What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-10 compared with 2021-05-11 · 239 added, 201 removed, 321 unchanged (58% of the section changed)

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law, we undertake no obligation to revise or publicly update any forward-looking statement for any reason.

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

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

We own and operate one of the

nation’s leading ophthalmology pharmaceutical businesses, ImprimisRx.

In addition to wholly owning ImprimisRx, we also have

equity positions in Eton Pharmaceuticals, Inc.

(“Eton”), Surface Ophthalmics, Inc.

(“Surface”), and Melt

Pharmaceuticals, Inc.

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

In 2020, Harrow created Visionology,

(“Visionology”) and will launch an online eye health platform business in certain regions.

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

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

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

We own and operate one of the nation’s leading

ophthalmology pharmaceutical businesses, ImprimisRx.

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

in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals, Inc.

(“Melt”), both companies that began

as subsidiaries of Harrow.

In 2020, Harrow created Visionology, Inc.

(“Visionology”) and recently launched an online eye

health platform business in certain regions.

We also own royalty rights in various drug candidates being developed by Surface and Melt.

is our ophthalmology focused prescription pharmaceutical business.

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

a direct-to-consumer online eye health platform, leverages our experience in the ophthalmic pharmaceutical business as well as

our relationships with eyecare professionals across the United States.

We expect to launch a proof-of-concept model for

Visionology within a certain region of the U.S., and if successful, will expand the launch on a nationwide basis later in 2021.

August 1, 2020, ImprimisRx entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals,

(“Eyepoint”), pursuant to which Eyepoint granted ImprimisRx the non-exclusive right to co-promote DEXYCU ® (dexamethasone

intraocular suspension) 9% for the treatment of post-operative inflammation following ocular surgery in the United States.

to the Dexycu Agreement , Eyepoint pays ImprimisRx

a fee that is calculated based on the quarterly sales of DEXCYU in excess of predefined volumes to specific customers of ImprimisRx

has granted the Company the exclusive license and marketing rights to AMP-100 in the U.S.

AMP-100 is a patented, ophthalmic

topical anesthetic drug candidate.

If FDA-approved, the active ingredient used in AMP-100 will be the first approved use of this active

ingredient in the U.S.

ophthalmic market.

safety and efficacy of AMP-100 was demonstrated in various clinical trials including a Phase 2/3 randomized, double-masked, vehicle-controlled,

efficacy, safety and tolerability study in healthy volunteers and a non-inferiority Phase 3 study of 342 patients undergoing cataract

surgeries comparing AMP-100 to an active comparator.

Ultimately, these studies demonstrated:

is safe, and the most common adverse event was mydrasis (dilation of pupil) in about 20% of patients which is an effect most ophthalmologists

may consider beneficial;

has rapid onset, and no inferiority to the active comparator (Phase 3);

success of patients receiving AMP-100 was 95% vs.

20% with placebo (Phase 2/3 study);

administration of AMP-100 provides roughly 20 minutes of sensory loss;

has predictable offset (end of anesthesia) within a narrow bell curve (i.e.

no wide variance).

expect a new drug application (“NDA”) for AMP-100 to be submitted by Sintetica to the FDA in the fourth quarter of 2021 and,

if approved, we plan to commercially launch AMP-100 in the fourth quarter of 2022.

approved, we expect our initial commercial focus of AMP-100 to be on ophthalmic procedures that traditionally require the eye to be anesthetized.

According to a 2019 MarketScope report, there are over four million cataract surgeries performed in the U.S.

In addition to

cataract procedures, according to Ophthalmologica, there were about 5.9 million intravitreal injections performed in the U.S.

Most of these intravitreal injections, which are typically treatments for variety of conditions, including, age-related macular degeneration,

diabetic macular edema, and uveitis, often require the ocular surface to be anesthetized during the procedure.

is protected by one issued patent and another patent-pending.

The issued patent includes composition of matter and method of use claims

and could provide protection for AMP-100 into 2037.

addition to AMP -100,

we expect to acquire and/or develop additional FDA-approved/approvable ophthalmic products and product candidates that will allow us

to leverage the commercial infrastructure of ImprimisRx to promote, sell, and ultimately bring these products to market.

a direct-to-consumer online eye health platform, leverages our experience in the ophthalmic pharmaceutical business as well as our relationships

with eyecare professionals across the United States.

We recently launched a proof-of-concept model for Visionology within a certain region

of the U.S., and if successful, will expand the launch on a nationwide basis later in 2021.

Pharmaceutical

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Pharmaceutical

Development Businesses

have ownership interests in Eton, Surface and Melt and hold royalty interests in some of the drug candidates of Surface and Melt.

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

described in Section 505(b)(2) which permits the submission of a new drug application (“NDA”) where at least some of the

information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained

a right of reference.

Development Carve-Out Businesses

have ownership interests in Eton Pharmaceuticals, Inc.

(“Eton”), Surface and Melt and hold royalty interests in some of the

drug candidates of Surface and Melt.

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

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

(“NDA”) where at least some of the information required for approval comes from studies not conducted by or for the applicant

and for which the applicant has not obtained a right of reference.

2018 and 2019, we formed and created subsidiaries named Radley Pharmaceuticals, Inc.

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related to these subsidiaries to invest resources in other areas and may not restart any or all activities related to these businesses.

In addition, we terminated license and acquisition agreements for Mayfield’s MAY-66 and MAY-44 drug candidates, and Stowe’s

STE-006 drug candidate.

De-Consolidated

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of Symptom Improvement of one unit based on the University of North Carolina Dry Eye Management Scale by the eighth day.

2018, Surface closed on an offering of its Series A Preferred Stock.

At that time, we lost our controlling interest and deconsolidated

Surface from our consolidated financial statements.

We own 3,500,000 shares of Surface which was approximately 30% of the equity and

voting interests as of March 31, 2021.

2018, Surface closed an offering of its Series A Preferred Stock.

At that time, we lost our controlling interest and deconsolidated Surface

from our consolidated financial statements.

During May, June and July of 2021, Surface closed an offering of its preferred stock at a

purchase price of $4.50 per share resulting in gross proceeds to Surface of approximately $25,000,000 (the “Surface Series B Offering”).

We own 3,500,000 shares of Surface common stock which was approximately 20% of the equity and voting interests following the final close

of the Surface Series B Offering.

Harrow owns mid-single digit royalty rights on net sales of SURF-100, SURF-200 and SURF-201.

expect Surface to complete another round of financing within the next six months.

Pharmaceuticals, Inc.

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We own 3,500,000 shares of Melt common stock, which was approximately 44% of the equity

and voting interests issued and outstanding of as of March 31, 2021.

and voting interests issued and outstanding of as of June 30, 2021.

We expect Melt to complete another round of financing within the

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We owned less

than 20% of the equity and voting interests issued and outstanding of Eton as of March 31, 2021.

than 10% of the equity and voting interests issued and outstanding of Eton as of June 30, 2021.

Affecting Our Performance

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as restrictions associated with elective procedures and the COVID-19 pandemic have continued to ease.

given the unprecedented and dynamic nature of the COVID-19 pandemic, we may not be able to reasonably estimate the impacts it may have

on our financial condition, results of operations or cash flows in the future, especially if there are new restrictions in elective procedures

in the future which would have an adverse impact, which may be material, on our future revenues, profitability and cash flows.

given the unprecedented and dynamic nature of the COVID-19 pandemic virus, including any mutations/variants, we may not be able to reasonably

estimate the impacts it may have on our financial condition, results of operations or cash flows in the future, especially if there are

new restrictions in elective procedures in the future which would have an adverse impact, which may be material, on our future revenues,

profitability and cash flows.

following describes certain developments in 2021 to date that are important to understand our financial condition and results of operations.

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developments.

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

a loan (the “PPP Loan”) in the principal amount of $1,967,000 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.

April 2020, we entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender, for a loan

(the “PPP Loan”) in the principal amount of $1,967,000 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.

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 and accordingly recognized a gain on forgiveness of debt of $1,967,000.

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 and accordingly recognized a gain on forgiveness of debt of $1,967,000.

April 2021, we closed an underwritten public offering of 1,518,000 shares of our Eton common stock at a public offering price of $7.00

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Following such sale, we own 1,982,000 shares of Eton common

stock, which represented approximately 8.1% of the equity interests issued and outstanding of Eton as of April 12, 2021.

part of the Eton Stock Sale, we 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).

The Company expects to use the net proceeds from the Eton Stock

Sale for general corporate purposes, including funding future strategic product acquisitions and related investments, making capital

expenditures and funding working capital.

stock, which represented less than 10% of the equity interests issued and outstanding of Eton as of June 30, 2021.

part of the Eton Stock Sale, we 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 $50,000,000 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 $5,000,000 aggregate principal amount of the Notes

($55,000,000 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 our 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.

Interest on the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31

of each year, commencing on July 31, 2021.

April, May and June 2021, we closed offerings totaling $75,000,000 aggregate principal amount of 8.625% senior notes due 2026 (the “Notes”).

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.

Notes are effectively subordinated in right of payment to all of our 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.

Interest on the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each

year, commencing on July 31, 2021.

The Notes will mature on April 30, 2026.

to February 1, 2026, we may, at our 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 redemption.

We 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

The Company expects to use the net proceeds from the Notes for general corporate

purposes, including funding future strategic product acquisitions and related investments, making capital expenditures and funding

working capital.

to February 1, 2026, we may, at our 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 redemption.

We 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 Notes.

B Cumulative Preferred Stock

May 5, 2021, we issued 440,000 shares of Series B Cumulative Preferred Stock (“Series B Preferred Stock”) for

gross proceeds of $11,000.

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 us at any time.

Holders of Series B Preferred Stock, when and as authorized

by the our 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 authorized or declared).

The Company expects to use

the net proceeds from the Series B Preferred Stock for general corporate purposes, including funding future strategic product

acquisitions and related investments, making capital expenditures and funding working capital.

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 TVG.

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 for $350.

Mayfield has no outstanding or remaining obligations

related to the MAY-44 APA.

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 TVG.

Stowe has no outstanding

or remaining obligations under the Stowe License.

May 5, 2021, we sold 440,000 shares of Series B Cumulative Preferred Stock (the “Series B Preferred Stock”) for net

proceeds of $10,670,000.

On June 17, 2021, the Company redeemed all of the outstanding shares of the Series B Preferred Stock.

redemption price for the 440,000 shares of the Series B Preferred Stock outstanding was equal to $25.00 per share, plus accrued and unpaid

dividends, which in aggregate totaled $11,127,000.

July 2021, we entered into a License and Supply Agreement (the “Sintetica Agreement”) with Sintetica S.A.

(“Sintetica”),

pursuant to which Sintetica granted the Company the exclusive license and marketing rights to its patented ophthalmic drug candidate

(“AMP-100”) in the U.S.

to the Sintetica Agreement, the Company will pay Sintetica a per unit transfer price to supply AMP-100, along with a per unit royalty

for units sold.

The Company is required to pay Sintetica up to $18,000 in one-time milestone payments including a $5,000 payment due

within 30 days of signing the Sintetica Agreement and the balance of payments due upon achievement of certain regulatory and commercial

Under the terms of the Sintetica Agreement, Sintetica will be responsible for regulatory filings for AMP-100 in the U.S.

to certain limitations, the term of the Sintetica Agreement is ten years, and allows for a ten-year extension if certain sales thresholds

of Operations

following period-to-period comparisons of our financial results for the three months ended March 31, 2021 and 2020, are not necessarily

following period-to-period comparisons of our financial results for the three and six months ended June 30, 2021 and 2020, are not necessarily

indicative of results for the current period or any future period.

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from royalty payments owed to us pursuant to out-license arrangements.

following presents our revenues for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

following presents our revenues for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Product sales, net

Other revenues

Commission revenues

License revenues

Total revenues

increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products and commissions

attributable to sales of Dexycu®.

increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products and commissions attributable

to sales of Dexycu®.

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

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

following presents our cost of sales for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

following presents our cost of sales for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Cost of sales

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Profit and Margin

For the Three Months Ended

Three Months Ended

Six Months Ended

increase in gross margin between periods is largely attributable to increased unit volumes sold, efficiencies in our production process,

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our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations.

following presents our selling, general and administrative expenses for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

following presents our selling, general and administrative expenses for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Selling, general and administrative

decrease in selling, general and administrative expenses between periods was mostly attributable to a slight decrease in sales and marketing

expenses associated with our pharmacy operations.

increase in selling, general and administrative expenses between periods was primarily attributable to an increase in commissions and

other expenses related to increased sales, and as well as an increase in our sales and marketing expenses related to in-person conferences

and new employee costs to support sales growth.

and Development Expenses

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to the clinical development of our assets.

following presents our research and development expenses for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

following presents our research and development expenses for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Research and development

The increase in

research and development expenses between periods was primarily attributable to formulation development studies for

new ophthalmic formulations and clinical programs related to our drug development segment during the three months ended March

expense, net was $513,000 for the three months ended March 31, 2021, compared to $560,000 for the same period last year.

during the period ended March 31, 2021 compared to the same period in 2020 was primarily due to interest expense recognition related

to a decrease in the outstanding principal amount of our debt obligations.

and development expenses between periods was primarily attributable to formulation development studies for new ophthalmic formulations

and clinical programs related to our drug development segment during the three and six months ended June 30, 2021.

expense, net was $1,314,000 and $1,827,000 for the three and six months ended June 30, 2021, respectively, compared to $505,000 and $1,065,000

for the same periods last year, respectively.

The increase during the period ended June 30, 2021 compared to the same period in 2020

was primarily due to an increase in the outstanding principal amount of our debt obligations.

Loss from Melt

the three months ended March 31, 2021 and 2020, we recorded a net loss of $470,000 and $546,000, respectively, related to our share of

the three and six months ended June 30, 2021, we recorded a net loss of $477,000 and $947,000, respectively, related to our share of

losses in Melt.

During the three and six months ended June 30, 2020, we recorded a loss of $690,000 and $1,236,000, respectively, for

our share of losses based on our ownership of Melt.

Loss from Surface

the three months ended March 31, 2021 and 2020, we recorded a loss of $849,000 and $339,000, respectively, for our share of losses based

the three and six months ended June 30, 2021, we recorded a loss of $465,000 and $1,314,000, respectively, for our share of losses based

on our ownership of Surface.

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

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

Loss from Eton

recorded an unrealized loss of $2,835,000 and $10,850,000 related to the change in fair market value of Eton’s common stock for

the three months ended March 31, 2021 and 2020, respectively.

on Forgiveness of Debt

the three months ended March 31, 2021, we recorded gain on forgiveness of debt of $1,967,000, related to the forgiveness of our PPP Loan.

Income (Loss)

following table presents our net income (loss) and per share net income (loss) for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

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

recorded a loss of $3,584 ,000 and $6,419,000 related to the change in fair market value of Eton’s common stock and the sale of

a portion of our Eton stock during the three and six months ended June 30, 2021, respectively.

We recorded a gain of $4,725,000 and loss

of $6,125 related to the change in fair market value of Eton’s common stock during the three and six months ended June 30, 2020,

respectively.

From Early Extinguishment of Loan

the three and six months ended June 30, 2021, we recorded a loss from the early extinguishment of loan of $756,000 related to the early

payoff of the SWK Loan.

on Forgiveness of PPP Loan

the six months ended June 30, 2021, we recorded gain on forgiveness of PPP loan of $1,967,000 related to the forgiveness of our PPP Loan.

following table presents our net loss and per share net loss for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Numerator – net loss attributable to Harrow Health, Inc.

common stockholders

$ (2,950,000 )

Net income (loss) per share, basic

Net income (loss) per share, diluted

$ (2,733,000 )

$ (13,144,000 )

Net loss per share, basic and diluted

Information About Segments and Geographic Areas

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

Selling, general and administrative expenses that result from shared infrastructure, including certain expenses associated with litigation and other legal matters, public company costs (e.g.

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

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

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

Other 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.

Total assets including capital expenditures.

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

and other legal matters, public company costs (e.g.

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

other like shared expenses.

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

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 agreements.

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and Capital Resources

cash on hand (including restricted cash) at March 31, 2021 was $6,504,000, compared to $4,301,000 at December 31, 2020.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $6,304,000 and restricted investments of $200,000,

totaling approximately $6,504,000 at March 31, 2021, along with gross proceeds received from the Eton Stock Sale of $10,626,000,

$55,000,000 from the issuance of the Notes and $11,000,000 from the issuance of our Series B Cumulative Preferred

Stock will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months.

In addition, we may consider the sale of certain assets including, but not limited to, part of, or all of, our ownership interest

in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.

However, our plans for this period may change, our estimates

of our operating expenses, capital expenditures and working capital requirements could be inaccurate, we may pursue acquisitions

of pharmacies, revenue generating products, drug candidates or other strategic transactions that involve large expenditures or

we may experience growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital

resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our

cash on hand (including restricted cash) at June 30, 2021 was $72,851,000, compared to $4,301,000 at December 31, 2020.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $72,651,000 and restricted cash of $200,000, totaling

approximately $72,851,000 at June 30, 2021, will be sufficient to sustain our planned level of operations and capital expenditures for

at least the next 12 months.

In addition, we may consider the sale of certain assets including, but not limited to, part of, or all of,

our ownership interest in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.

However, we may pursue acquisitions of pharmacies,

revenue generating products, drug candidates or other strategic transactions that involve large expenditures or we may experience growth

more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated

and could require us to seek additional financing to support our operations.

expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan, which

includes developing and commercializing compounded formulations and technologies, integrating and developing our operations, pursuing

potential future strategic transactions as opportunities arise, including potential acquisitions of additional pharmacy, outsourcing

includes developing and commercializing drug candidates, compounded formulations and technologies, integrating and developing our operations,

pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional pharmacy, outsourcing

facilities, drug company and manufacturers, drug products, drug candidates, and/or assets or technologies, and otherwise fund our operations.

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following provides detailed information about our net cash flows:

For the Three months Ended

Six Months Ended

Net cash provided by (used in):

Operating activities

$ (3,201,000 )

Investing activities

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Cash, cash equivalents and restricted cash at end of the period

cash provided by operating activities was $3,208,000 compared to net cash used in operating activities of $550,000 during the same period

in the prior year.

The increase in net cash provided by operating activities during the periods was mainly attributed to the increase

cash used in investing activities during the three months ended March 31, 2021 and 2020 was $(224,000) and $(273,000), respectively.

Cash used in investing activities in 2021 and 2020 was primarily associated with equipment and software purchases and upgrades along

with investments in our intellectual property portfolio.

cash used in financing activities during the three months ended March 31, 2021 and 2020 was $(781,000) and $(2,000), respectively.

used in financing activities during the three months ended March 31, 2021 was related to principal payments on our SWK loan.

principal sources of cash consist of cash provided by operating activities from our pharmaceutical compounding business, in addition

to proceeds received subsequent to March 31, 2021 from the sale of the Notes, Series B Preferred Stock and sale of Eton Stock.

also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries, along with the remaining portion of our

Eton common stock.

changing trends and overall economic outlook in light of the COVID-19 pandemic, including the historical interim stay-at-home orders

and bans on elective surgeries, created uncertainty surrounding our operating outlook and may impact our future operating results if

there is a rise in COVID-19 related cases in the US.

As a result, we may need significant additional capital to support our business

plan and fund our proposed business operations.

We may receive additional proceeds from the exercise of stock purchase warrants that

are currently outstanding.

We may also seek additional financing from a variety of sources, including other equity or debt financings,

funding from corporate partnerships or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity

or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly

issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing

stockholders.

If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to

relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms

that are not favorable to us.

If we raise funds by incurring additional debt, we may be required to pay significant interest expenses

and our leverage relative to our earnings or to our equity capitalization may increase.

Obtaining commercial loans, assuming they would

be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial

and operating covenants.

Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including

investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.

We may also be required to

recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely

impact our financial results.

cash provided by operating activities during the six months ended June 30, 2021 was $8,648,000 compared to net cash used in operating

activities of $3,201,000 during the same period in the prior year.

The increase in net cash provided by operating activities during the

periods was mainly attributed to the increase in revenues.

cash provided by investing activities during the six months ended June 30, 2021 was $8,445,000 compared to net cash used in investing

activities of $610,000, respectively.

Cash provided by investing activities in 2021 was primarily associated with the sale of a portion

of our investment in Eton.

Cash used in investing activities in 2020 was primarily associated with equipment and software purchases and

upgrades along with investments in our intellectual property portfolio.

cash provided by financing activities during the six months ended June 30, 2021 was $51,457,000 and $2,964,000, respectively.

Cash provided

by financing activities during the six months ended June 30, 2021 was primarily related to proceeds received from the sale of Notes,

net of the payment of all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC and its partners.

principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, and recently, proceeds from

the sale of the Notes and sale of Eton Stock.

We may also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries,

along with the some or all of the remaining portion of our Eton common stock.

changing trends and overall economic outlook in light of the COVID-19 pandemic, including the historic interim stay-at-home orders and

bans on elective surgeries, created uncertainty surrounding our operating outlook and may impact our future operating results if there

is a rise in COVID-19 related cases in the U.S.

In addition, we may acquire new products, product candidates and/or businesses, as a

result, we may need significant additional capital to support our business plan and fund our proposed business operations.

We may receive

additional proceeds from the exercise of stock purchase warrants that are currently outstanding.

We may also seek additional financing

from a variety of sources, including other equity or debt financings, funding from corporate partnerships or licensing arrangements,

sales of assets or any other financing transaction.

If we issue equity or convertible debt securities to raise additional funds, our

existing stockholders may experience substantial dilution, and the newly issued equity or debt securities may have more favorable terms

or rights, preferences and privileges senior to those of our existing stockholders.

If we raise additional funds through collaboration

or licensing arrangements or sales of assets, we may be required to relinquish potentially valuable rights to our product candidates

or proprietary technologies or formulations, or grant licenses on terms that are not favorable to us.

If we raise funds by incurring

additional debt, we may be required to pay significant interest expenses and our leverage relative to our earnings or to our equity capitalization

may increase.

Obtaining commercial loans, assuming they would be available, would increase our liabilities and future cash commitments

and may impose restrictions on our activities, such as the financial and operating covenants.

Further, we may incur substantial costs

in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting fees, printing and

distribution expenses and other costs.

We may also be required to recognize non-cash expenses in connection with certain securities we

may issue, such as convertible notes and warrants, which would adversely impact our financial results.

may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions

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What changed 10-Q

Item 2. Management’s Discussion and Analysis