What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-09 · 478 added, 443 removed, 681 unchanged (57% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

5 unchanged sentences

Property, plant and equipment, net

Capitalized software development costs, net

Capitalized software costs, net

Operating lease right-of-use assets

11 unchanged sentences

Finance lease obligations, net of current portion

Loans payable, net of unamortized debt discount

Loans payable, net of current portion and unamortized debt discount

TOTAL LIABILITIES

1 unchanged sentence

STOCKHOLDERS’ EQUITY

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

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 27,074,307 and 26,902,763 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

1 unchanged sentence

( 110,548,000 )

( 95,407,000 )

TOTAL HARROW HEALTH STOCKHOLDERS’ EQUITY

2 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

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

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

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales, net

10 unchanged sentences

Total operating expenses

Income from operations

(Loss) income from operations

( 3,717,000 )

Other (expense) income:

37 unchanged sentences

Basic and diluted net loss per share of common stock

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

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

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

Preferred Stock

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

the Three and Nine Months Ended September 30, 2022 and 2021

Preferred Stock

Noncontrolling

4 unchanged sentences

$ ( 77,400,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of warrants

Exercise of employee stock options

Exercise of employee stock-based options

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

Shares withheld related to net share settlement of

equity awards

( 3,228,000 )

11 unchanged sentences

( 10,589,000 )

Balance at June 30, 2021

Balance at September 30, 2021

$ 104,551,000

6 unchanged sentences

Issuance of common stock in connection with:

Exercise of employee stock options

Exercise of consultant stock-based options

Exercise of employee stock-based options

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

Shares withheld related to net share settlement of

equity awards

Stock-based compensation expense

2 unchanged sentences

( 15,141,000 )

Balance at June 30, 2022

Balance at September 30, 2022

$ 111,738,000

1 unchanged sentence

$ ( 355,000 )

Preferred Stock

Harrow Health, Inc.

Noncontrolling

1 unchanged sentence

Stockholders’

Balance at March 31, 2021

$ 105,382,000

$ ( 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

Balance at June 30, 2021

$ 102,837,000

1 unchanged sentence

$ ( 355,000 )

Payment of preferred dividends

Issuance of common stock in connection with:

Exercise of employee stock-based options

Stock-based compensation expense

2 unchanged sentences

( 8,328,000 )

Balance at June 30, 2021

Balance at September 30, 2021

$ 104,551,000

1 unchanged sentence

$ ( 355,000 )

Balance at March 31, 2022

Balance at June 30, 2022

$ 109,806,000

1 unchanged sentence

$ ( 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

Issuance of common stock in connection with:

Exercise of consultant stock-based options

Exercise of employee stock-based options

Stock-based compensation expense

2 unchanged sentences

( 6,464,000 )

Balance at June 30, 2022

Balance at September 30, 2022

$ 111,738,000

2 unchanged sentences

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

$ ( 10,589,000 )

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

Depreciation and amortization

Adjustments to reconcile net loss to net cash provided by operating

Depreciation and amortization of property, plant and equipment

Amortization of intangible assets

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Equity in losses of unconsolidated entities

Interest paid-in-kind from note receivable

Loss on early extinguishment of loan

4 unchanged sentences

( 1,532,000 )

( 1,066,000 )

Prepaid expenses and other current assets

6 unchanged sentences

Investment in patent and trademark assets

Issuance of note receivable, Melt Pharmaceuticals

( 12,592,000 )

Purchases of property, plant and equipment

( 1,719,000 )

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

( 1,649,000 )

NET CASH USED IN INVESTING ACTIVITIES

( 1,738,000 )

( 4,489,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

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Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING

AND FINANCING ACTIVITIES:

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of common stock upon vesting of RSUs

Purchase of intangible asset included in accounts payable and accrued expenses

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

accrued expenses

Insurance premium financed

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

Melt accounts receivable to note receivable

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three and Six Months Ended June, 2022 and 2021

the Three and Nine months ended September, 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 eyecare pharmaceutical company focused on the

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

(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 exclusively focused on the discovery,

development, and commercialization of innovative ophthalmic therapies that are accessible and affordable.

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

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

Operating results for the three and six months ended June

Operating results for the three and nine months ended September

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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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

following represents an update for the three and nine months ended September 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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of operations.

to shifts in the Company’s strategic plans to further focus on growing the Company’s ImprimisRx business and suspension of

activities related to starting up development-stage pharmaceutical companies, along with changes to the Company’s organizational

and internal reporting structure, beginning in January 2022 management no longer evaluates the Company’s business in two segments

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

a result of shifts in the Company’s strategic plans to further focus on growing the Company’s ImprimisRx business and

suspension of activities related to starting up development-stage pharmaceutical companies, along with changes to the

Company’s organizational and internal reporting structure, beginning in January 2022, management no longer evaluates the

Company’s business in two segments and instead focuses on the performance of the business as a single operating

and Diluted Net Loss per Common Share

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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.

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

from stock options, unvested RSUs and warrants were 5,622,997 and 5,657,046 at September 30, 2022 and 2021, respectively.

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 September 30, 2022 and 2021 was 303,454

and 258,117 , respectively.

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

SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

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

For the Three Months Ended

For the Nine Months Ended

September 30,

Numerator – net loss attributable to common stockholders

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$ ( 10,589,000 )

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

Net loss per share, 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

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

Recognition and Measurement of Financial Assets

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

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

At September 30, 2022, the fair market value of Eton’s common stock was $ 2.10 per share.

In accordance with the Accounting

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

Recognition and Measurement of Financial

Assets and Financial Liabilities , the Company recorded an unrealized investment loss from its Eton common stock position of $ 1,031,000

and $ 4,341,000 , and $ 2,220,000 and $ 8,639,000 during the three and nine months ended September 30, 2022 and 2021, respectively, related

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

As of September 30, 2022, the fair market

value of the Company’s investment in Eton was $ 4,162,000 .

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 June 30, 2022) of

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

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

As of September 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 June 30, 2022:

OF INVESTMENT

Share of Equity Method

Paid-in -Kind

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

SCHEDULE OF INVESTMENT

Share of Equity

Method Losses

Contributions

Carrying value

$ ( 5,810,000 )

( 11,403,000 )

( 1,995,000 )

$ ( 17,213,000 )

$ ( 1,995,000 )

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) of Surface and uses the equity method of accounting for this investment, as

of a round of financing completed by Surface in July 2021) 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 June 30, 2022:

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

SCHEDULE OF INVESTMENT

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method investments and note receivable.

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

At September 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 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.

The Company has three 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”)

partner, (2) revenue recognized from a commission agreement with a third party, and (3) revenue recognized from intellectual property

licenses and asset purchase agreements.

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

Revenue from the Company’s

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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.

via an online order or via receipt of a purchase order from a customer.

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

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the performance obligations in the contract:

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

Obligations for fulfillment of the Company’s

contracts consist of delivering the product to customers at their specified destination.

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

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.

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

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 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:

Because there is only one performance obligation for product

sales, no allocation is necessary.

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.

utilizes the services of a third-party professional services firm to estimate rebates and

chargebacks associated with sales of its branded products.

The transfer 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.

transaction price to the performance obligations in the contract:

Given that there is only one performance obligation for

product sales, no allocation is necessary.

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

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recognize the associated revenue.

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

On a quarterly basis, the Seller invoiced 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

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

net profit transferred.

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

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

OF DISAGGREGATED REVENUE

the Three Months Ended

the Six Months Ended

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

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales, net

Commission revenues

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 six months ended June 30, 2022.

License revenues

Total revenues

revenue and customer deposits at September 30, 2022 and December 31, 2021 were $ 115,000 and $ 16,000 , respectively.

All deferred revenue

and customer deposit amounts at December 31, 2021 were recognized as revenue during the nine months ended September 30, 2022.

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

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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

the three and nine months ended September 30, 2022, the Company recorded $ 30,000 and $ 100,000 , 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.

As of September 30, 2022 and December 31, 2021, the Company

was due $ 139,000 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 nine months ended September 30, 2022.

Company’s Chief Executive Officer, Mark L.

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SCHEDULE OF CONDENSED INCOME STATEMENT

For the Six Months Ended June 30,

For the Nine Months Ended

September 30,

Revenues, net

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unaudited condensed balance sheet information of Melt is summarized below:

OF CONDENSED BALANCE SHEET

At December 31,

SUMMARY OF CONDENSED BALANCE SHEET

September 30,

Current assets

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Note Receivable

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.

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 were previously due and payable on

September 1, 2022.

In April 2022, the Company entered into a First Amendment and in September 2022, a Second Amendment (together,

the “Amendments”) to the Melt Loan Agreement.

The Amendments (i) extended the maturity date of the Melt Loan Agreement

to June 1, 2023, which can be extended further to September 1, 2026 upon Melt completing a qualifying financing of a minimum amount

of $ 10,000,000

from third-party investors, (ii) added conditions related to minimum cash amounts following a qualifying financing, and (iii)

clarified the definition of material adverse effects.

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

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

net funds received by Melt excluded $ 908,000 for amounts owed to the Company for reimbursable expenses and amounts due under the Melt

net funds received by Melt excluded $ 908,000 owed to the Company for reimbursable expenses and amounts due under the Melt

MSA prior to the effective date of the note receivable.

As of September 30, 2022 and December 31, 2021, $ 15,495,000 and $ 14,076,000 ,

respectively, in principal balance of the Melt Loan Agreement is payable to the Company.

INVESTMENT IN SURFACE OPHTHALMICS, INC.

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

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

Company directors Richard L.

5 unchanged sentences

SUMMARY OF CONDENSED INCOME STATEMENT

For the Six Months Ended June 30,

September 30,

Revenues, net

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SUMMARY OF CONDENSED BALANCE SHEET

At December 31,

September 30,

Current assets

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Total liabilities and stockholders’ equity

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:

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

pharmaceutical products, including those held at the Company’s 3PL partner, related laboratory supplies and active

pharmaceutical ingredients.

The composition of inventories as of September 30, 2022 and December 31, 2021 was as follows:

SCHEDULE OF INVENTORIES

September 30,

Raw materials

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PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

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

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,

Prepaid insurance

Prepaid computer software licenses and related expenses

Due from Melt Pharmaceuticals

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PROPERTY, PLANT AND EQUIPMENT

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

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

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

September 30,

Property, plant and equipment, net:

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plant and equipment, net

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.

the three and nine months ended September 30, 2022, depreciation related to the property, plant and equipment was $ 171,000 and $ 928,000 ,

respectively, compared to $ 410,000 and $ 1,202,000 during the same periods in 2021, respectively.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

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

SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS

Capitalized internal-use software development costs

Acquired third-party software license for internal-use

Total gross capitalized software for internal-use

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

SCHEDULE OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Capitalized internal-use software development

Acquired third-party software

license for internal-use

Total gross capitalized software

for internal-use

Accumulated amortization

Capitalized internal-use software in process

finite lived intangible assets net

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.

Capitalized internal-use software

Capitalized software costs, net

Company recorded amortization expense of $ 76,000 and $ 162,000 related to capitalized software development costs during the three and

nine months ended September 30, 2022, respectively, and $ 22,000 and $ 73,000 during the same periods in 2021, respectively.

INTANGIBLE ASSETS AND GOODWILL

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

OF INTANGIBLE ASSETS

Periods (in years)

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

SCHEDULE OF INTANGIBLE ASSETS

$ ( 140,000 )

Acquired NDAs

( 1,023,000 )

Customer relationships

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$ ( 1,930,000 )

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

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

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

For the Three Months Ended

For the Nine Months Ended

Acquired NDAs

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Amortization of intangible

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

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

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

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Remainder of 2022

1 unchanged sentence

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30,

Accounts payable

Accrued insurance premium

Accrued IHEEZO milestone payment

Other accrued expenses

1 unchanged sentence

Total accounts payable and accrued expenses

Company financed all insurance policies for the policy term of August 17, 2022 through August 16, 2023.

The financing agreement has an

interest rate of 4.13 % per annum and requires eight monthly payments of $ 114,000 .

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

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.

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

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 .

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

on July 31, 2021.

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).

T he Notes are senior unsecured obligations of the

Company and rank equally in right of payment with all of our other existing and future senior unsecured and unsubordinated indebtedness.

The Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and

structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.

Notes bear interest at a rate of 8.625 % per annum.

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

31 and October 31 of each year, commencing on July 31, 2021.

The Notes will mature on April 30, 2026 .

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.

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 $ 1,812,000 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

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 $ 1,814,000 and $ 5,436,000 for the three and nine months ended September 30, 2022, respectively,

and $ 1,464,000 and $ 2,930,000 during the three and nine months ended September 30, 2021, respectively, and included amortization of debt

issuance costs and discount of $ 197,000 and $ 585,000 for three and nine months ended September 30, 2022, respectively, and $ 197,000 and

$ 389,000 during the three and nine months ended September 30, 2021, respectively.

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

OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES

Remainder of 2022

6 unchanged sentences

Notes payable, net of unamortized discount

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

These lease agreements have remaining

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

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

These lease agreements have

remaining 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 2027 .

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 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 lease was amended, effective July 2020, to

extend the term of the original lease and add 1,400

of additional square footage to the lease, and amended again in May 2021 to extend the term of the lease to July

2027 and add 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

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 expires in June 2027 .

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

held by the Company were 6.62 % and 10.99 years, respectively.

the three and nine months ended September 30, 2022, cash paid for amounts included for the operating lease liabilities was $ 249,000 and

$ 622,000 , respectively, and $ 250,000 and $ 752,000 during the same periods in 2021, respectively.

During the three and nine months ended

September 30, 2022, the Company recorded operating lease expense of $ 309,000 and $ 809,000 , respectively, which is included in selling,

general and administrative expenses.

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

SCHEDULE OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

Remainder of 2022

5 unchanged sentences

Operating lease liabilities, net of current portion

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.

the nine months ended September 30, 2022, the Company repaid all remaining amounts owed under its finance lease and no future payments

are due related to finance leases.

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

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

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

Baum, the Company’s Chief Executive

Officer, upon the cashless exercise of options to purchase 125,000 shares at an exercise price of $ 2.40 per share.

The Company withheld

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

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

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

Baum, the Company’s Chief

Executive Officer, upon the cashless exercise of options to purchase 125,000 shares at an exercise price of $ 2.40 per share.

withheld from Mr.

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

totaling $ 295,000 .

the nine months ended September 30, 2022, the Company issued 4,054 shares of common stock to consultants upon the cashless exercise

of options to purchase 15,995 shares at an exercise price of $ 7.07 per share.

The Company withheld 11,941 shares as consideration for

the cashless exercise.

the nine months ended September 30, 2022, the Company issued 3,275 shares of common stock and received net proceeds of $ 7,000 upon the

exercise of options to purchase 3,275 shares of common stock with exercise prices between $ 1.70 to $ 3.95 per share.

the nine months ended September 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 nine months ended September 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, 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.

the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2022, 35,693 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.

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

7 unchanged sentences

with the 2007 Plan, the “Plans”).

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

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

shares of the Company’s common stock.

6 unchanged sentences

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

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

The Company had 2,058,280 shares available for future issuances under the 2017 Plan at September 30, 2022.

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

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

Exercise Price

Contractual Life

Intrinsic Value

Options outstanding – January 1, 2022

2 unchanged sentences

Options cancelled/forfeited

Options outstanding – June 30, 2022

Options outstanding – September 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 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 .

price lower than the market price on September 30, 2022, based on the closing price of the Company’s common stock of $ 12.07 on

the nine months ended September 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 nine months ended September 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.

13 unchanged sentences

used for valuing options granted to employees:

OF FAIR VALUE ASSUMPTIONS

SCHEDULE OF FAIR VALUE ASSUMPTIONS

Weighted-average fair value of options granted

4 unchanged sentences

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

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

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

$ 2.40 - $ 3.50

3 unchanged sentences

$ 7.89 - $ 8.75

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

under the Plans.

of September 30, 2022, there was approximately $ 1,830,000 of total unrecognized compensation expense related to unvested stock options

granted under the Plans.

That expense is expected to be recognized over the weighted-average remaining vesting period of 4.34 years.

The stock-based

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 .

The stock-based compensation for all stock options was $ 241,000 and $ 771,000 during the three and nine months ended September 30, 2022,

respectively, and $ 355,000 and $ 1,376,000 during the same periods in 2021, respectively.

intrinsic value of options exercised during the nine months ended September 30, 2022 was $ 794,000 .

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 six months ended June

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

30, 2022 is as follows:

OF RESTRICTED STOCK UNITS ACTIVITY

Average Grant

Date Fair Value

RSUs unvested – January 1, 2022

RSUs cancelled/forfeited

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

RSUs unvested – September 30, 2022

of September 30, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $ 5,755,000 , which is expected

to be recognized over a weighted-average period of 0.85 years, based on estimated and actual vesting schedules of the applicable RSUs.

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,

The stock-based compensation for RSUs during the three and nine months ended September 30, 2022 was $ 1,691,000 and $ 5,170,000 , respectively,

and $ 1,340,000 and $ 2,167,000 during the same periods in 2021, respectively.

1 unchanged sentence

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 six months ended June 30, 2022 is as follows:

summary of warrant activity for the nine months ended September 30, 2022 is as follows:

OF WARRANTS ACTIVITY

Subject to Warrants

Exercise Price

Warrants outstanding – January 1, 2022

Warrants outstanding and exercisable – June

Warrants outstanding and exercisable – September

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:

the outstanding warrants in years – September 30, 2022

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

OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

2 unchanged sentences

Stock-Based Transactions

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.

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

September 30, 2022, and $ 2,000 and $ 87,000 during the same periods in 2021, respectively.

Compensation Summary

1 unchanged sentence

OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

Three Months Ended

September 30,

Nine Months Ended

September 30,

Employees – selling, general and administrative

40 unchanged sentences

of the Company’s restricted common stock.

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.

Payments totaling $ 77,000 and $ 199,000 were made during the three and nine months ended

September 30, 2022, respectively, compared to $ 44,000 and $ 114,000 during the same periods in 2021, respectively.

Royalty expenses were

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.

$ 67,000 and $ 244,000 during the three and nine months ended September 30, 2022, respectively, compared to $ 51,000 and $ 130,000 during

the same periods in 2021, respectively, and were 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 $ 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

was paid $ 8,000 and $ 23,000 in cash during the three and nine months ended September 30, 2022, respectively, and $ 7,000 and $ 21,000 during

the same periods in 2021, respectively.

The Company incurred $ 9,000 and $ 24,000 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

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

Agreement”) with Eyepoint Pharmaceuticals, Inc.

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

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

following ocular surgery in the United States.

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

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

Under the terms of the Dexycu

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

Dexycu Agreement expires on August 1, 2025 , subject to early termination in accordance with

the terms set forth therein.

Either party may terminate the Dexycu Agreement, subject to specified

notice periods and limitations, in the event of (i) uncured material breach by the other party or (ii) if DEXYCU ceases to have

“pass-through” payment status.

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

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

Eyepoint may terminate the Dexycu Agreement , subject to specified notice periods

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

During the three and

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

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

marketing representation services to Harrow in select geographies in the U.S.

in connection with the Company’s ophthalmic pharmaceutical

compounded formulations or related products.

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

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

In addition, the Company is required to make periodic milestone

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

certain future levels by the end of their terms.

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.

the three and nine months ended September 30, 2022, respectively, and $ 7,000 and $ 21,000 during the same periods in 2021, respectively.

Asset Purchase Agreement – Related Party

December 2019, the Company entered into an asset purchase agreement (the “Presbyopia APA”) with Richard L.

Lindstrom, M.D.,

a member of its Board of Directors.

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

related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic topical product to treat presbyopia

(the “Presbyopia Product”).

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

Lindstrom ranging from 2% to 4% of net sales,

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

Lindstrom was paid $ 0 in cash during the

three and nine month periods ended September 30, 2022 and 2021, and was due $ 0 at September 30, 2022 and 2021.

The Company incurred $ 0

for royalty expenses related to the Presbyopia APA during the three and nine month periods ended September 30, 2022 and 2021.

Purchase, License and Related Agreements

25 unchanged sentences

the Inventors.

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.

During the three and nine months ended September 30, 2022, $ 185,000 and $ 695,000 were incurred under these agreements

as royalty expenses, respectively, and $ 285,000 and $ 778,000 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.

1 unchanged sentence

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 including a $ 5,000,000 payment

(the “Upfront Payment”) due within 30 days of signing the Sintetica Agreement 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.

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

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.

(“IHEEZO”) in the U.S.

to the Sintetica Agreement, the Company agreed to pay Sintetica a per unit transfer price to supply IHEEZO, 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 including a $ 5,000,000

payment (the “Upfront Payment”) due within 30 days of signing the Sintetica Agreement and the balance of payments due

upon achievement of certain regulatory and commercial milestones.

Under the terms of the Sintetica Agreement, Sintetica is

responsible for regulatory filings for IHEEZO in the U.S.

The Upfront Payment along with an additional milestone payment of $ 3,117,000

was paid and recorded as R&D expenses during the year ended December 31, 2021.

During the three and nine months ended September

30, 2022, $ 5,000,000

was accrued under the Sintetica Agreement related to the FDA approval of the United States NDA for IHEEZO.

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

3 unchanged sentences

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

to the Wakamoto Agreements, Wakamoto will supply MAQ-100 to the Company, and the Company

will pay Wakamoto a per unit transfer price to supply MAQ-100.

In addition, the Company is 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 Agreements, the Company will be responsible for regulatory filings and fees

for MAQ-100 in the U.S.

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

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

Asset Purchase Agreement – Related Party

December 2019, the Company entered into an asset purchase agreement (the “Presbyopia APA”) with Richard L.

Lindstrom, M.D.,

a member of its Board of Directors.

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

related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic topical product to treat presbyopia

(the “Presbyopia Product”).

the terms of the Presbyopia Product, the Company is required to make royalty payments to Dr.

Lindstrom ranging from 2% to 4% of net sales,

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

Lindstrom was paid $ 0 in cash during the

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.

to the Wakamoto Agreements, Wakamoto agreed to supply MAQ-100 to the Company, and the

Company agreed to pay Wakamoto a per unit transfer price to supply MAQ-100.

In addition, the Company is 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, the Company is responsible

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

Through September 30, 2022, no amounts have been paid or accrued

under the Wakamoto Agreements.

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

MAQ-100 with a five-year extension if certain unit sales thresholds are met.

Commercial Alliance Agreement

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

Agreement”) with Eyepoint Pharmaceuticals, Inc.

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

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

following ocular surgery in the United States.

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

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

Under the terms of the Dexycu

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

to a mutual termination agreement entered into on October 7, 2022 the Dexycu Agreement

will terminate on January 1, 2023 (see Note 17 for more information).

During the three and nine months ended September 30, 2022, the

Company recorded $ 1,044,000

and $ 3,576,000 ,

respectively, and $ 900,000

and $ 2,212,000

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

and Marketing Agreements

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

marketing representation services to Harrow in select geographies in the U.S.

in connection with the Company’s ophthalmic pharmaceutical

compounded formulations or related products.

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

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

In addition, the Company is required to make periodic milestone

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

certain future levels by the end of their terms.

Commission expenses of $ 1,041,000 and $ 3,188,000 were incurred under these agreements

for commission expenses during the three and nine months ended September 30, 2022, respectively, and $ 953,000 and $ 2,766,000 during the

same periods in 2021, respectively.

CONCENTRATIONS

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 has two products that each comprised more than 10% of total revenues during the three and nine month periods ended September

30 2022 and 2021, respectively.

These products collectively accounted for 34 %

of revenues during the three and nine months ended September 30, 2022, respectively, and 35 %

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 and six months ended June 30, 2022 and 2021.

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

Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively accounted for 52 % and

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

66 % of active pharmaceutical ingredient purchases during the three and nine months ended September 30, 2022, respectively, and 59 % and

71 % during the same periods in 2021, respectively.

SUBSEQUENT EVENTS

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

Company has performed an evaluation of events occurring subsequent to September 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.

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.

October 2022, t he Company issued 306,347 shares of its common stock upon the cashless exercise

of warrants to purchase 373,847 shares of common stock, with an exercise price $ 2.08 per share.

October 2022, the Company issued 31,000 shares of common stock upon the exercise of options to purchase 31,000 shares of common stock

at exercise prices of $ 1.70 - $ 8.40 per share.

the preliminary Hospital Outpatient Prospective Payment System (HOPPS) rule proposed by the Centers for Medicare & Medicaid

Services (CMS) in July of 2022, which did not contain an extension of the pass-through payment period for Dexycu beyond December 31,

2022, the Company entered into a Mutual Termination Agreement (the “Termination Agreement”) with Eyepoint on October 7,

2022, pursuant to which Eyepoint and the Company agreed (a) that the Company will continue to support the sale of Dexycu through the

fourth quarter of 2022, consistent with the Company’s level of effort during the January through June 2022 period, (b) to

decrease the required minimum quarterly sales levels based on Dexycu unit demand for the fourth quarter of 2022, and (c) to

terminate the Dexycu Agreement, along with ancillary letter agreements, effective January 1, 2023.

of Non-Ophthalmology Revenues

October 2022, wholly-owned subsidiaries of the Company (“Imprimis”) entered into an Asset Purchase Agreement (the

“RPC Agreement”) with Innovation Compounding Pharmacy, LLC (the “Buyer”).

The closing of the RPC Agreement

was made effective on September 30, 2022;

however, control of the assets transferred to the Buyer, and a closing payment was made,

in October 2022.

Under the terms of the RPC Agreement, Imprimis agreed to sell substantially all of its assets associated with its

non-ophthalmology related compounding product line, including but not limited to, certain intellectual property rights, customer

lists, databases, and formulations (the “RPC Assets”).

The Buyer agreed to make offers of employment to six of the

Company’s employees that were responsible for the sales activities associated with the RPC Assets.

In connection with the RPC

Agreement, Imprimis entered into a separate transition services agreement with the Buyer related to providing on going services,

such as procuring and dispensing prescription orders associated with RPC Assets.

The Company expects Imprimis to provide transition

services to the Buyer for up to six months following the effective date of the RPC Agreement.

Under the terms of the RPC Agreement,

the Buyer paid Imprimis an aggregate cash amount of $ 6,000,000

in October 2022.

In addition, the Buyer is obligated to pay up to $ 4,500,000

to Imprimis based on mutually agreed upon revenue milestones during the calendar year 2023.

The Company determined that the

disposal of the related net assets does not qualify for reporting as a discontinued operation because it does not represent a

strategic shift that has or will have a major effect on the Company’s operations and financial results.

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