What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 224 added, 228 removed, 391 unchanged (54% of the section changed)

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1A of this Quarterly Report and in our other filings with the Securities and Exchange Commission.

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.

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

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non-controlling equity positions in Eton Pharmaceuticals, Inc.

(“Eton”), Surface Pharmaceuticals, Inc.

(“Eton”), Surface Ophthalmics, Inc.

and Melt Pharmaceuticals, Inc.

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among others.

During the second half of 2020, we intend to launch a new business called Visionology.

We also own royalty rights

in various drug candidates being developed by Surface, Melt 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.

ImprimisRx is our ophthalmology

focused prescription pharmaceutical business.

We offer to over 9,000 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.

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 FDA guidance documents, in our FDA-registered New Jersey Outsourcing Facility (“NJOF”).

We also intend to launch a new business called Visionology.

We own royalty rights in various drug candidates being

developed by Surface, Melt 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 prescription pharmaceutical business.

We offer to over 9,000 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 FDA guidance documents, in our FDA-registered New Jersey Outsourcing

Facility (“NJOF”).

is expected to be an online eye health platform.

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We expect to launch a proof-of-concept model

for Visionology during the second half 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.

for Visionology within a certain region of the U.S after securing financing.

If successful, Visionology will expand the launch

on a nationwide basis later in 2021.

Pharmaceutical

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

We operate two compounding facilities located in Ledgewood, New

Our New Jersey operations are comprised of two separate entities and facilities, one of which is registered with the FDA

as an outsourcing facility under Section 503B of the FDCA.

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.

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 under Section 503B of the FDCA.

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

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Development Businesses

We have ownership interests

in Eton, Surface, Melt, Mayfield, and Stowe and hold royalty interests in certain of their drug candidates.

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.

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.

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

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.

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.

Businesses (Controlling Equity Interests)

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composition, methods of production, methods of use and molecule, which are valid until 2038.

In October 2020, we completed

in vivo preclinical studies of certain anti-viral activity of STE-006 along with another asset DS-007.

We also conducted in vitro

studies earlier in the year, that studied certain antibacterial activity of STE-006.

While the initial data from our studies were

positive, we were unable to replicate as strong of data as previously produced on STE-006.

Therefore, while we remain interested

in pathogen-agnostic topical agents to treat non-specific conjunctivitis, we do not intend to invest further in STE-006.

currently evaluating the market and clinical potential of DS-007 and other Harrow formulations in the anti-infective category.

own 2,500,000 shares of Stowe common stock, and control 70% of the equity and voting interests issued and outstanding of Stowe,

at June 30, 2020.

at September 30, 2020.

Pharmaceuticals, Inc.

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own 2,500,000 shares of Mayfield common stock, and control 79% of the equity and voting interests issued and outstanding of Mayfield,

at June 30, 2020.

at September 30, 2020.

We are currently pursuing a deconsolidating transaction for Mayfield.

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that has been focused on the development of proprietary drug candidates focused on rare diseases.

Radley currently has

three drug programs in its pipeline.

During the second quarter of 2020, we suspended all activities related to Radley to focus

attention and capital on other projects.

We intend to resume these activities at the appropriate time, however, no assurance can

be provided that activities related to Radley will resume.

Radley currently has three drug

programs in its pipeline.

During the second quarter of 2020, we suspended all activities related to Radley to focus attention

and capital on other projects.

Currently, we do not intend to resume the activities related to Radley.

De-Consolidated

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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 June 30, 2020.

Pharmaceuticals, Inc.

20% of the equity and voting interests issued and outstanding of Eton as of September 30, 2020.

Ophthalmics, Inc.

(f/k/a Surface Pharmaceuticals, Inc.)

is a development-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular

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We own 3,500,000 shares of Surface which is approximately

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

We expect Surface to complete another round of financing within the

next twelve months.

30% of the equity and voting interests as of September 30, 2020.

We expect Surface to complete another round of financing within

the next twelve months.

Pharmaceuticals, Inc.

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IND in June 2020 and has begun its clinical program for MELT-100.

We expect Melt will announce topline data from its Phase 1

study during the fourth quarter of 2020.

We expect Melt will announce topline data from its Phase 1 study

during the fourth quarter of 2020 or first quarter of 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 June 30, 2020.

shares of Melt common stock, which is approximately 44% of the equity and voting interests issued and outstanding of Melt, as

of September 30, 2020.

We expect Melt to complete another round of financing within the next twelve months.

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We are communicating with

government and third-party payors in order to make our formulations available to more patients and at optimized pricing

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.

Pass-through 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 had previously expected that

CMS would communicate a decision to us prior to July 1, 2020, however, that timeline was delayed which we believe was

due to COVID-19 related priorities at CMS (i.e.

new policymaking).

As of the date of this Report, we expect to hear from CMS

before October 1, 2020 regarding whether we will be granted pass-through status for one of these formulations, although

we may continue to experience further delays in a decision for our formulation beyond that date.

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.

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 have previously made 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.

In September 2020, we were informed

by CMS that our application for pass-through payment was denied for one of our formulations.

Any future efforts to attain optimized

pricing or reimbursement of our other proprietary compounded 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 as well as operating trends and prospects.

See the notes to our condensed consolidated financial statements

included in this report for additional information about each of these developments.

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.

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guidance has had a material adverse impact, on our revenues, profitability and cash flows, in particular during the second quarter

The extent and duration of that impact will depend upon the extent of procedure postponements, the duration of the pandemic

and any resurgences of it, especially within certain geographies and states that have retained restrictive measures and social

distancing policies.

In May 2020, some U.S.

states and geographies began easing restrictions associated with the COVID-19 pandemic

including those restrictions related to elective procedures, as restrictions were lifted in those areas there was a correlation

with an increase in our revenues.

Despite the recent resurgence of the COVID-19 pandemic in certain parts of the U.S., we are

hopeful that the general trend of easing of restrictions will continue, and sales of our products will return to historical norms

and historical growth trends, as other states and governmental authorities continue to ease restrictions associated with elective

procedures and the COVID-19 pandemic.

Assuming the strictest of lockdown scenarios are avoided, we believe we have sufficient

liquidity resources to sustain our planned level of operations.

The extent and duration of future impact will depend upon the extent of procedure postponements, the duration of the

pandemic and any resurgences of it, especially within certain geographies and states that have retained restrictive measures and

social distancing policies.

In May 2020 and the following months, some U.S.

states and geographies began easing restrictions associated

with the COVID-19 pandemic including those restrictions related to elective procedures, as restrictions were lifted in those areas

there was a correlation with an increase in our revenues.

Despite the recent resurgence of the COVID-19 pandemic in certain parts

of the U.S., we are hopeful that the general trend of easing of restrictions will continue, and sales of our products will return

to historical norms and historical growth trends, as other states and governmental authorities continue to 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”)

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to the interest that has accrued.

April 2020, we entered into the PPP Loan with Renasant Bank in the principal amount of $1,967,100 and received cash proceeds

of the same amount, pursuant to the PPP under the CARES Act, which was enacted March 27, 2020.

The PPP is administered

April 2020, we entered into the PPP Loan with Renasant Bank in the principal amount of $1,967,100 and received cash proceeds of

the same amount, pursuant to the PPP under the CARES Act, which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration (the “SBA”).

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While we used

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 apply for or obtain forgiveness of the PPP Loan in whole or in part.

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 apply

for or obtain forgiveness of the PPP Loan in whole or in part.

Commercial Alliance Agreement

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(“Eyepoint”), pursuant to which Eyepoint granted ImprimisRx 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.

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 ImprimisRx

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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

to early termination, the Dexycu Agreement expires on August 1, 2025.

specified notice periods and specified limitations, either party may terminate the Dexycu

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of Operations

following period-to-period comparisons of our financial results for the three and six months ended June 30, 2020 and 2019, are

not necessarily indicative of results for the current period or any future period.

following period-to-period comparisons of our financial results for the three and nine months ended September 30, 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 and six months ended June 30, 2020 and 2019:

the Three Months Ended

the Six Months Ended

$ (5,460,000 )

$ (5,933,000 )

following presents our revenues for the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended

For the Nine Months Ended

Product sales, net

$ (4,296,000 )

Other revenues

Total revenues

$ (4,285,000 )

decrease in revenues between periods was largely attributable to the COVID-19 pandemic and CMS guidance to limit elective procedures.

Net revenues generated from NJOF totaled $4,870,000 and $12,805,000 during the three and six months ended June 30, 2020, and $8,285,000

and $15,683,000 during the three and six months ended June 30, 2019, respectively.

increase in revenues between the three months ended September 30, 2020 and the same period in the prior year was largely attributable

to an increase in customer demand and unit volumes sold.

The decrease in revenues between the nine months ended September 30,

2020 and the same period in the prior year was largely attributed to the COVID-19 pandemic and CMS guidance to limit elective

procedures during parts of the first and second quarters of 2020.

Net revenues generated from NJOF totaled $10,205,000 and $23,010,000

during the three and nine months ended September 30, 2020, and $8,860,000 and $24,102,000 during the three and nine months ended

September 30, 2019, respectively.

cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical

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depreciation, the write-off of obsolete inventory and other related expenses.

following presents our cost of sales for the three and six months ended June 30, 2020 and 2019:

the Three Months Ended

the Six Months Ended

$ (2,021,000 )

following presents our cost of sales for the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended

For the Nine Months Ended

Cost of sales

$ (2,658,000 )

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.

decrease in our cost of sales between the three months ended September 30, 2020 and the same period in the prior year was largely

attributable to increased efficiencies and the August 2019 closure of our Irvine, California based pharmacy.

The decrease in cost

of goods sold between the nine months ended September 30, 2020 and the same period in the prior year was largely due to a decrease

in unit volumes sold impacted by the COVID-19 pandemic, partially offset by continued improved utilization of capacity at our

compounding facilities.

Profit and Margin

the Three Months Ended

the Six Months Ended

$ (3,435,000 )

For the Three Months Ended

For the Nine Months Ended

$ (1,627,000 )

a decrease in unit volumes sold, there was little variability between gross margin between periods.

This is largely attributable

to increased efficiencies in our production process, extension of beyond using dating, or BUD, of some of our products, and an

increase in sales prices.

efficiencies in our production process, extension of beyond using dating, or BUD, of some of our products, the closure of our

Irvine, California based pharmacy in August 2019 and an increase in sales prices has contributed to our gross margin increase.

General and Administrative Expenses

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products and formulations.

following presents our selling, general and administrative expenses for the three and six months ended June 30, 2020 and 2019:

the Three Months Ended

the Six Months Ended

following presents our selling, general and administrative expenses for the three and nine months ended September 30, 2020 and

For the Three Months Ended

For the Nine Months Ended

general and administrative

$ (1,593,000 )

$ (1,421,000 )

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.

incurred associated with certain litigation matters that concluded during 2019, and certain expenses that are correlated with

and Development Expenses

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research and evaluations and other costs related to the clinical development of our assets.

following presents our research and development expenses for the three and six months ended June 30, 2020 and 2019:

the Three Months Ended

the Six Months Ended

following presents our research and development expenses for the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended

For the Nine Months Ended

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 and six months ended June 30, 2020.

Impairment of Intangible Assets

During the three and six

months ended June 30, 2020, we recorded a loss of $363,000 related to the impairment of intangible assets

related to patent filings associated with the products that we were no longer actively selling.

expense, net was $505,000 and $1,065,000 for the three and six months ended June 30, 2020, compared to $716,000 and $1,319,000

for the same period last year.

The decrease during the period ended June 30, 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.

The increase in research

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 and nine months ended September 30,

expense, net was $498,000 and $1,563,000 for the three and nine months ended September 30, 2020, compared to $620,000 and $1,939,000

for the same respective periods last year.

The decrease during the period ended September 30, 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

During the three and six

months ended June 30, 2020, we recorded a loss of $690,000 and $1,236,000, respectively, for our share of losses

based on our ownership of Melt.

During the six months ended June 30, 2019, we recorded a net gain of $5,199,000 related to our

investment in Melt.

We recorded a gain of $5,810,000 for the deconsolidation of Melt, and a loss of $611,000 for our share of

losses based on our ownership of Melt.

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, Melt’s losses were consolidated

within our statements of operations.

Loss from Surface, net

the three and six months ended June 30, 2020, we recorded a loss of $599,000 and $938,000, respectively, for our share of losses

based on our ownership of Surface.

During the three and six months ended June 30, 2019, we recorded a loss of $261,000 and $504,000,

respectively, for our share of losses based on our ownership of Surface.

We began using equity method accounting for our investment

in Surface beginning on June 11, 2018, the date we no longer had a controlling interest.

Prior to that date, Surface’s losses

the three and nine months ended September 30, 2020, we recorded a loss of $300,000 and $1,536,000, respectively, for our share

of losses based on our ownership of Melt.

During the nine months ended September 30, 2019, we recorded a net gain of $4,517,000

related to our investment in Melt.

We recorded a gain of $5,810,000 for the deconsolidation of Melt, and a loss of $1,293,000

for our share of losses based on our ownership of Melt.

We began using the 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, Melt’s losses

were consolidated within our statements of operations.

Loss from Surface, net

the three and nine months ended September 30, 2020, we recorded a loss of $756,000 and $1,694,000, respectively, for our share

of losses based on our ownership of Surface.

During the three and nine months ended September 30, 2019, we recorded a loss of

$400,000 and $904,000, respectively, for our share of losses based on our ownership of Surface.

We began using the

equity method accounting for our investment in Surface beginning on June 11, 2018, the date we no longer had a controlling interest.

Prior to that date, Surface’s losses were consolidated within our statements of operations.

Gain (Loss) from Eton, net

We recorded a gain of

$4,725,000 and loss of $(6,125,000) related to the change in fair market value of Eton’s common stock for the three and

six months ended June 30, 2020, respectively.

During the three and six months ended June 30, 2019, we recorded a loss of $(350,000)

and gain of $6,230,000, respectively, for our share of losses based on our ownership of Eton.

We began recording our investment

in Eton at fair market value, and ceased equity method accounting for our investment in Eton in November 2018 following Eton’s

initial public offering and our ownership falling below 20%.

Income (Expense), net

During the six months ended June 30, 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.

During the six months ended June 30, 2020, we recorded other income, net of $19,000.

result of income of $19,000 related to equipment from our Park facility that was sold during the six months ended June 30, 2020.

following table presents our net loss for the three and six months ended June 30, 2020 and 2019:

$8,575,000 and $2,450,000 related to the change in fair market value of Eton’s common stock for the three and nine months

ended September 30, 2020, respectively.

We recorded a loss of $(5,530,000) and a gain of $700,000 related to the change

in fair market value of Eton’s common stock for the three and nine months ended September 30, 2019, respectively.

We began recording our investment in Eton at fair market value and ceased using the equity method accounting for our investment

in Eton in November 2018 following Eton’s Initial Public Offering and our ownership falling below 20%.

the nine months ended September 30, 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.

During the nine months

ended September 30, 2020, we recorded other income, net of $24,000.

This was primarily the result of income of $19,000

related to equipment from our Park facility that was sold during the nine months ended September 30, 2020.

following table presents our net income (loss) for the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended

For the Six Months Ended

Numerator – net loss

Net income (loss) per share, basic

Net income (loss) per share, diluted

For the Nine Months Ended

– net income (loss)

Net income (loss)

per share, basic

Net income (loss)

per share, diluted

Information About Segments and Geographic Areas

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We do not evaluate the following items at the segment level:

Selling, general and administrative expenses

that result from shared infrastructure, including certain expenses associated with litigation and other legal matters, public

company costs (e.g.

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

Operating 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 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.

Total assets including capital expenditures.

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

and other 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

assets including capital expenditures.

Company defines segment net revenues as pharmaceutical compounded drug sales, licenses and other revenue derived from related

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and Capital Resources

cash on hand (including restricted cash) at June 30, 2020 was $4,102,000, compared to $4,949,000 at December 31, 2019.

Since inception,

July 24, 1998, through June 30, 2020, we have incurred aggregate losses of $87,187,000.

These losses are primarily due

to selling, general and administrative, and research and development expenses incurred in connection with developing and seeking

cash on hand (including restricted cash) at September 30, 2020 was $5,727,000, compared to $4,949,000 at December 31, 2019.

inception, July 24, 1998, through September 30, 2020, we have incurred aggregate losses of $78,549,000.

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 discontinued in 2013, 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 $3,902,000 and restricted investments of $200,000,

totaling approximately $4,102,000 at June 30, 2020 together with cash generated from revenues, will be sufficient to sustain

of the date of this Quarterly Report, we believe that cash and cash equivalents of $5,527,000 and restricted cash of $200,000,

totaling approximately $5,727,000 at September 30, 2020 together with cash generated from revenues, will be sufficient to sustain

our planned level of operations and capital expenditures for at least the next 12 months.

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.

assets including, but not limited to, part of, or all of, our ownership interests 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,

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following provides detailed information about our net cash flows:

the Six Months Ended June 30,

the Nine Months Ended September 30,

Net cash (used in) provided by:

Operating activities

$ (3,201,000 )

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

Net cash used in operating

activities was $(3,201,000), compared to $(632,000) in operating activities during the same period in the prior year.

in net cash used in operating activities during the periods was mainly attributed to the decrease in revenue during the quarter

ended June 30, 2020 due to the COVID-19 pandemic and decrease in elective surgical procedures during that period.

cash used in investing activities during the six months ended June 30, 2020 and 2019 was $(610,000) and $(785,000), respectively.

cash equivalents and restricted cash at beginning of the period

cash equivalents and restricted cash at end of the period

cash used in operating activities was $(534,000) during the nine months ended September 30, 2020, compared to $(702,000) in operating

activities during the same period in the prior year.

The decrease in net cash used in operating activities during the period was

mainly attributed to the increase in revenue during the quarter ended September 30, 2020 and increased operational efficiencies.

cash used in investing activities during the nine months ended September 30, 2020 and 2019 was $(891,000) and $(864,000), 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 provided by (used in) financing activities during the six months ended June 30, 2020 and 2019 was $2,964,000 and $(1,228,000),

cash provided by (used in) financing activities during the nine months ended September 30, 2020 and 2019 was $2,203,000 and $(1,641,000),

respectively.

Cash provided by financing activities during the six months ended June 30, 2020 was related to proceeds received

Cash provided by financing activities during the nine months ended September 30, 2020 was related to proceeds received

from the amendment to our loan and security agreement with SWK as well as proceeds received from the PPP Loan.

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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

during 2018 and 2019, and during the third quarter of 2020;

however, during the second quarter of 2020, we experienced a significant

downturn in revenues mostly as a result of the COVID-19 pandemic which may have an impact on our ability to produce cash for 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 any related interim stay-at-home orders

and future 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.

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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.

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

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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 2. Management’s Discussion and Analysis