What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-08 compared with 2020-03-13 · 3 added, 787 removed, 9 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

common stock is listed on The NASDAQ Capital Market under the symbol “HROW”.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

common stock is listed on The NASDAQ Global Market under the symbol “HROW”.

of March 1, 2021, there were approximately 96 stockholders of record (excluding an indeterminable number of stockholders whose

shares are held in street or “nominee”

name) of our common stock.

shares are held in street or “nominee” name) of our common stock.

have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in

6 unchanged sentences

SELECTED FINANCIAL DATA

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 the

consolidated financial statements and the related notes contained in this annual report on Form 10-K (Annual Report).

Our 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 (GAAP).

to historical information, the following discussion contains forward-looking statements based upon our current views, expectations

and assumptions that are subject to risks and uncertainties.

Actual results may differ substantially from those expressed or implied

by any forward-looking statements due to a number of factors, including, among others, the risks described in the “Risk

Factors”

section and elsewhere in this Annual Report.

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., Imprimis Rx NJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, Radley Pharmaceuticals, Inc., Stowe Pharmaceuticals,

and Mayfield Pharmaceuticals, Inc.

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 and subsidiary 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, trusted by both physicians and patients.

In addition to allowing physicians to

communicate with pharmacists, and patients to communicate with physicians, it will offer a variety of high quality, affordable,

chronic care ophthalmic pharmaceutical products using a state of the art proprietary IT platform.

We expect to launch a proof-of-concept

model for Visionology in the first 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 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 more 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.

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.

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 December 31, 2019.

We recently agreed to terms with an experienced, ophthalmology focused life science executive to be the

CEO of Stowe which would be become effective following a deconsolidating transaction, which we are currently pursuing.

Pharmaceuticals, Inc.

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 transaction.

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

at December 31, 2019.

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 505(b)(2)

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 we estimate

is less than 20% of the equity and voting interests issued and outstanding of Eton as of December 31, 2019.

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.

Klarity is designed to protect and rehabilitate the ocular surface pathology for

patients with dry eye disease, or DED.

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 expects

to submit an IND for its lead drug candidate, SURF-100, during the first half of 2020, for treating signs and symptoms associated

with chronic dry eye disease.

We expect Surface to release certain clinical data related to these programs near the end of 2020

and beginning of 2021.

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 we estimate is

approximately 30% of the equity and voting interests as of December 31, 2019.

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 through the FDA’s 505(b)(2) regulatory pathway 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

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 five percent (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 we estimate is 44% of the equity and voting interests issued and outstanding of Melt as of

December 31, 2019.

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.

for the delivery and financing of health care and could conceivably 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.

August 30, 2019, CMS issued an update to the Hospital Outpatient Prospective Payment System, with an effective date of October

1, 2019 (the “MLN Update”).

The MLN Update included clarification on guidance for intraocular or periocular injections

of combinations of anti-inflammatory drugs and antibiotics, including the family of Dropless®

formulations made and sold by

Specifically, the MLN Update stated that nothing in the current CMS policy is intended to preclude physicians or other

professionals from discussing the potential benefits and drawbacks of Dropless Therapy®

formulations with their patients,

and to prescribe them if the patient so elects.

following describes certain developments in 2019 to date that are important to understand our financial condition and results

of operations.

See the notes to our consolidated financial statements included in this report for additional information about

each of these developments.

Pharmaceuticals Asset Purchase Agreement and Series A Round

described more fully above under the sub-heading “Melt Pharmaceuticals, Inc.”, we entered into the Melt Asset Purchase

Agreement with our previously wholly owned subsidiary, Melt.

Following closing of the Melt Series A Round, in January 2019, we

lost controlling interest in Melt.

Pursuant to the terms of the Melt Asset Purchase Agreement, we assigned and licensed to Melt

certain intellectual property and related rights to develop, formulate, make, sell, and sub-license its current drug candidate

Pharmaceuticals MAY-44 Asset Purchase Agreement

and Harrow acquired the intellectual property associated with MAY-44 in January 2019 from Elle Pharmaceutical LLC in exchange

for $25,000, with an additional $175,000 due upon third party financing of Mayfield, 1,000,000 shares of Mayfield common stock

and a 7.5% royalty rate on sales of the product.

In February 2020, Mayfield entered into a common stock purchase agreement with

Elle to re-acquire 650,000 shares of Mayfield common stock from Elle for a total purchase price of $1,000.

Refinance –

May 2019, we entered into a joinder and amendment (the “Amendment”) to our term loan and security agreement dated

as of July 19, 2017 (the “SWK Loan”), with SWK Funding LLC and its partners (the “Lender”), as lender

and collateral agent.

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

interest rate calculation that the loan bears is now 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, we provide the Lender evidence that we have achieved a leverage ratio as of such date of less than 4.00:1:00,

the Margin Rate shall equal 9.00%;

and if we have achieved a leverage ratio as of such date of less than 3.00:1:00, the Margin

Rate shall equal 7.00%;

ratio in the Amendment 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 us for the immediately preceding twelve (12) month period, adding-back (i) actual litigation

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

preceding three (3) month period multiplied by four (4);

definition of the first amortization date was changed to May 14, 2020, permitting us to pay interest only on the principal

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

to the satisfaction of certain revenue and market capitalization requirements and conditions, the Lender agreed to make available

to us an additional principal amount of up to $5,000,000.

addition to the terms described above, the Amendment joined our recently created subsidiaries to the SWK Loan and added definitions

related to excluded subsidiaries that are not considered co-borrowers and are subsidiaries which we believe will eventually

be deconsolidated from our financials and we will lose 50% or more of the equity interests of the subsidiary.

Pharmaceuticals MAY-66 License

July 2019, Mayfield entered into a License Agreement (the “TGV License”) with TGV-Health, LLC and affiliated entities

(collectively, “TGV”), to acquire intellectual property rights for use in the women’s health field, related

to Mayfield’s proprietary drug candidate MAY-66.

The TGV License provides that TGV will cooperate with Mayfield in transferring

all embodiments of the intellectual property (including know-how) related to the TGV License, assist in obtaining and protecting

its patent rights for the acquired intellectual property and that Mayfield will use commercially reasonable efforts to research,

develop and commercialize products based on the acquired intellectual property.

In connection with the TGV License, Mayfield is

obligated to make royalty payments to TGV equal to a low single digit percentage of net sales received by Mayfield in connection

with the sale or licensing of any product based on the licensed intellectual property.

In addition, Mayfield issued 300,000 shares

of its common stock to TGV and is required to make certain milestone payments to TGV over the development of MAY-66 and any related

products based on the licensed intellectual property.

July 2019, Stowe entered into a License Agreement (the “Stowe License”) with TGV, to acquire intellectual property

rights for use in the ophthalmology and optic health fields, related to Stowe’s proprietary drug candidate STE-006.

Stowe License provides that TGV will cooperate with Stowe in transferring all embodiments of the intellectual property (including

know-how) related to the Stowe License, assist in obtaining and protecting its patent rights for the acquired intellectual property

and that Stowe will use commercially reasonable efforts to research, develop and commercialize products based on the acquired

intellectual property.

In connection with the Stowe License, Stowe is obligated to make royalty payments to TGV equal to a low

single digit percentage of net sales received by Stowe in connection with the sale or licensing of any product based on the licensed

intellectual property.

In addition, Stowe issued 1,750,000 shares of its common stock to TGV and is required to make certain milestone

payments to TGV over the development of STE-006 and any related products based on the licensed intellectual property.

Restructuring

August 30, 2019, Park Compounding, Inc.

(“Park”) a wholly owned subsidiary of Harrow Health, Inc., and Noice Rx, LLC

(“Noice”) terminated the Asset Purchase Agreement, dated July 26, 2019 (the “Purchase Agreement”), between

Under the terms of the Purchase Agreement, Park had agreed to sell substantially all its assets associated with its

non-ophthalmology pharmaceutical compounding business to Noice, including its pharmacy facility and equipment located in Irvine,

The closing of the sale transaction was dependent on the California State Board of Pharmacy approving of the sale

and issuing a temporary pharmacy and sterile license permit to Noice, which did not occur and led to Park ceasing operations at

the close of business on August 27, 2019.

closure of the Park pharmacy, the Company elected to restructure the Park business and facilitate the transition of certain compounded

formulations and related equipment from Park to the Company’s New Jersey-based compounded pharmaceutical production facilities

(the “Park Restructuring”).

As a result of the Park Restructuring, the Company incurred non-cash impairment costs

of approximately $3,781,000 related to assets held at Park, primarily associated with property, plant, equipment, goodwill and

other intangible assets and, in addition, to incur approximately $480,000 in one-time costs related to severance packages and

other costs associated with the Park Restructuring, during the year ended December 31, 2019.

Since the Park Restructuring, all

compounding business has been consolidated into the Company’s ImprimisRx business.

have reduced the Park compounded product formulary to seven base formulations, based on factors including unit order volumes,

revenues and gross margin percentages.

During the first quarter of 2020, we believe ImprimisRx was able to retain and re-acquire

approximately half of Park’s historical revenue.

of Operations

following period-to-period comparisons of our financial results are not necessarily indicative of results for the current period

or any future period.

of Years Ended December 31, 2019 and 2018

revenues include amounts recorded from sales of proprietary and non-proprietary pharmaceutical compounded drug formulations and

revenues received from royalty and milestone payments owed to us pursuant to out-license arrangements.

following presents our revenues for the years ended December 31, 2019 and 2018:

For the year ended

Product sales, net

License revenues

Total revenues

increase in revenue between periods was largely attributable to increased sales of our proprietary formulations and furtherance

of our ophthalmology related compounded formulations.

Our gross ophthalmology related sales were approximately $47,692,000 for

the year ended December 31, 2019, compared to $34,135,000 in 2018.

Net revenues generated from our New Jersey based outsourcing

facility (“NJOF”) (which include certain ophthalmology related sales) totaled $33,240,000 for the year ended December

31, 2019, compared to $22,490,000 in 2018.

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 years ended December 31, 2019 and 2018:

For the year ended

Cost of sales

increase in our cost of sales between periods was largely attributable to an increase in the volume of unit sales of our formulations

and products and our associated costs of such sales.

Profit and Margin

For the year ended

increase in gross profit and gross margin between periods is largely attributable to increased efficiencies in our production

process and increased utilization of capacities as a result of increased output, in particular, at NJOF and increased per unit

sales prices.

We estimate gross margins at NJOF were greater than 70% during 2019.

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 year ended December 31, 2019 and 2018:

For the year ended

Selling, general and administrative

increase in general and administrative expenses between periods was largely attributable to increased sales commission amounts

and costs related to the operations of Mayfield, Radley and Stowe.

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 years ended December 31, 2019 and 2018:

For the year ended

Research and development

increase in research and development expenses between periods was primarily attributable to the increase in formulation development

studies with our ImprimisRx subsidiary and the clinical development programs for our subsidiaries Radley, Mayfield and Stowe that

occurred during the year ended December 31, 2019.

and Disposal of Long-Lived Assets

the year ended December 31, 2019, we recorded a loss of $4,040,000 related to the impairment and disposal of long-lived assets.

$3,781,000 of these costs were related to the Park Restructuring and $259,000 of these expenses were related to the impairment

of patents and patent-applications related to a terminated asset purchase agreement.

expense, net was $2,500,000 for year ended December 31, 2019 compared to $2,728,000 in 2018.

The decrease during the year ending

December 31, 2019 compared to 2018 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 year ended December 31, 2019, we recorded a net gain of $3,968,000 related to our investment in Melt.

We recorded a gain of

$5,810,000 for the deconsolidation of Melt, and a loss of $(1,842,000) for our share of losses based on our ownership of

Melt after its deconsolidation.

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.

Gain (Loss) from Surface

the year ended December 31, 2019, we recorded a loss of $1,200,000 for our share of losses based on our ownership of Surface.

During the year ended December 31, 2018, we recorded a loss of $(373,000) for our share of losses based on our ownership

of Surface prior to its deconsolidation.

During the year ended December 31, 2018, we recorded a gain of $5,320,000 in the deconsolidation

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 were consolidated within our statements of operations.

Gain (loss) from Eton, net

the year ended December 31, 2018, our ownership of Eton fell below 20% and we ceased accounting for our investment in Eton under

equity method accounting, and we recorded investment income of $21,420,000 related to the fair market value of the 3,500,000 shares

of Eton common stock we hold, based on the closing price of Eton common stock of $6.12 per share as of December 31, 2018.

to the November 2018 IPO, we recorded a loss of $3,507,000 for our share of losses based on our ownership of Eton.

a gain of $3,780,000 related to the change in fair market value of Eton’s common stock based on the closing price of Eton

common stock of $7.20 per share as of December 31, 2019.

Income (Expense), net

the year ended December 31, 2019, we recorded other income, net of $630,000.

This was the result of expenses that were paid by

us during 2018 and will be reimbursed by Melt following its deconsolidation.

During year ended December 31, 2018, we recorded

other expense, net of $(290,000).

This was due to a loss of $393,000 related to the impairment and write-off of a note

receivable, and income of $103,000 related to expenses that were paid by us and reimbursed by Surface following its deconsolidation.

following table presents our net income for the years ended December 31, 2019 and 2018:

Net income per share, basic

Net income per share, diluted

and Capital Resources

cash on hand (including restricted cash) at December 31, 2019 was $4,949,000, compared to $6,838,000 at December 31, 2018.

inception through December 31, 2019, we have incurred aggregate losses of $74,043,000.

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 Annual Report, we believe that cash and cash equivalents of $4,749,000 and restricted investments of $200,000,

totaling approximately $4,949,000 at December 31, 2019, 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

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 years ended December 31, 2019 and 2018:

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

cash provided by operating activities was $950,000 in 2019, compared to $687,000 in the prior year.

Net cash provided by operating

activities during the years ended December 31, 2019 and 2018 was the result of increased unit volumes and sales, production efficiencies

and management of operating expenses.

cash used in investing activities in 2019 and 2018 was $(1,833,000) and $(2,199,000), respectively.

Cash used in investing activities

in 2019 compared to 2018 were primarily associated with additional equipment purchases, facility expansions and upgrades, and

investments in our intellectual property portfolio.

cash (used in) provided by financing activities in 2019 and 2018 was $(1,006,000) and $4,131,000, respectively.

The cash used

in financing activities during 2019 is primarily attributable to the principal and interest paid on the long-term debt.

provided by financing activities during 2018 is primarily attributable to proceeds received from the exercise of warrants.

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 began producing cash from

our operations during 2018, however historically, we haven’t received sufficient revenues to support our operations and

may not be able to continue to do so.

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.

If 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.

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.

Accounting Policies

rely on the use of estimates and make assumptions that impact our financial condition and results.

These estimates and assumptions

are based on historical results and trends as well as our forecasts of how results and trends might change in the future.

we believe that the estimates we use are reasonable, actual results could differ materially from these estimates.

believe that the accounting policies described below are critical to understanding our business, results of operations and financial

condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions

about matters that are highly uncertain at the time the estimate is made, and any changes in the assumptions used in making the

accounting estimates that are reasonably likely to occur could materially impact our consolidated financial statements.

Recognition and Deferred Revenue

January 1, 2018, we adopted ASU 2014-09, using the modified retrospective transition method.

There was no effect or any

adjustments to retained earnings upon adoption of the standard on January 1, 2018.

We have two primary streams of revenue:

revenue recognized from our sale of products within our pharmacy services and (2) revenue recognized from intellectual property

license and asset purchase agreements.

Revenues from Pharmacy Services

sell prescription drugs directly through our pharmacy and outsourcing facility network.

Revenue from our pharmacy services divisions

(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.

Following the core principle of ASU 2014-09, we have identified the following:

the contract(s) with a customer:

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

the transaction price:

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 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.

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

generated from prescription or office use drugs sold by our pharmacies and outsourcing facility are recognized when the prescription

At the time of shipment, the pharmacy services division has performed substantially all of its obligations under its

client contracts and does not experience a significant level of returns or reshipments.

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.

We record reductions to revenue for discounts at the time of the initial sale.

Estimated returns and allowances

and other adjustments are provided for in the same period during which the related sales are recorded and are based on actual

returns history.

The rate of returns is analyzed annually to determine historical returns experience.

If the historical data we

use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period

in which such a determination is made and revenues in that period could be materially affected.

We will defer any revenues received

for a product that has not been delivered or is subject to refund until such time that we and the customer jointly determine that

the product has been delivered and no refund will be required.

Property License Revenues

currently hold four intellectual property license and related agreements in which we have promised to grant a license or

sale which provides a customer with right to access our 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,

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

Non-refundable

fees that are not contingent on any future performance by us and require no consequential continuing involvement on our part are

recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other

deliverable is delivered.

Such deliverables may include physical quantities of compounded drug preparations, design of the compounded

drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents

or patent applications for such compounded drug preparations.

We defer recognition of non-refundable 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 our performance under the other elements of the arrangement.

In addition, if our 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 performed by us, then such non-refundable fees are deferred

and recognized over the period of continuing involvement.

Guaranteed minimum annual royalties are recognized on a straight-line

basis over the applicable term.

in Eton Pharmaceuticals, Inc.

April 2017, we formed Eton as a wholly owned subsidiary.

In June 2017 we lost voting and ownership control of Eton and ceased

consolidating Eton’s financial statements.

At the time of deconsolidation, we recorded a gain of $5,725,000 and adjusted

the carrying value in Eton to reflect the increased valuation of Eton and our new ownership percent in accordance with Accounting

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

At the time of deconsolidation, we used the equity

method of accounting as management determined that we had the ability to exercise significant influence over the operating and

financial decisions of Eton.

Under this method, we recognized earnings and losses of Eton in its consolidated financial statements

and adjusted the carrying amount of its investment in Eton accordingly.

During the year ended December 31, 2018, the Company recorded

equity in net loss of Eton of $3,507,000.

the close of the Eton IPO we estimate our common stock position in Eton equaled approximately 19.98% of the equity and voting

interests issued and outstanding of Eton, and we ceased using the equity method of accounting for our investment in Eton.

earnings and losses of Eton in our consolidated financial statements based on the fair market value of the shares owned and adjust

the carrying amount of our investment in Eton accordingly.

Eton’s common stock currently trades on the NASDAQ Global Market

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

Recognition and Measurement of Financial Assets and Financial Liabilities , for the year ended December 31, 2019,

we recorded an investment gain from its Eton common stock position of $3,780,000 related to the change in fair market value of

our investment in Eton during the measurement period.

For the year ended December 31, 2018, we recorded an investment gain from

our Eton common stock position of $21,420,000 related to the change in fair market value of our investment in Eton during the

measurement period.

As of December 31, 2019, the fair market value of our investment in Eton was $25,200,000.

in Surface Pharmaceuticals, Inc.

April 2017, we formed Surface as a wholly owned subsidiary.

In May and July 2018, Surface entered into and closed on a definitive

stock purchase agreement with an institutional investor for the purchase of Surface’s Series A Preferred Stock (the “Surface

Series A Stock”) that resulted in total proceeds to Surface of approximately $21 million.

At the time of the first closing

in May 2018, we lost voting and ownership control of Surface and ceased consolidating Surface’s financial statements.

Surface Series A Stock (i) was issued at a purchase price of $3.30 per share;

(ii) will vote together with the common stock and

all other shares of stock of Surface having general voting power;

(iii) will be entitled to the number of votes equal to the number

of shares of preferred stock held;

(iv) will hold liquidation preference over all other equity interests in Surface;

have mandatory conversion requirements into Surface common stock upon events including an underwritten initial public offering

(“IPO”) of Surface common stock or similar transaction.

the time of deconsolidation, we recorded a gain of $5,320,000 and adjusted the carrying value in Surface to reflect the

increased valuation of Surface and our new ownership percent in accordance with ASC 810-10-40-4(c), Consolidation .

own 3,500,000 common shares (which is approximately 30% of the equity interest as of December 31, 2019) of Surface and use the

equity method of accounting for this investment, as management has determined that we have the ability to exercise significant

influence over the operating and financial decisions of Surface.

Under this method, we recognize earnings and losses of Surface

in our consolidated financial statements and adjust the carrying amount of our investment in Surface accordingly.

earnings and losses are based on the shares of common stock and in-substance common stock of Surface held by us.

Any intra-entity

profits and losses are eliminated.

We recorded equity in net loss of Surface of $1,200,000 during the year ended December 31,

As of December 31, 2019, the carrying value of our investment in Surface was $3,747,000.

in Melt Pharmaceuticals, Inc.

April 2018, we formed Melt as a wholly owned subsidiary.

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 $11,400,000

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

As a result, we lost

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

In connection with the Melt Series

A Preferred Stock Agreement, Melt also entered into a Registration Rights Agreement and agreed to use commercially reasonable

efforts to file, or confidentially submit, a registration statement on Form S-1 with the United States Securities and Exchange

Commission (“SEC”) by September 30, 2020 relating to an initial public offering of its common stock.

the time of deconsolidation, we recorded a gain of $5,810,000 and adjusted the carrying value in Melt to reflect the increased

valuation of Melt and our new ownership interest in accordance with ASC 810-10-40-4(c), Consolidation .

own 3,500,000 common shares (which is approximately 44% of the equity interest as of December 31, 2019) of Melt and uses the equity

method of accounting for this investment, as management has determined that we have the ability to exercise significant influence

over the operating and financial decisions of Melt.

Under this method, we recognize earnings and losses of Melt in its consolidated

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

Our share of earnings and losses are

based on our ownership interest of Melt.

Any intra-entity profits and losses are eliminated.

We recorded equity in net loss of

Melt of $1,842,000 during the year ended December 31, 2019.

As of December 31, 2019, the carrying value of our investment in Melt

was $3,968,000.

stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units

and restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values.

Black-Scholes option pricing model and Monte-Carlo simulation to estimate the fair value of stock-based awards.

Fair value is

determined at the date of 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.

accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the Financial

Accounting Standards Board (“FASB”) guidance.

The measurement date for the fair value of the equity instruments issued

is the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at

which the consultant or vendor’s performance is complete.

In the case of equity instruments issued to consultants, the fair

value of the equity instrument is primarily recognized over the term of the consulting agreement.

According to FASB guidance,

an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified

as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes.

we record the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid stock-based consulting

expenses in our consolidated balance sheets.

part of the process of preparing our consolidated financial statements, we must estimate our actual current tax liabilities and

assess permanent and temporary differences that result from differing treatment of items for tax and accounting purposes.

temporary differences result in deferred tax assets and liabilities, which are included within the balance sheet.

We must assess

the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery

is not more likely than not, a valuation allowance must be established which reduces the amount of deferred tax assets recorded

on the consolidated balance sheets.

To the extent we establish a valuation allowance or increase or decrease this allowance in

a period, the impact will be included in income tax expense in the statement of operations.

and Development

expense all costs related to research and development as they are incurred.

Research and development expenses consist of expenses

incurred in performing research and development activities, including salaries and benefits, other overhead expenses, and costs

related to clinical trials, contract services and outsourced contracts.

costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and

milestone payments, are charged to research and development expense as incurred in situations where we have not identified an

alternative future use for the acquired rights, and are capitalized in situations where we have identified an alternative future

use for the acquired rights.

Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits

of such patents and trademarks become more certain (see “—Goodwill and Intangible Assets”

We began capitalizing

certain costs associated with acquiring intellectual property rights during 2015, if costs are not capitalized they are expensed

of Long-Lived Assets

assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks,

are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not

be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to

estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its

estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds

the fair value of the asset.

Assets to be disposed would be separately presented in the consolidated balance sheet and reported

at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

The assets and liabilities

of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections

of the consolidated balance sheet, if material.

and Intangible Assets

and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks

become more certain.

At that time, we capitalize third party legal costs and filing fees associated with obtaining and prosecuting

claims related to its patents and trademarks.

Once the patents have been issued, we amortize these costs over the shorter of the

legal life of the patent or its estimated economic life, generally 20 years, using the straight-line method.

Trademarks are an

indefinite life intangible asset and are assessed for impairment based on future projected cash flows as further described below.

review our goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year and when an event or a

change in circumstances indicates the fair value of a reporting unit may be below its carrying amount.

Events or changes in circumstances

considered as impairment indicators include but are not limited to the following:

underperformance of the our business relative to expected operating results;

adverse economic and industry trends;

decline in the our market capitalization for an extended period of time relative to net book value;

that a reporting unit will be sold or otherwise disposed.

goodwill impairment test consists of a two-step process as follows:

We compare the fair value of each reporting unit to its carrying amount, including the existing goodwill.

The fair value of

each reporting unit is determined using a discounted cash flow valuation analysis.

The carrying amount of each reporting unit

is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount,

relative revenues or other methods as deemed appropriate by management.

If the carrying amount of a reporting unit exceeds its

fair value, an indication exists that the reporting unit’s goodwill may be impaired and we then perform the second step

of the impairment test.

If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

If further analysis is required, we compare the implied fair value of the reporting unit’s goodwill, determined by allocating

the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation,

to its carrying amount.

If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss

will be recognized in an amount equal to the excess.

Issuance Costs and Debt Discount

issuance costs and the debt discount are recorded net of note payable in the consolidated balance sheet.

Amortization expense

of debt issuance costs and the debt discount is calculated using the effective interest method over the term of the debt and is

recorded in interest expense in the accompanying consolidated statement of operations.

Sheet Arrangements

our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the

use of structured finance, special purpose entities or variable interest entities.

We have no off-balance sheet arrangements that

have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues

or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements and supplementary data required by this item are included in this Annual Report beginning on page F-1 immediately

following the signature page hereto and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 5. Market for Registrant’s Common Equity