Company’s governing documents, the Company generally enters

into separate indemnification agreements with each of the Company’s directors and officers.

addition to the indemnification provisions contained in the Company’s governing documents, the Company generally enters

into separate indemnification agreements with each of the Company’s directors and officers.

These agreements require the

Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’

fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of

the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful

misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual

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have been recorded for these indemnities in the accompanying condensed consolidated balance sheets.

License Agreement –

Related Party

Company entered into a license agreement in April 2017 and as amended in April 2018, (the “Klarity License Agreement”)

License Agreement – Related Party

Company entered into a license agreement in April 2017 and as amended in April 2018, (the “Klarity License Agreement”)

with Richard L.

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Lindstrom to develop, formulate, make, sell, and sub-license

the topical ophthalmic solution Klarity used to protect and rehabilitate the ocular surface (the “Klarity Product”).

the terms of the Klarity License Agreement, the Company is required to make royalty payments to Dr.

Lindstrom ranging from 3%

- 6% of net sales, dependent upon the final formulation of the Klarity Product sold.

In addition, the Company is required to make

certain milestone payments to Dr.

to 6% of net sales, dependent upon the final formulation of the Klarity Product sold.

addition, the Company is required to make certain milestone payments to Dr.

Lindstrom including:

(i) an initial payment of $50 upon execution of the Klarity License Agreement,

(ii) a second payment of $50 following the first $50 in net sales of the Klarity Product;

and (iii) a final payment of $50 following

the first $100 in net sales of the Klarity Product.

All of the above referenced milestone payments are payable at the Company’s

election in cash or shares of the Company’s restricted common stock.

Payments totaling $55 and $15 were made during the

three months ended March 31, 2020 and 2019, respectively.

$29 and $22 was incurred as royalty expense during the three months

ended March 31, 2020 and 2019, respectively, and included in accounts payable to Dr.

Asset Purchase Agreement –

Related Party

December 2019, the Company entered into an asset purchase agreement (the “Lindstrom APA”) with Dr.

(i) an initial payment of $ 50

upon execution of the Klarity License

Agreement, (ii) a second payment of $ 50

following the first $ 50

in net sales of the Klarity Product;

(iii) a final payment of $ 50

following the first $ 100

in net sales of the Klarity Product.

of the above referenced milestone payments are payable at the Company’s election in cash or shares of the Company’s

restricted common stock.

Payments totaling $ 0

were made during the three and six months

ended June 30, 2020, respectively.

Royalty expense of $ 27

was incurred during the three and six

months ended June 30, 2020, respectively, and is included in accounts payable and is due to Dr.

Lindstrom at June 30, 2020.

Asset Purchase Agreement – Related Party

December 2019, the Company entered into an asset purchase agreement (the “Lindstrom APA”) with Dr.

Lindstrom, a member

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related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic injectable product (the “Lindstrom

Product”).

the terms of the Lindstrom APA, the Company is required to make royalty payments to Dr.

Lindstrom ranging from 2% to 3% of net

sales, dependent upon the final formulation and patent protection of the Lindstrom Product sold.

In addition, the Company is required

to make certain milestone payments to Dr.

Lindstrom including an initial payment of $33 upon execution of the Lindstrom APA.

Lindstrom was paid $7 in cash during the three months ended March 31, 2020, and an additional $38 was payable to Dr.

at March 31, 2020.

The Company incurred $38 for royalty expenses related to the Lindstrom APA during the three months ended March

Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic injectable product (the “Lindstrom

the terms of the Lindstrom APA, the

Company is required to make royalty payments to Dr.

Lindstrom ranging from 2% to 3% of net sales, dependent upon the final

formulation and patent protection of the Lindstrom Product sold.

addition, the Company is required to make certain milestone payments to Dr.

Lindstrom including an initial payment of $ 33 upon

execution of the Lindstrom APA.

Lindstrom was paid $ 0 and

cash during the three and six months ended June 30, 2020, respectively, and an additional $ 42 was

payable to Dr.

Lindstrom at June 30, 2020.

The Company incurred royalty expense of $ 4 and

$ 42 related to the Lindstrom APA during the three and six months ended June 30, 2020, respectively.

and Marketing Agreements

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representation services to Harrow in select geographies in the U.S., in connection with our ophthalmic compounded formulations.

the terms of the sales and marketing agreements, the Company is required to make commission payments equal to 10% - 14% of net

sales for products above and beyond the initial existing sales amounts.

In addition, the Company is required to make periodic

milestone payments to certain organizations in shares of the Company’s restricted common stock if net sales in the assigned

territory reach certain future levels by the end of their terms, as applicable.

$83 and $75 of stock-based payments were recorded

and $603 and $542 were incurred under these agreements for commission expenses during the three months ended March 31, 2020

and 2019, respectively.

As of March 31, 2020 the Company has recorded $83 related to the stock-based payments in accounts payable

and accrued expenses, and will record the amount as additional paid-in-capital upon the issuance of shares.

the terms of the sales and marketing agreements, the

Company is required to make commission payments equal to 10% to 14% of net sales for products above and beyond the initial

existing sales amounts.

In addition, the

Company is required to issue shares of the Company’s restricted common stock to certain organizations if net

sales in the assigned territory reach certain future milestone levels by the end of their terms, as applicable.

expenses of $ 318

were incurred under these agreements during

the three and six months ended June 30, 2020, respectively, of which $ 0

were stock-based payments.

Purchase, License and Related Agreements

Company has acquired and sourced intellectual property rights related to certain proprietary innovations from certain inventors

and related parties (the “Inventors”) through multiple asset purchase agreements, license agreements, strategic agreements

and commission agreements.

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of first refusal on additional intellectual property and drug development opportunities presented by these Inventors.

consideration for the acquisition of the intellectual property rights, the Company is obligated to make payments to the Inventors

based on the completion of certain milestones, generally consisting of:

(1) a payment payable within 30 days after the issuance

of the first patent in the United States arising from the acquired intellectual property (if any);

(2) a payment payable within

30 days after the Company files the first investigational new drug application (“IND”) with the FDA for the first

product arising from the acquired intellectual property (if any);

(3) for certain of the Inventors, a payment payable within 30

days after the Company files the first new drug application with the FDA for the first product arising from the acquired intellectual

property (if any);

and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale

or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s

In consideration for the acquisition of the

intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones,

generally consisting of:

(1) a payment payable within 30 days after the issuance of the first patent in the United States arising

from the acquired intellectual property (if any);

(2) a payment payable within 30 days after the Company files the first investigational

new drug application (“IND”) with the U.S.

Food and Drug Administration (“FDA”) for the first product

arising from the acquired intellectual property (if any);

(3) for certain of the Inventors, a payment payable within 30 days after

the Company files the first new drug application with the FDA for the first product arising from the acquired intellectual property

and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing

of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s

development costs associated with such product.

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the acquired technology to the Inventors.

$144 and $191 were incurred under these agreements as royalty expenses and included

in accounts payable at March 31, 2020 and 2019, respectively.

Royalty expenses of $ 117

were incurred under these agreements for the three and six months ended June 30, 2020 and 2019, respectively, and

are included in accounts payable at June 30, 2020 and 2019, respectively.

SEGMENT INFORMATION AND CONCENTRATIONS

evaluates performance of the Company based on operating segments.

Segment performance for its two operating segments is based on segment contribution.

The Company’s reportable segments

consist of (i) its commercial stage pharmaceutical compounding business (Pharmaceutical Compounding), generally including the

operations of ImprimisRx and Park businesses;

and (ii) its start-up operations associated with pharmaceutical drug development

business (Pharmaceutical Drug Development).

Segment contribution for the segments represents net revenues less cost of sales,

research and development, selling and marketing expenses, and select general and administrative expenses.

The Company does not

evaluate the following items at the segment level:

general and administrative expenses that result from shared infrastructure, including

certain expenses associated with legal matters, public company costs (e.g.

investor relations),

board of directors and principal executive officers and other like shared expenses.

expenses within selling, general and administrative expenses that result from the impact

of corporate initiatives.

Corporate initiatives primarily include integration, restructuring,

acquisition and other shared costs.

select revenues and operating expenses including R&D expenses, amortization, and

asset sales and impairments, net as not all such information has been accounted for at

the segment level, or such information has not been used by all segments.

Segment performance for its two operating segments is based

on segment contribution.

The Company’s reportable segments consist of (i) its commercial stage pharmaceutical compounding

business (Pharmaceutical Compounding), generally including the operations of the ImprimisRx business;

and (ii) its start-up operations

associated with pharmaceutical drug development business (Pharmaceutical Drug Development).

Segment contribution for the segments

represents net revenues less cost of sales, research and development, selling and marketing expenses, and select general and administrative

The Company does not evaluate the following items at the segment level:

general and administrative expenses that result from shared infrastructure, including certain expenses associated with legal

matters, public company costs (e.g.

investor relations), board of directors and principal executive officers and other like

shared expenses.

expenses within selling, general and administrative expenses that result from the impact of corporate initiatives.

initiatives primarily include integration, restructuring, acquisition and other shared costs.

select revenues and operating expenses including research and development expenses, amortization, and asset sales and impairments, net

as not all such information has been accounted for at the segment level, or such information has not been used by all segments.

assets including capital expenditures.

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are general in nature and attributable to the segment.

net revenues, segment operating expenses and segment contribution information consisted of the following for the three months

ended March 31, 2020:

For the Three Months Ended March 31, 2020

net revenues, segment operating expenses and segment contribution information consisted of the following for the three and six

months ended June 30, 2020:

Schedule of Segment Net Revenues, Segment Operating Expenses and Segment Contribution

For the Three Months Ended June 30, 2020

Pharmaceutical

Pharmaceutical Drug

Cost of sales

Operating expenses:

Selling, general and administrative

Research and development

Segment contribution

Research and development

Asset sales and impairments, net

Operating loss

For the Six Months Ended June 30, 2020

Pharmaceutical

Drug Development

Pharmaceutical Drug

Cost of sales

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Research and development

Asset sales and impairments, net

Operating loss

For the Three Months Ended March 31, 2019

For the Three Months Ended June 30, 2019

Pharmaceutical

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Research and development

Asset sales and impairments, net

Operating loss

For the Six Months Ended June 30, 2019

Pharmaceutical

Pharmaceutical Drug

Cost of sales

Operating expenses:

Selling, general and administrative

Research and development

Segment contribution

Research and development

Operating loss

Company categorizes revenues by geographic area based on selling location.

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total revenues are attributed to the U.S.

All long-lived assets at March 31, 2020 and December 31, 2019 are located in the U.S.

All long-lived assets at June 30, 2020 and December 31, 2019 are located in the U.S.

Company sells its compounded formulations to a large number of customers.

No customer accounted for more than 10% of the Company’s

total pharmacy sales for the three months ended March 31, 2020 and 2019.

No customer accounted for more than 10 % of the Company’s

total pharmacy sales for the three and six months ended June 30, 2020 and 2019.

The Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively accounted for

78% and 67% of active pharmaceutical ingredient purchases during the three months ended March 31, 2020 and 2019, respectively.

These suppliers collectively accounted

for 60 % and 70 % of active pharmaceutical ingredient purchases during the three and six months ended June 30, 2020, respectively,

and 69 % and 65 % during the three and six months ended June 30, 2019, respectively.

SUBSEQUENT EVENTS

Company has performed an evaluation of events occurring subsequent to March 31, 2020 through the filing date of this Quarterly

Company has performed an evaluation of events occurring subsequent to June 30, 2020 through the filing date of this Quarterly

Based on its evaluation, no events other than those described below need to be disclosed.

Amendment to SWK Loan

April 1, 2020, the Company and several of its wholly owned subsidiaries entered into a second amendment (the “SWK Amendment”)

to the SWK Loan, with SWK.

A summary of the material changes contained in the SWK Amendment are as follows:

agreed to make available to the Company, and the Company drew down on, an additional principal amount of one million dollars

($1,000,000);

definition of the first amortization date was changed to August 14, 2020, permitting the Company to pay interest only on the

principal amount loaned for the next payment (payments are due on a quarterly basis) following the SWK Amendment;

interest payment due May 14, 2020 will be paid in kind by increasing the principal amount of the term loans by an amount equal

to the interest that has accrued.

Protection Program Loan

April 2020, the Company entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender,

for a loan (the “PPP Loan”) in the principal amount of $1,967 and received cash proceeds of the same amount, pursuant

to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act

(the “CARES Act”), which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

the terms of the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum.

The term of the PPP Loan

is two years, unless sooner required in connection with an event of default under the PPP Loan.

To the extent the PPP Loan amount

is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven

months from the date of the PPP Loan, until the maturity date.

CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.

Under the PPP, the Company may apply

for and be granted forgiveness for all or part of the PPP Loan.

The amount of loan proceeds eligible for forgiveness is based

on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the

eight-week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations,

rent payments on certain leases, and certain qualified utility payments (it being anticipated that at least 75% of the loan amount

will be required to be used for eligible payroll costs);

the employer maintaining or rehiring employees and maintaining salaries

at certain levels;

and other factors.

Subject to the other requirements and limitations on loan forgiveness, only loan proceeds

spent on payroll and other eligible expenses during the covered eight-week period will qualify for forgiveness.

While the Company

intends to use proceeds from the PPP Loan for such qualifying expenses, in particular maintaining continuity of its payroll and

workforce (including staff critical to the timely production and dispensing of medicines the Company produces), no assurance can

be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

following discussion and analysis of our financial condition and results of operations should be read in conjunction with our

unaudited condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this Quarterly

Report on Form 10-Q (this “Quarterly Report”).

Our condensed consolidated financial statements have been prepared

and, unless otherwise stated, the information derived therefrom as presented in this discussion and analysis is presented, in

accordance with accounting principles generally accepted in the United States of America (“GAAP”).

information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment

in our common stock.

We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report

and in our other reports filed with the U.S.

Securities and Exchange Commission (the “SEC”), including our Annual

Report on Form 10-K for the fiscal year ended December 31, 2019 and subsequent reports, which discuss our business in greater

As used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company”,

“Harrow”

“we”, “us”

and “our”

refer to Harrow Health, Inc.

and its consolidated

subsidiaries, consisting of Park Compounding, Inc., ImprimisRx, LLC, ImprimisRx NJ, LLC dba ImprimisRx, Imprimis NJOF, LLC, Radley

Pharmaceuticals, Inc., Mayfield Pharmaceuticals, Inc., and Stowe Pharmaceuticals, Inc.

In this discussion and analysis, we refer

to our consolidated subsidiaries ImprimisRx, LLC, ImprimisRx NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.”

addition to historical information, the following discussion contains forward-looking statements regarding future events and our

future performance.

In some cases, you can identify forward-looking statements by terminology such as “will”, “may”,

“should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,

“predicts”, “forecasts”, “potential”

or “continue”

or the negative of these terms

or other comparable terminology.

All statements made in this Quarterly Report other than statements of historical fact are forward-looking

These forward-looking statements involve risks and uncertainties and reflect only our current views, expectations

and assumptions with respect to future events and our future performance.

If risks or uncertainties materialize or assumptions

prove incorrect, actual results or events could differ materially from those expressed or implied by such forward-looking statements.

Risks that could cause actual results to differ from those expressed or implied by the forward-looking statements we make include,

among others, risks related to:

the impact of the COVID-19 pandemic on our financial condition, liquidity or results of operations;

our ability to successfully implement our business plan, develop and commercialize our proprietary formulations in a timely manner

or at all, identify and acquire additional proprietary formulations, manage our pharmacy operations, service our debt, obtain

financing necessary to operate our business, recruit and retain qualified personnel, manage any growth we may experience and successfully

realize the benefits of our previous acquisitions and any other acquisitions and collaborative arrangements we may pursue;

from pharmaceutical companies, outsourcing facilities and pharmacies;

general economic and business conditions;

regulatory and

legal risks and uncertainties related to our pharmacy operations and the pharmacy and pharmaceutical business in general;

interest in and market acceptance of our current and any future formulations and compounding pharmacies generally;

operating history;

and the other risks and uncertainties described under the heading “Risk Factors”

in Part II, Item

1A of this Quarterly Report.

You should not place undue reliance on forward-looking statements.

Forward-looking statements speak

only as of the date they are made and, except as required by law, we undertake no obligation to revise or publicly update any

forward-looking statement for any reason.

business specializes in the development, production and sale of innovative medications that offer unique competitive advantages

and serve unmet needs in the marketplace through our subsidiaries and deconsolidated companies.

We own one of the nation’s

leading ophthalmology pharmaceutical businesses, ImprimisRx.

In addition to wholly owning ImprimisRx, we also have equity positions

in Eton Pharmaceuticals, Inc.

(“Eton”), Surface Pharmaceuticals, Inc.

(“Surface”), and Melt Pharmaceuticals,

(“Melt”), all companies that began as subsidiaries of Harrow.

More recently, we founded drug development subsidiaries

Mayfield Pharmaceuticals, Inc.

(“Mayfield”), Radley Pharmaceuticals, Inc.

(“Radley”), and Stowe Pharmaceuticals,

(“Stowe”).

During 2020, we intend to launch a new business called Visionology.

We also own royalty rights in

various drug candidates being developed by Surface, Melt, Radley and Mayfield.

We intend to continue to create and hold equity

and royalty rights in new businesses that commercialize drug candidates that are internally developed or otherwise acquired or

licensed from third parties.

is our ophthalmology focused pharmaceutical compounding business.

We offer to over 7,000 physician customers and their patients

critical medicines to meet their needs that are unmet by commercially available drugs.

We make our formulations available at prices

that are, in most cases, lower than non-customized commercial drugs.

Our current ophthalmology formulary includes over twenty

compounded formulations, many of which are patented or patent-pending, and are customizable for the specific needs of a patient.

Some examples of our compounded medications are various combinations of drugs formulated into one bottle and numerous preservative

free formulations.

Depending on the formulation, the regulations of a specific state and ultimately the needs of the patient,

ImprimisRx products may be dispensed as patient-specific medications from our 503A pharmacy, or for in-office use, made according

to current good manufacturing practices (or cGMPs) or other U.S.

Food and Drug Administration (“FDA”) guidance documents,

in our FDA-registered NJOF outsourcing facility.

is expected to be an online eye health platform.

Visionology will leverage our experience in the ophthalmic pharmaceutical business

as well as our relationships with eyecare professionals across the United States.

We expect to launch a proof-of-concept model

for Visionology during the summer of 2020 within a certain region of the U.S., and if successful, expand the launch on a nationwide

basis later in 2020 and/or 2021.

Pharmaceutical

Compounding Businesses

Pharmaceutical

compounding is the science of combining different active pharmaceutical ingredients (APIs), all of which are approved by the FDA

(either as a finished form product or as a bulk drug ingredient) and excipients, to create specialized pharmaceutical preparations.

Physicians and healthcare institutions use compounded drugs when commercially available drugs do not optimally treat a patient’s

In many cases, compounded drugs, such as ours, have wide market utility and may be clinically appropriate for large patient

Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms,

such as topical creams or gels, suspensions, or solutions with more tolerable drug delivery vehicles.

all of our sales revenue is derived from making, selling and dispensing our compounded prescription drug formulations as cash

pay transactions between us and our end-user customer.

As such, the majority of our commercial transactions do not involve distributors,

wholesalers, insurance companies, pharmacy benefit managers or other middle parties.

By not being reliant on insurance company

formulary inclusion and pharmacy benefit manager payment clawbacks, we are able to simplify the prescription transaction process.

We believe the outcome of our business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis,

a fair price and great service for a quality pharmaceutical product.

We sell our products through a network of employees and independent

contractors and we dispense our formulations in all 50 states, Puerto Rico and in selected markets outside the United States.

Compounding Facilities

Pharmaceutical

compounding businesses are governed by Sections 503A and 503B of the Federal Food Drug and Cosmetic Act (the “FDCA”).

Section 503A of the FDCA provides that a pharmacy is only permitted to compound a drug for an individually identified patient

based on a prescription for a patient, and is only permitted to distribute the drug interstate if the pharmacy is licensed to

do so in the states where it is compounded and where the medication is received.

503B of the FDCA provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register

as an “outsourcing facility.”

Outsourcing facilities are permitted to compound large quantities of drugs without a

prescription and distribute them out of state with certain limitations such as the formulation appearing on the FDA’s drug

shortage list or the bulk drug substances contained in the formulations appearing on the FDA’s “clinical need”

Entities voluntarily registering with FDA as outsourcing facilities are subject to additional requirements that do not apply

to compounding pharmacies (operating under Section 503A of the FDCA), including adhering to standards such as current good manufacturing

practices (cGMP) or other FDA guidance documents and being subject to regular FDA inspection.

operate two compounding facilities located in Ledgewood, New Jersey.

Our New Jersey operations are comprised of two separate entities

and facilities, one of which is registered with the FDA as an outsourcing facility (“NJOF”) under Section 503B of

The other New Jersey facility (“RxNJ”), is a licensed pharmacy operating under Section 503A of the FDCA.

All products that we sell, produce and dispense are made in the United States.

believe that, with our current compounding pharmacy facilities and licenses and FDA registration of NJOF, we have the infrastructure

to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting.

We plan to invest in one or both of our facilities to further their capacity and efficiencies.

Also, we may seek to access greater

pharmacy and production related redundancy and markets through acquisitions, partnerships or other strategic transactions.

Pharmaceutical

Development Businesses

have ownership interests in Eton, Surface, Melt, Mayfield, Stowe and Radley and hold royalty interests in certain of their drug

These companies are pursuing market approval for their drug candidates under the FDCA, including in some instances

under the abbreviated pathway described in Section 505(b)(2) which permits the submission of a new drug application (“NDA”)

where at least some of the information required for approval comes from studies not conducted by or for the applicant and for

which the applicant has not obtained a right of reference.

In 2018 and 2019, we formed and created subsidiaries named Radley,

Mayfield, and Stowe, which we intend to operate similar to Eton, Surface and Melt.

In addition, we intend to create additional

subsidiaries that will be focused on the development and FDA approval of certain proprietary drug formulations that we currently

own, will in-license/acquire and/or otherwise develop.

Consolidated Businesses

Pharmaceuticals, Inc.

is a consolidated subsidiary of Harrow that was formed in 2019, focused on the development of its proprietary ophthalmic drug

candidate STE-006.

STE-006 is a patented, new chemical entity, small molecule topical drug candidate intended to treat various

bacterial, fungal, and viral infections in the eye and ear.

In initial preclinical models, STE-006 was shown to be significantly

more effective compared to current conventional therapies against numerous bacterial and viral pathogens, including strains of

methicillin-resistant staphylococcus aureus, or MRSA, and herpes simplex virus.

STE-006 has several patents covering matter of

composition, methods of production, methods of use and molecule, which are valid until 2038.

own 2,500,000 shares of Stowe common stock, and control 70% of the equity and voting interests issued and outstanding of Stowe

at March 31, 2020.

Pharmaceuticals, Inc.

Mayfield, a consolidated

subsidiary of Harrow, is a development-stage pharmaceutical company focused on consequential products that address the conspicuous

unmet needs of patients.

Its development programs focus on using known molecules in dosage forms for new indications, and by developing

new chemical entities with known mechanisms of action.

Mayfield recently licensed worldwide rights to a first-in-class antimicrobial

drug candidate, called MAY-66, which is being studied to treat recurrent bacterial vaginosis.

In February 2019, Mayfield acquired

drug formulation assets and intellectual property, including three recently issued patents, for MAY-44, a drug candidate for the

treatment of dyspareunia, or pain experienced by women during sexual intercourse.

In addition to MAY-44, Mayfield is also developing

MAY-88 for patients suffering from interstitial cystitis, which it will acquire from Harrow at the closing of a deconsolidating

own 2,500,000 shares of Mayfield common stock, and control 79% of the equity and voting interests issued and outstanding of Mayfield

at March 31, 2020.

We are currently pursuing a deconsolidating transaction for Mayfield.

Once deconsolidated, we expect Mayfield

to be run by an experienced life science executive, that we have recently contracted with.

Pharmaceuticals, Inc.

a consolidated subsidiary of Harrow, is a development-stage pharmaceutical company focused on the development of proprietary drug

candidates focused on rare diseases.

Radley currently has three drug programs in its pipeline.

During January 2020, and prior

to initiating significant development activities and costs related to these drug programs, we met with the FDA to establish and

understand the expected clinical and regulatory path to approval for Radley’s lead drug program.

Conceptually, the FDA agreed

with our clinical program design, and we are currently considering options related to the next steps of the drug candidates development.

We are also pursuing investigator-initiated studies for some of Radley’s drug candidates with two well-known healthcare

institutions based in the New York and Boston areas.

We believe this approach will allow us to better understand and weigh the

economic costs, clinical feasibility and potential benefits associated with pursuing development activities associated with these

drug programs.

Radley is also pursuing additional asset acquisition and licensing opportunities with a focus in oncology-related

De-Consolidated

Pharmaceuticals, Inc.

is a pharmaceutical company focused on developing and commercializing innovative products utilizing the FDA’s 505(b)(2)

regulatory pathway.

Its pipeline includes several products and drug candidates in various stages of development across a variety

of dosage forms.

Eton’s pipeline is focused on innovative 505(b)(2) products and obtaining FDA marketing approval for currently

marketed but unapproved drugs.

May 2017, Eton closed an offering of its Series A Preferred Stock and we lost our controlling interest in it.

In November 2018,

Eton completed an initial public offering of its common stock.

We own 3,500,000 shares of Eton common stock, which is less than 20% of the equity and voting interests issued and outstanding of Eton as of March 31, 2020.

Pharmaceuticals, Inc.

is a development-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular

surface diseases and is seeking FDA approval for the commercialization of its drug candidates through the Section 505(b)(2) regulatory

pathway under the FDCA.

In 2017 and amended in April 2018, Harrow entered into asset purchase and license agreements (the “Surface

License Agreements”) and transferred to Surface its current drug pipeline, which consists of three proprietary drug candidates.

Surface’s patent-pending topical eye drop drug candidates, SURF-100 and SURF-200, utilize a patented delivery vehicle known

as Klarity Drops (“Klarity”), that was invented by Harrow board member and Surface’s chairman of the board,

renowned ophthalmologist Dr.

Richard Lindstrom.

the fourth quarter of 2019, Surface filed an investigational new drug application (“IND”) for its drug program SURF-201.

SURF-201 is a novel steroid topical eye drop drug candidate for treating pain and inflammation post-ocular surgery.

Surface submitted

an IND for its lead drug candidate, SURF-100, in May 2020, for treating signs and symptoms associated with chronic dry eye disease.

Surface also filed a third IND during the first half of 2020.

We expect Surface may release certain clinical data related

to these programs near the end of 2020 and beginning of 2021, however such clinical programs and related data may be delayed as

a result of the ongoing COVID-19 pandemic.

May and July 2018, Surface closed on an offering of its Series A Preferred Stock.

At that time, we lost our controlling interest

and deconsolidated Surface from our consolidated financial statements.

We own 3,500,000 shares of Surface which is

approximately 30% of the equity and voting interests as of March 31, 2020.

Pharmaceuticals, Inc.

is a development-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous,

sedation and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings.

to seek regulatory approval for its proprietary technologies, where possible.

In December 2018, we entered into an Asset Purchase

Agreement with Melt (the “Melt Asset Purchase Agreement”), and Harrow assigned to Melt the underlying intellectual

property for Melt’s current pipeline, including its lead drug candidate MELT-100.

The core intellectual property Melt owns

is a patented series of combination non-opioid sedation drug formulations that we estimate to have multitudinous applications.

Pursuant to the terms of the Melt Asset Purchase Agreement, Melt is required to make royalty payments to the Company equal to

5% of net sales of MELT-100, while any patent rights remain outstanding, subject to other conditions.

is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation.

Melt is expecting

to file an IND and begin its clinical program for MELT-100 in the summer of 2020, and if successful, begin enrollment for its

Phase 3 studies for MELT-100 during 2021.

January 2019, Melt closed an offering of its Series A Preferred Stock and we lost our controlling interest in it.

We own 3,500,000

shares of Melt common stock, which is approximately 44% of the equity and voting interests issued and outstanding of Melt

as of March 31, 2020.

Affecting Our Performance

believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations

and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, optimize pricing and obtain

reimbursement options for our proprietary compounded formulations, and continue to pursue development and commercialization opportunities

for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations.

We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the long-term.

All of these activities will require significant costs and other resources, which we may not have or be able to obtain from operations

or other sources.

See “Liquidity and Capital Resources”

Reimbursement

proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis.

However, we work with third-party

insurers, pharmacy benefit managers and buying groups to offer patient-specific customizable compounded formulations at accessible

We may devote time and other resources to seek reimbursement and patient pay opportunities for these and other compounded

formulations and we have hired pharmacy billers to process certain existing reimbursement opportunities for certain formulations.

However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant restrictions on

reimbursement for compounded formulations in recent years.

Moreover, third-party payors, including Medicare, are increasingly

attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in

some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling

Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability

Reconciliation Act of 2010 (collectively, the “Health Care Reform Law”), may have a considerable impact on the

existing U.S.

system for the delivery and financing of health care and could conceivable have a material effect on our business.

As a result, reimbursement from Medicare, Medicaid and other third-party payors may never be available for any of our products

or, if available, may not be sufficient to allow us to sell the products on a competitive basis and at desirable price points.

We are communicating with government and third-payor payors in order to make our formulations available to more patients and at

optimized pricing levels.

However, if government and other third-party payors do not provide adequate coverage and reimbursement

levels for our formulations, the market acceptance and opportunity for our formulations may be limited.

Additionally,

we are making efforts to receive reimbursement and/or optimize the pricing for some of our currently available pharmaceutical

compounded formulations, including applying for transitional pass-through reimbursement status for one of our formulations.

status allows for separate payment (i.e., outside the bundled payment) under Medicare Part B for new drugs and other medical technologies

that meet well-established criteria specified by federal regulations governing CMS spending.

We expect to hear from CMS before

July 1, 2020, if we will be granted pass-through status for one of these formulations.

Any efforts to attain optimized pricing

or reimbursement for these or any of our other proprietary formulations could fail, which could make our products less attractive

or unavailable to some patients or could reduce our margins.

following describes certain developments in 2020 to date that are important to understand our financial condition and results

of operations.

See the notes to our condensed consolidated financial statements included in this report for additional information

about each of these developments.

novel strain of coronavirus was first identified in Wuhan, China in December 2019.

The disease caused by it, COVID-19, was declared

a global pandemic by the World Health Organization in March 2020.

On March 18, 2020, CMS released guidance for U.S.

providers to limit all elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19

during the pendency of the pandemic.

In addition to limiting elective medical procedures, many hospitals and other healthcare

providers have strictly limited access to their facilities during the pandemic.

The COVID-19 pandemic has negatively impacted

the global economy, disrupted global supply chains and healthcare delivery, led to social distancing recommendation, and created

significant volatility in financial markets.

response to the pandemic and business disruptions, first and foremost, we have prioritized the health and safety of our employees,

customers, suppliers and others with whom we partner in our business activities.

We have instructed employees to work from home

when possible and to maintain recommended physical distancing when working in our facilities.

We also have eliminated non-essential

in-person contact with customers, suppliers and other third parties.

of the Company’s customers use its drugs in procedures impacted by the CMS guidance to limit elective procedures.

the Company and our business partners need access to healthcare providers and facilities to conduct clinical trials and other

activities required to achieve regulatory clearance of products under development.

We are carefully monitoring rapidly evolving

changes in healthcare delivery systems and may adjust our operating and product development plans accordingly.

the unprecedented and dynamic nature of the COVID-19 pandemic, we cannot reasonably estimate the impacts it may have on our financial

condition, results of operations or cash flows in the future.

However, we expect that reductions in elective procedures in response

to CMS guidance will have an adverse impact, which may be material, on our future revenues, profitability and cash flows.

extent and duration of that impact will depend upon the extent of procedure postponements and the duration of the pandemic.

the beginning of May 2020, some U.S.

states and geographies began easing restrictions associated with the COVID-19 pandemic including

those restrictions related to elective procedures.

We are hopeful sales of our products will return to historical norms and trends as other

states and governmental authorities ease restrictions associated with elective procedures and the COVID-19 pandemic.

April 2020, the Company and several of its wholly owned subsidiaries entered into a second amendment (the “SWK Amendment”)

to the term loan and security agreement dated as of July 19, 2017, as amended (the “SWK Loan”), with SWK Funding LLC,

as lender and collateral agent, and certain other lenders (collectively, “SWK”).

A summary of the material changes

contained in the SWK Amendment are as follows:

agreed to make available to the Company, and the Company drew down on, an additional principal amount of $1,000,000;

definition of the first amortization date was changed to August 14, 2020, permitting the Company to pay interest only on the

principal amount loaned for the next payment (payments are due on a quarterly basis) following the SWK Amendment;

interest payment due May 14, 2020 will be paid in-kind by increasing the principal amount of the term loans by an amount

equal to the interest that has accrued.

April 2020, we entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender, for

a loan (the “PPP Loan”) in the principal amount of $1,967,100 and received cash proceeds of the same amount, pursuant

to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act

(the “CARES Act”), which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

the terms of the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum.

The term of the PPP Loan

is two years, unless sooner required in connection with an event of default under the PPP Loan.

To the extent the PPP Loan amount

is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven

months from the date of the Note, until the maturity date.

CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.

Under the PPP, the Company may apply

for and be granted forgiveness for all or part of the PPP Loan.

The amount of loan proceeds eligible for forgiveness is based

on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the

eight-week period after the loan origination for certain purposes including payroll costs, interest on certain mortgage obligations,

rent payments on certain leases, and certain qualified utility payments (it being anticipated that at least 75% of the loan amount

will be required to be used for eligible payroll costs);

the employer maintaining or rehiring employees and maintaining salaries

at certain levels;

and other factors.

Subject to the other requirements and limitations on loan forgiveness, only loan proceeds

spent on payroll and other eligible expenses during the covered eight-week period will qualify for forgiveness.

While the we intend

to use proceeds from the PPP Loan for such qualifying expenses, in particular maintaining continuity of our payroll and workforce

(including staff critical to the timely production and dispensing of medicines we make), no assurance can be provided that we

will obtain forgiveness of the PPP Loan in whole or in part.

of Operations

following period-to-period comparisons of our financial results for the three months ended March 31, 2020 and 2019, are not necessarily

indicative of results for the current period or any future period.

revenues include amounts recorded from sales of proprietary compounded formulations and revenues received from royalty payments

owed to us pursuant to out-license arrangements.

following presents our revenues for the three months ended March 31, 2020 and 2019:

For the Three Months Ended

Product sales, net

License revenues

Total revenues

The decrease in revenues

between periods was largely attributable to the COVID-19 pandemic and CMS guidance to limit elective procedures.

Our gross ophthalmology-related

sales were approximately $10,994,000 for the three months ended March 31, 2020, compared to $10,976,000 during the same period

Net revenues generated from NJOF totaled $7,935,000 and $7,398,000 during the three months ended March 31, 2020

and 2019, respectively.

Our cost of sales includes

direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel

costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation,

the write-off of obsolete inventory and other related expenses.

following presents our cost of sales for the three months ended March 31, 2020 and 2019:

For the Three Months Ended

Cost of sales

decrease in our cost of sales between periods was largely attributable to a decrease in unit volumes sold and partially offset

by continued improved utilization of capacity at our compounding facilities.

Profit and Margin

For the Three Months Ended

increase in gross margin between periods is largely attributable to increased efficiencies in our production process, extension

of beyond using dating, or BUD, of some of our products, utilization of capacities as a result of increased output and an increase

in sales prices.

General and Administrative Expenses

selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate

facility expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs

associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy

products and formulations.

following presents our selling, general and administrative expenses for the three months ended March 31, 2020 and 2019:

For the Three Months Ended

Selling, general and administrative

decrease in selling, general and administrative expenses between periods was largely attributable to decreased legal expenses

incurred associated with ongoing litigation, and sales related expenses.

and Development Expenses

research and development expenses primarily include expenses related to the development of acquired intellectual property, investigator-initiated

research and evaluations and other costs related to the clinical development of our assets.

following presents our research and development expenses for the three months ended March 31, 2020 and 2019:

For the Three Months Ended

Research and development

and development expenses between periods was primarily attributable to formulation development studies for new ophthalmic formulations

and clinical programs related to our drug development segment during the three months ended March 31, 2020.

expense, net was $560,000 for the three months ended March 31, 2020, compared to $603,000 the same period last year.

during the period ending March 31, 2020 compared to the same period in 2019 was primarily due to interest expense recognition

related to a decrease in the amortization of our finance lease obligations.

Gain (Loss) from Melt, net

the three months ended March 31, 2020, we recorded a loss of $546,000 for our share of losses based on our ownership of Melt.

During the three months ended March 31, 2019, we recorded a net gain of $5,525,000 related to our investment in Melt.

a gain of $5,810,000 for the deconsolidation of Melt, and a loss of $285,000 for our share of losses based on our ownership of

We began using equity method accounting for our investment in Melt beginning on January 30, 2019, the date we no longer

had a controlling interest, prior to that date, their losses were consolidated within our statements of operations.

Loss from Surface, net

the three months ended March 31, 2020 and 2019, we recorded a loss of $339,000 and $243,000, respectively, for our share of losses

based on our ownership of Surface.

Gain (Loss) from Eton, net

recorded a loss of $(10,850,000) and gain of $6,580,000 related to the change in fair market value of Eton’s common stock

for the three months ended March 31, 2020 and 2019, respectively.

Income (Expense), net

the three months ended March 31, 2019, we recorded other income, net of $630,000.

This was the result of income of $630,000

related to expenses that were paid by us and will be reimbursed by Melt following its deconsolidation.

There were no similar

amounts during the three months ended March 31.

following table presents our net loss for the three months ended March 31, 2020 and 2019:

the Three Months Ended

Net (loss) income attributable to Harrow Health, Inc.

$ (12,907,000 )

Net (loss) income per share, basic

Net (loss) income per share, diluted

Information About Segments and Geographic Areas

evaluates performance of the Company based on operating segments.

Segment performance for our two operating segments are based on segment contribution.

Our reportable segments consist of (i) our

commercial stage pharmaceutical compounding business (Pharmaceutical Compounding), generally including the operations of our ImprimisRx

and Park businesses;

and (ii) the start-up operations associated with our pharmaceutical drug development business (Pharmaceutical

Drug Development).

Segment contribution for the segments represents net revenues less cost of sales, research and development,

selling and marketing expenses, and select general and administrative expenses.

We do not evaluate the following items at the

segment level:

general and administrative expenses that result from shared infrastructure, including

certain expenses associated with litigation and other legal matters, public company costs

investor relations), board of directors and principal executive officers, and other

like shared expenses.

expenses within selling, general and administrative expenses that result from the impact

of corporate initiatives.

Corporate initiatives primarily include integration, restructuring,

acquisition and other shared costs.

select revenues and operating expenses including R&D expenses, amortization, and

asset sales and impairments, net as not all such information has been accounted for at

the segment level, or such information has not been used by all segments.

assets including capital expenditures.

Company defines segment net revenues as pharmaceutical compounded drug sales, licenses and other revenue derived from related

of sales within segment contribution includes direct and indirect costs to manufacture formulations and sell products, including

active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing

equipment and tenant improvements depreciation, the write-off of obsolete inventory and other related expenses.

general and administrative expenses consist mainly of personnel-related costs, marketing and promotion costs, distribution costs,

professional service costs, insurance, depreciation, facilities costs, transaction costs, and professional services costs which

are general in nature and attributable to the segment.

Note 15 to our condensed consolidated financial statements included in this Quarterly Report for more information about our reportable

and Capital Resources

cash on hand (including restricted cash) at March 31, 2020 was $4,124,000, compared to $4,949,000 at December 31, 2019.

inception, July 24, 1998, through March 31, 2020, we have incurred aggregate losses of $86,950,000.

These losses are primarily

due to selling, general and administrative, and research and development expenses incurred in connection with developing and seeking

regulatory approval for a former drug candidate, which activities we have now discontinued, the development and commercialization

of novel compounded formulations and the development of our pharmacy operations.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $3,924,000 and restricted investments of $200,000,

totaling approximately $4,124,000 at March 31, 2020, along with $1,000,000 from the April draw down on the SWK Loan and $1,967,100

from the PPP Loan will be sufficient to sustain our planned level of operations and capital expenditures for at least the next

We also may consider the sale of certain assets including, but not limited to, part of, or all of, our ownership interest

in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.

However, our plans for this period may change, our estimates

of our operating expenses, capital expenditures and working capital requirements could be inaccurate, we may pursue acquisitions

of pharmacies or other strategic transactions that involve large expenditures or we may experience growth more quickly or on a

larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and

could require us to seek additional financing earlier than we expect to support our operations.

expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan,

which includes developing and commercializing compounded formulations and technologies, integrating and developing our compounding

operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional

pharmacy, outsourcing facilities, drug company and manufacturers, and/or assets or technologies, and otherwise fund our operations.

We may also use our resources to conduct clinical trials or other studies in support of our formulations or any drug candidate

for which we pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

following provides detailed information about our net cash flows:

For the Three months Ended

Net cash used in:

Operating activities

$ (1,476,000 )

Investing activities

Financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period

cash used in operating activities was $(550,000), compared to $(1,476,000) in operating activities during the same period in the

The decrease in net cash used in operating activities during the periods was mainly attributed to deferral of bonus

payments and other accrued expenses as part of the actions taken by the Company in response to the COVID-19 pandemic.

cash used in investing activities during the three months ended March 31, 2020 and 2019 was $(273,000) and $(324,000), respectively.

Cash used in investing activities in 2020 and 2019 was primarily associated with equipment purchases and upgrades and investments

in our intellectual property portfolio.

cash used in financing activities during the three months ended March 31, 2020 and 2019 was $(2,000) and $(773,000), respectively.

Cash used in financing activities during the three months ended March 31, 2020 was related to principal payments on our finance

principal sources of cash consist of cash provided by operating activities from our pharmaceutical compounding business.

also sell some or all of our ownership interests in Eton, Surface, Melt or our other subsidiaries.

We produced cash from operations

during 2018 and 2019;

however, we currently are experiencing a downturn in revenues mostly as a result of the COVID-19 pandemic

which will have an impact on our ability to produce cash in the current year.

In addition, prior to 2017, we had not generated

sufficient revenues to support our operations and may not be able to do so in the future.

changing trends and overall economic outlook in light of the COVID-19 pandemic, including the related interim stay-at-home orders

and bans on elective surgeries, have created uncertainty surrounding our operating outlook and may impact our future operating

As a result, we may need significant additional capital to support our business plan and fund our proposed business operations.

We may receive additional proceeds from the exercise of stock purchase warrants that are currently outstanding.

We may also seek

additional financing from a variety of sources, including other equity or debt financings, funding from corporate partnerships

or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity or convertible debt securities

to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity or debt

securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders.

we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to relinquish

potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms

that are not favorable to us.

If we raise funds by incurring additional debt, we may be required to pay significant interest expenses

and our leverage relative to our earnings or to our equity capitalization may increase.

Obtaining commercial loans, assuming they

would be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities,

such as the financial and operating covenants included in the agreements governing the SWK Loan.

Further, we may incur substantial

costs in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting fees,

printing and distribution expenses and other costs.

We may also be required to recognize non-cash expenses in connection with

certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial results.

may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions,

conditions in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings.

In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future

As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not

be available on terms that are acceptable to us.

If we are unable to raise funds to satisfy our capital needs when needed, then

we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue

to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a

sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments

in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue

our operations entirely.

Issued and Adopted Accounting Pronouncements

Note 2 to our condensed consolidated financial statements included in this Quarterly Report.

Quantitative and Qualitative Disclosures About Market Risk

July 2020, the Company issued 500

shares of its common stock upon the exercise

of options to purchase 500 shares of common stock, with an exercise price of $ 3.20

per share, and received net proceeds of

Commercial Alliance Agreement

August 1, 2020, the Company, through its wholly-owned subsidiary ImprimisRx, LLC, entered into a Commercial Alliance Agreement

(the “Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc.

(“Eyepoint”), pursuant to which Eyepoint

granted the Company the non-exclusive right to co-promote DEXYCU ® (dexamethasone intraocular suspension) 9%

for the treatment of post-operative inflammation following ocular surgery in the United States.

to the Dexycu Agreement , Eyepoint will pay the Company a fee calculated based on

the quarterly sales of DEXCYU in excess of predefined volumes to specific customers of the Company in the U.S.

Under the terms

of the Dexycu Agreement , the Company shall use commercially reasonable efforts to

promote and market DEXCYU in the U.S.

to early termination, the Dexycu Agreement expires on August 1, 2025 , subject to

specified notice periods and specified limitations, either party may terminate the Dexycu

Agreement in the event of (i) uncured material breach by the other party or (ii) if DEXCYU ceases to have “pass-through”

payment status.

In addition, subject to certain limitations, the Company may terminate the Dexycu

Agreement (i) for convenience subject to an extended specified notice period or (ii) in the event Eyepoint undergoes a

change of control.

Eyepoint may terminate the Dexycu Agreement , subject to specified

notice periods and specified limitations, if the Company fails to achieve certain minimum sales levels during specified periods.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements