What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-23 compared with 2022-03-10 · 298 added, 600 removed, 239 unchanged (79% of the section changed)

14 unchanged sentences

and its consolidated subsidiaries, consisting of

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

and Mayfield Pharmaceuticals,

are an ophthalmic-focused healthcare company.

Our business specializes in the development, production and sale of innovative medications

that offer unique competitive advantages and serve unmet needs in the marketplace through our subsidiaries and deconsolidated companies.

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

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

In addition, we also have non-controlling

equity positions in Surface Ophthalmics, Inc.

Imprimis Rx NJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, and Harrow Eye, LLC.

are an ophthalmic-focused pharmaceutical company.

Our business specializes in the development, production, sale, and distribution of

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

and deconsolidated companies.

We serve ophthalmologists and optometrists by providing FDA-approved branded ophthalmic pharmaceuticals

and innovative compounded prescription medicines that are accessible and affordable.

We own the U.S.

commercial rights to ten branded

ophthalmic pharmaceutical products, including IHEEZO TM , IOPIDINE® (both approved concentrations), MAXITROL® eye drops,

MOXEZA®, ILEVRO®, NEVANAC®, VIGAMOX®, MAXIDEX®, and TRIESENCE®.

We own and operate ImprimisRx, one of the nation’s

leading ophthalmology-focused pharmaceutical-compounding businesses, and our branded drugs are marketed under our Harrow name.

we also have non-controlling equity positions in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals, Inc.

(“Melt”), both companies

that began as subsidiaries of Harrow and were subsequently deconsolidated.

We also own royalty rights in various drug candidates being

developed by Surface and Melt.

is our ophthalmology-focused prescription pharmaceutical business.

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

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

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

Initially, ImprimisRx focused exclusively on

compounded medications to serve needs unmet by commercially available drugs.

We make our formulations available at prices that are, in

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

dedicated prescribers and institutions.

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

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

Some of our compounded medications are various

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

Depending on the formulation, the regulations

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

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

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

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

product portfolio to include FDA-approved products.

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

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

rights to four FDA-approved ophthalmic

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

We believe that our continued

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

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

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

(“Eyepoint”),

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

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

Pursuant to the Dexycu Agreement, Eyepoint pays ImprimisRx

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

MAXITROL® EYE DROPS, MOXEZA®

December 2021, we acquired U.S.

commercial rights to four FDA-approved ophthalmic medicines:

IOPIDINE 1% and 0.5% (apraclonidine hydrochloride);

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

and MOXEZA (moxifloxacin hydrochloride).

We believe by expanding our product

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

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

product offerings.

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

closing of the transaction.

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

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

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

and Canada from Sintetica S.A.

(“Sintetica”).

AMP-100 is a patented, ophthalmic topical anesthetic drug candidate.

If FDA-approved, the active ingredient used in AMP-100 will be the

first approved use of this active ingredient in the U.S.

ophthalmic market.

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

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

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

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

and Canada from Wakamoto Pharmaceutical Co., Ltd.

(“Wakamoto”).

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

MAQ-100 is marketed and sold by Wakamoto

in Japan as MaQaid®.

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

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

Since its initial MHLW approval, the indication

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

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

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

MaQaid to support a clinical program and U.S.

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

We intend to request

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

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

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

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

with eyecare professionals across the United States.

We recently launched a proof-of-concept model for Visionology within certain U.S.

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

Pharmaceutical

Compounding Businesses

Pharmaceutical

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

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

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

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

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

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

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

between us and our end-user customer.

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

insurance companies, pharmacy benefit managers or other middle parties.

By not being reliant on insurance company formulary inclusion

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

We believe the outcome

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

for a quality pharmaceutical product.

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

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

Compounding Facilities

Pharmaceutical

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

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

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

compounded and where the medication is received.

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

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

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

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

Entities voluntarily

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

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

documents and being subject to regular FDA inspection.

operate two compounding facilities located in Ledgewood, New Jersey.

Our New Jersey operations are comprised of two separate entities

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

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

All products that

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

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

to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting.

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

Also, we may seek to access greater pharmacy

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

Businesses (De-Consolidated Businesses)

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

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

Surface’s and Melt’s drug candidates.

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

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

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

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

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

(“Radley”), Mayfield Pharmaceuticals,

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

In 2020, we halted nearly all operating activities

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

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

STE-006 drug candidate.

Noncontrolling

Equity Interests

Ophthalmics, Inc.

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

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

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

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

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

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

given SURF-201 were pain free at Day 15.

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

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

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

vehicle) for the treatment of episodic dry eye flares.

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

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

from our consolidated financial statements.

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

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

We own 3,500,000 shares of Surface common stock, which was approximately 20% of the equity and voting interests as of December 31, 2021.

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

Pharmaceuticals, Inc.

is a clinical-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous, sedation

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

Melt intends to seek regulatory

approval for its proprietary technologies, where possible.

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

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

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

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

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

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

Melt filed an investigational

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

In February 2021, Melt

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

Melt recently began enrolling patients in its Phase 2 study

for MELT-300.

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

At that time, we lost our controlling interest and deconsolidated

Melt from our consolidated financial statements.

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

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

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

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

In connection with the loan we provided Melt, we

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

of its drug candidates for a period of five years.

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

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

Melt can require the Company to cease compounding

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

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

a material impact on our operations and financial performance.

Pharmaceuticals, Inc.

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

Its pipeline includes

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

In May 2017, we gave up our controlling

interest in Eton.

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

outstanding of Eton as of December 31, 2021.

both companies that began as subsidiaries of Harrow and were subsequently carved-out of our corporate structure and deconsolidated from

our financial statements.

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

Affecting Our Performance

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

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

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

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

compounded formulations.

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

in the near and long-term.

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

to obtain from operations or other sources.

believe the primary factors affecting our performance are our ability to increase revenues of our branded pharmaceutical products, proprietary

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

restrictions, optimize pricing and obtain reimbursement options for our drug products, and continue to pursue development and commercialization

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

We believe we have

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

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

See “Liquidity and Capital Resources” below.

Reimbursement

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

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

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

cost criterion.

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

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

that a manufacturer may charge for the drug.

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

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

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

the pricing for that product.

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

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

CMS’ current non-opioid

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

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

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

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

a longer period of time, potentially through patent life.

Unless extended, Dexycu transitional pass-through reimbursement status will

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

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

However, we expect that MOXEZA,

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

by third-party payors.

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

drug products and candidates.

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

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

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

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

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

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

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

system for the delivery

and financing of health care and could conceivably have a material

adverse effect on our business.

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

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

basis and at desirable price points.

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

candidates available to more patients and at optimized pricing levels.

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

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

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

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

global pandemic by the World Health Organization in March 2020.

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

healthcare providers

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

pendency of the pandemic.

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

limited access to their facilities during the pandemic.

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

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

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

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

those restrictions related to elective procedures.

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

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

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

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

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

profitability and cash flows.

following describes certain developments in 2022 to date that are important to understand our financial condition and results of operations.

1 unchanged sentence

of these developments.

Rights to MAXITROL Eye Drops, IOPIDINE and MOXEZA

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

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

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

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

On the Closing Date, we made a one-time

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

rights to the NVS

Products and their related intellectual property.

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

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

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

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

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

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

manufacturing to other third-party manufacturers, if needed.

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

(the “PPP Loan”) in the principal amount of $1,967,000 and received cash proceeds of the same amount, pursuant to the Paycheck

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

which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

On March 30, 2021, the Company received

a notice of forgiveness of the full balance of the PPP Loan, including all accrued interest, in accordance with the terms and conditions

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

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

per share (the “Eton Stock Sale”).

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

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

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

stock, which represented less than 10% of the equity interests issued and outstanding of Eton as of December 31, 2021.

part of the Eton Stock Sale, we also agreed, for a period of 180 days, not to conduct any further sales of shares of its common stock

of Eton or otherwise dispose of, directly or indirectly, any common stock of Eton (or any securities convertible into, or exercisable

or exchangeable for, the common stock of Eton).

Senior Notes Due 2026

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

T he Notes are senior unsecured obligations of the Company

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

Notes are effectively subordinated in right of payment to all of our existing and future secured indebtedness and structurally subordinated

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

The Notes bear interest at the

rate of 8.625% per annum.

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

year, and commenced on July 31, 2021.

The Notes will mature on April 30, 2026.

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

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

to, but excluding, the date of redemption.

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

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

excluding, the date of redemption.

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

B Cumulative Preferred Stock - Redeemed

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

of Non-Ophthalmic Assets

October 2022, we entered into an Asset Purchase Agreement (the “RPC Agreement”) with Innovation Compounding Pharmacy, LLC

(the “Buyer”).

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

its non-ophthalmology related compounding business, 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, the Company

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 to provide transition services to the Buyer for six to nine months

following the effective date of the RPC Agreement.

Under the terms of the RPC Agreement, the Buyer paid to the Company an aggregate cash

amount of $6,000,000 on October 5, 2022.

In addition, the Buyer is obligated to pay up to $4,500,000 to the Company based on mutually

agreed upon revenue milestones during the calendar year 2023.

Loan Amendments

April and September 2022, we entered into a First Amendment and Second Amendment (collectively the “Amendments”) to our loan

and security agreement previously entered into on September 1, 2021 with Melt.

The Amendments provide for the following:

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

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

maturity date by which all amounts owed under the loan agreement are payable was extended to June 1, 2023, which can be extended

further to September 1, 2026 following a qualified financing of at least $10,000,0000, 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 us.

of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX and TRIESENCE

December 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Novartis Technology, LLC and Novartis

Innovative Therapies AG (together, “Novartis”), pursuant to which the Company agreed to purchase from Novartis the exclusive

commercial rights to assets associated with the following ophthalmic products (collectively the “Fab 5 Products”) in the

(the “Fab 5 Acquisition”):

(nepafenac ophthalmic suspension) 0.3%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated

with cataract surgery.

(nepafenac ophthalmic suspension) 0.1%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated

with cataract surgery.

(moxifloxacin hydrochloride ophthalmic solution) 0.5%, a fluoroquinolone antibiotic eye drop for the treatment of bacterial conjunctivitis

caused by susceptible strains of organisms.

(dexamethasone ophthalmic suspension) 0.1%, a steroid eye drop for steroid-responsive inflammatory conditions of the palpebral and

bulbar conjunctiva, cornea, and anterior segment of the globe.

(triamcinolone acetonide injectable suspension) 40 mg/ml, a steroid injection for the treatment of certain ophthalmic diseases and

for visualization during vitrectomy.

closed the Fab 5 Acquisition on January 20, 2023.

Under the terms of the Purchase Agreement, we made a one-time payment of $130,000,000

at closing, with up to another $45,000,000 due in a milestone payment related to the timing of the commercial availability of TRIESENCE.

Pursuant to the Purchase Agreement and various ancillary agreements, immediately following the closing and subject to certain conditions,

for a period that we expect to last approximately six months, and prior to the transfer of the Fab 5 Products new drug applications (the

“NDAs”) to us, Novartis will continue to sell the Fab 5 Products on our behalf and transfer the net profit from the sale

of the Fab 5 Products to us.

Novartis has agreed to supply certain Fab 5 Products to the Company for a period of time after the NDAs

are transferred to us and to assist with technology transfer of the Fab 5 Products manufacturing to other third-party manufacturers,

Stock Offering

December 2022, we entered into an underwriting agreement (the “Common Stock Underwriting Agreement”) with B.

Riley Securities,

related to a registered direct offering of shares of the Company’s common stock to certain accredited investors, at an offering

price of $10.52.

Under the terms of the Common Stock Underwriting Agreement we sold 2,376,426 shares of our common stock for gross proceeds

of $25,000,002.

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

The redemption price

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

which in aggregate totaled $11,127,000.

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

(“Sintetica”),

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

(“AMP-100”) in the U.S.

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

for units sold.

The Company is required to pay Sintetica up to $18,000,000 in one-time milestone payments, $5,000,000 of which was paid

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

upon achievement of certain regulatory and commercial milestones.

Under the terms of the Sintetica Agreement, Sintetica will be responsible

for regulatory filings for AMP-100 in the U.S.

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

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

with Wakamoto Pharmaceutical Co., Ltd.

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

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

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

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

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

Under the terms of the Wakamoto Agreements,

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

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

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

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

as lender, with Melt, as borrower.

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

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

The Melt Loan Agreement permits Melt to

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

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

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

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

The Melt Loan Agreement contains customary representations,

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

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

The Melt Loan Agreement includes customary events of

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

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

(3%) per annum.

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

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

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

Notes Offering

December 2022, the Company entered into an underwriting agreement with B.

Riley Securities, Inc., as representative of the several

underwriters named therein, pursuant to which we agreed to sell $35,000,000 aggregate principal amount of 11.875% senior notes due

2027 (the “2027 Notes”) plus up to an additional $5,250,000 aggregate principal amount of 11.875% senior notes due 2027

pursuant to the underwriters’ option to purchase additional 2027 Notes, which was exercised in January 2023.

Riley Loan and Security Agreement

December 14, 2022 (the “Effective Date”), we entered into a Loan and Security Agreement (the “BR Loan”) with

Riley Commercial Capital, LLC, as Administrative Agent for the Lenders.

The proceeds from the BR Loan were used to finance the Fab

5 Acquisition.

BR Loan provided for a loan facility of up to $100,000,000 to the Company with a maturity date of December 14, 2025, at an interest rate

of 10.875% per annum.

The BR Loan is secured by an intellectual property security agreement and by all assets of the Company and its

material subsidiaries.

In January 2023, $59,750,000 of principal amount was funded pursuant to the BR Loan simultaneously with the consummation

of the Fab 5 Acquisition.

of Operations

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

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

of Years Ended December 31, 2022 and 2021

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following presents our revenues for the years ended December 31, 2022 and 2021:

the Year Ended December 31,

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

and commissions attributable to sales of Dexycu®.

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

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

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

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

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

the Years Ended December 31,

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

attributable to sales of Dexycu® and transfer of profits from recently acquired products.

In June of 2022, the Company completed

the transfer from the seller to Harrow of Iopidine and Maxitrol NDAs and relaunched those products.

As a result, we will not record revenues

associated with the transfer of profits associated with those products in future periods.

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

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

improvements depreciation, the write-off of obsolete inventory depreciation and amortization of certain intangibles and other

related expenses.

following presents our cost of sales for the years ended December 31, 2022 and 2021:

the Year Ended December 31,

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

31, 2021 compared to 2020.

the Years Ended December 31,

increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold and increased direct and indirect

costs associated with production of our products during the year ended December 31, 2022 compared to 2021.

Profit and Margin

the Year Ended December 31,

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

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

December 31, 2021.

the Years Ended December 31,

decrease in gross margin is primarily attributable to amortization of acquired NDAs beginning in January 2022, along with a one-time

adverse production related event in April 2022, increased discounts provided during 2022 associated with volume-based purchases and increased

(direct and indirect) production costs incurred during 2022.

General and Administrative Expenses

3 unchanged sentences

following presents our selling, general and administrative expenses for the years ended December 31, 2022 and 2021:

the Year Ended December 31,

the Years Ended December 31,

general and administrative

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

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

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

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

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

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

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

associated with regulatory improvements, to support the transition of recent product acquisitions, and an increase in expenses related

to the addition of new employees in sales, marketing and other departments to support current and expected growth, including the anticipated

commercial launch of IHEEZO in 2023.

and Development Expenses

3 unchanged sentences

following presents our R&D expenses for the years ended December 31, 2022 and 2021:

the Year Ended December 31,

the Years Ended December 31,

and development

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

costs associated with the clinical program for MAQ-100.

$ (8,034,000 )

the year ended December 31, 2022, research and development expenses decreased from the same period in 2021 primarily as a result of a

one-time payment for acquired research and development incurred in 2021 related to the acquisition of IHEEZO.

and Disposal of Long-Lived Assets

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

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

applications and $150,000 was related to equipment that was no longer in service.

expense, net was $7,244,000 during the year ended December 31, 2022 compared to $5,436,000 during the year ended December 31, 2021.

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

Equity in Losses from Unconsolidated Entities

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

based on our ownership of Melt.

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

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

(Loss) Gain from Eton

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

increase was primarily due to an increase in the principal balance of our loans throughout the two periods presented.

in Losses of Unconsolidated Entities

the years ended December 31, 2022 and 2021, we recorded a loss of $11,133,000 and $5,334,000, respectively, for our share of losses based

on our ownership of Melt and Surface.

Loss from Eton

recorded a loss of $2,914,000 related to the change in fair market value of Eton’s common stock for the year ended December 31,

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

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

We recorded a gain of $3,255,000

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

Loss on Early Extinguishment of Debt

the year ended December 31, 2021, we recorded a loss from early extinguishment of $756,000 related the payment of all outstanding

obligations to the Company’s previous senior lender, SWK Funding, LLC, and its partners.

on Forgiveness of PPP Loan

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

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

on Sale of Non-Ophthalmology Assets

the year ended December 31, 2022, we recorded a gain on the sale of our non-ophthalmology assets to Innovation Compounding Pharmacy,

LLC of $5,259,000.

the year ended December 31, 2022, we recorded other income, net of $102,000 which was primarily the result of income of $102,000 related

to the transition services provided as part of non-ophthalmology related compounding product line.

During the year ended December 31,

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

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

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

During the year

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

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

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

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

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

For the Year Ended

Net loss attributable to common stockholders

This was primarily the result of income of $238,000 related to negotiation of old payables

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

following table presents our net loss for the years ended December 31, 2022 and 2021:

the Years Ended December 31,

$ (14,086,000 )

$ (18,479,000 )

Net loss per share, basic and diluted

loss per share, basic and diluted

and Capital Resources

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

Since inception

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

These losses are primarily due to selling, general and administrative

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

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

of our pharmacy operations.

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

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

We also may consider the sale of

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

subsidiaries.

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

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

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

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

our operations.

cash on hand at December 31, 2022 was $96,270,000, compared to $42,167,000 at December 31, 2021.

Since inception through December 31,

2022, we incurred aggregate losses of $109,493,000.

These losses are primarily due to selling, general and administrative and research

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

we have now discontinued, the development and commercialization of novel compounded formulations and the development of our pharmacy

of the date of this Annual Report, we believe that cash and cash equivalents of $96,270,000 at December 31, 2022, along with proceeds

received from the BR Loan will be sufficient to sustain our planned level of operations and capital expenditures for at least the next

We also may consider the sale of certain assets including, but not limited to, part of, or all of, our ownership interest

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

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

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

companies or other strategic transactions that involve large expenditures or we may experience growth more quickly or on a larger scale

than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to

seek additional financing earlier than we expect to support our operations.

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

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

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

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

fund our operations.

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

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

includes developing and commercializing FDA-approved products, compounded formulations, and technologies, developing our overall operations,

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

and outsourcing facilities, drug companies and manufacturers, and/or assets or technologies, and otherwise fund our operations.

also use our resources to conduct clinical trials or other studies in support of our formulations or any drug candidate for which we

pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

following provides detailed information about our net cash flows for the years ended December 31, 2022 and 2021:

2 unchanged sentences

(18,686,000 )

(18,685,000 )

change in cash and cash equivalents

1 unchanged sentence

and cash equivalents at end of the year

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

Net cash provided

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

revenues and production efficiencies.

cash provided by operating activities was $1,705,000 in 2022, compared to $5,082,000 in the prior year.

Net cash provided by operating

activities during the year ended December 31, 2022 decreased primarily as a result of an increase in operating expenses during year in

preparation of the launch of IHEEZO and in support of operationalizing other product acquisitions.

cash used in investing activities in 2022 and 2021 was $(1,743,000) and $(18,686,000), respectively.

Cash used in investing activities

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

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

Cash used in investing activities

during the 2022 period was primarily associated with equipment and software purchases and upgrades along with investments in our intellectual

property portfolio.

property portfolio, offset by cash received on the sale of our non-ophthalmic assets.

Cash used in investing activities in 2021 was primarily

associated with cash payments made in connection with the Melt note receivable and the acquisition of MAXITRO, IOPIDINE and MOXEZA, offset

by cash received through the sale of a portion of our Eton common stock.

cash provided by financing activities in 2022 and 2021 was $54,141,000 and $51,470,000, respectively.

Cash provided by financing activities

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

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

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

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

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

the sale of the Notes and sale of Eton common stock.

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

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

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

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

Net cash provided by financing

activities during the year ended December 31, 2022 was primarily related to net proceeds from the sale of $35,000,000 Notes and sale

of common stock.

Net cash provided by financing activities during the year ended December 31, 2021 was primarily related to net proceeds

received from the sale of $75,000,000 senior notes due April 2026, net of the payment of all outstanding obligations to the Company’s

previous senior lender, SWK Funding, LLC, and its partners.

principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, our brand ophthalmic pharmaceuticals

business, proceeds from the sale of the Notes and sale of Eton common stock.

We may also sell some or all of our ownership interests

in Surface, Melt or our other subsidiaries, along with the some or all of the remaining portion of our Eton common stock.

changing trends and overall economic outlook, including the historic interim stay-at-home orders and bans on elective surgeries associated

with the COVID-19 pandemic, created uncertainty surrounding our operating outlook and may impact our future operating results if there

is a resurgence in COVID-19 cases in the U.S.

45 unchanged sentences

Recognition and Deferred Revenue

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

We have two primary streams

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

property license and asset purchase agreements.

account for contracts with customers in accordance with Accounting Standards Codification (“ASC”) 606, Revenues from Contracts

with Customers.

We have two primary streams of revenue:

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

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

Revenues from Pharmacy Services

sell prescription drugs directly through our pharmacy and outsourcing facility network.

Revenue from our pharmacy services divisions

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

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

Sales taxes are

not included in revenue.

prescription medications directly through our pharmacy, outsourcing facility and 3PL partner.

Revenue from our pharmacy services includes:

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

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

Sales taxes are not included

Following the core principles of ASC 606, we have identified the following:

the contract(s) with a customer:

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

the performance obligations in the contract:

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

the product the customer is wishing to receive.

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

the transaction price:

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

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

the transaction price to the performance obligations in the contract:

The transaction price associated with the product(s) being

ordered is allocated according to the pre-determined amounts.

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

At the time of shipment from the pharmacy or outsourcing facility

the performance obligation has been met.

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

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

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

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

Determination of criteria (3) and (4) is based on management’s

judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.

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

Estimated returns and allowances and other adjustments are provided

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

The rate of returns is analyzed

annually to determine historical returns experience.

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

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

period could be materially affected.

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

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

the year ended December 31, 2020, we entered into an agreement whereby we are paid a fee calculated based on sales we generate from

a pharmaceutical product that is owned by a third party.

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

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

there is no future performance obligation required by us and no consequential continuing involvement on our part to recognize the associated

of Profit Revenues

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

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

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

the sale of the products to us.

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

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

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

Property License Revenues

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

a customer with right to access our intellectual property.

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

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

and various performance or sales milestones.

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

at the point of time the performance obligation is met.

Non-refundable

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

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

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

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

for such compounded drug preparations.

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

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

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

In addition, if our continued involvement

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

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

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

Identify the contract(s) with a customer :

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 a customer.

For branded products, orders are received through our 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled.

Identify the performance obligations in the contract :

Obligations for fulfillment of our 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 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.

We have elected to treat its shipping and handling activities as a fulfillment cost.

Determine the transaction price :

The transaction price is based on an amount that reflects the consideration to which we expect 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.

We utilize 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.

Allocate the transaction price to the performance obligations in the contract :

Given that there is only one performance obligation for product sales, no allocation is necessary.

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

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.

Commission Revenues

We entered into an

agreement whereby we are paid a fee calculated based on sales we generate from a pharmaceutical product that is owned by a third party.

The revenue earned from this arrangement is recognized, at which point there is no future performance obligation required by us and no

consequential continuing involvement on our part to recognize the associated revenue.

Revenues From Transfer of Acquired Product Profit

into an agreement whereby we 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 us.

The revenue we recognized from

the transfer of net profit was recognized at the time profit from the product sales was calculated by the Seller and confirmed by us,

typically on a monthly basis, at which point there is no future performance obligation required and no consequential continuing involvement

on our part to recognize the associated revenue.

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

made to customers related to the products.

We used historical actual experience to estimate Chargebacks associated with the net profit

The estimate is recorded as a reduction in revenues in our consolidated statements of operations and accounts receivable

in the consolidated balance sheets at the time the revenue is recognized.

Intellectual Property License Revenues

hold five intellectual property licenses and related agreements pursuant to which we have agreed to license or sell to a customer with

the right to access our intellectual property.

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

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

performance or sales milestones.

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

in time that the performance obligation is met.

Non-refundable fees

that are not contingent on any future performance and require no consequential continuing involvement on our part are recognized as revenue

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

Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity

relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications for such compounded

drug preparations.

We defer recognition of non-refundable fees if it has continuing performance obligations without which the technology,

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

independent of our performance under the other elements of the arrangement.

In addition, if our continued involvement is required, through

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

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

Guaranteed minimum

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

in Eton Pharmaceuticals, Inc.

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

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

At December 31, 2022, the fair market value of Eton’s common stock was $2.82 per share.

2 unchanged sentences

Recognition and Measurement of Financial

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

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

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

As of December 31, 2021 and

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

Assets and Financial Liabilities , for the years ended December 31, 2022 and 2021, we recorded an investment loss from our Eton common

stock position of $2,914,000 and $10,126,000 respectively, related to the change in fair market value of our investment in Eton during

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

the year ended December 31, 2021.

As of December 31, 2022 and 2021, the fair market value of our investment in Eton was $5,589,000 and

$8,503,000, respectively.

in Surface Ophthalmics, Inc.

– Related Party

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

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

the operating and financial decisions of Surface.

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

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

Our share of earnings and losses are based

on our ownership interest of Surface.

own 3,500,000 common shares of Surface, which represented approximately 20% of the equity and voting interests as of December 31, 2022,

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

influence over the operating and financial decisions of Surface.

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

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

Our share of earnings and

losses are based on our ownership interest of Surface.

Any intra-entity profits and losses are eliminated.

We recorded equity in the net loss of Surface

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

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

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

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

We recorded equity in the

net loss of Surface of $1,314,000 during the year ended December 31, 2021.

As of December 31, 2022 and 2021, the carrying value of our

investment in Surface was $0 and $0, respectively.

Note 6 to our consolidated financial statements for more information and related party disclosure regarding Surface.

in Melt Pharmaceuticals, Inc.

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

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

We analyze our investment

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

We no longer have a controlling

position in Melt;

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

own 3,500,000 common shares of Melt, which represented approximately 46% of its equity and voting interests as of December 31, 2022.

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

no longer have a controlling position in Melt;

however, we do have the ability to exercise significant influence over the operating and

financial decisions of Melt.

We use the equity method of accounting for this investment.

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

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

Our share of earnings and losses are based

on our ownership interest of Melt.

Under this method, we recognize earnings and

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

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

Any intra-entity profits and losses are eliminated.

During the year ended December 31, 2021 we reduced

our common stock investment in Melt to $0.

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

100% of the debt owed by Melt.

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

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

We recorded equity in net loss of Melt of

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

Our investment in Melt was $11,133,000

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

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

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

During the year

ended December 31, 2021 we reduced our common stock investment in Melt to $0.

As of December 31, 2022 and 2021 and at the time of entering

into the Melt Loan Agreement, we owned 100% of the debt owed by Melt.

Following the reduction of the carrying value of our common stock

investment in Melt to $0 we began recording 100% of the equity method losses of Melt, based on our ownership of total debt owed by Melt.

We recorded equity in net losses of Melt of $11,133,000 and $4,020,000 during the years ended December 31, 2021 and 2022, respectively.

As of December 31, 2022, our investment in Melt was $0 and $139,000 is due from Melt for reimbursable expenses and amounts due under

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

Notes 2 and 5 to our consolidated financial statements for more information and related party disclosure regarding Melt.

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

69 unchanged sentences

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

● significant

underperformance of the our business relative to expected operating results;

● significant

adverse economic and industry trends;

● significant

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

● expectations

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

that a reporting unit will be sold or otherwise disposed.

32 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis