What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-10 compared with 2021-03-08 · 727 added, 615 removed, 112 unchanged (92% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

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

financial statements and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”).

Our consolidated

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and analysis is presented, in accordance with accounting principles generally accepted in the United States (GAAP).

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

and assumptions that are subject to risks and uncertainties.

Actual results may differ substantially from those expressed or implied

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

Factors” section and elsewhere in this Annual Report.

In addition to historical

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

that are subject to risks and uncertainties.

Actual results may differ substantially from those expressed or implied by any forward-looking

statements due to a number of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere

in this Annual Report.

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

“we,” “us” and “our” refer to Harrow Health, Inc.

and its consolidated subsidiaries, consisting

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

Pharmaceuticals, Inc.

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

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

We own and operate one of the

nation’s leading ophthalmic pharmaceutical businesses, ImprimisRx.

In addition to wholly-owning ImprimisRx, we also have

non-controlling equity positions in Eton Pharmaceuticals, Inc.

(“Eton”), Surface Ophthalmics, Inc.

and Melt Pharmaceuticals, Inc.

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

We also recently launched

a new business called Visionology and are exploring opportunities to launch other subsidiaries.

We own royalty rights in various

drug candidates being developed by Surface and Melt.

We intend to continue to create and hold equity and royalty rights in new

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

is our ophthalmic focused prescription pharmaceutical business.

We offer to over 9,000 physician customers and their patients

medically necessary prescription drugs to meet their needs that are otherwise unmet by commercially available drugs.

formulations available at prices that are, in most cases, lower than non-customized commercial drugs.

Our current ophthalmic formulary

includes over twenty compounded formulations, many of which are patented or patent-pending, and are customizable for the specific

needs of a patient.

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

numerous preservative-free formulations.

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

needs of the patient, ImprimisRx products may be dispensed as patient-specific medications from our 503A pharmacy, or for in-office

use, made according to federal current good manufacturing practices (or cGMPs) or other FDA guidance documents, in our FDA-registered

New Jersey Outsourcing Facility (“NJOF”).

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.

Pursuant 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

expect to acquire and/or develop additional FDA-approved ophthalmic drugs that allow us to leverage the commercial infrastructure

of ImprimisRx to promote, sell, and ultimately bring these products to market.

is a membership-based online eye health and medication platform.

Visionology leverages our experience in the ophthalmic pharmaceutical

business, our relationships with eyecare professionals across the United States, and our expertise in developing and deploying

telemedicine software.

We recently launched a proof-of-concept for Visionology in certain states in the southeast area of the

If successful, we expect Visionology will expand access to the Visionology service later in 2021.

and its consolidated subsidiaries, consisting of

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

and Mayfield Pharmaceuticals,

are an ophthalmic-focused healthcare company.

Our 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 ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses, and Visionology, Inc.

(“Visionology”), a direct-to-consumer eyecare subsidiary focused on chronic vision care.

In addition, 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 and were subsequently deconsolidated.

We also own royalty rights in various drug candidates being

developed by Surface and Melt.

is our ophthalmology-focused prescription pharmaceutical business.

From its inception in 2014, ImprimisRx, which consists of integrated

research and development, production, dispensing/distribution, sales, marketing, and customer serve capabilities, has offered physician

customers and their patients access to critical medicines to meet their clinical needs.

Initially, ImprimisRx focused exclusively on

compounded medications to serve needs unmet by commercially available drugs.

We make our formulations available at prices that are, in

most cases, lower than non-customized commercial drugs, ImprimisRx’s customer base has grown to include more than 10,000 U.S.

dedicated prescribers and institutions.

Our current ophthalmology formulary includes over twenty compounded formulations, many of which

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

Some of our compounded medications are various

combinations of drugs formulated into one bottle and numerous preservative free formulations.

Depending on the formulation, the regulations

of a specific state and ultimately the needs of the patient, ImprimisRx products may be dispensed as patient-specific medications from

our 503A pharmacy, or for in-office use, made according to current good manufacturing practices (or “cGMPs”) or other FDA-guidance

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

the past two years, in order to more fully serve the needs of our growing customer base, we have invested in broadening ImprimisRx’s

product portfolio to include FDA-approved products.

Our investments in this regard have led to commercial partnerships to sell DEXYCU®

and Avenova, the acquisition of two later stage drug candidates, and the recent acquisition of U.S.

rights to four FDA-approved ophthalmic

These transactions, and those we are continuing to pursue, are focused in eyecare pharmaceuticals.

We believe that our continued

investments in these and other products will result in our ability to provide more physician prescribers and their patients with access

to a complete portfolio of affordable eyecare pharmaceuticals to address their clinical needs.

entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc.

(“Eyepoint”),

pursuant to which Eyepoint granted ImprimisRx the right to promote DEXYCU® (dexamethasone intraocular suspension) 9% for the treatment

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

Pursuant to the Dexycu Agreement, Eyepoint pays ImprimisRx

a fee that is calculated based on the quarterly sales of DEXYCU in the U.S.

MAXITROL® EYE DROPS, MOXEZA®

December 2021, we acquired U.S.

commercial rights to four FDA-approved ophthalmic medicines:

IOPIDINE 1% and 0.5% (apraclonidine hydrochloride);

MAXITROL (neomycin/polymyxin B/dexamethasone) eye drops;

and MOXEZA (moxifloxacin hydrochloride).

We believe by expanding our product

portfolio to include branded FDA-approved products, we will be uniquely positioned to leverage our ImprimisRx platform to introduce unique

lifecycle management strategies that could grow sales and address needs of our customers that we are unable to meet with our other compounded

product offerings.

the time of closing, we agreed to a transitional period with the seller, which is expect to last approximately six months following the

closing of the transaction.

During the transition period, the seller will continue to sell the products and transfer the net profit to

Following the transition period, we expect to have the products manufactured by third parties and commercialize the products for

July 2021, we acquired the exclusive marketing and supply rights to AMP-100 in the U.S.

and Canada from Sintetica S.A.

(“Sintetica”).

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.

A new drug application (“NDA”) for AMP-100 was

submitted by Sintetica to the FDA in the fourth quarter of 2021 and the FDA has assigned the application standard review and a Prescription

Drug User Fee Act (PDUFA) target action date of October 16, 2022.

August 2021, we acquired exclusive the marketing rights to MAQ-100 in the U.S.

and Canada from Wakamoto Pharmaceutical Co., Ltd.

(“Wakamoto”).

MAQ-100 is a preservative-free triamcinolone acetonide ophthalmic injection drug candidate.

MAQ-100 is marketed and sold by Wakamoto

in Japan as MaQaid®.

Following Japan’s Ministry of Health Labor and Welfare (“MHLW”) approval, MaQaid was launched

in Japan in 2010, indicated as an intravitreal injection for visualization for vitrectomy.

Since its initial MHLW approval, the indication

for MaQaid was expanded to include (a) treatments for alleviation of diabetic macular edema, (b) macular edema associated with retinal

vein occlusion (or RVO), and (c) non-infectious uveitis.

We intend to leverage the clinical data used for Japanese market approval of

MaQaid to support a clinical program and U.S.

market NDA submission of MAQ-100 for visualization during vitrectomy.

We intend to request

a meeting with FDA during the first half of 2022 to discuss our planned clinical program for MAQ-100.

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 certain U.S.

markets, and if successful, will expand the launch on a nationwide basis in 2022.

Pharmaceutical

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Pharmaceutical

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

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

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

medical needs.

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

patient populations.

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

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

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

pay transactions between us and our end-user customer.

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

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

By not being reliant on insurance company

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

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

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

We sell our products through a network of employees

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

United States.

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

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

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

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

Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams

or gels, suspensions, or solutions with more tolerable drug delivery vehicles.

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

between us and our end-user customer.

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

insurance companies, pharmacy benefit managers or other middle parties.

By not being reliant on insurance company formulary inclusion

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

We believe the outcome

of our business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis, a fair price and great service

for a quality pharmaceutical product.

We sell our products through a network of employees and independent contractors, and we dispense

our formulations in all 50 states, Puerto Rico and in select markets outside the United States.

Compounding Facilities

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

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

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

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

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

for the patient and is only permitted to distribute the drug interstate if the pharmacy is licensed to do so in the states where it is

compounded and where the medication is received.

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

as an “outsourcing facility.” Outsourcing facilities are permitted to compound large quantities of drugs without a

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

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

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

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

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

as an “outsourcing facility.” Outsourcing facilities are permitted to compound large quantities of drugs without a prescription

and distribute them out of state with certain limitations, such as the formulation appearing on the FDA’s drug shortage list or

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

Entities voluntarily

registering with FDA as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies (operating

under Section 503A of the FDCA), including adhering to standards such as current good manufacturing practices (cGMP) or other FDA guidance

documents and being subject to regular FDA inspection.

operate two compounding facilities located in Ledgewood, New Jersey.

Our New Jersey operations are comprised of two separate entities

and facilities, one of which is registered with the FDA as an outsourcing facility under Section 503B of the FDCA.

The other New

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

All products that we sell,

produce and dispense are made in the United States.

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

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

All products that

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

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

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

Also, we may seek to access greater

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

Pharmaceutical

Development Businesses

have ownership interests in Eton, Surface and Melt and hold royalty interests in some of Surface’s and Melt’s drug

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

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

where at least some of the information required for approval comes from studies not conducted by or for the applicant and for

which the applicant has not obtained a right of reference.

In 2018 and 2019, we formed and created subsidiaries named Radley Pharmaceuticals,

(“Radley”), Mayfield Pharmaceuticals, Inc.

Also, we may seek to access greater pharmacy

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

Businesses (De-Consolidated Businesses)

have ownership interests in Surface, Melt, and Eton Pharmaceuticals, Inc.

(“Eton”) and hold royalty interests in some of

Surface’s and Melt’s drug candidates.

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

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

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

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

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

(“Radley”), Mayfield Pharmaceuticals,

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

In addition, we may create additional subsidiaries that will be focused on the development and FDA approval of certain proprietary

drug formulations that we currently own, will in-license/acquire and/or otherwise develop, we expect any new subsidiaries to be

focused on eye care.

De-Consolidated

Businesses (Noncontrolling Equity Interests)

In 2020, we halted nearly all operating activities

related to these subsidiaries to invest resources in other areas, and we 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.

Noncontrolling

Equity Interests

Ophthalmics, Inc.

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

surface diseases.

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

January 2021, Surface announced positive top-line results from a Phase 2 trial of its drug candidate SURF-201, a 0.2% betamethasone,

preservative-free ophthalmic solution in the Klarity delivery vehicle for the treatment of post cataract surgery pain and inflammation.

According to the Surface, SURF-201 was dosed twice daily, and met its primary endpoints of absence of inflammation at both Day

According to the Surface results, SURF-201 was dosed twice daily, met its primary endpoints of absence of inflammation at both Day 8

and Day 15 and was found to be safe and well-tolerated by the patient group.

In addition, a secondary endpoint showed almost

90% of patients given SURF-201 were pain free at Day 15.

SURF-201 marks the first ophthalmic therapeutic in the United States

to utilize betamethasone as well as being the first preservative-free unit dose therapy for the treatment of post-operative pain

and inflammation.

in January 2021, Surface announced the first patient dosed in a head-to-head phase 2 trial for its drug candidate SURF-100 (mycophenolate

sodium and betamethasone in Klarity vehicle) for the treatment of chronic dry eye disease.

The head-to-head study will compare

SURF-100 against two leading on-market competitors lifitegrast ophthalmic solution 5% and cyclosporine ophthalmic emulsion 0.05%.

February 2021, Surface announced the first patient dosed in a phase 2 trial for its drug candidate SURF-200 (betamethasone in

Klarity vehicle) for the treatment of episodic dry eye flares.

The dose ranging study for SURF-200 will be administered in two

different low concentration formulations of betamethasone in the Klarity vehicle.

The trial will enroll 120 to 140 patients with

a primary endpoint of Symptom Improvement of one unit based on the University of North Carolina Dry Eye Management Scale by the

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

At that time, we lost our controlling interest and deconsolidated

Surface from our consolidated financial statements.

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

and voting interests as of December 31, 2020.

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

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

In addition, a secondary endpoint showed almost 90% of patients

given SURF-201 were pain free at Day 15.

Also in January 2021, Surface announced the first patient dosed in a head-to-head Phase 2 trial

for its drug candidate SURF-100 (mycophenolate sodium and betamethasone in Klarity vehicle) for the treatment of chronic dry eye disease.

In February 2021, Surface announced the first patient dosed in a Phase 2 trial for its drug candidate SURF-200 (betamethasone in Klarity

vehicle) for the treatment of episodic dry eye flares.

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 as of December 31, 2021.

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

Pharmaceuticals, Inc.

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and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings.

Melt intends to seek

regulatory approval for its proprietary technologies, where possible.

In December 2018, we entered into an Asset Purchase Agreement

with Melt (the “Melt Asset Purchase Agreement”), and Harrow assigned to Melt the underlying intellectual property

for Melt’s current pipeline, including its lead drug candidate MELT-100.

The core intellectual property Melt owns is a patented

series of combination non-opioid sedation drug formulations that we estimate to have multitudinous applications.

Melt intends to seek regulatory

approval for its proprietary technologies, where possible.

In December 2018, we entered into an Asset Purchase Agreement with Melt (the

“Melt Asset Purchase Agreement”), pursuant to which Harrow assigned to Melt the underlying intellectual property for Melt’s

current pipeline, including its lead drug candidate MELT-300.

The core intellectual property Melt owns is a patented series of combination

non-opioid sedation drug formulations that we estimate to have multitudinous applications.

is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation.

Melt filed an

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

In February 2021, Melt announced data from, and successful completion

of, its phase 1 study.

Melt expects to begin its phase 2 study for MELT-100 in the second half of 2021.

Melt filed an investigational

new drug application (“IND”) with the FDA in June 2020 and began its clinical program for MELT-300.

In February 2021, Melt

announced data from, and the successful completion of, its Phase 1 study.

Melt recently began enrolling patients in its Phase 2 study

for MELT-300.

January 2019, Melt closed an offering of its Series A Preferred Stock.

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Melt from our consolidated financial statements.

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

the equity and voting interests issued and outstanding, as of December 31, 2020.

We expect Melt to complete another round of financing

within the next twelve months.

Pursuant to 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 MELT-100, while any patent rights remain outstanding, subject to other conditions.

Melt can require the Company to cease compounding like products at the time of FDA approval of MELT-100.

If approved, we do not

expect a cessation of compounding like products to have a material impact on our operations and financial performance.

We own 3,500,000 shares of Melt common stock, which was approximately 46% of the equity

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

In September 2021, we provided Melt with a senior secured loan in

the amount of $13,500,000, which is intended to fund the Phase 2 program of MELT-300.

In connection with the loan we provided Melt, we

also were provided the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to any

of its drug candidates for a period of five years.

Melt is required to make mid-single digit royalty payments to the Company on net sales

of MELT-300, while any patent rights remain outstanding, subject to other conditions.

Melt can require the Company to cease compounding

like products at the time of FDA approval of MELT-300.

If approved, we do not expect a cessation of compounding like products to have

a material impact on our operations and financial performance.

Pharmaceuticals, Inc.

is a commercial-stage pharmaceutical company focused on developing and commercializing innovative drug products.

includes several products and drug candidates in various stages of development across a variety of dosage forms.

Eton closed an offering of its Series A Preferred Stock.

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

from our consolidated financial statements.

In November 2019, Eton completed an initial public offering of its common stock.

own 3,500,000 shares of Eton common stock, which was less than 20% of the equity and voting interests issued and outstanding of

Eton as of December 31, 2020.

Businesses (Controlling Equity Interests)

Stowe and Radley are consolidated subsidiaries of Harrow.

Mayfield is a development-stage pharmaceutical company focused on developing

urology related drug candidates.

Stowe is focused on the development of proprietary ophthalmic drug candidates.

Radley is a development-stage

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

and as part of our strategic focus within eyecare, we discontinued nearly all of the activities related to Mayfield, Stowe

and Radley, and may not resume those activities in the near term.

control over 50% of the equity and voting interests issued and outstanding of Mayfield, Stowe and Radley as of the date of this

Annual Report.

Its pipeline includes

several products and drug candidates in various stages of development across a variety of dosage forms.

In May 2017, we gave up our controlling

interest in Eton.

We own 1,982,000 shares of Eton common stock, which is less than 10% of the equity and voting interests issued and

outstanding of Eton as of December 31, 2021.

Affecting Our Performance

believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations

and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, optimize pricing and obtain

reimbursement options for our proprietary compounded formulations, and continue to pursue development and commercialization opportunities

for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations.

We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the long-term.

All of these activities will require significant costs and other resources, which we may not have or be able to obtain from operations

or other sources.

and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, potential regulatory-related restrictions,

optimize pricing and obtain reimbursement options for our proprietary compounded formulations, and continue to pursue development and

commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as

compounded formulations.

We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently

in the near and long-term.

All of these activities will require significant costs and other resources, which we may not have or be able

to obtain from operations or other sources.

See “Liquidity and Capital Resources” below.

following describes certain developments in 2020 to date that are important to understand our financial condition and results

of operations.

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

each of these developments.

Reimbursement

is covered under Medicare Part B, and we are developing drug candidates that we believe will be covered under Medicare Part B.

approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive

a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant”

cost criterion.

Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure)

under Medicare Part B, which consists of Medicare reimbursement for a drug based on a defined formula for calculating the minimum fee

that a manufacturer may charge for the drug.

Under current regulations of the Centers for Medicare & Medicaid Services (“CMS”),

pass-through status applies for a period of three years, measured from the date Medicare makes its first pass-through payment for the

product, following which the product would be incorporated into the cataract bundled payment system, which could significantly reduce

the pricing for that product.

Following expiration of pass-through status, under current CMS policy, non-opioid pain management surgical

drugs when used on Medicare Part B patients in the ASC setting can qualify for ongoing separate payment.

CMS’ current non-opioid

separate payment policy, like other CMS policies, can be changed by CMS through its annual rulemaking and comment process.

that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019.

are working with outside consultants to potentially gain an extension to the transitional payment system, or to separate the drug payment

from the bundled cataract surgery payment after the three-year transitional payment ends and continue to be reimbursed separately for

a longer period of time, potentially through patent life.

Unless extended, Dexycu transitional pass-through reimbursement status will

expire on December 31, 2022, which will have an adverse impact on our commission revenues from this product.

proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis.

However, we expect that MOXEZA,

MAXITROL and IOPIDINE are, and we expect that other drug candidates we are developing, if approved, will be eligible for reimbursement

by third-party payors.

We may devote time and other resources to seek reimbursement and patient pay opportunities for these and other

drug products and candidates.

However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant

challenges for products to be eligible for reimbursement in recent years.

Moreover, third-party payors, including Medicare, are increasingly

attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases,

to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval.

the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010

(collectively, the “Health Care Reform Law”), may have a considerable impact on the existing U.S.

system for the delivery

and financing of health care and could conceivably have a material

adverse effect on our business.

As a result, reimbursement from Medicare, Medicaid and other third-party

payors may never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive

basis and at desirable price points.

We are communicating with government and third-party payors in order to make our drug products and

candidates available to more patients and at optimized pricing levels.

However, if government and other third-party payors do not provide

adequate coverage and reimbursement levels for our drug products and candidates, the market acceptance and opportunity for them may be

novel strain of coronavirus was first identified in Wuhan, China in December 2019.

The disease caused by it, COVID-19, was declared

a global pandemic by the World Health Organization in March 2020.

The disease caused by it, COVID-19, was declared a

global pandemic by the World Health Organization in March 2020.

On March 18, 2020, CMS released guidance for U.S.

providers to limit all elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19

during the pendency of the pandemic.

In addition to limiting elective medical procedures, many hospitals and other healthcare

providers have strictly limited access to their facilities during the pandemic.

The COVID-19 pandemic has negatively impacted

the global economy, disrupted global supply chains and healthcare delivery, led to social distancing recommendation, and created

significant volatility in financial markets.

response to the pandemic and business disruptions, first and foremost, we have prioritized the health and safety of our employees,

customers, suppliers and others with whom we partner in our business activities.

We have instructed employees to work from home

when possible and to maintain recommended physical distancing when working in our facilities.

We also have eliminated non-essential

in-person contact with customers, suppliers and other third parties.

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

In addition, the Company and our business partners need access to healthcare providers and facilities to conduct clinical trials

and other activities required to achieve regulatory clearance of products under development.

We are carefully monitoring rapidly

evolving changes in healthcare delivery systems and may adjust our operating and product development plans accordingly.

the unprecedented and dynamic nature of the COVID-19 pandemic, we cannot reasonably estimate the impacts it may have on our financial

condition, results of operations or cash flows in the future.

However, the reduction in elective procedures in response to CMS

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

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

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

distancing policies.

In May 2020, some U.S.

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

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

with an increase in our revenues.

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

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

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

procedures and the COVID-19 pandemic.

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

liquidity resources to sustain our planned level of operations.

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

to the term loan and security agreement dated as of July 19, 2017, as amended (the “SWK Loan”), with SWK Funding LLC,

as lender and collateral agent, and certain other lenders (collectively, “SWK”).

A summary of the material changes

contained in the SWK Amendment are as follows:

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

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

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

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

to the interest that has accrued.

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

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

The PPP is administered by the SBA.

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 payment is 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.

applied for forgiveness for all of the PPP Loan during the year ended December 31, 2020, however as of the date of this Annual

Report the SBA has not made a decision related to the Company’s application for forgiveness.

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 us during the twenty-four-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 twenty-four-week period will

qualify for forgiveness.

While we used proceeds from the PPP Loan for such qualifying expenses, in particular maintaining continuity

of our payroll and workforce (including staff critical to the timely production and dispensing of medicines we make), no assurance

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

Commercial Alliance Agreement

August 1, 2020, our wholly owned subsidiary ImprimisRx entered into a Commercial Alliance Agreement (the “Dexycu Agreement”)

with Eyepoint Pharmaceuticals, Inc.

(“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 will pay ImprimisRx

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

Under the terms of the Dexycu Agreement , ImprimisRx

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.

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, ImprimisRx 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 ImprimisRx

fails to achieve certain minimum sales levels during specified periods.

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.

In addition to limiting elective medical procedures, many hospitals and other healthcare providers have strictly

limited access to their facilities during the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global

supply chains and healthcare delivery, led to social distancing recommendation, and created significant volatility in financial markets.

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

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

those restrictions related to elective procedures.

We have since seen sales of our products return to near historical norms and trends

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 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.

See the notes to our condensed consolidated financial statements included in this Annual Report for additional information about each

of these developments.

Rights to MAXITROL Eye Drops, IOPIDINE and MOXEZA

December 17, 2021 (the “Closing Date”), we entered into an Asset Purchase Agreement (the “NVS Agreement”) with

Novartis Technology, LLC and Novartis Ophthalmics AG (together, “ NVS”), pursuant to which the Company purchased from NVS

the exclusive commercial rights to assets associated with ophthalmic products Moxeza® (moxifloxacin) 0.5%, Iopidine® (apraclonidine

hydrochloride) 1% and 0.5%, and Maxitrol® (Neomycin/Polymyxin B/Dexamethasone) eyedrops suspension (collectively the “NVS Products”)

On the Closing Date, we made a one-time

payment of $14,050,000 to NVS for the U.S.

rights to the NVS

Products and their related intellectual property.

to the NVS Agreement and various ancillary agreements, immediately following the Closing

Date and subject to certain conditions, for a period of up to six months, and prior to the transfer of the NVS

Products NDAs to the Company, Novartis will continue to sell the NVS Products on

our behalf and transfer the net profit from the sale of the NVS Products to us.

has agreed to supply certain NVS Products to us for a period of time after the NDAs

are transferred to the Company and to assist with technology transfer of the NVS Products

manufacturing to other third-party manufacturers, if needed.

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.

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

per share (the “Eton Stock Sale”).

The gross proceeds to us from the Eton Stock Sale were $10,626,000 before deducting underwriting

discounts and commissions and other offering expenses payable by the Company.

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

stock, which represented less than 10% of the equity interests issued and outstanding of Eton as of December 31, 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, 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, and commenced 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 Notes.

B Cumulative Preferred Stock - Redeemed

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

of $10,655,000.

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

The 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 $18,000,000 in one-time milestone payments, $5,000,000 of which was paid

shortly after the signing of the Sintetica Agreement, $3,117,000 upon the submission of the AMP-100 NDA and the balance of payments due

upon achievement of certain regulatory and commercial milestones.

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

August 2021, we entered into a License Agreement and a Basic Sale and Purchase Agreement (together, the “Wakamoto Agreements”)

with Wakamoto Pharmaceutical Co., Ltd.

(“Wakamoto”), pursuant to which Wakamoto granted the Company the exclusive license

and marketing rights to its ophthalmic drug candidate (“MAQ-100”) in the U.S.

to the Wakamoto Agreements, Wakamoto will supply MAQ-100 to us, and we will pay Wakamoto a per unit transfer price to supply MAQ-100.

In addition, we are required to pay Wakamoto various one-time milestone payments totaling up to $2,000,000 upon the achievement of certain

regulatory milestones and up to $6,200,000 upon the achievement of certain commercial milestones.

Under the terms of the Wakamoto Agreements,

we are responsible for regulatory filings and fees for MAQ-100 in the U.S.

to certain limitations, the term of the Wakamoto Agreements is for five years from the date of the FDA’s market approval of MAQ-100

and allows for a five-year extension if certain unit sales thresholds are met.

September 2021, we entered into a loan and security agreement in the principal amount of $13,500,000 (the “Melt Loan Agreement”),

as lender, with Melt, as borrower.

Amounts borrowed under the Melt Loan Agreement bear interest at twelve and one-half percent (12.50%)

per annum, which can be paid in kind interest at the option of Melt until the maturity date.

The Melt Loan Agreement permits Melt to

pay interest only on the principal amount loaned thereunder through the term and all amounts owed will be due and payable on September

Melt may elect to prepay all, but not less than all, of the amounts owed prior to the maturity date at any time without penalty.

has granted us a security interest in substantially all of its personal property, rights and assets, including intellectual property

rights, to secure the payment of all amounts owed under the Melt Loan Agreement.

The Melt Loan Agreement contains customary representations,

warranties and covenants, including covenants by Melt limiting additional indebtedness, liens, mergers and acquisitions, dispositions,

investments, distributions, subordinated debt, and transactions with affiliates.

The Melt Loan Agreement includes customary events of

default, and upon the occurrence of an event of default (subject to cure periods for certain events of default), all amounts owed by

Melt thereunder may be declared immediately due and payable by the us, and the interest rate on the loan may be increased by three percent

(3%) per annum.

connection with the Melt Loan Agreement, we entered into a Right of First Refusal Agreement with Melt providing us with the right, but

not the obligation, to match any offer received by Melt associated with the commercial rights to any of Melt’s drug candidates

for a period of five years following the effective date of the Melt Loan Agreement.

of Operations

following period-to-period comparisons of our financial results are not necessarily indicative of results for any future period.

following year-to-year comparisons of our financial results are not necessarily indicative of results for any future period.

of Years Ended December 31, 2021 and 2020

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

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

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

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

following presents our revenues for the years ended December 31, 2021 and 2020:

the Year Ended December 31,

$ (2,658,000 )

Other revenues

$ (2,294,000 )

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

during parts of the first and second quarters of 2020.

Net revenues generated from our New Jersey based outsourcing facility (“NJOF”)

totaled $32,949,000 for the year ended December 31, 2020, compared to $33,240,000 in 2019.

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

ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements

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

increase in revenue between periods was largely attributable to an increase in sales volumes of our ophthalmology formulations, and products

and commissions attributable to sales of Dexycu®.

During the year ended December 31, 2020, we believe sales of our ophthalmology

formulations were adversely impacted due to the onset and influence of the COVID-19 pandemic.

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

personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation,

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

following presents our cost of sales for the years ended December 31, 2021 and 2020:

the Year Ended December 31,

$ (2,286,000 )

decrease in our cost of sales between periods was largely due to a decrease in unit volumes sold impacted by the COVID-19 pandemic,

partially offset by continued improved utilization of capacity at our compounding facilities.

increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold during the year ended December

31, 2021 compared to 2020.

Profit and Margin

the Year Ended December 31,

increase in gross margin between periods is largely attributable to increased utilization of capacities as a result of increased

output, in particular, at NJOF and increased per unit sales prices.

We estimate gross margins at NJOF were greater than 71% during

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

process, including increased batch sizes, and improved utilization of capacities as a result of increased output during the year ended

December 31, 2021.

General and Administrative Expenses

selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate

facility expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs

associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy

products and formulations.

selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate facility

expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs associated with

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

following presents our selling, general and administrative expenses for the years ended December 31, 2021 and 2020:

1 unchanged sentence

general and administrative

$ (1,841,000 )

decrease in selling, general and administrative expenses between periods was largely attributable to decreased legal expenses

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

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

associated with a lawsuit that went to trial in 2021, an increase in stock-based compensation associated with performance stock units

that were granted during 2021, commissions and other expenses related to increased sales, and an increase in sales and marketing expenses

related to in-person conferences and new employee costs to support sales growth.

In addition, during the year ended December 31, 2021,

the Company recorded $1,500,000 in expenses related to a litigation settlement.

and Development Expenses

research and development expenses primarily include expenses related to the development of acquired intellectual property, investigator-initiated

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

following presents our research and development expenses for the years ended December 31, 2020 and 2019:

research and development (“R&D”) expenses primarily include expenses related to acquired in-process R&D, the development

of acquired intellectual property, investigator-initiated research and evaluations and other costs related to the clinical development

of our assets and drug candidates.

following presents our R&D expenses for the years ended December 31, 2021 and 2020:

the Year Ended December 31,

and development

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

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

occurred during the year ended December 31, 2020.

of Long-Lived Assets

the year ended December 31, 2020, we recorded a loss of $363,000 related to the impairment of patents and patent applications.

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

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

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

expense, net was $2,236,000 for the year ended December 31, 2020 compared to $2,500,000 in 2019.

The decrease during the year

ended December 31, 2020 compared to 2019 was primarily due to interest expense recognition related to a decrease in the amortization

of our finance lease obligations and reduction of the principal balance of our term loan.

Gain (Loss) from Melt, net

the year ended December 31, 2020, we recorded a loss of $2,313,000 for our share of losses based on our ownership of Melt.

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

In 2019, we recorded

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

of Melt after its deconsolidation.

We began using the equity method accounting for our investment in Melt beginning on January

30, 2019, the date we no longer had a controlling interest.

Prior to that date, Melt’s losses were consolidated within our

statements of operations.

Loss from Surface

the year ended December 31, 2020, we recorded a loss of $2,433,000 for our share of losses based on our ownership of Surface.

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

We began using the equity method accounting for our investment in Surface beginning on June 11, 2018, the date we no longer had

a controlling interest.

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

Gain from Eton, net

recorded a gain of $3,255,000 related to the change in fair market value of Eton’s common stock for the year ended December

We recorded a gain of $3,780,000 related to the change in fair market value of Eton’s common stock for the year

ended December 31, 2019.

the year ended December 31, 2020, we recorded other expense, net of $(73,000).

This was primarily the result of income of $13,000

related to equipment from our Park facility that was sold during the year ended December 31, 2020 and $(105,000) related to the

disposal of property, plant and equipment related to the discontinued use of certain computer software and hardware.

year ended December 31, 2019, we recorded other income, net of $630,000 related to expenses that were paid by us and were reimbursed

by Melt following its deconsolidation.

Income (Loss)

following table presents our net income (loss) for the years ended December 31, 2020 and 2019:

the Year Ended December 31,

(loss) income attributable to Harrow Health, Inc.

increase in R&D expenses between periods was primarily as a result of milestone payments of $8,117,000 to Sintetica along with increased

costs associated with the clinical program for MAQ-100.

and Disposal of Long-Lived Assets

the year ended December 31, 2021, we recorded a loss of $249,000, of which, $99,000 was related to the impairment of patents and patent

applications and $150,000 was related to equipment that was no longer in service, compared to $363,000 during the year ended December

expense, net was $5,436,000 during the year ended December 31, 2021 compared to $2,236,000 during the year ended December 31, 2020.

increase was primarily due to interest expense recognition related to an increase in the principal balance of our loans.

Equity in Losses from Unconsolidated Entities

the years ended December 31, 2021 and 2020, we recorded a loss of $4,020,000 and $2,313,000, respectively, for our share of losses

based on our ownership of Melt.

During the years ended December 31, 2021 and 2020, we recorded a loss of $1,314,000 and $2,433,000, respectively,

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

(Loss) Gain from Eton

recorded a loss of $10,126,000 related to our investment in Eton’s common stock for the year ended December 31, 2021,

including a realized loss of $1,406,000 from the sale of 1,518,000 shares of Eton’s common stock.

We recorded a gain of $3,255,000

related to the change in fair market value of Eton’s common stock for the year ended December 31, 2020.

on Forgiveness of PPP Loan

the year ended December 31, 2021, we recorded gain on forgiveness of PPP loan of $1,967,000 related to the forgiveness of our PPP Loan.

During the year ended December

31, 2021, we recorded other income, net of $197,000.

This was primarily the result of income of $238,000 related to forgiveness

of old payables and expense of $41,000 related to loss on disposal of property, plant and equipment.

During the year

ended December 31, 2020, we recorded other expense, net of $(73,000).

This was primarily the result of income of $13,000 related to equipment

that was sold during the year ended December 31, 2020 and an expense of $105,000 related to the disposal of property, plant and equipment

related to the discontinued use of certain computer software and hardware.

following table presents our net loss attributable to common stockholders for the years ended December 31, 2021 and 2020:

For the Year Ended

Net loss attributable to common stockholders

$ (18,479,000 )

Net income per share, basic

Net income per share, diluted

$ (3,357,000 )

Net loss per share, basic and diluted

and Capital Resources

cash on hand (including restricted cash) at December 31, 2020 was $4,301,000, compared to $4,949,000 at December 31, 2019.

inception through December 31, 2020, we have incurred aggregate losses of $77,400,000.

These losses are primarily due to selling,

general and administrative and research and development expenses incurred in connection with developing and seeking regulatory

approval for a former drug candidate, which activities we have now discontinued, the development and commercialization of novel

compounded formulations and the development of our pharmacy operations.

of the date of this Annual Report, we believe that cash and cash equivalents of $4,101,000 and restricted investments of $200,000,

totaling approximately $4,301,000 at December 31, 2020, will be sufficient to sustain our planned level of operations and capital

expenditures for at least the next 12 months.

We also may consider the sale of certain assets including, but not limited to, part

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

However, our plans

for this period may change, our estimates of our operating expenses, capital expenditures and working capital requirements could

be inaccurate, we may pursue acquisitions of pharmacies or other strategic transactions that involve large expenditures or we

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

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

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

which includes developing and commercializing compounded formulations, FDA-approved products and technologies, integrating and

developing our compounding operations, pursuing potential future strategic transactions as opportunities arise, including potential

acquisitions of products, compounding pharmacies and outsourcing facilities, drug companies and manufacturers, and/or assets or

technologies, and otherwise fund our operations.

We may also use our resources to conduct clinical trials or other studies in

support of our formulations or any drug candidate for which we pursue FDA approval, to pursue additional development programs

or to explore other development opportunities.

cash on hand at December 31, 2021 was $42,167,000, compared to $4,301,000 (including restricted cash) at December 31, 2020.

Since inception

through December 31, 2021, we incurred aggregate losses of $95,407,000.

These losses are primarily due to selling, general and administrative

and research and development expenses incurred in connection with developing and seeking regulatory approval for a former drug candidate,

which activities we have now discontinued, the development and commercialization of novel compounded formulations and the development

of our pharmacy operations.

of the date of this Annual Report, we believe that cash and cash equivalents of $42,167,000 at December 31, 2021, will be sufficient

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

We also may consider the sale of

certain assets including, but not limited to, part of, or all of, our ownership interest in Eton, Surface, Melt, and/or any of our consolidated

subsidiaries.

However, our plans for this period may change, our estimates of our operating expenses, capital expenditures and working

capital requirements could be inaccurate, we may pursue acquisitions of pharmacies or other strategic transactions that involve large

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

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

our operations.

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, FDA-approved products and technologies, integrating and developing our

compounding operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of

products, compounding pharmacies and outsourcing facilities, drug companies and manufacturers, and/or assets or technologies, and otherwise

fund our operations.

We may also use our resources to conduct clinical trials or other studies in support of our formulations or any

drug candidate for which we pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

following provides detailed information about our net cash flows for the years ended December 31, 2021 and 2020:

Net cash (used in) provided by:

the Years Ended

cash provided by (used in):

$ (1,100,000 )

Investing activities

Net change in cash and cash equivalents

Cash and cash

equivalents at beginning of the year

Cash and cash

equivalents at end of the year

cash (used in) provided by operating activities was $(1,100,000) in 2020, compared to $950,000 in the prior year.

Net cash (used

in) provided by operating activities during the years ended December 31, 2020 was primarily the result of paydown of aged accounts

payable and accrued expenses.

(18,685,000 )

change in cash and cash equivalents

and cash equivalents at beginning of the year

and cash equivalents at end of the year

cash provided by (used in) operating activities was $5,081,000 in 2021, compared to $(1,100,000) in the prior year.

Net cash provided

by operating activities during the years ended December 31, 2021 was primarily attributed to the increase in product sales and associated

revenues and production efficiencies.

cash used in investing activities in 2021 and 2020 was $(18,685,000) and $(981,000), respectively.

Cash used in investing activities

in 2020 and 2019 were primarily associated with additional equipment purchases, software upgrades, facility expansions and upgrades,

and investments in our intellectual property portfolio.

cash provided by (used in) financing activities in 2020 and 2019 was $1,433,000 and $(1,006,000), respectively.

The cash provided

by financing activities during 2020 is primarily related to proceeds received from the amendment to our loan and security agreement

with SWK as well as proceeds received from the PPP Loan.

The cash used in financing activities during 2019 is primarily attributable

to the principal payments on the SWK loan payable and finance leases.

principal sources of cash consist of cash provided by operating activities from our pharmaceutical compounding business.

also sell some or all of our ownership interests in Eton, Surface, Melt or our other subsidiaries.

We produced cash from operations

however, we currently are experiencing a downturn in revenues mostly as a result of the COVID-19 pandemic which will

have an impact on our ability to produce cash in the current year.

In addition, prior to 2017, we had not generated sufficient

revenues to support our operations and may not be able to do so in the future.

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

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

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

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

We may also seek

additional financing from a variety of sources, including other equity or debt financings, funding from corporate partnerships

or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity or convertible debt securities

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

securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders.

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

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

that are not favorable to us.

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

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

Obtaining commercial loans, assuming they

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

such as the financial and operating covenants included in the agreements governing the SWK Loan.

Further, we may incur substantial

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

printing and distribution expenses and other costs.

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

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

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

conditions in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings.

In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future

As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not

be available on terms that are acceptable to us.

If we are unable to raise funds to satisfy our capital needs when needed, then

we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue

to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a

sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments

in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue

our operations entirely.

in 2021 was primarily associated with cash payments made in connection with the issuance of the Melt note receivable and the acquisition

of the NVS Products, offset by cash received through the sale of a portion of our Eton Common Stock.

Cash used in investing activities

during the 2020 period was primarily associated with equipment and software purchases and upgrades along with investments in our intellectual

property portfolio.

cash provided by financing activities in 2021 and 2020 was $51,470,000 and $1,433,000, respectively.

Cash provided by financing activities

during the year ended December 31, 2021 was primarily related to proceeds received from the sale of the Notes, net of the payment of

all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC and its partners (“SWK”).

cash provided by financing activities during 2020 is primarily related to proceeds received from the amendment to our loan and security

agreement with SWK as well as proceeds received from the PPP Loan.

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 common 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 resurgence in COVID-19 cases in the U.S.

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

in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings.

In addition, the

fact that we have a limited history of profitability could further impact the availability or cost to us of future financings.

sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are

acceptable to us.

If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially

valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan,

which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back

or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing

and other activities, or we may be forced to discontinue our operations entirely.

Accounting Policies

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

These estimates and assumptions

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

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

These estimates and assumptions are

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

Although we believe

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

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

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

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

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

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

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

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

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

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

Recognition and Deferred Revenue

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

We have three

primary streams of revenue:

(1) 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.

We have two primary streams

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

property license and asset purchase agreements.

Revenues from Pharmacy Services

1 unchanged sentence

Revenue from our pharmacy services divisions

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

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

Sales taxes are not included in revenue.

(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 principles 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

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

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

the product the customer is wishing to receive.

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

the transaction price:

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

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.

The transaction price associated with the product(s) being

ordered is allocated according to the pre-determined amounts.

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

At the time of shipment from the pharmacy or outsourcing

facility the performance obligation has been met.

At the time of shipment from the pharmacy or outsourcing facility

the performance obligation has been met.

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

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

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

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

Determination of criteria (3) and (4)

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

of those amounts.

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

Estimated returns and allowances

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

returns history.

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

If the historical data we

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

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

We will defer any revenues received

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

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

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.

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.

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

Estimated returns and allowances and other adjustments are provided

for in the same period during which the related sales are recorded and are based on actual returns history.

The rate of returns is analyzed

annually to determine historical returns experience.

If the historical data we use to calculate these estimates do not properly reflect

future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that

period could be materially affected.

We will defer any revenues received for a product that has not been delivered or is subject to refund

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

the year ended December 31, 2020, we entered into an agreement whereby we are paid a fee calculated based on sales we generate 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 us and no consequential continuing involvement on our part to recognize the associated

of Profit Revenues

the year ended December 31, 2021, we entered into an agreement to purchase the exclusive commercial

rights to assets associated with certain ophthalmic products from another pharmaceutical company (the “Seller”).

temporary, transition period, the Seller will continue to manufacture and market these products, and transfer the net profit from

the sale of the products to us.

The revenue recognized by us from the transfer of net profit is recognized at the time profit from the

products sales has been calculated by the Seller and confirmed by us, typically on a monthly basis, at which point there is no future

performance obligation required by us and no consequential continuing involvement on the us in part to recognize the associated revenue.

Property License Revenues

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

which provides a customer with right to access our intellectual property.

License arrangements may consist of non-refundable upfront

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

technology access fees, and various performance or sales milestones.

These arrangements can be multiple element arrangements,

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

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

a customer with right to access our intellectual property.

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

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

and various performance or sales milestones.

These arrangements can be multiple element arrangements, each of which revenue is recognized

at the point of time the performance obligation is met.

Non-refundable

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

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

deliverable is delivered.

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

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

or patent applications for such compounded drug preparations.

We defer recognition of non-refundable fees if it has continuing

performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable

fee has no utility to the licensee and that are separate and independent of our performance under the other elements of the arrangement.

In addition, if our continued involvement is required, through research and development services that are related to its proprietary

know-how and expertise of the delivered technology or can only be performed by us, then such non-refundable fees are deferred

and recognized over the period of continuing involvement.

Guaranteed minimum annual royalties are recognized on a straight-line

basis over the applicable term.

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

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

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

and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications

for such compounded drug preparations.

We defer recognition of non-refundable fees if it has continuing performance obligations without

which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee and

that are separate and independent of our performance under the other elements of the arrangement.

In addition, if our continued involvement

is required, through research and development services that are related to its proprietary know-how and expertise of the delivered technology

or can only be performed by us, then such non-refundable fees are deferred and recognized over the period of continuing involvement.

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

in Eton Pharmaceuticals, Inc.

own 3,500,000 shares of Eton common stock, which represents approximately 14.4% of the equity and voting interests of Eton as

of December 31, 2020.

own 1,982,000 shares of Eton common stock, which represents approximately 8 % of the equity and voting interests of Eton as of December

At December 31, 2021, the fair market value of Eton’s common stock was $4.29 per share.

In accordance

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

Recognition and

Measurement of Financial Assets and Financial Liabilities , for the years ended December 31, 2020 and 2019, we recorded an

investment gains from its Eton common stock position of $3,255 and $3,780, respectively, related to the change in fair market

value of our investment in Eton during the measurement periods.

As of December 31, 2020 and 2019, the fair market value of our

investment in Eton was $28,455 and $25,200, respectively.

Baum, our Chief Executive Officer, is a member of the board of directors of Eton.

In accordance with Accounting

Standard Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of Financial

Assets and Financial Liabilities , for the years ended December 31, 2021 and 2020, we recorded an investment (loss) gain from our

Eton common stock position of $(10,126,000) and $3,255,000 respectively, related to our investment in Eton during the measurement periods,

including a realized loss of $1,406,000 from the sale of 1,518,000 shares of Eton’s common stock.

As of December 31, 2021 and

2020, the fair market value of our investment in Eton was $8,503,000 and $28,455,000, respectively.

in Surface Ophthalmics, Inc.

– Related Party

own 3,500,000 common shares (which is approximately 30% of the equity interests as of December 31, 2020) of Surface and uses the

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

influence over the operating and financial decisions of Surface.

Under this method, we recognize earnings and losses in Surface

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

earnings and losses are based on our ownership interest of Surface.

own 3,500,000 common shares of Surface, which is approximately 20% of its equity interests as of December 31, 2021, and use the equity

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

the operating and financial decisions of Surface.

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

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

Our share of earnings and losses are based

on our ownership interest of Surface.

Any intra-entity profits and losses are eliminated.

equity in the net loss of Surface of $1,200 during the year ended December 31, 2019.

We recorded equity in the net loss of Surface

of $2,433 during the year ended December 31, 2020.

As of December 31, 2020 and 2019, the carrying value of our investment in Surface

was $1,314 and $3,747, respectively.

We recorded equity in the net loss of Surface of $1,314 during the year ended December

As of December 31, 2021 and 2020, the carrying value of our investment in Surface was $0 and $1,314, respectively.

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

in Melt Pharmaceuticals, Inc.

1 unchanged sentence

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

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

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

purchase and sale of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $11,400,000

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

As a result, we lost

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

In connection with the Melt Series

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

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

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

the year ended December 31, 2020 this requirement was waived by the majority of Series A Preferred Stock holders.

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

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

own 3,500,000 common shares (which is approximately 44% of the equity interest as of December 31, 2020) of Melt and uses the equity

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

over the operating and financial decisions of Melt.

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

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

of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $11,400,000 of proceeds (collectively

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

As a result, we lost voting and ownership control of Melt

and ceased consolidating Melt’s financial statements.

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

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

own 3,500,000 common shares of Melt, which is approximately 46% of its equity interests as of December 31, 2021.

We analyze our investment

in Melt and related agreements on a regular basis to evaluate our position of variable interests in Melt.

We no longer have a controlling

position in Melt;

however, we do have the ability to exercise significant influence over the operating and financial decisions of Melt.

We use the equity method of accounting for this investment.

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

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

Our share of earnings and losses are

based on our ownership interest of Melt.

Our share of earnings and losses are based

on our ownership interest of Melt.

Any intra-entity profits and losses are eliminated.

We recorded equity in net loss of

Melt of $2,313,000 during the year ended December 31, 2020.

As of December 31, 2020, our investment in Melt was $2,506,000 of

which $1,655,000 was the carrying value of our investment in Melt and $851,000 due from Melt for reimbursable expenses and amounts

due under the Melt Master Service Agreement (“Melt MSA”).

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

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

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

is determined at the date of grant.

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

if necessary, if the actual effect differs from those estimates.

During the year ended December 31, 2021 we reduced

our common stock investment in Melt to $0.

As of December 31, 2021 and at the time of entering into the Melt Loan Agreement, we owned

100% of the debt owed by Melt.

Following the reduction of the carrying value of our common stock investment in Melt to $0 we began recording

100% of the equity method losses of Melt, based on our ownership of total debt owed by Melt.

We recorded equity in net loss of Melt of

$4,020,000 and $2,313,000 during the year ended December 31, 2021 and 2020, respectively.

Our investment in Melt was $11,133,000

and $2,506,000 and $48,000 and $851,000 is due from Melt for reimbursable expenses and amounts due under the Melt Master

Service Agreement (“Melt MSA”) as of December 31, 2021 and 2020, respectively.

Notes 2 and 4 for more information and related party disclosure regarding Melt.

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

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

We use the Black-Scholes

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

Fair value is determined at the

date of grant.

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

effect differs from those estimates.

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

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

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

We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we

believe that recovery is not more likely than not, a valuation allowance must be established which reduces the amount of deferred

tax assets recorded on the consolidated balance sheets.

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

this allowance in a period, the impact will be included in income tax expense in the consolidated statements of operations.

account for income taxes under the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards

Codification (“ASC”) 740, Income Taxes .

As of December 31, 2020 and 2019, there were no unrecognized tax benefits

included in the consolidated balance sheets that would, if recognized, affect the effective tax rate.

Our practice is to recognize

interest and/or penalties related to income tax matters in income tax expense.

We had no accrual for interest or penalties in

its consolidated balance sheets at December 31, 2020 and 2019, and have not recognized interest and/or penalties in the consolidated

statements of operations for the years ended December 31, 2020 and 2019.

We are subject to taxation in the United States, California,

Florida, Georgia, Illinois, New Jersey, New York, Tennessee, and Wisconsin.

Our tax years since 2000 may be subject to examination

by the federal and state tax authorities due to the carryforward of unutilized net operating losses.

The temporary

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

We must assess

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

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

consolidated balance sheets.

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

impact will be included in income tax expense in the consolidated statements of operations.

account for income taxes under the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification

(“ASC”) 740, Income Taxes .

As of December 31, 2021 and 2020, there were no unrecognized tax benefits included in the

consolidated balance sheets that would, if recognized, affect the effective tax rate.

Our practice is to recognize interest and/or penalties

related to income tax matters in income tax expense.

We had no accrual for interest or penalties in its consolidated balance sheets at

December 31, 2021 and 2020, and have not recognized interest and/or penalties in the consolidated statements of operations for the years

ended December 31, 2021 and 2020.

We are subject to taxation in the United States, California, Florida, Georgia, Illinois, New Jersey,

New York, Tennessee, and Wisconsin.

Our tax years since 2000 may be subject to examination by the federal and state tax authorities due

to the carryforward of unutilized net operating losses.

and Development

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

Research and development expenses consist of expenses

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

related to clinical trials, contract services and outsourced contracts.

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

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

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

use for the acquired rights.

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

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

We began capitalizing

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

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

expenses, and costs related to clinical trials, contract services and outsourced contracts.

We expense all costs related to R&D as

they are incurred.

and milestone payments related to the acquisition and licensing of technology for drug and product candidates that are not yet approved

by the FDA are considered acquisition of in process R&D and expensed as R&D in the period in which the expense occurs.

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

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

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

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

become more certain (see “—Goodwill and Intangible Assets” below).

We began capitalizing certain costs associated with

acquiring intellectual property rights during 2015, if costs are not capitalized, they are expensed as incurred.

of Long-Lived Assets

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for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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

future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash

flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the

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

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

The assets and liabilities of a disposal group

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

balance sheet, if material.

Recoverability

of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows

expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge

is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Assets to be disposed would

be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to

sell, and are no longer depreciated.

The assets and liabilities of a disposal group classified as held-for-sale would be presented separately

in the appropriate asset and liability sections of the consolidated balance sheet, if material.

and Intangible Assets

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

become more certain.

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

claims related to its patents and trademarks.

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

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

Trademarks are an

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

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

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

Events or changes in circumstances

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

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

more certain.

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

to its patents and trademarks.

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

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

Trademarks are an indefinite life intangible asset

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

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

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

Events or changes in circumstances considered

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

● significant

underperformance of the our business relative to expected operating results;

● significant

adverse economic and industry trends;

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

● significant

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

● expectations

that a reporting unit will be sold or otherwise disposed.

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

The fair value of

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

The carrying amount of each reporting unit

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

relative revenues or other methods as deemed appropriate by management.

If the carrying amount of a reporting unit exceeds its

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

of the impairment test.

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

The fair value of each reporting

unit is determined using a discounted cash flow valuation analysis.

The carrying amount of each reporting unit is determined by specifically

identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues or other methods as

deemed appropriate by management.

If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting

unit’s goodwill may be impaired and we then perform the second step of the impairment test.

If the fair value of a reporting unit

exceeds its carrying amount, no further analysis is required.

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

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

to its carrying amount.

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

will be recognized in an amount equal to the excess.

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

its carrying amount.

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

recognized in an amount equal to the excess.

Issuance Costs and Debt Discount

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

Amortization of debt

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

in interest expense in the accompanying consolidated statement of operations.

Amortization of debt issuance

costs and the debt discount is calculated using the effective interest method over the term of the debt and is recorded in interest expense

in the accompanying consolidated statement of operations.

Sheet Arrangements

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

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

We have no off-balance sheet arrangements that

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

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

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

structured finance, special purpose entities or variable interest entities.

We have no off-balance sheet arrangements that have or are

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

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis