What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-05 · 506 added, 404 removed, 618 unchanged (60% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Current assets

5 unchanged sentences

Property, plant and equipment, net

Capitalized software costs, net

Capitalized software development costs, net

Operating lease right-of-use assets

11 unchanged sentences

Finance lease obligations, net of current portion

Loans payable, net of current portion and unamortized debt discount

Loans payable, net of unamortized debt discount

TOTAL LIABILITIES

1 unchanged sentence

STOCKHOLDERS’ EQUITY

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 27,031,127 and 26,902,763 shares issued

and outstanding at March 31, 2022 and December 31, 2021, respectively

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 27,069,978 and 26,902,763 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

1 unchanged sentence

( 104,084,000

( 95,407,000 )

TOTAL HARROW HEALTH STOCKHOLDERS’ EQUITY

5 unchanged sentences

Three Months Ended

Six Months Ended

Product sales, net

4 unchanged sentences

( 4,417,000 )

( 12,497,000 )

( 8,187,000 )

Operating expenses:

6 unchanged sentences

( 1,794,000 )

( 1,314,000 )

( 3,586,000 )

( 1,827,000 )

Equity in losses of unconsolidated entities

1 unchanged sentence

( 5,532,000 )

Investment gain (loss) from Eton Pharmaceuticals

( 2,261,000 )

Investment loss from Eton Pharmaceuticals

( 3,449,000 )

( 3,584,000 )

( 3,310,000 )

( 6,419,000 )

Loss on early extinguishment of debt

Gain on forgiveness of PPP loan

Other expense, net

Total other expense, net

1 unchanged sentence

( 6,647,000 )

(Loss) income before income taxes

( 12,428,000 )

Net (loss) income attributable to common stockholders

( 9,347,000 )

Basic net (loss) income per share of common stock

Diluted net (loss) income per share of common stock

Weighted average number of shares of common stock

outstanding, basic

Weighted average number of shares of common stock outstanding, diluted

Loss before income taxes

( 6,199,000 )

( 2,478,000 )

( 8,637,000 )

( 2,261,000 )

( 6,239,000 )

( 2,478,000 )

( 8,677,000 )

( 2,261,000 )

Preferred dividends and accretion of preferred stock issuance costs

Net loss attributable to common stockholders

$ ( 6,239,000 )

$ ( 2,950,000 )

$ ( 8,677,000 )

$ ( 2,733,000 )

Basic and diluted net loss per share of common stock

Weighted average number of shares of common stock outstanding, basic and diluted

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

the Three Months Ended March 31, 2022 and 2021

the Three and Six Months Ended June 30, 2022 and 2021

Preferred Stock

Harrow Health, Inc.

Noncontrolling

Stockholders’

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Issuance of common stock in connection with:

Exercise of employee options

Exercise of warrants

Exercise of employee stock options

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

( 3,228,000 )

Issuance of preferred shares, net of discount and issuance costs

Redemption of preferred shares

( 11,000,000 )

Payment of preferred dividends

Stock-based compensation expense

Balance at March 31, 2021

( 2,261,000 )

1 unchanged sentence

( 2,261,000 )

Balance at June 30, 2021

$ 102,837,000

$ ( 79,661,000 )

$ ( 355,000 )

Balance at December 31, 2021

3 unchanged sentences

Issuance of common stock in connection with:

Exercise of employee options

Exercise of employee stock options

Vesting of RSUs

4 unchanged sentences

( 8,677,000 )

Balance at June 30, 2022

$ 109,806,000

$ ( 104,084,000 )

$ ( 355,000 )

Noncontrolling

Stockholders’

Balance at March 31, 2021

1 unchanged sentence

$ ( 77,183,000 )

Issuance of common stock in

connection with:

Exercise of warrants

Exercise of employee stock options

Vesting of RSUs

Shares withheld related to

net share settlement of equity awards

( 3,171,000 )

Issuance of preferred shares,

net of discount and issuance costs

Redemption of preferred shares

( 11,000,000 )

Payment of preferred dividends

Stock-based compensation expense

( 2,478,000 )

Balance at June 30, 2021

$ 102,837,000

$ ( 79,661,000 )

$ ( 355,000 )

Balance at March 31, 2022

$ 107,909,000

$ ( 97,845,000 )

$ ( 355,000 )

Issuance of common stock in

connection with:

Exercise of employee stock options

Vesting of RSUs

Shares withheld related to

net share settlement of equity awards

Stock-based compensation expense

( 6,239,000 )

Balance at June 30, 2022

$ 109,806,000

$ ( 104,084,000 )

$ ( 355,000 )

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

$ ( 8,677,000 )

Adjustments to reconcile net (loss) income to net cash provided by operating

$ ( 2,261,000 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

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( 1,967,000 )

Investment (gain) loss from investment in Eton

Investment loss from investment in Eton

Equity in losses of unconsolidated entities

Loss on early extinguishment of loan

Stock-based compensation

2 unchanged sentences

( 2,314,000 )

( 1,084,000 )

Prepaid expenses and other current assets

1 unchanged sentence

Accrued payroll and related liabilities

( 1,141,000 )

Deferred revenue and customer deposits

1 unchanged sentence

CASH FLOWS FROM INVESTING ACTIVITIES

Net proceeds on sale of investments

Investment in patent and trademark assets

Purchases of property, plant and equipment and capitalized software development costs

NET CASH USED IN INVESTING ACTIVITIES

Purchases of property, plant and equipment

( 1,360,000 )

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on finance lease obligations

Principal payment on SWK loan

Proceeds from the exercise of stock options

Payment of taxes upon vesting of RSUs and exercise of stock options

NET CASH USED IN FINANCING ACTIVITIES

Net proceeds from 8.625% notes payable, net of costs

Principal and exit fee payments on SWK loan

( 15,961,000 )

Payment of taxes upon vesting of RSUs

( 3,228,000 )

Proceeds from exercise of stock options

Sale of preferred stock, net of discount and issuance costs

Redemption of preferred stock

( 11,000,000 )

Payment of preferred stock dividends

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Right-of-use assets obtained in exchange for new operating

lease obligations

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING

AND FINANCING ACTIVITIES:

Purchase of property, plant and equipment included in accounts payable and

accrued expenses

Right-of-use assets obtained in exchange for new operating lease obligations

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three Months Ended March 31, 2022 and 2021

the Three and Six Months Ended June, 2022 and 2021

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

and Background

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

requires, the “Company” or “Harrow”) is an ophthalmic-focused healthcare company that specializes in the development,

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

its subsidiaries and deconsolidated companies.

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

businesses, ImprimisRx.

In addition to wholly owning ImprimisRx, the Company also has non-controlling equity positions in Surface Ophthalmics,

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

otherwise requires, the “Company” or “Harrow”) is an eyecare pharmaceutical company focused on the

development, production, sale, and distribution of accessible and affordable innovative ophthalmic prescription medications.

Company owns non-controlling equity positions in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals, Inc.

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

In 2020, Harrow created Visionology, Inc.

(“Visionology”), which launched a digital eye health platform business during 2021.

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

both companies that began as subsidiaries of Harrow.

Harrow also owns royalty rights in various drug candidates being developed by Surface

of Presentation

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

Operating results for the three months ended March 31,

Operating results for the three and six months ended June

30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

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subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

consolidates entities in which it has a controlling financial interest.

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(“VIE”) model to determine whether the Company is the primary beneficiary of that entity’s operations.

is not deemed to be a VIE, the Company consolidates entities in which it holds and/or controls, directly or indirectly, more than

50% of the voting rights.

consolidates (i) entities in which it holds and/or controls, directly or indirectly, more than 50% of the voting rights, and (ii) entities

that the Company deems to be a VIE.

All intercompany accounts and transactions have been eliminated in consolidation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

following represents an update for the three months ended March 31, 2022 to the significant accounting policies described in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2021.

following represents an update for the three and six months ended June 30, 2022 to the significant accounting policies described in the

Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Uncertainties and Liquidity

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and instead focuses on the performance of the business as a single operating business.

and Diluted Net (Loss) Income per Common Share

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

weighted average number of common shares outstanding during the period.

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

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

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

Common equivalent shares

(using the treasury stock method) from stock options, unvested RSUs and warrants were 5,546,200 and 5,486,678 at March 31, 2022 and 2021,

and Diluted Net Loss per Common Share

net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average

number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing the net loss attributable to

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

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

Common equivalent shares (using the treasury stock method)

from stock options, unvested RSUs and warrants were 5,646,672 and 4,121,398 at June 30, 2022 and 2021, respectively.

Included in the

basic and diluted net loss per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery of the

shares are deferred until the director resigns.

The number of shares underlying vested RSUs at June 30, 2022 and 2021 was 287,049 and

235,973 , respectively.

For the three months ended March 31, 2022, the common equivalent shares are excluded in the calculation of diluted net

loss per share because the effect is anti-dilutive.

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

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

of shares underlying vested RSUs at March 31, 2022 and 2021 was 277,405 and 223,219 , respectively.

following table shows the computation of basic net (loss) income per share of common stock for the three months ended March 31, 2022

following table shows the computation of basic net loss per share of common stock for the three and six months ended June 30, 2022 and

SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

For the Three Months Ended

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

common stockholders

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Numerator – net loss attributable to common stockholders

$ ( 6,239,000 )

Denominator - weighted average number of shares outstanding, basic

Net (loss) income per share, basic

the three months ended March 31, 2021, the Company had net income.

As a result, the Company computed diluted net income per share using

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

Diluted common equivalent

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

SCHEDULE OF DILUTED COMMON EQUIVALENT SHARES

For the Three Months Ended

March 31, 2021

Diluted shares related to:

Stock options

Dilutive common equivalent shares

following table shows the computation of diluted net (loss) income per share of common stock for the three months ended March 31, 2022

SCHEDULE OF DILUTED NET INCOME LOSS PER SHARES

For the Three Months Ended

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

$ ( 2,950,000 )

Denominator – weighted average number of shares outstanding, basic

Dilutive common equivalent shares

Number of shares used for diluted earnings per share computation

Net (loss) income per share, diluted

Investment in Eton Pharmaceuticals, Inc.

of March 31, 2022, the Company owned 1,982,000 shares of Eton common stock, which represents less than 10 % of the equity interests of

At March 31, 2022, the fair market value of Eton’s common stock was $ 4.36 per share.

$ ( 8,677,000 )

$ ( 2,733,000 )

Denominator – weighted average

number of shares outstanding, basic and diluted

Denominator – weighted average number of shares outstanding, basic and

Net loss per share of common stock, basic and diluted

in Eton Pharmaceuticals, Inc .

of June 30, 2022, the Company owned 1,982,000 shares of Eton common stock, which represents less than 10 % of the equity interests of

At June 30, 2022, the fair market value of Eton’s common stock was $ 2.62 per share.

In accordance with the Accounting Standards

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Recognition and Measurement of Financial Assets

and Financial Liabilities , the Company recorded an unrealized investment gain (loss) from its Eton common stock position of $ 139,000

and $( 2,835,000 ) during the three months ended March 31, 2022 and 2021, respectively, related to the change in fair market value of its

investment in Eton during the measurement period.

As of March 31, 2022, the fair market value of the Company’s investment in Eton

was $ 8,642,000 .

and Financial Liabilities , the Company recorded an unrealized investment loss from its Eton common stock position of $ 3,449,000 and

$ 3,310,000 , and $ 3,584,000 and $ 6,419,000 during the three and six months ended June 30, 2022 and 2021, respectively, related to the

change in fair market value of its investment in Eton during the measurement period.

As of June 30, 2022, the fair market value of the

Company’s investment in Eton was $ 5,193,000 .

in Melt Pharmaceuticals, Inc.

– Related Party

Company owns 3,500,000 shares of common stock of Melt (representing approximately 46 % of the equity interests as of March 31, 2022).

Company owns 3,500,000 shares of common stock of Melt (representing approximately 46 % of the equity interests as of June 30, 2022) of

The Company analyzes its investment in Melt and related agreements on a regular basis to evaluate its position of variable interests

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of equity losses in Melt since its deconsolidation in 2019.

As of March 31, 2022 and at the time of entering into the Melt Loan Agreement

As of June 30, 2022 and at the time of entering into the Melt Loan Agreement

(see Note 4), the Company owned 100 % of Melt’s indebtedness.

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requirements to advance funds to Melt.

following table summarizes the Company’s investments in Melt as of March 31, 2022:

SCHEDULE OF INVESTMENT

Share of Equity

In-substance Capital

Method Losses

following table summarizes the Company’s investments in Melt as of June 30, 2022:

OF INVESTMENT

Share of Equity Method

Paid-in -Kind

Contributions

Carrying value

$ ( 5,810,000 )

( 5,253,000 )

( 1,021,000 )

$ ( 11,063,000 )

$ ( 1,021,000 )

the three months ended March 31, 2022 and 2021, the Company recorded $ 30,000

due from Melt for reimbursable expenses and

amounts payable pursuant to a Management Services Agreement between the Company and Melt (the “Melt MSA”), which are included

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

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

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Company owns 3,500,000 common shares of Surface (representing approximately 20 % of Surface’s equity interests following the closing

of a round of financing completed by Surface in July 2021) and uses the equity method of accounting for this investment, as

of a round of financing completed by Surface in July 2021) of Surface and uses the equity method of accounting for this investment, as

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

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Company has no other investments in Surface.

following table summarizes the Company’s investment in Surface as of March 31, 2022:

following table summarizes the Company’s investment in Surface as of June 30, 2022:

SCHEDULE OF INVESTMENT

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method investments and note receivable.

At March 31, 2022 and December 31, 2021, no indicators of impairment existed.

At June 30, 2022 and December 31, 2021, no indicators of impairment existed.

Company accounts for contracts with customers in accordance with Accounting Standards Codification (“ASC”) 606, Revenues

from Contracts with Customers.

The Company has two primary streams of revenue:

(1) revenue recognized from its sale of products within

pharmacy services and (2) revenue recognized from intellectual property license and asset purchase agreements.

Company sells prescription drugs directly through its pharmacy and outsourcing facility.

Revenue from the Company’s pharmacy services

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

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

The Company has four primary streams of revenue:

(1) revenue recognized from sales of products

through its pharmacy and outsourcing facility and sales of branded products to wholesalers through a third-party logistics

(“3PL”) facility, (2) revenue recognized from a commission agreement with a third party, (3) revenue recognized from

transfer of acquired product profit, and (4) revenue recognized from intellectual property licenses and asset purchase

Company sells prescription drugs directly through its pharmacy, outsourcing facility and 3PL partner.

Revenue from the Company’s

pharmacy services includes:

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

discounts paid back to the client, (ii) the price paid to the Company 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, the Company has identified the following:

Following the core principles of ASC 606, the Company has identified the

the contract(s) with a customer :

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

A contract is deemed to exist when the customer places an order through receipt of a prescription,

via an online order or via receipt of a purchase order from the Company.

For branded products, orders are received through the Company’s

3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled.

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 obligations the customer is notified.

Obligations for fulfillment of the Company’s contracts consist of delivering the

product to the customer at their specified destination.

ASU 2016-10 was issued in April 2016 and amended ASC 606 for shipping and handling

activities as follows:

If the customer takes control of the goods after shipment, shipping and handling activities would always be considered

a fulfillment activity and not treated as a separate performance obligation.

If the customer takes control of the goods before shipment,

entities must make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate

performance obligation.

The Company has elected to treat its shipping and handling activities as a fulfillment cost.

the transaction price:

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

These amounts are pre-determined and built into the Company’s order management software.

The transaction price is based on an amount that reflects the consideration to which the Company expects

to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts and other deductions (collectively, sales

deductions) and an estimate for returns and replacements established at the time of sale.

The Company utilizes the services of a

third-party professional services firm to estimate rebates and chargebacks associated with sales of its branded products.

of promised goods is satisfied within a year, and therefore there are no significant financing components.

There is no non-cash consideration

related to product sales.

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.

Because there is only one performance obligation for product

sales, no allocation is necessary.

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

At the time of shipment from the pharmacy or outsourcing facility

the performance obligation has been met.

following revenue recognition policy has been established for the Company’s pharmacy services:

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

prescription is shipped.

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

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

Determination of criteria (3) and (4) is based

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

those amounts.

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

Estimated returns and allowances

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

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

If the historical data we use to calculate

these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination

is made and revenues in that period could be materially affected.

The Company will defer any revenues received for a product that has

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

delivered and no refund will be required.

Revenue from products is recognized upon transfer of control

of a product to a customer.

This generally occurs upon shipment unless contractual terms with a customer state that transfer of control

occurs at delivery.

Company has entered into an agreement whereby it is paid a fee calculated based on sales the Company 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 Company’s part to recognize

the associated revenue.

of Acquired Product Profit Revenues

Company has entered into an agreement whereby it purchased the exclusive commercial rights to assets associated with certain ophthalmic

products from another pharmaceutical company (the “Seller”).

During a temporary, six month transition period, the Seller

will continue to manufacture and market these products and transfer the net profit from the sale of the products to the Company.

revenue recognized by the Company 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 the Company, typically on a monthly basis, at which point there is no future performance obligation required

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

a quarterly basis, the Seller invoices the Company for all credits and reimbursements (“Chargebacks”) made to customers related

to the products.

The Company uses historical actual experience to estimate Chargebacks associated with the net profit transferred.

estimate is recorded as a reduction in revenues in the Company’s condensed consolidated statements of operations and

accounts receivable in the condensed consolidated balance sheets, at the time the revenue is recognized.

The revenue earned from this arrangement is recognized, at which point there is no future performance

obligation required by the Company and no consequential continuing involvement on the Company’s part to recognize the associated

From Transfer of Acquired Product Profit

Company entered into an agreement whereby it purchased the exclusive commercial rights to assets

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

During a temporary, six month

transition period, the Seller continued to manufacture and market these products and transfer the net profit from the sale of

the products to the Company.

The revenue recognized by the Company from the transfer of net profit was recognized at the time profit

from the product sales were calculated by the Seller and confirmed by the Company, typically on a monthly basis, at which point there

is no future performance obligation required by the Company and no consequential continuing involvement on the Company’s part to

recognize the associated revenue.

On a quarterly basis, the Seller invoices the Company for all credits and reimbursements (“Chargebacks”)

made to customers related to the products.

The Company uses historical actual experience to estimate Chargebacks associated with the

net profit transferred.

The estimate is recorded as a reduction in revenues in the Company’s condensed consolidated statements

of operations and accounts receivable in the condensed consolidated balance sheets, at the time the revenue is recognized.

Property License Revenues

Company currently holds five intellectual property licenses and related agreements in which the Company has agreed to license or sell

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

Company currently holds five intellectual property licenses and related agreements pursuant to which the Company has agreed to license

or sell to a customer with the right to access the Company’s intellectual property.

License arrangements may consist of non-refundable

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recognized on a straight-line basis over the applicable term.

disaggregated by revenue source for the three months ended March 31, 2022 and 2021, consists of the following:

disaggregated by revenue source for the three and six months ended June 30, 2022 and 2021 consists of the following:

OF DISAGGREGATED REVENUE

For the Three Months Ended March 31,

Product sales, net

Transfer of profit

Total revenues

revenue and customer deposits at March 31, 2022 and December 31, 2021 were $ 23,000 and $ 16,000 , respectively.

the Three Months Ended

the Six Months Ended

Transfer of profits

revenue and customer deposits at June 30, 2022 and December 31, 2021 were $ 83,000 and $ 16,000 , respectively.

All deferred revenue and

customer deposit amounts at December 31, 2021 were recognized as revenue during the three months ended March 31, 2022.

customer deposit amounts at December 31, 2021 were recognized as revenue during the six months ended June 30, 2022.

INVESTMENT IN, AND NOTE RECEIVABLE FROM MELT PHARMACEUTICALS, INC.

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payments to the Company on net sales of the Melt Products while any patent rights remain outstanding, as well as other conditions.

February 2019, the Company and Melt entered into the Melt MSA, whereby the Company provides to Melt certain administrative services and

support, including bookkeeping, web services and human resources related activities, and Melt is required to pay the Company a monthly

amount of $ 10,000 .

As of March 31, 2022 and December 31, 2021, the Company was due $ 70,000 and $ 48,000 , respectively, from Melt for reimbursable

expenses and amounts due under the Melt MSA.

Melt did not make any payments to the Company during the three months ended March 31, 2022.

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

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

related activities, and Melt is required to pay the Company a monthly amount of $ 10,000 .

the three and six months ended June 30, 2022, the Company recorded $ 40,000 and $ 70,000 , respectively, due from Melt for reimbursable

expenses and amounts payable pursuant to the Melt MSA, which are included in prepaid expenses and other current assets in the accompanying

condensed consolidated balance sheets.

As of June 30, 2022 and December 31, 2021, the Company was

due $ 109,000 and $ 48,000 , respectively, from Melt for reimbursable expenses and amounts due under the Melt MSA.

Melt did not make any

payments to the Company during the three and six months ended June 30, 2022.

Company’s Chief Executive Officer, Mark L.

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SCHEDULE OF CONDENSED INCOME STATEMENT

For the Three Months Ended

For the Six Months Ended June 30,

Revenues, net

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unaudited condensed balance sheet information of Melt is summarized below:

SCHEDULE OF CONDENSED BALANCE SHEET

OF CONDENSED BALANCE SHEET

At December 31,

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( 4,454,000 )

Total liabilities and stockholders’ deficit

Total liabilities and stockholders’ equity

Note Receivable

September 2021, the Company 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 interest can be paid in-kind 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.

September 1, 2021, the Company 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 12.50 % per annum,

which interest can be paid in-kind 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 1, 2022.

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 the Company a security interest in substantially all of its personal property, rights and assets, including intellectual

6 unchanged sentences

owed by Melt thereunder may be declared immediately due and payable by the Company, and the interest rate on the loan may be increased

by three percent ( 3 %) per annum.

See Note 17 regarding an Amendment to the Melt Loan Agreement entered into in April 2022.

by 3 % per annum.

In April 2022, the Company entered into a First Amendment (the “Amendment”) to the Melt Loan Agreement.

The Amendment, the effectiveness of which is subject to Melt consummating a qualifying financing of a minimum amount of $ 15,000,000 from

third-party investors by August 31, 2022, added conditions related to minimum cash amounts, clarified the definition of material adverse

effects and extended the maturity date to September 1, 2026.

connection with the Melt Loan Agreement, the Company and Melt entered into a Right of First Refusal Agreement providing the Company with

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is required to make mid-single digit royalty payments to the Company on net sales of the Surface Products while any patent rights remain

of March 31, 2022, the Company owned 3,500,000 shares of Surface common stock (representing approximately 20 % of Surface’s issued

and outstanding equity interests).

A Company director, Richard L.

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

Baum, are directors of Surface.

Lindstrom is a principal of Flying L Partners, an affiliate of an investor who purchased Surface

Series A Preferred Stock.

of June 30, 2022, the Company owned 3,500,000 shares of Surface common stock.

Company directors Richard L.

Lindstrom, Perry J.

Baum, who is also the Company’s Chief Executive Officer, are directors of Surface.

Lindstrom is a principal of

Flying L Partners, an affiliate of an investor who purchased Surface Series A Preferred Stock.

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

SUMMARY OF CONDENSED INCOME STATEMENT

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Revenues, net

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Total liabilities and stockholders’ equity

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

products, related laboratory supplies and active pharmaceutical ingredients.

The composition of inventories as of March 31, 2022 and

December 31, 2021 was as follows:

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

products, including those held at a 3PL, related laboratory supplies and active pharmaceutical ingredients.

The composition of inventories

as of June 30, 2022 and December 31, 2021 was as follows:

SCHEDULE OF INVENTORIES

March 31, 2022

Raw materials

3 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

expenses and other current assets at March 31, 2022 and December 31, 2021, consisted of the following:

expenses and other current assets at June 30, 2022 and December 31, 2021 consisted of the following:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

March 31, 2022

December 31, 2021

Prepaid insurance

4 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT

plant and equipment at March 31, 2022 and December 31, 2021, consisted of the following:

plant and equipment at June 30, 2022 and December 31, 2021 consisted of the following:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

March 31, 2022

Property, plant and equipment, net:

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plant and equipment, net

the three months ended March 31, 2022 and 2021, depreciation related to the property, plant and equipment was $ 376,000 and $ 436,000 ,

respectively.

the three and six months ended June 30, 2022, depreciation related to the property, plant and equipment was $ 381,000 and $ 757,000 , respectively,

compared to $ 361,000 and $ 797,000 during the same periods in 2021, respectively.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

software development costs at March 31, 2022 and December 31, 2021 consisted of the following:

software development costs at June 30, 2022 and December 31, 2021 consisted of the following:

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS

March 31, 2022

December 31, 2021

Capitalized internal-use software development costs

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finite lived intangible assets net

Company recorded amortization expense of $ 43,000 and $ 28,000 related to capitalized software development costs during the three months

ended March 31, 2022 and 2021, respectively.

Company recorded amortization expense of $ 43,000 and

$ 86,000 related

to capitalized software development costs during the three and six months ended June 30, 2022, respectively, and $ 51,000 and

$ 79,000 during

the same periods in 2021, respectively.

INTANGIBLE ASSETS AND GOODWILL

Company’s intangible assets at March 31, 2022 consisted of the following:

SCHEDULE OF INTANGIBLE ASSETS

Carrying Value

Company’s intangible assets at June 30, 2022 consisted of the following:

OF INTANGIBLE ASSETS

Periods (in years)

$ ( 118,000 )

Acquired NDAs

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$ ( 1,532,000 )

expense for intangible assets for the three months ended March 31, 2022 and 2021 was as follows:

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

expense for intangible assets for the three and six months ended June 30, 2022 and 2021 was as follows:

OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

Three Months Ended

Six Months Ended

Acquired NDAs

Customer relationships

of intangible assets

future amortization expense for the Company’s intangible assets at March 31, 2022 is as follows:

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Amortization of intangible

future amortization expense for the Company’s intangible assets at June 30, 2022 is as follows:

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Remainder of 2022

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES

payable and accrued expenses at March 31, 2022 and December 31, 2021 consisted of the following:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

March 31, 2022

payable and accrued expenses at June 30, 2022 and December 31, 2021 consisted of the following:

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable

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Senior Notes Due 2026

April 2021, the Company closed an offering of $ 50,000,000 aggregate principal amount of 8.625% senior notes due April 2026, and in May

2021 issued an additional $ 5,000,000 of such notes pursuant to the full exercise of the underwriters’ option to purchase additional

notes (collectively, the “April Notes”).

The April Notes were sold to investors at a par value of $ 25.00 per April Note and

the offering resulted in net proceeds to the Company of approximately $ 51,909,000 after deducting underwriting discounts and commissions

April 2021, the Company closed an offering of $ 50,000,000

aggregate principal amount of 8.625% senior notes

due April 2026, and in May 2021 issued an additional $ 5,000,000

of such notes pursuant to the full exercise of

the underwriters’ option to purchase additional notes (collectively, the “April Notes”).

The April Notes were sold

to investors at a par value of $ 25.00

per April Note and the offering resulted in net

proceeds to the Company of approximately $ 51,909,000

after deducting underwriting discounts and commissions

and expenses of $ 3,091,000 .

In June 2021, in a further issuance of the April Notes, the Company sold an additional $ 20,000,000 aggregate

principal amount of such notes (the “June Notes,” and together with the April Notes, the “Notes”), at a price

of $ 25.75 per June Note, with interest of $ 278,000 on the June Notes being accrued from April 20, 2021 as of the date of issuance.

June offering resulted in net proceeds to the Company of approximately $ 19,164,000 after deducting underwriting discounts and commissions

and expenses of $ 1,158,000 and a premium on note issuance of $ 322,000 .

The June Notes are treated as a single series with the April Notes

under the indenture governing the April Notes, dated as of April 20, 2021, and have the same terms as the April Notes (other than the

initial offering price and issue date).

The Notes are senior unsecured obligations of the Company and rank equally in right of payment

with all of our other existing and future senior unsecured and unsubordinated indebtedness.

The Notes are effectively subordinated in

right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing

and future indebtedness of the Company’s subsidiaries, including trade payables.

The Notes bear interest at a rate of 8.625 % per

In June 2021, in a further issuance of the April Notes, the Company sold an additional $ 20,000,000

aggregate principal amount of such notes (the

“June Notes,” and together with the April Notes, the “Notes”), at a price of $ 25.75

per June Note, with interest of $ 278,000

on the June Notes being accrued from April 20,

2021 as of the date of issuance.

The June offering resulted in net proceeds to the Company of approximately $ 19,164,000

after deducting underwriting discounts and commissions

and expenses of $ 1,158,000

and a premium on note issuance of $ 322,000 .

The June Notes are treated as a single series with the April Notes under the indenture governing the April Notes, dated as of April 20,

2021, and have the same terms as the April Notes (other than the initial offering price and issue date).

Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of our other existing and future

senior unsecured and unsubordinated indebtedness.

The Notes are effectively subordinated in right of payment to all of the Company’s

existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s

subsidiaries, including trade payables.

The Notes bear interest at a rate of 8.625 %

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

1 unchanged sentence

The Notes will mature on April 30, 2026.

The issuance costs were recorded as a debt discount and are being amortized

as interest expense, net of the amortization of the premium on note issuance, over the term of the Notes using the effective interest

The issuance costs were recorded as

a debt discount and are being amortized as interest expense, net of the amortization of the premium on note issuance, over the term of

the Notes using the effective interest rate method.

to February 1, 2026, the Company may, at its option, redeem the Notes, in whole at any time or in part from time to time, at a redemption

price equal to 100% of the principal amount of the Notes to be redeemed , plus a make-whole amount, if any, plus accrued and unpaid interest

to, but excluding, the date of redemption.

The Company may redeem the Notes for cash in whole or in part at any time at our option on

or after February 1, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest

to, but excluding, the date of redemption.

On and after any redemption date, interest will cease to accrue on the redeemed Notes.

expense related to the Notes totaled $ 1,810,000 for the three months ended March 31, 2022, and included amortization of debt issuance

costs and discount of $ 193,000 for three months ended March 31, 2022.

March 31, 2022, future minimum payments under the Company’s debt were as follows:

SUMMARY OF FUTURE MINIMUM PAYMENTS

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.

The Company may redeem

the Notes for cash in whole or in part at any time at our option on or after February 1, 2026 and prior to maturity, at a price equal

to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption.

On and after any redemption

date, interest will cease to accrue on the redeemed Notes.

expense related to the Notes totaled $ 1,812,000 and

$ 3,622,000 for

the three and six months ended June 30, 2022, respectively, and $ 1,466,000 during

the three and six months ended June 30, 2021, and included amortization of debt issuance costs and discount of $ 195,000 and

$ 388,000 for

three and six months ended June 30, 2022, respectively, and $ 192,000 during

the three and six months ended June 30, 2021.

June 30, 2022, future minimum payments under the Company’s debt were as follows:

OF FUTURE MINIMUM PAYMENTS

Remainder of 2022

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These lease agreements have remaining

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

operating lease for 5,789 square feet of office space in Carlsbad, California, which commenced in January 2022 and will expire in

operating lease for 35,326 square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July 2026 , with

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

This includes an amendment that was made effective July 2020 that

extended the term of the original lease and added 1,400 of additional square footage to the lease and another amendment entered into

in May 2021 that extended the term of the lease to July 2027 and added 8,900 square feet of space.

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

the term for two additional five-year periods.

March 31, 2022, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases

held by the Company were 6.34 % and 13.45 years, respectively.

the three months ended March 31, 2022 and 2021, cash paid for amounts included for the operating lease liabilities was $ 166,000 and $ 251,000 ,

respectively, and the Company recorded operating lease expense of $ 238,000 and $ 261,000 , included in selling, general and administrative

expenses, respectively.

lease payments under operating leases as of March 31, 2022 were as follows :

SCHEDULE OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

Operating Leases

terms between one

years and contain various clauses for renewal

at the Company’s option.

operating lease for 5,789

square feet of office space in Carlsbad,

California, which commenced in January 2022 and will expire in July

operating lease for 35,326

square feet of lab, warehouse and office

space in Ledgewood, New Jersey that expires in July

2026 , with an option to extend the term for

two additional five-year periods.

This includes an amendment, which was made effective July 2020, that extended the term of

the original lease and added 1,400

of additional square footage to the lease,

and another amendment entered into in May 2021 that extended the term of the lease to July 2027 and added 8,900

square feet of space.

operating lease for 5,500

square feet of office space in Nashville,

Tennessee that expires in December

2024 , with an

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

operating lease for 11,552

square feet of lab and office space in Nashville,

Tennessee which commenced in June 2022 and will expire in June

June 30, 2022, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases

held by the Company were 6.61 %

and 11.21 years,

respectively.

the three and six months ended June 30, 2022, cash paid for amounts included for the operating lease liabilities was $ 207,000

and $ 373,000 ,

respectively, and $ 251,000 and

$ 502,000 during

the same periods in 2021, respectively.

During the three and six months ended June 30, 2022, the Company recorded operating lease expense

of $ 262,000 and

respectively, which is included in selling, general and administrative expenses.

lease payments under operating leases as of June 30, 2022 were as follows :

OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

Remainder of 2022

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Operating lease liabilities, net of current portion

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

lease payments under the non-cancelable finance lease as of March 31, 2022 were as follows :

SCHEDULE OF FUTURE LEASE PAYMENT UNDER FINANCE LEASE

Finance Lease

Remainder of 2022

Total minimum lease payments

amount representing interest payments

Present value of future minimum lease payments

current portion, finance lease obligation

Finance lease obligation, net of current portion

March 31, 2022, the incremental borrowing rate and the remaining lease term for the finance lease held by the Company were 6.36 % and

1.83 years, respectively.

the three months ended March 31, 2022 and 2021, depreciation expense related to the equipment held under the finance lease obligation

was $ 2,000 and $ 2,000 , respectively.

the three months ended March 31, 2022 and 2021, cash paid and expense recognized for interest expense related to the finance lease obligation

was $ 0 and $ 1,000 , respectively.

the six months ended June 30, 2022, the Company paid all amounts owed under its finance lease and no future payments are due related

to finance leases.

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

March 31, 2022 and December 31, 2021, the Company had 5,000,000 shares of preferred stock, $ 0.001 par value, authorized and no shares

June 30, 2022 and December 31, 2021, the Company had 5,000,000 shares of preferred stock, $ 0.001 par value, authorized and no shares

of preferred stock issued and outstanding.

the three months ended March 31, 2022, the Company issued 53,594 shares of common stock to Mark L.

the six months ended June 30, 2022, the Company issued 53,594 shares of common stock to Mark L.

Baum, the Company’s Chief Executive

2 unchanged sentences

Baum 36,014 shares as consideration for the cashless exercise and an additional 35,392 shares for payroll tax obligations totaling

RSUs granted in February 2019 to Andrew R.

Boll, the Company’s Chief Financial Officer, vested, and in February 2022, the Company

issued 29,395 shares of common stock to Mr.

Boll, net of 20,605 shares of common stock withheld for payroll tax withholdings totaling

RSUs granted in February 2019 to John P.

Saharek, the President of ImprimisRx, vested, and in February 2022, the Company issued 24,077

shares of common stock to Mr.

Saharek, net of 25,923 shares of common stock withheld for payroll tax withholdings totaling $ 204,000 .

RSUs granted in February 2019 vested, and in February 2022, the Company issued 20,298 shares of common stock, net of 14,702 shares of

common stock withheld for payroll tax withholdings totaling $ 116,000 .

the three months ended March 31, 2022, the Company issued 1,000 shares of common stock and received net proceeds of $ 4,000 upon the exercise

of options to purchase 1,000 shares of common stock with exercise price of $ 3.95 per share.

the three months ended March 31, 2022, 9,644 shares of the Company’s common stock underlying RSUs issued to directors vested, but

the six months ended June 30, 2022, the Company issued 3,000 shares of common stock and received net proceeds of $ 7,000 upon the exercise

of options to purchase 3,000 shares of common stock with exercise prices between $ 1.70 to $ 3.95 per share.

the six months ended June 30, 2022, 50,000 RSUs granted in February 2019 to Andrew R.

Boll, the Company’s Chief Financial Officer,

vested, and in February 2022, the Company issued 29,395 shares of common stock to Mr.

Boll, net of 20,605 shares of common stock withheld

for payroll tax withholdings totaling $ 162,000 .

the six months ended June 30, 2022, 50,000 RSUs granted in February 2019 to John P.

Saharek, the President of ImprimisRx, vested, and

in February 2022, the Company issued 24,077 shares of common stock to Mr.

Saharek, net of 25,923 shares of common stock withheld for

payroll tax withholdings totaling $ 204,000 .

the six months ended June 30, 2022, 35,000 RSUs granted in February 2019 vested, and in February 2022, the Company issued 20,298 shares

of common stock, net of 14,702 shares of common stock withheld for payroll tax withholdings totaling $ 116,000 .

the six months ended June 30, 2022, 50,000 RSUs granted in May 2019 vested, and in May 2022, the Company issued 36,851 shares of common

stock, net of 13,149 shares of common stock withheld for payroll tax withholdings totaling $ 99,000 .

the six months ended June 30, 2022, 19,288 shares of the Company’s common stock underlying RSUs issued to directors vested, but

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

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with the 2007 Plan, the “Plans”).

As of March 31, 2022, the 2017 Plan provides for the issuance of a maximum of 6,000,000

As of June 30, 2022, the 2017 Plan provides for the issuance of a maximum of 6,000,000

shares of the Company’s common stock.

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

The Company had 2,229,399 shares available for future issuances under the 2017 Plan at March 31, 2022.

summary of stock option activity under the Plans for the three months ended March 31, 2022 is as follows:

The Company had 2,067,284 shares available for future issuances under the 2017 Plan at June 30, 2022.

summary of stock option activity under the Plans for the six months ended June 30, 2022 is as follows:

OF STOCK OPTION PLAN ACTIVITY

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

Options outstanding – January 1, 2022

2 unchanged sentences

Options cancelled/forfeited

Options outstanding – March 31, 2022

Options outstanding – June 30, 2022

Options exercisable

2 unchanged sentences

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

price lower than the market price on March 31, 2022, based on the closing price of the Company’s common stock of $ 6.82 on that

the three months ended March 31, 2022, the Company granted stock options to certain employees and a consultant.

The stock options were

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

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

Vesting terms for options granted

to employees during the three months ended March 31, 2022 included the following vesting schedule:

25% of the shares subject to the option

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

and become exercisable quarterly in equal installments thereafter over three years.

Certain option awards provide for accelerated vesting

if there is a change in control (as defined in the Plans) and in the event of certain modifications to the option award agreement.

price lower than the market price on June 30, 2022, based on the closing price of the Company’s common stock of $ 7.28 on that date.

the six months ended June 30, 2022, the Company granted stock options to certain employees.

The stock options were granted with an exercise

price equal to the current market price of the Company’s common stock, as reported by the securities exchange on which the common

stock was then listed, at the grant date and have contractual terms of ten years .

Vesting terms for options granted to employees during

the three and six months ended June 30, 2022 included the following vesting schedule:

25% of the shares subject to the option vest and

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

exercisable quarterly in equal installments thereafter over three years.

Certain option awards provide for accelerated vesting if there

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

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

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Risk-free interest rate

Dividend yield

following table summarizes information about stock options outstanding and exercisable at March 31, 2022:

SCHEDULE OF STOCK OPTION

OUTSTANDING AND EXERCISABLE

Options Outstanding

Options Exercisable

Range of Exercise Prices

Life in Years

Weighted Average Exercise Price

1.54 - 2.78 %

Dividend yield

following table summarizes information about stock options outstanding and exercisable at June 30, 2022:

OF STOCK OPTION OUTSTANDING AND EXERCISABLE

of Exercise Prices

$ 1.47 - $ 2.23

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$ 7.89 - $ 8.75

of March 31, 2022, there was approximately $ 1,806,000 of total unrecognized compensation expense related to unvested stock options granted

of June 30, 2022, there was approximately $ 2,013,000 of total unrecognized compensation expense related to unvested stock options granted

under the Plans.

1 unchanged sentence

The stock-based

compensation for all stock options was $ 272,000 and $ 452,000 during the three months ended March 31, 2022 and 2021, respectively.

intrinsic value of options exercised during the three months ended March 31, 2022 was $ 745,000 .

compensation for all stock options was $ 258,000 and $ 530,000 during the three and six months ended June 30, 2022, respectively, and $ 569,000

and $ 1,021,000 during the same periods in 2021, respectively.

intrinsic value of options exercised during the six months ended June 30, 2022 was $ 754,000 .

Stock Units/Performance Stock Units

2 unchanged sentences

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

summary of the Company’s RSU activity (including performance stock units) and related information for the three months ended March

summary of the Company’s RSU activity (including performance stock units) and related information for the six months ended June

30, 2022 is as follows:

OF RESTRICTED STOCK UNITS ACTIVITY

Number of RSUs

Weighted Average Grant Date Fair Value

RSUs unvested - January 1, 2022

RSUs cancelled/forfeited

RSUs unvested at March 31, 2022

of March 31, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $ 8,756,000 , which is expected

RSUs unvested - June 30, 2022

of June 30, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $ 8,819,000 , which is expected

to be recognized over a weighted-average period of 1.10 years, based on estimated and actual vesting schedules of the applicable RSUs.

The stock-based compensation for RSUs during the three months ended March 31, 2022 and 2021 was $ 1,744,000 and $ 346,000 , respectively.

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

The stock-based compensation for RSUs during the three and six months ended June 30, 2022 was $ 1,735,000 and $ 3,479,000 , respectively,

and $ 481,000 and $ 827,000 during the same periods in 2021, respectively.

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

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

summary of warrant activity for the three months ended March 31, 2022 is as follows:

summary of warrant activity for the six months ended June 30, 2022 is as follows:

OF WARRANTS ACTIVITY

Shares Subject

to Warrants Outstanding

Exercise Price

Warrants outstanding– January 1, 2022

Warrants outstanding and exercisable - March 31, 2022

Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2022

outstanding and exercisable as of March 31, 2022 are as follows:

Warrants outstanding and exercisable – June

Weighted average remaining contractual life of

the outstanding warrants in years – June 30, 2022

outstanding and exercisable as of June 30, 2022 are as follows:

OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

2 unchanged sentences

Stock-Based Transactions

Company recognized $ 0 and $ 57,000 in stock-based compensation expense related to subsidiary stock options during the three months ended

March 31, 2022 and 2021.

Company recognized $ 0 in stock-based compensation expense related to subsidiary stock options during the three and six months ended June

30, 2022, and $ 28,000 and $ 85,000 during the same periods in 2021, respectively.

Compensation Summary

1 unchanged sentence

OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

For the Three Months Ended

Employees – selling, general and administrative

Employees – research and development

Employees – R&D

Directors – selling, general and administrative

Consultants – research and development

Consultants – R&D

COMMITMENTS AND CONTINGENCIES

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

Lindstrom ranging from 3% - 6% of

Lindstrom ranging from 3% to 6% of

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

3 unchanged sentences

of the Company’s restricted common stock.

Payments totaling $ 30,000 and $ 35,000 were made during the three months ended March 31,

2022 and 2021, respectively.

$ 71,000 and $ 35,000 were incurred as royalty expenses during the three months ended March 31, 2022 and 2021,

respectively, and was included in accounts payable to Dr.

Payments totaling $ 92,000 and $ 122,000 were made during the three and six months ended

June 30, 2022, respectively, compared to $ 35,000 and $ 70,000 during the same periods in 2021, respectively.

Royalty expenses were $ 106,000

and $ 177,000 during the three and six months ended June 30, 2022, respectively, compared to $ 44,000 and $ 79,000 during the same periods

in 2021, respectively, and was included in accounts payable to Dr.

Asset Purchase Agreement – Related Party

10 unchanged sentences

Lindstrom including an initial payment of $ 33,000 upon execution of the Lindstrom APA.

was paid $ 8,000 and $ 7,000 in cash during the three months ended March 31, 2022 and 2021, respectively.

The Company incurred $ 7,000 and

$ 7,000 for royalty expenses related to the Lindstrom APA during the three months ended March 31, 2022 and 2021.

was paid $ 7,000 and $ 15,000 in cash during the three and six months ended June 30, 2022, respectively, and $ 7,000 and $ 14,000 during

the same periods in 2021, respectively.

The Company incurred $ 8,000 and $ 15,000 for royalty expenses related to the Lindstrom APA during

the three and six months ended June 30, 2022, respectively, and $ 7,000 and $ 14,000 during the same periods in 2021, respectively.

Commercial Alliance Agreement

17 unchanged sentences

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

During the three months

ended March 31, 2022 and 2021, the Company recorded $ 1,320,000 and $ 485,000 , respectively, in commission revenues related to the Dexycu

During the three and

six months ended June 30, 2022, the Company recorded $ 1,212,000 and $ 2,532,000 , respectively, and $ 827,000 and $ 1,312,000 during the

same periods in 2021, respectively, in commission revenues related to the Dexycu Agreement.

and Marketing Agreements

3 unchanged sentences

compounded formulations or related products.

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

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

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

2 unchanged sentences

certain future levels by the end of their terms.

Commission expenses of $ 1,047,000 and $ 804,000 were incurred under these agreements during the three months ended March 31, 2022 and 2021, respectively.

Commission expenses of $ 1,100,000 and $ 2,147,000 were incurred under these agreements

for commission expenses during the three and six months ended June 30, 2022, respectively, and $ 1,032,000 and $ 1,836,000 during the same

periods in 2021, respectively.

Purchase, License and Related Agreements

25 unchanged sentences

the Inventors.

During the three months ended March 31, 2022 and 2021, $ 213,000 and $ 232,000 were incurred under these agreements as royalty

expenses, respectively.

During the three and six months ended June 30, 2022, $ 297,000 and $ 510,000 were incurred under these agreements as royalty

expenses, respectively, and $ 261,000 and $ 493,000 during the same periods in 2021, respectively.

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

10 unchanged sentences

The Upfront Payment along with an additional milestone payment of $ 3,117,000 was paid and recorded as

a R&D expenses during the year ended December 31, 2021.

For the three months ended March 31, 2022, no amounts have been paid or accrued

under the Sintetica agreement.

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

R&D expenses during the year ended December 31, 2021.

During the three and six months ended June 30, 2022, no amounts were paid or

accrued under the Sintetica agreement.

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

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

9 unchanged sentences

for MAQ-100 in the U.S.

Through March 31, 2022, no amounts have been paid or accrued under the Wakamoto agreement.

Through June 30, 2022, no amounts have been paid or accrued under the Wakamoto agreements.

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

12 unchanged sentences

Lindstrom was paid $ 0 in cash during the

periods ended March 31, 2022 and 2021, and was due $ 0 at March 31, 2022 and 2021.

The Company incurred $ 0 for royalty expenses related

to the Presbyopia APA during the periods ended March 31, 2022 and 2021.

three and six month periods ended June 30, 2022 and 2021, and was due $ 0 at June 30, 2022 and 2021.

The Company incurred $ 0 for royalty

expenses related to the Presbyopia APA during the three and six month periods ended June 30, 2022 and 2021.

CONCENTRATIONS

Company has two products that each comprised more than 10% of total revenues.

These products collectively accounted for 32 %

of revenues during the three months ended March

31, 2022 and 2021, respectively.

Company has two products that each comprised more than 10% of total revenues during the three and six month periods ended June 30.

products collectively accounted for 32 % and 32 % of revenues during the three and six months ended June 30, 2022, respectively, and 36 %

and 36 % during the same periods in 2021, respectively.

Company sells its compounded formulations to a large number of customers.

There were no customers who comprised more than 10% of the

Company’s total pharmacy sales during the three months ended March 31, 2022 and 2021.

Company’s total pharmacy sales during the three and six months ended June 30, 2022 and 2021.

Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively accounted for 72 % and

82 % of active pharmaceutical ingredient purchases during the three months ended March 31, 2022 and 2021, respectively.

73 % of active pharmaceutical ingredient purchases during the three and six months ended June 30, 2022, respectively, and 85 % and 79 %

during the same periods in 2021, respectively.

SUBSEQUENT EVENTS

Company has performed an evaluation of events occurring subsequent to March 31, 2022 through the filing date of this Quarterly Report.

Company has performed an evaluation of events occurring subsequent to June 30, 2022 through the filing date of this Quarterly Report.

Based on its evaluation, no events other than those described below need to be disclosed.

Melt Loan Amendment

In April 2022, the Company entered into a First Amendment (the “Amendment”) to its loan and security agreement previously

entered into on September 1, 2021 with Melt.

The Amendment provides for:

is required to maintain a minimum cash balance of $7,000,000 for one (1) year following the effective date of the Amendment;

a minimum cash balance of $5,000,000 at all times after the one year anniversary of the effective date of the Amendment .

maturity date by which all amounts owed under the loan agreement are payable was extended to September 1, 2026, unless otherwise

accelerated pursuant to the terms of the loan agreement.

definition of Material Adverse Effect was amended so that such an effect will be deemed to have occurred if the data from the phase

2 study of MELT-300 fails to demonstrate the benefit of the combination MELT-300 study drug versus the individual components of the

same MELT-300 study drug, as reasonably determined by the Company.

effectiveness of the Amendment is subject to, among other conditions, Melt consummating a qualifying financing of a minimum amount

of $ 15,000,000 from third party investors by August 31, 2022.

July 2022, the Center for Medicare & Medicaid Services (“CMS”) published in the Federal Register the calendar year (CY)

2023 Medicare Hospital Outpatient Prospective Payment System (“OPPS”) and ASC Payment System Proposed Rule (“Proposed

If the Proposed Rule is finalized, in the relevant part, without changes, it would result in loss of pass-through related

separate payment for Dexycu, when furnished in hospital outpatient department settings reimbursed by Medicare.

This would reduce the

amount of Medicare reimbursement provided to the Dexycu customers and, if finalized without changes, result in a significant reduction

in the Company’s Dexycu commission revenues.

A Final Rule is expected to be issued in early November 2022.

In the Final Rule, CMS

may adopt or modify the Proposed Rule’s proposals related to Dexycu.

If the Proposed Rule’s proposals related to Dexycu are

finalized, they would be effective on January 1, 2023.

If adopted as currently proposed, the Company does not expect the Proposed Rule

to have a material impact on its operations, financial statements and cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements