What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-09 · 944 added, 1088 removed, 175 unchanged (92% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

thousands, except share data)

September 30,

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

Current assets

and cash equivalents, including restricted cash of $ 200

Investment in Eton

Pharmaceuticals

Accounts receivable,

expenses and other current assets

Cash and cash equivalents, including restricted cash of $ 200

Investment in Eton Pharmaceuticals

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

4 unchanged sentences

Investment in Melt Pharmaceuticals

LIABILITIES AND

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

and accrued expenses

Accrued payroll

and related liabilities

Deferred revenue

and customer deposits

Current portion

of paycheck protection program loan payable

Current portion

of loan payable, net of unamortized debt discount

Current portion

of operating lease liabilities

portion of finance lease obligations

Accounts payable and accrued expenses

Accrued payroll and related liabilities

Deferred revenue and customer deposits

Current portion of paycheck protection program loan payable

Current portion of loan payable, net of unamortized debt discount

Current portion of operating lease liabilities

Current portion of finance lease obligations

Total current liabilities

Operating lease liabilities, net of

current portion

Finance lease obligations, net of current

Operating lease liabilities, net of current portion

Finance lease obligations

Accrued expenses, net of current portion

Paycheck protection program loan payable,

net of current portion

Loan payable,

net of current portion and unamortized debt discount

Paycheck protection program loan payable, net of current portion

Loan payable, net of current portion and unamortized debt discount

TOTAL LIABILITIES

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Common stock, $ 0.001 par value, 50,000,000

shares authorized, 25,652,169 and 25,526,931 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in

TOTAL HARROW HEALTH

STOCKHOLDERS’ EQUITY

Noncontrolling

STOCKHOLDERS’ EQUITY

LIABILITIES AND EQUITY

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except for share and per share data)

Three Months Ended

Nine Months Ended

September 30,

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 25,983,676

and 25,749,875 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

TOTAL HARROW HEALTH STOCKHOLDERS’ EQUITY

Noncontrolling interests

TOTAL LIABILITIES AND EQUITY

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the Three Months Ended

March 31, 2021

March 31, 2020

Product sales, net

Other revenues

Total revenues

1 unchanged sentence

Operating expenses:

Selling, general

and administrative

Selling, general and administrative

Research and development

of long-lived assets

Total operating

Income (loss)

from operations

Total operating expenses

Income (loss) from operations

Other income (expense):

Interest expense,

Investment (loss)

gain from Melt Pharmaceuticals, net

Investment loss

from Surface Ophthalmics, net

Investment gain

(loss) from Eton Pharmaceuticals, net

Total other income (expense), net

Interest expense, net

Investment loss from Melt Pharmaceuticals

Investment loss from Surface Ophthalmics

Investment loss from Eton Pharmaceuticals

Gain on forgiveness of debt

Total other (expense), net

Income (loss) before income taxes

tax benefit, net

Total net income (loss) including noncontrolling

loss attributable to noncontrolling interests

Net income (loss)

attributable to Harrow Health, Inc.

Basic net income

(loss) per share of common stock

Diluted net income

(loss) per share of common stock

average number of shares of common stock outstanding,

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

the Three and Nine Months Ended September 30, 2020 and 2019

thousands, except for share data)

Stockholders’

Noncontrolling

Stockholders’

Balance at June 30, 2019

Issuance of common stock in connection

Exercise of warrants

Exercise of employee

stock-based options, net of tax withholding

Stock-based payment

for services provided

Stock-based compensation expense

Vesting of RSUs

Vesting of RSUs, shares

Balance at September 30, 2019

Stockholders’

Noncontrolling

Stockholders’

Balance at June 30, 2020

Issuance of common stock in connection

Exercise of employee

stock-based options, net of tax withholding

Stock-based compensation

Net income (loss)

Balance at September 30, 2020

Stockholders’

Noncontrolling

Total net income (loss) including noncontrolling interests

Net loss attributable to noncontrolling interests

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

Basic net income (loss) per share of common stock

Diluted net income (loss) per share of common stock

Weighted average number of shares of common stock outstanding, basic

Weighted average number of shares of common stock outstanding, diluted

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

For the three months ended March 31, 2021 and 2020

(In thousands, except for share data)

Harrow Health, Inc.

Total Noncontrolling

Stockholders’

Balance at December 31, 2019

Issuance of common stock in connection

Exercise of warrants

Exercise of employee

stock-based options, net of tax withholding

Stock-based payment

for services provided

Issuance of common stock in connection with:

Exercise of employee options

Issuance of common stock related to vesting of RSUs

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

Balance at September 30, 2019

Stockholders’

Noncontrolling

Stockholders’

Balance at March 31, 2020

Balance at December 31, 2020

Issuance of common stock in connection

Exercise of employee

stock-based options, net of tax withholding

Vesting of RSUs

Stock-based payment

for services provided

Issuance of common stock in connection with:

Exercise of employee options

Issuance of common stock related to vesting of RSUs

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

Balance at September 30, 2020

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Balance at March 31, 2021

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH

(In thousands)

March 31, 2021

March 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

loss (including noncontrolling interests)

Adjustments to reconcile

net loss to net cash used in operating activities:

Depreciation and

amortization of property, plant and equipment

Amortization of

intangible assets

Amortization of

operating lease right-of-use assets

Amortization of

debt issuance costs and discount

Provision for bad

Investment gain

from Eton, net

Investment loss

from Surface, net

Investment loss

(gain) from Melt, net

Loss on sale and

disposal of equipment

Interest paid-in-kind

on loan payable

Impairment of long-lived

Stock-based payment

of consulting services

Net income (loss) (including noncontrolling interests)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

operating activities:

Depreciation and amortization of property, plant and equipment

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Provision for bad debt expense

Amortization of debt issuance costs and discount

Gain on forgiveness of debt

Investment loss from Eton Pharmaceuticals

Investment loss from Surface Ophthalmics

Investment loss from Melt Pharmaceuticals

Stock-based compensation

Changes in assets

and liabilities:

Changes in assets and liabilities:

Accounts receivable

net of provision for bad debt expense

Prepaid expenses

and other current assets

Accounts payable

and accrued expenses

Accrued payroll

and related liabilities

revenue and customer deposits

NET CASH USED

IN OPERATING ACTIVITIES

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accrued payroll and related liabilities

Deferred revenue and customer deposits

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds on sale

and disposal of assets

Investment in patent

and trademark assets

of property, plant and equipment

NET CASH USED

IN INVESTING ACTIVITIES

Investment in patent and trademark assets

Purchases of property, plant and equipment

NET CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on finance

lease obligations

Proceeds from SWK

Principal payments

on loan payable

Payments of costs

related to amendment of note payable

Net proceeds from

Payroll Protection Program loan payable

proceeds from exercise of warrants and stock options, net of taxes remitted for RSU and options

NET CASH PROVIDED

BY (USED IN) FINANCING ACTIVITIES

NET CHANGE IN CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, beginning of period

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, end of period

RECONCILIATION OF CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

Payments on finance lease obligations

Principal payments on SWK loan

Net proceeds from exercise of stock options, net of

taxes remitted upon vesting of RSU’s and options

NET CASH USED IN FINANCING ACTIVITIES

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents

Restricted cash

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH AT END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

Cash paid for

SUPPLEMENTAL DISCLOSURES OF NON-CASH

INVESTING AND FINANCING ACTIVITIES:

New and revaluation

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

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the three and nine months ended September 30, 2020 and 2019

amounts in thousands, except share and per share data)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

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

Changes in accrued property and equipment purchases

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements

HARROW HEALTH, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

For the Three Months Ended March 31, 2021 and 2020

(All dollar amounts are expressed in thousands,

except share and per share data)

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

and Background

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

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

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

and deconsolidated companies.

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

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

Surface Ophthalmics, Inc.

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

(“Melt”), all companies that

began as subsidiaries of Harrow.

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

(“Mayfield”) and Stowe Pharmaceuticals, Inc.

(“Stowe”), among others.

In 2020, Harrow created Visionology,

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

Harrow also owns royalty rights in various drug candidates

being developed by Surface, Melt and Mayfield.

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

new businesses that commercialize drug candidates that are internally developed or otherwise acquired or licensed from third parties.

of Presentation

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

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

the rules and regulations of the U.S.

Securities and Exchange Commission.

Accordingly, they do not include all of the information

and footnotes required by GAAP for audited financial statements.

In the opinion of management, all adjustments (consisting of

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

Operating results for the

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

ending December 31, 2020 or for any other period.

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

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

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

as well as Mayfield ( 79 % majority controlled) and Stowe ( 70 % majority controlled) each subsidiaries of Harrow as of September

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

entities (collectively “TGV”) or other consultants.

Mayfield was organized to develop women’s health-focused

drug candidates.

The remaining 30 % of Stowe is owned by TGV.

Stowe was organized to develop ophthalmic drug candidates.

All inter-company

accounts and transactions have been eliminated in consolidation.

consolidates entities in which it has a controlling financial interest.

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

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

All intercompany accounts and transactions have been eliminated in

consolidation.

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

operations, stockholders’ equity and cash flows for the periods ended September 30, 2020 and 2019 include our accounts and

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

Uncertainties and Liquidity

Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

On March 18, 2020, the Centers for Medicare

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

healthcare providers to limit all elective medical procedures

in order to conserve personal protective equipment and limit exposure to COVID-19 during the pendency of the pandemic.

to limiting elective medical procedures, many hospitals and other healthcare providers have strictly limited access to their facilities

during the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and healthcare

delivery, led to social distancing recommendations, stay-at-home orders and other restrictive measures, and created significant

volatility in financial markets.

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

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

activities required to achieve regulatory clearance of products under development.

Company believes reductions in elective procedures in response to CMS guidance have had, and may in the future have, an adverse

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

The severity of

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

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

and cannot be predicted.

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

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

For further information, refer

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

with the Securities and Exchange Commission.

certain periods, including those impacted by the COVID-19 pandemic, the Company has incurred operating losses and negative cash

flows from operations.

The Company incurred operating losses of $ 2,241 and $ 5,721 for the nine months ended September 30, 2020

and 2019, respectively, and had an accumulated deficit of $ 78,549 and $ 74,043 as of September 30, 2020 and December 31, 2019,

respectively.

In addition, the Company used cash in operating activities of $ 534 and $ 702 for the nine months ended September

30, 2020 and 2019, respectively.

there is no assurance, management of the Company believes existing cash resources and restricted cash of $ 5,727 at September 30,

2020 together with cash generated from revenues, will be sufficient to sustain the Company’s planned level of operations

for at least the next twelve months.

However, estimates of operating expenses, working capital requirements and the future impact

of the COVID-19 pandemic on its business could be incorrect, and the Company could use its cash resources faster than anticipated.

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

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

the sale of assets, investments and/or businesses;

obtaining financing through the issuance of equity, debt, or convertible

and working to increase revenue growth through sales.

There is no guarantee that the Company will be able to obtain

capital when needed on terms management deems acceptable, or at all.

Company and Background

Harrow Health, Inc.

(together with its subsidiaries,

partially owned companies and royalty arrangements unless the context indicates or otherwise requires, the “Company”

or “Harrow”) specializes in the development, production and sale of innovative medications that offer unique competitive

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

The Company owns one

of the nation’s leading ophthalmology-focused pharmaceutical businesses, ImprimisRx.

In addition to wholly owning ImprimisRx,

the Company also has equity positions in Eton Pharmaceuticals, Inc.

(“Eton”), Surface Ophthalmics, Inc.

and Melt Pharmaceuticals, Inc.

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

In 2020, Harrow created

Visionology, Inc.

(“Visionology”), which will launch an online eye health platform business.

owns royalty rights in various drug candidates being developed by Surface and Melt.

Basis of Presentation

The Company has prepared the accompanying unaudited

condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America

(“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S.

Securities and Exchange

Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements.

the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation

have been included.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may

be expected for the year ending December 31, 2021 or for any other period.

For further information, refer to the Company’s audited

consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2020.

The accompanying unaudited condensed consolidated

financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries.

All inter-company accounts

and transactions have been eliminated in consolidation.

Harrow consolidates entities in which it has a controlling

financial interest.

The Company consolidates subsidiaries in which it holds and/or controls, directly or indirectly, more than 50% of

the voting rights.

All intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheets

at March 31, 2021 and December 31, 2020 and the condensed consolidated statements of operations, stockholders’ equity and

cash flows for the periods ended March 31, 2021 and 2020 include our accounts and those of our wholly owned subsidiaries, as well

as our inactive majority owned subsidiaries Mayfield Pharmaceuticals, Inc.

and Stowe Pharmaceuticals, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

performance based on financial information presented as operating segments.

The Company has identified two operating segments

as reportable segments.

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

Noncontrolling

Company recognizes any noncontrolling interest as a separate line item in equity in the condensed consolidated financial statements.

A noncontrolling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to

Generally, any interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling

however, there are other factors, such as decision-making rights, that are considered as well.

The Company includes

the amount of net income (loss) attributable to noncontrolling interests in consolidated net income (loss) on the face of the

condensed consolidated statements of operations.

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

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

noncontrolling interests that separately discloses:

income or loss;

with owners acting in their capacity as owners, showing separately contributions from and distributions to owners;

component of other income or loss.

and Diluted Net Income (Loss) per Common Share

net income (loss) per common share is computed by dividing income (loss) attributable to common stockholders for the period by

the weighted average number of common shares outstanding during the period.

Diluted income (loss) per share is computed by dividing

the income (loss) attributable to common stockholders for the period by the weighted average number of common and common equivalent

shares, such as stock options, restricted stock units (“RSUs”) and warrants, outstanding during the period.

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

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

RSUs and warrants were 5,447,716 and 5,263,131 at September 30, 2020 and 2019, respectively, and, except for the three months

ended September 30, 2020, are excluded from the calculation of diluted net income (loss) per share for the periods presented,

because the effect is anti-dilutive.

Included in the basic and diluted net income (loss) per share calculation were RSUs awarded

to directors that had vested, but the issuance and delivery of the shares are deferred until the director resigns.

of shares underlying vested RSUs at September 30, 2020 and 2019 was 281,507 and 314,588 , respectively.

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

September 30, 2020 and 2019:

The following represents an update for the three months

ended March 31, 2021 to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2020.

Uncertainties and Liquidity

is subject to certain regulatory standards, guidelines and inspections which could impact the Company’s ability to make, dispense,

and sell certain products.

If the Company was required to cease compounding and selling certain products as a result of regulatory guidelines

or inspections, this may have a material impact on the Company’s financial condition, liquidity and results of operations.

The Company’s chief operating decision-maker

is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information of our

operating segments.

The Company has identified two operating segments as reportable segments.

See Note 16 for more information regarding

the Company’s reportable segments.

Noncontrolling Interests

The Company recognizes any noncontrolling interest

as a separate line item in equity in the condensed consolidated financial statements.

A noncontrolling interest represents the portion

of equity ownership in a less-than-wholly-owned subsidiary not attributable to the Company.

Generally, any interest that holds less than

50% of the outstanding voting shares is deemed to be a noncontrolling interest;

however, there are other factors, such as decision-making

rights, that are considered as well.

The Company includes the amount of net income (loss) attributable to noncontrolling interests in

consolidated net income (loss) on the face of the condensed consolidated statements of operations.

The Company provides in the condensed consolidated

statements of stockholders’ equity a reconciliation at the beginning and the end of the period of the carrying amount of total equity,

equity attributable to the parent, and equity attributable to the noncontrolling interest that separately discloses:

Net income or loss;

transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners;

each component of other income or loss.

Basic and Diluted Net Income (Loss) per Common

Basic net income (loss) per common share is

computed by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of common

shares outstanding during the period.

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable

to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options,

unvested restricted stock units (“RSUs”) and warrants, outstanding during the period.

Basic and diluted net income (loss) per share is computed

using the weighted average number of shares of common stock outstanding during the period.

Common equivalent shares (using the treasury

stock or “if converted” method) from stock options, RSUs and warrants were

5,486,678 and 5,253,638 at March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2020, the common equivalent shares

are excluded in the calculation of diluted net loss per share because the effect is anti-dilutive.

Included in the basic and diluted net

income (loss) per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery of the shares are deferred

until the director resigns.

The number of shares underlying vested RSUs at March 31, 2021 and 2020 was 223,219 and 244,460 , respectively.

The following table shows the computation of basic

net income (loss) per share of common stock for the three months ended March 31, 2021 and 2020:

SCHEDULE OF BASIC EARNINGS PER COMMON SHARE

For the Three Months Ended

For the Nine Months Ended

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

Denominator – weighted average

number of shares outstanding, basic

Net income (loss)

per share, basic

the three months ended September 30, 2020, the Company had net income.

As a result, the Company computed diluted net income per

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

Diluted common equivalent shares for the three months ended September 30, 2020, consisted of the following:

For the Three Months

Ended March 31,

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

Denominator – weighted average number of shares outstanding, basic

Net income (loss) per share, basic

For the three months ended March 31, 2021, the Company

computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding

during the period.

Diluted common equivalent shares for the three months ended March 31, 2021, consisted of the following:

SCHEDULE OF DILUTED COMMON EQUIVALENT SHARES

the Three months Ended

March 31, 2021

Diluted shares related to:

Dilutive common

equivalent shares

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

September 30, 2020 and 2019:

Stock options

Dilutive common equivalent shares

The following table shows the computation of diluted

net income (loss) per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding for the

three months ended March 31, 2021 and 2020:

SCHEDULE OF DILUTED EARNINGS PER COMMON SHARE

For the Three Months Ended

For the Nine months Ended

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

Denominator – weighted average number of shares outstanding,

Dilutive common

equivalent shares

Number of shares

used for diluted earnings per share computation

Net income (loss)

per share, diluted

in Eton Pharmaceuticals, Inc.

– Related Party

Company owns 3,500,000 shares of Eton common stock, which represents approximately 16.7 % of the equity and voting interests of

Eton as of September 30, 2020.

At September 30, 2020 the fair market value of Eton’s common stock was $ 7.90 per share.

accordance with Accounting Standard’s Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , for the three and nine months ended September 30,

2020, the Company recorded an investment gain (loss) from its Eton common stock position of $ 8,575 and $ 2,450 , respectively, related

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

As of September 30,

2020, the fair market value of the Company’s investment in Eton was $ 27,650 .

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

in Melt Pharmaceuticals, Inc.

For the Three Months

Ended March 31,

Numerator – net income (loss)

Weighted average number of shares outstanding, basic

Dilutive common equivalent shares

Denominator – number of shares used for diluted earnings per share computation

Net income (loss) per share, diluted

Investment in Eton Pharmaceuticals, Inc.

As of March 31, 2021, the Company owned 3,500,000

shares of Eton common stock, which represented approximately 14.3 % of the equity interests of Eton.

At March 31, 2021, the fair market

value of Eton’s common stock was $ 7.32 per share.

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

Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , the

Company recorded an unrealized investment loss from its Eton common stock position of $ 2,835 and $ 10,850 during the three months ended

March 31, 2021 and 2020, respectively, related to the change in fair market value of its investment in Eton during the measurement period.

As of March 31, 2021, the fair market value of the Company’s investment in Eton was $ 25,620 .

During the three months ended March 31, 2021, Mark

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

In April 2021, the Company

sold 1,518,000 shares of its Eton common stock (see Note 17 for more information related to this subsequent event).

In light of these

events, the Company has determined that Eton is no longer a related party.

Investment in Melt Pharmaceuticals, Inc.

Related Party

April 2018, the Company 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 sale of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $ 11,400 of

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

As a result, the Company

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

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

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

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

Company owns 3,500,000 common shares of Melt (which is approximately 44 % of the equity interests as of September 30, 2020) and

uses the equity method of accounting for this investment, as management has determined that the Company has the ability to exercise

significant influence over the operating and financial decisions of Melt.

Under this method, the Company recognizes earnings and

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

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

Any intra-entity

profits and losses are eliminated.

The Company recorded equity in the net loss of Melt of $ 300 and $ 1,536 during the three and

nine months ended September 30, 2020, respectively.

The Company recorded equity in the net loss of Melt of $ 682 and $ 1,293 during

the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, the carrying value of the Company’s

investment in Melt was $ 2,432 .

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

in Surface Ophthalmics, Inc.

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

approximately 44 % of the equity interests as of March 31, 2021) of Melt and uses the equity method of accounting for this investment,

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

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

adjusts the carrying amount of its investment in Melt accordingly.

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

ownership interest of Melt.

Any intra-entity profits and losses are eliminated.

During the three months ended March 31, 2021 and 2020,

the Company recorded equity in the net losses of Melt of $ 470 and $ 546 , respectively.

As of March 31, 2021 and December 31, 2020, the

Company’s investment in Melt was $ 2,056 and $ 2,506 , respectively, which includes $ 881 and $ 851 , respectively, due from Melt for

reimbursable expenses and amounts due under a Management Services Agreement between the Company and Melt (the “Melt MSA”).

See Note 4 for more information and related party

disclosure regarding Melt.

Investment in Surface Ophthalmics, Inc.

Related Party

Company owns 3,500,000 common shares (which is approximately 30 % of the equity interests as of September 30, 2020) of Surface

and uses the equity method of accounting for this investment, as management has determined that the Company has the ability to

exercise significant influence over the operating and financial decisions of Surface.

Under this method, the Company recognizes

earnings and losses in Surface in its condensed consolidated financial statements and adjusts the carrying amount of its investment

in Surface accordingly.

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

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

approximately 30 % of the equity interests as of March 31, 2021) of Surface and uses the equity method of accounting for this investment,

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

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

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

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

the Company’s ownership interest of Surface.

Any intra-entity profits and losses are eliminated.

The Company recorded equity in the net loss of Surface of $ 756 and

$ 1,694 during the three and nine months ended September 30, 2020, respectively.

The Company recorded equity in the net loss of

Surface of $ 400 and $ 904 during the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, the

carrying value of the Company’s investment in Surface was $ 2,053 .

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

Adopted Accounting Pronouncements

June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments ,

which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier

recognition of credit losses.

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

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

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

the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements.

The standard removes, modifies,

and adds certain disclosure requirements.

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

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

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

This guidance simplifies the accounting for

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

test under ASC 350.

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

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

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

The Company adopted ASU 2017-04

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

position, results of operations and cash flows.

Issued Accounting Pronouncements

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

complexity in accounting standards.

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

including interim periods therein.

Early adoption of the standard is permitted.

The Company is currently assessing the impact

of this standard and does not expect ASU 2019-12 to have a material impact on its consolidated financial position, results of

operations and cash flows.

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

has two primary streams of revenues:

(1) revenues recognized from our sale of products within our pharmacy services and (2) revenues

recognized from intellectual property license and asset purchase agreements.

Revenues from Pharmacy Services

Company sells prescription drugs directly through our pharmacy and outsourcing facility network.

Revenues from our pharmacy services

division includes:

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

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

The Company recorded equity in

the net losses of Surface of $ 849 and $ 339 during the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and

December 31, 2020, the Company’s investment in Surface was $ 465 and $ 1,314 , respectively.

See Note 5 for more information and related party

disclosure regarding Surface.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes.

This guidance became effective

for the Company on January 1, 2021 on a prospective basis.

Adoption of this ASU did not have a material impact on the Company’s

condensed consolidated financial statements.

The Company accounts for contracts with customers

in accordance with ASC 606, Revenues from Contracts with Customers .

The Company has three primary streams of revenue:

recognized from our sale of products within our pharmacy services, (2) revenue recognized from a commission agreement with a third party

and (3) revenue recognized from intellectual property license and asset purchase agreements.

Product Revenues from Pharmacy Services

The Company sells prescription drugs directly through

our pharmacy and outsourcing facility network.

Revenue from our pharmacy services division includes:

(i) the portion of the price the

client pays directly to us, net of any volume-related or other discounts paid back to the client, (ii) the price paid to us by individuals,

and (iii) customer copayments made directly to the pharmacy network.

Sales taxes are not included in revenue.

Following the core principle of ASC 606, 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

Following the core principle

of ASC 606, we have identified the following:

Identify the contract(s) with a customer:

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

Identify 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 meet the performance obligation, the customer is notified.

Determine the transaction price:

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

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

the transaction price 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.

The Company records 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.

The Company will

defer any revenues received for a product that has not been delivered or is subject to refund until such time that the Company

and the customer jointly determine that the product has been delivered and no refund will be required.

the third quarter of 2020, the Company entered into an agreement whereby it

is paid a fee calculated based on sales it generates from a pharmaceutical product that is owned by a third party.

earned from this arrangement is recognized at the time a customer has ordered the pharmaceutical product and it has shipped from

the third party (or one of its distributors or affiliates), at which point there is no future performance obligation required

by the Company and no consequential continuing involvement on the part of the Company to recognize the associated revenue.

Property License Revenues

Company currently holds five intellectual property license and related agreements in which the Company has sold or granted a license

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

License arrangements may include

or require non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights

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

These arrangements

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

Non-refundable

fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on the

part of the Company 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.

The Company defers 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 the Company’s performance

under the other elements of the arrangement.

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

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

performed by the Company, then such non-refundable fees are deferred and recognized over the period of continuing involvement.

Allocate 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.

Recognize 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.

The following revenue recognition policy has been

established for the pharmacy services division:

Revenues generated from prescription or office use

drugs sold by our pharmacies and outsourcing facility are recognized when the prescription is shipped.

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.

The Company records 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

The Company will defer any revenues received for a product that has not been delivered or is subject to refund until such time

that the Company and the customer jointly determine that the product has been delivered and no refund will be required.

Commission Revenues

During the year

ended December 31, 2020, the Company entered into an agreement whereby it is paid a fee calculated based on sales it generates

from a pharmaceutical product that is owned by a third party.

The revenue earned from this arrangement is recognized at the time a customer

has ordered the pharmaceutical product and it has shipped from the third party (or one of its distributors or affiliates), at which point

there is no future performance obligation required by the Company and no consequential continuing involvement on the part of the Company

to recognize the associated revenue.

Intellectual Property License Revenues

As of March 31, 2021, we are party to four intellectual

property licenses and asset purchase agreements in which we have agreed to grant a license and which provide a customer with the right

to access the Company’s intellectual property.

License arrangements may consist of non-refundable upfront license fees, data transfer

fees, research reimbursement payments, exclusive license rights to patented or patent pending compounds, technology access fees, and various

performance or sales milestones.

These arrangements can be multiple-element arrangements, the revenue of which is recognized at the point

in time at which the performance obligation is met.

Non-refundable fees that are not contingent on any

future performance by the Company and require no consequential continuing involvement on the part of the Company 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.

The Company defers 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 the Company’s performance under the other elements of the arrangement.

In addition, if the Company’s

continued involvement is required, through research and development services that are related to its proprietary know-how and expertise

of the delivered technology or can only be performed by the Company, 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.

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

Revenue disaggregated by revenue source for the three

months ended March 31, 2021 and 2020, consists of the following:

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

For the Nine months Ended

For the Three Months

Ended March 31,

Product sales, net

revenue and customer deposits at September 30, 2020 and December 31, 2019, was $ 63 and $ 57 , respectively.

All deferred revenue

and customer deposit amounts at December 31, 2019 were recognized as revenue during the nine months ended September 30, 2020.

Total revenues

Deferred revenue and customer deposits at March 31,

2021 and December 31, 2020, were $ 3 and $ 66 , respectively.

All deferred revenue and customer deposit amounts at December 31, 2020 were

recognized as revenue during the three months ended March 31, 2021.

INVESTMENT IN MELT PHARMACEUTICALS, INC.

AND AGREEMENTS - RELATED PARTY TRANSACTIONS

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

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

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

(collectively, the “Melt Products”).

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

royalty payments to the Company up to 5 % of net sales of the Melt Products while any patent rights remain outstanding, as well

as other conditions.

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

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

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

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

of September 30, 2020, the Company was due $ 815 from Melt for reimbursable expenses and amounts due under the Melt MSA and are

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

During the three

and nine months ended September 30, 2020, Melt did not make any payments to the Company.

Company’s Chief Executive Officer, Mark L.

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

of directors.

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

SCHEDULE OF CONDENSED INCOME STATEMENT

Nine Months Ended

- RELATED PARTY TRANSACTIONS

In December 2018, the Company entered into an asset

purchase agreement with Melt (the “Melt Asset Purchase Agreement”).

Pursuant to the terms of the Melt Asset Purchase Agreement,

Melt was assigned certain intellectual property and related rights from the Company to develop, formulate, make, sell, and sub-license

certain Company conscious sedation and analgesia related formulations (collectively, the “Melt Products”).

Under the terms

of the Melt Asset Purchase Agreement, Melt is required to make mid-single-digit royalty payments to the Company on net sales of the Melt

Products while any patent rights remain outstanding, as well as other conditions.

In January and March 2019, the Company entered into

the Melt Series A Preferred Stock Agreement.

See also Note 2, under the subheading Investment in Melt Pharmaceuticals, Inc.

In February 2019, the Company and Melt entered into

the Melt MSA, whereby the Company provides to Melt certain administrative services and support, including bookkeeping, web services and

human resources related activities, and Melt is required to pay the Company a monthly amount of $ 10 .

As of March 31, 2021 and December 31, 2020, the Company

was due $ 881 and $ 851 , respectively, from Melt for reimbursable expenses and amounts due under the Melt MSA.

Melt did not make any payments

to the Company during the three months ended March 31, 2021.

The Company’s Chief Executive Officer, Mark

Baum, and Chief Medical Officer, Larry Dillaha, M.D.

are members of the Melt board of directors, and several employees of the Company

(including Mr.

Dillaha and the Company’s Chief Financial Officer, Andrew R.

Boll) entered into consulting agreements and

provide consulting services to Melt.

The unaudited condensed results of operations information

of Melt is summarized below:

OF CONDENSED INCOME STATEMENT

For the Three Months

March 31, 2021

March 31, 2020

Revenues, net

from operations

unaudited condensed balance sheet information of Melt is summarized below:

Loss from operations

The unaudited condensed balance sheet information

of Melt is summarized below:

SCHEDULE OF CONDENSED BALANCE SHEET

At December 31,

Current assets

1 unchanged sentence

Total liabilities

Total preferred

stock and stockholders’ equity

Total liabilities

and stockholders’ equity

Total stockholders equity

Total liabilities and stockholders’ equity

INVESTMENT IN SURFACE OPHTHALMICS, INC.

AND AGREEMENTS - RELATED PARTY TRANSACTIONS

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

License Agreements”).

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

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

the “Surface Products”).

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

Surface Products while any patent rights remain outstanding.

Company director, Richard L.

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

- RELATED PARTY TRANSACTIONS

The Company entered into an asset purchase and license

agreement with Surface in 2017 and amended it in April 2018 (the “Surface License Agreements”).

Pursuant to the terms of the

Surface License Agreements, the Company assigned and licensed to Surface certain intellectual property and related rights associated with

Surface’s drug candidates (collectively, the “Surface Products”).

Surface is required to make mid-single-digit royalty

payments to the Company on net sales of the Surface Products while any patent rights remain outstanding.

As of March 31, 2021, the Company owned 3,500,000

shares of Surface common stock (approximately 30 % of the issued and outstanding equity interests).

A Company director, Richard L.

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

Baum, are directors of Surface.

Surface is required to make royalty payments to Dr.

Lindstrom of 3 % of net sales of certain Surface Products while certain patent

rights remain outstanding.

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

the Surface Series A Preferred Stock.

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

SUMMARY OF CONDENSED INCOME STATEMENT

Nine Months Ended

Surface is required to make royalty payments

Lindstrom of 3 % of net sales of certain Surface products while certain patent rights remain outstanding.

Lindstrom is also

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

employees and a director of the Company (including Mr.

Lindstrom) entered into consulting agreements and provide consulting

services to Surface.

The unaudited condensed results of operations information

of Surface is summarized below:

OF CONDENSED INCOME STATEMENT

For the Three Months Ended

March 31, 2021

March 31, 2020

Revenues, net

from operations

unaudited condensed balance sheet information of Surface is summarized below:

SUMMARY OF CONDENSED BALANCE SHEET

September 30,

Loss from operations

The unaudited condensed balance sheet information

of Surface is summarized below:

OF CONDENSED BALANCE SHEET

At December 31,

Current assets

1 unchanged sentence

Total liabilities

Total stockholders’

Total liabilities

and stockholders’ equity

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

products, related laboratory supplies and active pharmaceutical ingredients.

The composition of inventories as of September 30,

2020 and December 31, 2019 was as follows:

SCHEDULE OF INVENTORIES

September 30,

Total stockholders equity

Total liabilities and stockholders’ equity

RESTRICTED CASH

The restricted cash at March 31, 2021 and December

31, 2020 consisted of funds held in a money market account.

At March 31, 2021 and December 31, 2020, the restricted cash was recorded

at amortized cost, which approximates fair value.

At March 31, 2021 and December 31, 2020, the funds

held in a money market account of $ 200 were classified as a current asset.

The money market account funds are required as collateral as

additional security for the Company’s New Jersey facility lease.

Inventories are comprised of finished compounded formulations,

over-the-counter and prescription retail pharmacy products, commercial pharmaceutical products, related laboratory supplies and active

pharmaceutical ingredients.

The composition of inventories as of March 31, 2021 and December 31, 2020 was as follows:

OF INVENTORIES

March 31, 2021

December 31, 2020

Raw materials

3 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

expenses and other current assets consisted of the following:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,

Prepaid expenses and other current assets at March

31, 2021 and December 31, 2020, consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

March 31, 2021

December 31, 2020

Prepaid insurance

Other prepaid expenses

Receivable due from Melt

other current assets

Total prepaid

expenses and other current assets

PROPERTY, PLANT AND EQUIPMENT

plant and equipment, net consisted of the following:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

September 30,

Property, plant and

equipment, net:

software and hardware

and equipment

and pharmacy equipment

Deposits and other current assets

Total prepaid expenses and other current assets

PLANT AND EQUIPMENT

Property, plant and equipment at March 31, 2021 and

December 31, 2020, consisted of the following:

OF PROPERTY, PLANT AND EQUIPMENT

March 31, 2021

December 31, 2020

Property, plant and equipment, net:

Computer software and hardware

Furniture and equipment

Lab and pharmacy equipment

Leasehold improvements

Property, plant and equipment, gross

depreciation and amortization

Accumulated depreciation and amortization

plant and equipment, net

the three and nine months ended September 30, 2020, depreciation and amortization related to the property, plant and equipment

was $ 464 and $ 1,377 , respectively.

For the three and nine months ended September 30, 2019, depreciation related to the property,

plant and equipment was $ 397 and $ 1,365 , respectively.

During the three and nine months ended September 30, 2019, the Company

impaired $ 445 of property, plant and equipment related to the Park Restructuring.

For the three months ended March 31, 2021 and 2020,

depreciation and amortization related to the property, plant and equipment was $ 464 and $ 448 , respectively.

INTANGIBLE ASSETS AND GOODWILL

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

SCHEDULE OF INTANGIBLE ASSETS

Company’s intangible assets at March 31, 2021 consisted of the following:

OF INTANGIBLE ASSETS

Accumulated amortization

Net carrying value

17 - 19 years

1 unchanged sentence

Non-competition clause

State pharmacy

the nine months ended September 30, 2020, the Company recorded impairment charges of $ 363 related to patent filings associated

with products that the Company was no longer actively selling.

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

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

Three Months Ended

Nine Months Ended

September 30,

State pharmacy licenses

expense for intangible assets for the three months ended March 31, 2021 and 2020 was as follows:

OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

For the Three Months Ended

Customer relationships

State pharmacy

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

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

State pharmacy licenses

future amortization expense for the Company’s intangible assets at March 31, 2021 is as follows:

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Remainder of 2021

Intangible assets

have been no changes in the carrying value of the Company’s goodwill during the three and nine months ended September 30,

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

1 unchanged sentence

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30,

Accounts payable

1 unchanged sentence

Accrued interest

fee for note payable

Accrued exit fee for note payable

Total accounts payable and accrued expenses

Non-current total

accrued expenses

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

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

and collateral agent.

Current portion

Non-current total accrued expenses

Senior Note – 2017

July 2017, the Company and several of its wholly owned subsidiaries entered into a term loan and security agreement in the principal

amount of $ 16,000 (the “SWK Loan Agreement” or “SWK Loan”) with SWK Funding LLC and its partners (collectively,

“SWK”), as lender and collateral agent.

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

however, such term could be reduced

to four years if certain revenue requirements are not achieved.

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

assets, including its intellectual property rights.

The SWK Loan was subsequently amended in May 2019 and again in April 2020

The SWK Loan bears an interest rate that is equal to the three-month London Inter-Bank Offered Rate (subject to a

minimum of 2.00 % ), plus an applicable margin of 10.00 % (the “Margin Rate”);

provided that, if, two days prior to a

payment date, the Company provides SWK evidence that the Company has achieved a leverage ratio as of such date of less than 4.00:1:00,

the Margin Rate shall equal 9.00%;

and if the Company has achieved a leverage ratio as of such date of less than 3.00:1:00, the

Margin Rate shall equal 7.00%.

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

(a) indebtedness as of

such date to (b) EBITDA (as defined in the SWK Loan), of the Company for the immediately preceding 12 month period, adding-back

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

preceding 3 month period multiplied by 4.

Amendment to SWK Loan

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

to the SWK Loan, with SWK.

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

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

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

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

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

to the interest accrued as of such date.

however, such term could be reduced to four years if certain revenue requirements were not achieved.

The SWK Loan was

secured by substantially all of the Company’s assets, including its intellectual property rights.

The SWK Loan was subsequently

amended in May 2019 and again in April 2020.

The SWK Loan bore an interest rate that was equal to the three-month

London Inter-Bank Offered Rate (subject to a minimum of 2.00 %), plus an applicable margin of 10.00 % (the “Margin Rate”);

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

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

and if the Company has achieved a leverage

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

The leverage ratio means, as of any date of determination,

the ratio of:

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

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

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

Subsequent to

March 31, 2021, the Company completed an offering of unsecured senior notes in the aggregate principal amount of $ 55,000 and used

a portion of the proceeds to pay off all outstanding obligations and indebtedness related to the SWK Loan (see Note 17 for additional

information).

expense related to the SWK Loan Agreement, as amended, amounted to $ 509 and $ 560 for the three months ended March 31, 2021 and

2020, respectively, and included amortization of debt issuance costs and discount of $ 96 and $ 160 for the three months

ended March 31, 2021 and 2020, respectively.

Protection Program Loan

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

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

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

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

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

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

Act”), which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

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

The term of the PPP Loan

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

To the extent the PPP Loan amount

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

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

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

Under the PPP, the Company may apply

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

The amount of loan proceeds eligible for forgiveness is based

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

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

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

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

the employer maintaining or rehiring employees and maintaining salaries

at certain levels;

and other factors.

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

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

While the Company

has used proceeds from the PPP Loan for such qualifying expenses, in particular maintaining continuity of its payroll and workforce

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

that the Company will apply for and subsequently obtain forgiveness of the PPP Loan in whole or in part.

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

SUMMARY OF FUTURE MINIMUM PAYMENTS

Small Business Administration (the “SBA”).

On March 30, 2021, the Company received a notice of forgiveness of the full balance of the PPP Loan, including all accrued interest,

in accordance with the terms and conditions of the CARES Act.

Related to the forgiveness, the Company recorded a gain on the forgiveness

of debt for the loan balance of $ 1,967 in the accompanying condensed consolidated statement of operations for the period ended March

March 31, 2021, future minimum payments under the Company’s debt were as follows:

OF FUTURE MINIMUM PAYMENTS

Remainder of 2021

Total minimum payments

representing estimated interest

Loans payable, gross

amount representing interest

Notes payable, gross

unamortized discount

Notes payable

portion, net of unamortized discount

Loans payable,

net of current portion and unamortized debt discount

the three and nine months ended September 30, 2020, debt discount amortization related to the SWK loan payable was $ 111 and $ 354 ,

respectively.

For the three and nine months ended September 30, 2019, debt discount amortization related to the SWK loan payable

was $ 127 and $ 377 , respectively.

Company’s leases of office and laboratory space under the non-cancelable operating leases listed below.

These lease agreements

have remaining lease terms between one to four years and contain various clauses for renewal at our option.

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

to extend the term for a five-year period ;

operating lease for 26,400

square feet of lab, warehouse and

office space in Ledgewood, New Jersey, that expires in July

2026 , with an option to extend the

for two additional five-year periods .

This includes an amendment that was made effective July 2020 that extended the term of the original lease and added 1,400

of additional square footage to

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

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

the three months ended September 30, 2020, the Company terminated its operating lease for 4,500 square feet of office and lab

space in Irvine, California that had an expiration date in December 2020 .

In connection with the termination, the Company recorded

a gain of $ 4 which was recognized in other income (expense) on the condensed consolidated financial statements.

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

leases held by the Company were 6.33 % and 11.38 years , respectively.

the three and nine months ended September 30, 2020, cash paid for amounts included for the operating lease liabilities was $ 258

and $ 805 , respectively, and the Company recorded operating lease expense of $ 261 and $ 816 , respectively, included in selling,

general and administrative expenses.

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

SCHEDULE OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

current portion, net of unamortized discount

Note payable, net of current portion and unamortized debt discount

Company leases office and laboratory space under non-cancelable operating leases listed below.

These lease agreements have remaining

terms between one to four years and contain various clauses for renewal at the Company’s option.

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

extend the term for a five-year period ;

operating lease for 26,400 square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July 2026 , with

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

This includes an amendment that was made effective July 2020 that

extended the term of the original lease and added 1,400 of additional square footage to the lease;

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

the term for two additional five-year periods .

lease payments under operating leases as of March 31, 2021 were as follows :

SCHEDULE OF FUTURE LEASE PAYMENTS UNDER OPERATING LEASES

Operating Leases

Remainder of 2021

Total minimum lease payments

representing interest payments

amount representing interest payments

Total operating lease liabilities

portion, operating lease liabilities

Operating lease

liabilities, net of current portion

current portion, operating lease liabilities

Operating lease liabilities, net of current portion

March 31, 2021, the weighted-average discount rate and the weighted-average remaining lease term for the operating leases held by the

Company were 6.33 % and 11.02 years, respectively.

the three months ended March 31, 2021 and 2020, cash paid for amounts included for the operating lease liabilities was $ 251 and $ 271 ,

respectively, and the Company recorded operating lease expense of $ 261 and $ 278 , respectively, included in selling, general and administrative

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

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

SCHEDULE OF FUTURE LEASE PAYMENT UNDER FINANCE LEASE

lease payments under the non-cancelable finance lease as of March 31, 2021 were as follows :

SCHEDULE OF FUTURE LEASE PAYMENTS UNDER FINANCE LEASE

Finance Leases

Remainder of 2021

Total minimum lease payments

representing interest payments

Present value of future minimum lease

portion, finance lease obligation

Finance lease

obligation, net of current portion

September 30, 2020, the incremental borrowing rate and the remaining lease term for the finance lease held by the Company were

6.36 % and 3.33 years , respectively.

the three and nine months ended September 30, 2020, depreciation expense related to the equipment held under the finance lease

obligation was $ 2 and $ 6 , respectively.

the three and nine months ended September 30, 2020, cash paid and expense recognized for interest expense related to the

finance lease obligation was $ 0

respectively.

amount representing interest payments

Present value of future minimum lease payments

current portion, finance lease obligation

Finance lease obligation, net of current portion

March 31, 2021, the weighted average incremental borrowing rate and the weighted average remaining lease term for the finance lease held

by the Company were 6.36 % and 2.83 years, respectively.

the three months ended March 31, 2021, depreciation expense related to the equipment held under the finance lease obligation was $ 2 .

the three months ended March 31, 2021, cash paid and expense recognized for interest expense related to the finance lease obligation

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

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

expenses incurred during the year ended December 31, 2019 and the nine months ended September 30, 2020.

the nine months ended September 30, 2020, the Company issued 253 shares of its common stock upon the cashless exercise of 750

options to purchase common stock, with an exercise price of $ 3.04 per share, net of 69 shares of common stock withheld for payroll

tax withholdings.

the nine months ended September 30, 2020, the Company issued 2,998 shares of its common stock upon the exercise of 2,998 options

to purchase common stock, with exercise prices ranging from $ 3.04 to $ 3.20 per share, and paid $ 8 related to payroll tax withholdings.

the nine months ended September 30, 2020, the Company issued 91,987 shares of its common stock underlying RSUs held by a director

that resigned.

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

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

the nine months ended September 30, 2020, 46,762 shares of the Company’s common stock underlying RSUs issued to directors

vested, but the issuance and delivery of these shares are deferred until the resignation of a director.

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

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

2013 (as amended, the “2007 Plan”).

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

awards under this plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised,

reach their maturity or are otherwise cancelled/forfeited.

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

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

As of September 30, 2020, the 2017 Plan provides for the issuance of a maximum of 2,000,000 shares of the

Company’s common stock.

The purpose of the Plans are to attract and retain directors, officers, consultants, advisors and

employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of

such persons in the Company’s development and financial success.

Under the Plans, the Company is authorized to issue incentive

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

units and restricted stock.

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

The Company had 342,882 shares available for future issuances under the 2017 Plan at September 30, 2020.

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

the three months ended March 31, 2021, the Company issued 11,301 shares of its common stock upon the exercise of options to purchase

11,301 shares of common stock, with exercise prices ranging between $ 1.70 to $ 3.96 per share and received net proceeds of $ 27 .

the three months ended March 31, 2021, the Company issued 200,000 shares of its common stock to Mark L.

Baum, its CEO, related to the

vesting of 200,000 performance-based restricted stock units.

the three months ended March 31, 2021, the Company issued 22,500 shares of common stock to Andrew R.

Boll, its CFO, related to the vesting

of 30,000 performance-based restricted stock units.

The Company withheld issuance of 7,500 shares of common stock to Mr.

Boll for payroll

tax purposes valued at $ 57 .

the three months ended March 31, 2021, 22,755 shares of the Company’s common stock underlying RSUs issued to directors vested,

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

March 31, 2021 and 2020, the Company had 5,000,000 shares of preferred stock, $ 0.001 par value, authorized and no shares of preferred

stock issued and outstanding.

to March 31, 2021, the Company sold 440,000 shares of Series B Cumulative Preferred Stock for gross proceeds of $ 11,000 (see Note 17

for additional information).

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

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

the “2007 Plan”).

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

plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or

are otherwise cancelled/forfeited.

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

2017 Incentive Stock and Awards Plan (the “2017 Plan” together with the 2007 Plan, the “Plans”).

31, 2021, the 2017 Plan provides for the issuance of a maximum of 2,000,000 shares of the Company’s common stock.

The purpose of

the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable,

to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial

Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal

Revenue Code, non-qualified stock options, restricted stock units and restricted stock.

The Plans are administered by the Compensation

Committee of the Company’s Board of Directors.

The Company had 4,077 shares available for future issuances under the 2017 Plan

at March 31, 2021.

summary of stock option activity under the Plans for the three months ended March 31, 2021 is as follows:

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

Number of Shares

Weighted Avg.

Exercise Price

Weighted Avg.

Remaining Contractual Life

Intrinsic Value

Aggregate Intrinsic Value

Options outstanding - January 1, 2021

2 unchanged sentences

Options cancelled/forfeited

Options outstanding - September

Options exercisable – September

Options vested

and expected to vest – September 30, 2020

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

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

price lower than the market price on September 30, 2020, based on the closing price of the Company’s common stock of $ 5.59

on that date.

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

The stock options

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

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

terms for options granted to employees and consultants during the nine months ended September 30, 2020 generally included one

of the following vesting schedules:

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

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

thereafter over three years;

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

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

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

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

to purchase 600,000 shares of the Company’s common stock at an exercise price of $ 7.87 per share under the 2007 Plan subject

to the satisfaction of certain market-based vesting criteria.

The market-based vesting criteria are separated into five tranches

and require that the Company achieve and maintain certain average stock price targets ranging from $ 9 per share to $ 15 per share

during the five year period following the grant date.

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

the vesting and contractual term by 5 years.

The Company treated this amendment as a modification to the Baum Performance Option

for accounting purposes.

The fair value of the modification was $ 1,876 using a Monte Carlo Simulation with a five year life, 70 %

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

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

Black-Scholes-Merton option pricing model.

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

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

employment termination behavior.

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

Treasury yield for a period consistent

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

The financial statement effect of forfeitures is estimated

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

For option grants to employees

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

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

determination of stock-based compensation expense in future periods.

Utilizing these assumptions, the fair value is determined

at the date of grant.

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

assumptions used for valuing options granted to employees:

Options outstanding - March 31, 2021

Options exercisable

Options vested and expected to vest

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

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

than the market price on March 31, 2021, based on the closing price of the Company’s common stock of $ 6.75 on that date.

the three months ended March 31, 2021, the Company granted stock options to certain employees and a consultant.

The stock options were

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

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

Vesting terms for options granted to employees

and consultants during the three months ended March 31, 2021 were as follows:

25% of the shares subject to the option vest and become

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

quarterly in equal installments thereafter over three years.

Certain option awards provide for accelerated vesting if there is a change

in control (as defined in the Plans) and in the event of certain modifications to the option award agreement.

fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model.

The expected term

of options granted to employees and directors was determined in accordance with the “simplified approach,” as the Company

has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior.

The expected risk-free

interest rate is based on the U.S.

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

of the grant.

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

effect differs from those estimates.

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

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

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

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

used for valuing options granted to employees:

SCHEDULE OF FAIR VALUE ASSUMPTIONS

Weighted-average fair value

of options granted

Weighted-average fair value of options granted

Expected terms (in years)

1 unchanged sentence

Risk-free interest rate

0.39 - 0.45 %

Dividend yield

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

following table summarizes information about stock options outstanding and exercisable at March 31, 2021:

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

of Exercise Prices

Options Outstanding

Options Exercisable

Range of Exercise Prices

Life in Years

Weighted Average Exercise Price

Number Exercisable

Weighted Average Exercise Price

$ 1.47 - $ 2.60

$ 2.76 - $ 4.66

of September 30, 2020, there was approximately $ 6,021

of total unrecognized compensation

expense related to unvested stock options granted under the Plans.

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

remaining vesting period of 4.03

The stock-based compensation expense

for all stock options was $ 559

during the three and nine months ended

September 30, 2020, respectively.

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

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

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

the nine months ended September 30, 2020, the Company’s board of directors were granted 68,024

RSUs with a fair market value $ 400

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

During the nine months ended September 30, 2020, the Company granted 10,000 RSUs to a new member of its board of directors, with

a fair market value of $ 39 which vest on the one-year anniversary of the grant date.

During the three and nine months ended September 30, 2020, the Company granted 12,500 RSUs to a new member of its board of directors,

with a fair market value of $ 72 which vest on the one-year anniversary of the grant date.

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

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

summary of the Company’s RSU activity and related information for the nine months ended September 30, 2020 is as follows:

$ 5.49 - $ 6.36

$ 6.64 - $ 8.99

$ 1.47 - $ 8.99

of March 31, 2021, there was approximately $ 2,582 of total unrecognized compensation expense related to unvested stock options granted

under the Plans.

That expense is expected to be recognized over the weighted-average remaining vesting period of 4.59 years.

The stock-based

compensation for all stock options was $ 452 and $ 263 during the three months ended March 31, 2021 and 2020, respectively.

intrinsic value of options exercised during the three months ended March 31, 2021 was $ 63 .

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

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

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

the three months ended March 31, 2021, 300,000 RSUs with a fair market value of $ 2,670 were issued to certain employees;

the RSUs vest

in full on the third anniversary of the grant date.

summary of the Company’s RSU activity and related information for the three months ended March 31, 2021 is as follows:

SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY

Average Grant Date Fair Value

Number of RSUs

Weighted Average Grant Date Fair Value

RSUs unvested - January 1, 2021

RSUs cancelled/forfeited

RSUs unvested at September 30,

of September 30, 2020, the total unrecognized compensation expense related to unvested RSUs was approximately $ 1,610 , which is

expected to be recognized over a weighted-average period of 0.42 years, based on estimated and actual vesting schedules of the

applicable RSUs.

The stock-based compensation for RSUs during the three and nine months ended September 30, 2020 was $ 357 and

$ 884 , respectively.

RSUs unvested at March 31, 2021

of March 31, 2021, the total unrecognized compensation expense related to unvested RSUs was approximately $ 3,687 , which is expected to

be recognized over a weighted-average period of 0.82 years, based on estimated and actual vesting schedules of the applicable RSUs.

stock-based compensation for RSUs during the three months ended March 31, 2021 and 2020 was $ 346 and $ 259 , respectively.

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

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

summary of warrant activity for the nine months ended September 30, 2020 is as follows:

summary of warrant activity for the three months ended March 31, 2021 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

of Shares Subject to Warrants Outstanding

Number of Shares Subject to Warrants Outstanding

Weighted Avg.

Exercise Price

Warrants outstanding - January 1, 2021

Warrants outstanding

and exercisable - September 30, 2020

Weighted average

remaining contractual life of the outstanding warrants in years - September 30, 2020

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

Warrants outstanding and exercisable - March 31, 2021

Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2021

outstanding and exercisable as of March 31, 2021 are as follows:

SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

4 unchanged sentences

Stock-Based Transactions

Pharmaceuticals, Inc.

the nine months ended September 30, 2020, Mayfield repurchased 650,000 shares of its common stock from Elle, for an aggregate

purchase price of $ 1 .

the nine months ended September 30, 2020, Mayfield issued 475,000 shares of its restricted common stock, with a fair value of

$ 11 , that vest upon various performance-based milestones and over a four-year service period to Mayfield’s Chief Executive

Officer candidate.

During the nine months ended September 30, 2020, the Company recognized $ 17 in stock-based compensation tied

to the Mayfield stock options.

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

Company recognized $57 in stock-based compensation expense related to subsidiary stock options during the three months ended March 31,

Compensation Summary

1 unchanged sentence

SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

Employees - selling, general

and administrative

For the Three Months

Ended March 31,

Employees - selling, general and administrative

Directors - selling, general and administrative

Consultants -

selling, general and administrative

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

District Court of Delaware asserting claims for breach of contract.

The claims stem from an asset purchase agreement

between the Company and NDS entered into in 2013.

In July 2019, NDS filed a second amended complaint which added a claim related

to its purported termination of the APA.

In October 2019, NDS voluntarily dismissed all claims related to breach of contract,

leaving only claims related to the scope of the post-termination obligations to be litigated.

On October 29, 2020, at a hearing

on the various dispositive motions before it, the Court found that there were triable issues of fact and reopened discovery for

limited purposes.

NDS is seeking unspecified damages, interest, attorney’s fees and other costs.

The Company believes

the claims are meritless and has previously and will continue to dispute all claims asserted against it and intends to vigorously

defend against these allegations.

Nonetheless, the Company cannot predict the eventual outcome of this litigation and it could

result in substantial costs, losses and a diversion of management’s resources and attention, which could harm the Company’s

business and the value of its common stock.

The claims stem from an asset purchase agreement between

the Company and NDS entered into in 2013.

In July 2019, NDS filed a second amended complaint which added a claim related to its purported

termination of the APA.

In October 2019, NDS voluntarily dismissed all claims related to breach of contract, leaving only claims related

to the scope of the post-termination obligations to be litigated.

On October 29, 2020, at a hearing on the various dispositive motions

before it, the Court found that there were triable issues of fact and reopened discovery for limited purposes.

NDS is seeking unspecified

damages, interest, attorney’s fees and other costs.

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

to dispute all claims asserted against it and intends to vigorously defend against these allegations.

Nonetheless, the Company cannot

predict the eventual outcome of this litigation and it could result in substantial costs, losses and a diversion of management’s

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

and Professional Liability

and professional liability litigation represents an inherent risk to all firms in the pharmaceutical and pharmacy industry.

utilize traditional third-party insurance policies with regard to our product and professional liability claims.

Such insurance

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

In January 2018, John Erick and Deborah

Ferrell, successors-in-interest and heirs of Jade Erick, (collectively “Erick”) filed a lawsuit in the San Diego

County Superior against Kim Kelly, ND, MPH asserting claims related to the death of Jade Erick.

In April 2018, Erick filed an

amendment to the lawsuit, naming the Company as a co-defendant.

traditional third-party insurance policies with regard to our product and professional liability claims.

Such insurance coverage at any

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

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

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

In April 2018,

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

In September 2018, co-defendant Dr.

Kelly filed a

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

Chemical Manufacturing Corp.

and Spectrum Pharmacy Products, Inc.

Kelly filed a cross-complaint

against the Company and various entities affiliated with Spectrum Laboratory Products, Inc., Spectrum Chemical Manufacturing Corp.

Spectrum Pharmacy Products, Inc.

(collectively “Spectrum”).

The cross-complaint

seeks indemnity and contribution from the Company and Spectrum.

The cross-complaint seeks indemnity and contribution from the

Company and Spectrum.

The Company answered the claims filed by Dr.

Kelly in October 2018.

The case is currently in the discovery phase and the Company’s motion for summary adjudication is pending

before the Court.

The case is currently in the discovery phase.

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

believes the claims are meritless and has previously and will continue to dispute all claims asserted against it and intends

to vigorously defend against these allegations.

Nonetheless, the Company cannot predict the eventual outcome of this

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

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

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

claims or take legal actions to assert its rights, including intellectual property disputes, contractual disputes and other commercial

The Company believes the claims are meritless

and has previously and will continue to dispute all claims asserted against it and intends to vigorously defend against these allegations.

Nonetheless, the Company cannot predict the eventual outcome of this litigation, it could result in substantial costs, losses and a diversion

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

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

or take legal actions to assert its rights, including intellectual property disputes, contractual disputes and other commercial disputes.

Any of these claims could subject the Company to litigation.

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

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

These agreements require the

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

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

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

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

in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification

by the Company.

The Company also indemnifies its lessors in connection with its facility leases for certain claims arising from

the use of the facilities.

These indemnities do not provide for any limitation of the maximum potential future payments the Company

could be obligated to make.

Historically, the Company has not incurred any payments for these obligations and, therefore, no liabilities

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

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

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

These agreements require the Company, among other

things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines

and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status

or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly

fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the

individual with respect to which the individual may be entitled to indemnification by the Company.

The Company also indemnifies its lessors

in connection with its facility leases for certain claims arising from the use of the facilities.

These indemnities do not provide for

any limitation of the maximum potential future payments the Company could be obligated to make.

Historically, the Company has not incurred

any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed

consolidated balance sheets.

License Agreement – Related Party

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

with Richard L.

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

Lindstrom, M.D., a member of its Board of Directors.

Pursuant to the terms of the Klarity License Agreement, the

Company licensed certain intellectual property and related rights from Dr.

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

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

Pursuant to the terms of the Klarity License Agreement, the Company licensed

certain intellectual property and related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license the topical ophthalmic

solution Klarity designed to protect and rehabilitate the ocular surface (the “Klarity Product”).

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

Lindstrom ranging from 3%

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

In addition, the Company is required to

make certain milestone payments to Dr.

Lindstrom ranging from 3% - 6% of

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

In addition, the Company is required to make certain milestone

payments to Dr.

Lindstrom including:

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

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

and (iii) a final payment

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

of $ 50 following the first $ 50 in net sales of the Klarity Product;

All of the above referenced milestone payments are payable

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

Payments totaling $ 0 and $ 55

were made during the three and nine months ended September 30, 2020, respectively.

Royalty expense of $ 38 and $ 94 was incurred

during the three and nine months ended September 30, 2020, respectively, is included in accounts payable and is due to Dr.

Lindstrom at September 30, 2020.

and (iii) a final payment of $ 50 following the first $ 100 in net

sales of the Klarity Product.

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

of the Company’s restricted common stock.

Payments totaling $ 35 and $ 55 were made during the three months ended March 31, 2021

and 2020, respectively.

$ 35 and $ 29 was incurred as royalty expense during the three months ended March 31, 2021 and 2020, respectively,

and included in accounts payable to Dr.

Asset Purchase Agreement – Related Party

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

Lindstrom, a member

of its Board of Directors.

Pursuant to the terms of the Lindstrom APA, the Company acquired certain intellectual property and

related rights from Dr.

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

Lindstrom, a member of

its Board of Directors.

Pursuant to the terms of the Lindstrom APA, the Company acquired certain intellectual property and related rights

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

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

Lindstrom ranging from 2% to 3% of net

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

In addition, the Company is required

to make certain milestone payments to Dr.

Lindstrom ranging from 2% to 3% of net sales,

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

In addition, the Company is required to make

certain milestone payments to Dr.

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

Lindstrom was paid $ 0 and $ 7 in cash during the three and nine months ended September 30, 2020, respectively, and an additional

$ 48 was payable to Dr.

Lindstrom at September 30, 2020.

The Company incurred royalty expense of $ 6 and $ 48 related to the Lindstrom

APA during the three and nine months ended September 30, 2020, respectively.

Lindstrom was

paid $ 7 and $ 7 in cash during the three months ended March 31, 2021 and 2020, respectively.

The Company incurred $ 7 and $ 38 for royalty

expenses related to the Lindstrom APA during the three months ended March 31, 2021 and 2020.

Commercial Alliance Agreement

August 2020, the Company, through its wholly-owned subsidiary ImprimisRx, LLC, entered into a Commercial Alliance Agreement (the

“Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc.

(“Eyepoint”), pursuant to which Eyepoint granted

the Company the non-exclusive right to co-promote DEXYCU ® (dexamethasone intraocular suspension) 9% for the treatment

of post-operative inflammation following ocular surgery in the United States.

to the Dexycu Agreement , Eyepoint will pay the Company a fee calculated based on

the quarterly sales of DEXCYU in excess of predefined volumes to specific customers of the Company in the U.S.

Under the terms

of the Dexycu Agreement , the Company shall use commercially reasonable efforts to

promote and market DEXCYU in the U.S.

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

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

Agreement in the event of (i) uncured material breach by the other party or (ii) if DEXCYU ceases to have “pass-through”

payment status.

In addition, subject to certain limitations, the Company may terminate the Dexycu

Agreement (i) for convenience subject to an extended specified notice period or (ii) in the event Eyepoint undergoes a

change of control.

Eyepoint may terminate the Dexycu Agreement , subject to specified

notice periods and specified limitations, if the Company fails to achieve certain minimum sales levels during specified periods.

During the three and nine months ended September 30, 2020, the Company recorded $ 7 in commission revenues related to the Dexycu

August 2020, the Company, through its wholly owned subsidiary ImprimisRx, LLC, entered into a Commercial Alliance Agreement (the “Dexycu

Agreement”) with Eyepoint Pharmaceuticals, Inc.

(“Eyepoint”), pursuant to which Eyepoint granted the Company the non-exclusive

right to co-promote DEXYCU ® (dexamethasone intraocular suspension) 9% for the treatment of post-operative inflammation

following ocular surgery in the United States.

to the Dexycu Agreement , Eyepoint will pay the Company a fee calculated based on the quarterly

sales of DEXYCU in excess of predefined volumes to specific customers of the Company in the U.S.

Under the terms of the Dexycu

Agreement , the Company shall use commercially reasonable efforts to promote and market DEXYCU in the U.S.

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

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

in the event of (i) uncured material breach by the other party or (ii) if DEXYCU ceases to have “pass-through” payment status.

In addition, subject to certain limitations, the Company may terminate the Dexycu Agreement

(i) for convenience subject to an extended specified notice period or (ii) in the event Eyepoint undergoes a change of control.

may terminate the Dexycu Agreement , subject to specified notice periods and specified limitations,

if the Company fails to achieve certain minimum sales levels during specified periods.

During the three months ended March 31, 2021,

the Company recorded $ 485 in commission revenues related to the Dexycu Agreement.

and Marketing Agreements

Company has entered various sales and marketing agreements with certain organizations, to provide exclusive sales and marketing

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

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

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

In addition, the Company is required to issue shares of

the Company’s restricted common stock to certain organizations if net sales in the assigned territory reach certain future

milestone levels by the end of their terms, as applicable.

Commission expenses of $ 741 and $ 1,745 were incurred under these agreements

during the three and nine months ended September 30, 2020, respectively, of which $ 0 and $ 83 were stock-based payments.

Company has entered various sales and marketing agreements with certain organizations, to provide exclusive and non-exclusive sales and

marketing representation services to Harrow in select geographies in the U.S., in connection with the Company’s ophthalmic pharmaceutical

compounded formulations or related products.

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

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

In addition, the Company is required to make periodic milestone

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

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

$ 0 and $ 83 of stock-based payments were recorded and $ 804 and $ 603 were

incurred under these agreements for commission expenses during the three months ended March 31, 2021 and 2020, respectively.

Purchase, License and Related Agreements

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

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

and commission agreements.

In general, these agreements provide that the Inventors will cooperate with the Company in obtaining

patent protection for the acquired intellectual property and that the Company will use commercially reasonable efforts to research,

develop and commercialize a product based on the acquired intellectual property.

In addition, the Company has acquired a right

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

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

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

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

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

(2) a payment payable within

30 days after the Company files the first investigational new drug application (“IND”) with the U.S.

Food and Drug

Administration (“FDA”) for the first product arising from the acquired intellectual property (if any);

(3) for certain

of the Inventors, a payment payable within 30 days after the Company files the first new drug application with the FDA for the

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

and (4) certain royalty payments based on the net receipts

received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if

any), after deducting (among other things) the Company’s development costs associated with such product.

If, following five

years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors, has not

filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate royalty

payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the applicable

asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors.

Royalty expenses of

were incurred under these agreements for

the three and nine months ended September 30, 2020 and 2019, respectively, and $ 590

are included in accounts payable at September

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

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

In general, these agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for

the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize

a product based on the acquired intellectual property.

In addition, the Company has acquired a right of first refusal on additional intellectual

property and drug development opportunities presented by these Inventors.

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

on the completion of certain milestones, generally consisting of:

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

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

(2) a payment payable within 30 days after the

Company files the first investigational new drug application (“IND”) with the U.S.

Food and Drug Administration (“FDA”)

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

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

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

property (if any);

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

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

development costs associated with such product.

If, following five years after the date of the applicable asset purchase agreement, the

Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where

data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property,

the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to

the Inventors.

$ 232 and $ 144 were incurred under these agreements as royalty expenses and included in accounts payable at March 31, 2021

and 2020, respectively.

1 unchanged sentence

evaluates performance of the Company based on operating segments.

Segment performance for its two operating segments is based

on segment contribution.

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

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

and (ii) its start-up operations

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

Segment contribution for the segments

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

Segment performance for its two operating segments is based on segment

contribution.

The Company’s reportable segments consist of (i) its commercial stage pharmaceutical business known as ImprimisRx;

and (ii) its start-up operations associated with pharmaceutical drug development business (Pharmaceutical Drug Development).

contribution for the segments represents net revenues less cost of sales, research and development, selling and marketing expenses, and

select general and administrative expenses.

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

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

matters, public company costs (e.g.

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

shared expenses.

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

public company costs (e.g.

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

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

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

select revenues and operating expenses including R&D expenses, amortization, and asset sales and impairments, net as not

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

Corporate initiatives

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

select revenues and operating expenses including R&D expenses, amortization, and asset sales and impairments, net as not all

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

assets including capital expenditures.

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

of sales within segment contribution includes direct and indirect costs to manufacture formulations and sell products, including

active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing

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

general and administrative expenses consist mainly of personnel-related costs, marketing and promotion costs, distribution costs,

professional service costs, insurance, depreciation, facilities costs, transaction costs, and professional services costs which

are general in nature and attributable to the segment.

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

months ended September 30, 2020:

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

of sales within segment contribution includes direct and indirect costs to manufacture formulations and sell products, including active

pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and

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

general and administrative expenses consist mainly of personnel-related costs, marketing and promotion costs, distribution costs, professional

service costs, insurance, depreciation, facilities costs, transaction costs, and professional services costs which are general in nature

and attributable to the segment.

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

SCHEDULE OF SEGMENT NET REVENUES, SEGMENT OPERATING EXPENSES AND SEGMENT CONTRIBUTION

the Three Months Ended September 30, 2020

Pharmaceutical

For the Three Months Ended

March 31, 2021

Pharmaceutical Drug Development

Cost of sales

Operating expenses:

Selling, general

and administrative

Selling, general and administrative

Research and development

1 unchanged sentence

Research and development

Asset sales and impairments, net

Operating income

the Nine Months ended September 30, 2020

Pharmaceutical

Cost of sales

Operating expenses:

general and administrative

Research and development

Asset sales and impairments,

Operating loss

the Three Months Ended September 30, 2019

Pharmaceutical

Cost of sales

Operating expenses:

Selling, general

and administrative

Research and development

Segment contribution

Research and development

Asset sales and impairments, net

Operating loss

the Nine Months Ended September 30, 2019

Pharmaceutical

For the Three Months Ended

March 31, 2020

Pharmaceutical Drug Development

Cost of sales

Operating expenses:

Selling, general

and administrative

Selling, general and administrative

Research and development

1 unchanged sentence

Research and development

Asset sales and impairments, net

Operating loss

2 unchanged sentences

total revenues are attributed to the U.S.

All long-lived assets at September 30, 2020 and December 31, 2019 are located in the

All long-lived assets at March 31, 2021 and December 31, 2020 were located in the U.S.

Concentrations

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

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

total pharmacy sales for the three and nine months ended September 30, 2020 and 2019.

Company receives its active pharmaceutical ingredients from three main suppliers.

There were no customers who comprised more than 10 % of the

Company’s total pharmacy sales for the three months ended March 31, 2021 and 2020.

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

These suppliers collectively accounted for 82 %

of active pharmaceutical ingredient purchases

during the three and nine months ended September 30, 2020, respectively, and 69 %

during the three and nine months ended

September 30, 2019, respectively.

and 78 % of active pharmaceutical ingredient purchases during the three months ended March 31, 2021 and 2020, respectively.

SUBSEQUENT EVENTS

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

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

October 2020, the Company issued 93,798 shares of its common stock underlying RSUs held by a director that resigned.

had previously vested during the nine months ended September 30, 2020, but the issuance and delivery of the shares were deferred

until the director resigned.

Company has performed an evaluation of events occurring subsequent to March 31, 2021 through the filing date of this Quarterly Report.

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

and Exercise of Equity Awards

April 2021, the Company issued 515,871 shares of its common stock to Mark L.

Baum, its Chief Executive Officer, upon the vesting of 850,000

performance-based restricted stock units.

The Company withheld issuance of 334,129 shares of common stock valued at $ 2,760 for payroll

tax purposes.

April 2021, the Company issued 77,668 shares of common stock to Andrew R.

Boll, its Chief Financial Officer, upon the vesting of 127,500

performance-based restricted stock units.

The Company withheld issuance of 49,832 shares of common stock valued at $ 411 for payroll tax

April 2021, the Company issued 5,000 shares of its common stock upon the exercise of options to purchase 5,000 shares of common stock,

with an exercise price of $ 4.29 per share, and received net proceeds of $ 21 .

of Eton Stock

In April 2021, the Company closed the underwritten public offering of 1,518,000 shares of its Eton common stock at a public offering

price of $ 7.00 per share (the “Eton Stock Sale”).

The gross proceeds to the Company from the Eton Stock Sale were $ 10,626 ,

before deducting underwriting discounts and commissions and other offering expenses payable by the Company.

Following such sale, the

Company owns 1,982,000 shares of Eton common stock, which represented approximately 8.1 % of the equity and voting interests issued and

outstanding of Eton as of April 12, 2021.

part of the Eton Stock Sale, the Company also agreed, for a period of 180 days, not to conduct any further sales of shares of its common

stock of Eton or otherwise dispose of, directly or indirectly, any common stock of Eton (or any securities convertible into, or exercisable

or exchangeable for, the common stock of Eton).

Senior Notes Due 2026

April 2021, we closed an offering of $ 50,000 aggregate principal amount of 8.625 % Senior Notes due 2026 (the

“Notes”) and in May 2021, the underwriters exercised their option to purchase an additional $ 5,000 aggregate

principal amount of the Notes ($ 55,000 in total).

T he Notes are senior unsecured

obligations of the Company and rank equally in right of payment with all of our other existing and future senior unsecured

and unsubordinated indebtedness.

The Notes are effectively subordinated in right of payment to all of the Company’s

existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the

Company’s subsidiaries, including trade payables.

The Notes bear interest at the rate of 8.625% per annum.

the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on July

The Notes will mature on April 30, 2026 .

Prior to February 1, 2026, the Company may, at its option, redeem the

Notes, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the

Notes to be redeemed, plus a make-whole amount, if any, plus accrued and unpaid interest to, but excluding, the date of

The Company may redeem the Notes for cash in whole or in part at any time at our option on or after February 1,

2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but

excluding, the date of redemption.

On and after any redemption date, interest will cease to accrue on the redeemed

Loan Repayment

April 2021, the Company paid $ 15,540 related to all outstanding obligations to SWK under the SWK Loan, including outstanding principal,

accrued interest, accrued exit fee and related expenses.

B Cumulative Preferred Stock

May 2021, the Company issued 440,000

shares of the Company’s Series B

Cumulative Preferred Stock, par value $ 0.001

per share and liquidation preference of

per share (the “Series B Preferred

Stock”), for a net purchase price of approximately $ 10,670 .

The Series B Preferred Stock is not convertible into our common stock, has no voting rights, except as required by Delaware law,

and is redeemable by the Company at any time.

Holders of Series B Preferred Stock, when and as authorized by the

Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of 9.50 % of the $25.00 liquidation preference per year (equivalent to $2.375 per share per year);

provided, however, that for each thirty

(30) day period following May 5, 2021, the dividend rate shall be increased in increments of fifty (50) basis points, and effective

September 30, 2021, the dividend rate shall be set at 12%, and for each thirty (30) day period thereafter, the dividend rate shall

be increased in increments of one hundred (100) basis points except as otherwise limited by applicable law.

Dividends will be

payable quarterly in arrears, on or about the 15th of January, April, July and October, beginning on or about July 15, 2021.

In the event of any liquidation, dissolution or winding-up of the Company, the holders of the Series B Preferred Stock will have

preference to holders of our common stock at $ 25.00 per share plus any accrued and unpaid dividends (whether or not authorized

or declared).

Pharmaceuticals MAY-66 License Termination

May 2021, Mayfield terminated the License Agreement (the “TGV License”) with TGV-Health, LLC and affiliated entities (collectively,

“TGV”), pursuant to which it acquired intellectual property rights for use in the women’s health field, related to

Mayfield’s proprietary drug candidate MAY-66.

Concurrent with the termination, TGV returned to Mayfield 300,000 shares of Mayfield’s

common stock, constituting all of the equity held by TGV.

Mayfield has no outstanding or remaining obligations under the TGV License.

Pharmaceuticals MAY-44 APA Termination

May 2021, Mayfield and Harrow terminated their asset purchase agreement dated January 2020 for intellectual property rights associated

with Mayfield’s drug candidate MAY-44 with Elle Pharmaceutical LLC (the “MAY-44 APA”).

As part of the termination,

Mayfield re-acquired 350,000 shares of its common stock from Elle.

Mayfield has no outstanding or remaining obligations related to the

License Termination

May 2021, Stowe terminated the License Agreement (the “Stowe License”) with TGV, pursuant to which it acquired intellectual

property rights for use in the ophthalmic field, related to Stowe’s proprietary drug candidate STE-006.

Concurrent with the termination,

TGV returned to Stowe 1,750,000 shares of Stowe’s common stock, constituting all of the equity held by TGV.

Stowe has no outstanding

or remaining obligations under the Stowe License.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements