What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-23 compared with 2022-03-10 · 1449 added, 1129 removed, 889 unchanged (74% of the section changed)

78 unchanged sentences

Item 15(b) below for all exhibits being filed or incorporated by reference herein.

INDEX to be UPDATED BY HARROW

Agreement and Plan of Merger, dated as of September 17, 2007, by and among Imprimis Pharmaceuticals, Inc., Transdel Pharmaceuticals Holdings, Inc.

13 unchanged sentences

filed with the Securities and Exchange Commission on December 31, 2018)

Certificate of Designation designating the Series B Cumulative Preferred Stock of the Company (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on May 5, 2021).

Certificate of Designation of Series B Cumulative Preferred Stock of Harrow Health, Inc.

(incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on May 5, 2021)

Description of the Company’s Securities

Indenture, dated as of April 20, 2021, by and between the Company and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on April 20, 2021).

First Supplemental Indenture, dated as of April 20, 2021, by and between the Company and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on April 20, 2021).

Form of 8.625% Senior Note due 2026 (included in Exhibit 4.3).

Indenture dated April 20, 2021 between Harrow Health, Inc.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on April 20, 2021).

First Supplemental Indenture dated April 20, 2021 between Harrow Health, Inc.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on April 20, 2021).

Form of 8.625% Senior Note due 2026 (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on April 20, 2021).

Second Supplemental Indenture dated December 20, 2022 between Harrow Health, Inc.

Bank Trust Company, National Association (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on December 20, 2022).

Form of 11.875% Senior Note due 2027 (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on December 20, 2022).

Form of Directors and Officers Indemnification Agreement (incorporated herein by reference to Exhibit 10.8 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

13 unchanged sentences

filed with the Securities and Exchange Commission on May 8, 2013)

Stand-alone Restricted Stock Unit Agreement, dated July 18, 2012, granted by Imprimis Pharmaceuticals, Inc.

Baum (incorporated herein by reference to Exhibit 10.40 to the Company’s Registration Statement on Form S-1 (File No.

333-182846) filed on July 25, 2012)

Stand-alone Restricted Stock Unit Agreement, dated July 18, 2012, granted by Imprimis Pharmaceuticals, Inc.

Kammer (incorporated herein by reference to Exhibit 10.41 to the Company’s Registration Statement on Form S-1 (File No.

333-182846) filed on July 25, 2012)

Form of Underwriter’s Warrant (incorporated herein by reference to Exhibit 10.41 to the Company’s Registration Statement on Form S-1 (File No.

333-182846) filed on October 26, 2012)

Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc.

Baum (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on April 26, 2016)

Baum (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016)

Stock Units Agreement, dated May 2, 2013, by and between Imprimis Pharmaceuticals, Inc.

Baum (incorporated herein by

reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the

Securities and Exchange Commission on August 14, 2013)

Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc.

and Andrew R.

Boll (incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on April 26, 2016)

Boll (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016)

Performance Stock Units Award Agreement, effective as of February 1, 2015, by and between Imprimis Pharmaceuticals, Inc.

and Andrew R.

Boll (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2015)

Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc.

Saharek (incorporated herein by reference to Exhibit 10.7 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on April 26, 2016)

Saharek (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016)

Warrant to Purchase Stock, dated May 11, 2015, issued by Imprimis Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on May 12, 2015)

Warrant Amendment to Purchase Stock, dated December 27, 2016, issued by Imprimis Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on December 29, 2016)

Form of Securities Purchase Agreement, dated March 21, 2017, between the Registrant and the Investors (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on March 22, 2017)

License Agreement dated April 1, 2017 between Imprimis Pharmaceuticals, Inc.

117 unchanged sentences

filed with the Securities and Exchange Commission on November 9, 2020).

Securities Purchase Agreement, dated as of May 5, 2021, by and between the Company and B.

Riley Securities, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on May 5, 2021).

License and Supply Agreement, dated as of July 25, 2021, by and between the Company and Sintetica, S.A.

(incorporated herein by reference to Exhibit 10.2+ to the Current Report on Form 10-Q of the Company filed with the Securities and Exchange Commission on August 10, 2021).

Expansion Term Letter Agreement dated December 6, 2021 between Eyepoint Pharmaceuticals, Inc.

and ImprimisRx, LLC (incorporated herein by reference to Exhibit 10.50 to the Annual Report on Form 10-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on March 10, 2022)

Mutual Termination Agreement dated October 7, 2022 between ImprimisRx and EyePoint Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on November 14, 2022)

License and Supply Agreement dated July 25, 2021 between Harrow Health, Inc.

and Sintetica, S.A.

(incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on August 10, 2021)

Harrow Health, Inc.

2017 Incentive Stock and Awards Plan (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-8 of Imprimis Pharmaceuticals, Inc.

filed with the Securities and Exchange Commission on August 25, 2017)

First Amendment to the Harrow Health, Inc.

2017 Incentive Stock and Awards Plan (incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the SEC on April 23, 2021).

Loan and Security Agreement, dated September 1, 2021, by and between the Company and Melt Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on September 2, 2021).

Basic Sale and Purchase Agreement, dated as of August 18, 2021, by and between the Company and Wakamoto Pharmaceutical Co., Ltd.

(incorporated herein by reference to Exhibit 10.3+ to the Current Report on Form 10-Q of the Company filed with the Securities and Exchange Commission on November 9, 2021).

License Agreement, dated as of August 18, 2021, by and between the Company and Wakamoto Pharmaceutical Co., Ltd.

(incorporated herein by reference to Exhibit 10.4+ to the Current Report on Form 10-Q of the Company filed with the Securities and Exchange Commission on November 9, 2021).

Expansion Term Letter Agreement between Eyepoint Pharmaceuticals, Inc.

and ImprimisRx, LLC dated December 6, 2021.

Asset Purchase Agreement, dated as of December 17, 2021, by and between the Company and Novartis Technology, LLC and Novartis Ophthalmics AG

2017 Incentive Stock and Awards Plan (incorporated herein by reference to Appendix A to Harrow Health, Inc.’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 23, 2021)

Loan and Security Agreement dated September 1, 2021 among Harrow Health, Inc.

and Melt Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on September 2, 2021)

First Amendment to Loan and Security Agreement dated April 8, 2022 between Harrow Health, Inc.

and Melt Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on November 14, 2022)

Second Amendment to Loan and Security Agreement dated September 21, 2022 between Harrow Health, Inc.

and Melt Pharmaceuticals, Inc.

(incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on November 14, 2022)

Basic Sale and Purchase Agreement dated August 18, 2021 between Harrow Health, Inc.

and Wakamoto Pharmaceutical Co., Ltd.

(incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on November 9, 2021)

License Agreement dated August 18, 2021 between Harrow Health, Inc.

and Wakamoto Pharmaceutical Co., Ltd.

(incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Harrow Health, Inc.

filed with the Securities and Exchange Commission on November 9, 2021)

Asset Purchase Agreement dated December 17, 2021 between Harrow Health, Inc.

and Novartis Technology, LLC and Novartis Ophthalmics AG (incorporated herein by reference to Exhibit 10.51 to the Annual Report on Form 10-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on March 10, 2022)

Asset Purchase Agreement dated December 13, 2022 between Harrow Health, Inc.

and Novartis Technology, LLC and Novartis Innovative Therapies AG (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 10-K of Harrow Health, Inc.

filed with the Securities and Exchange Commission on December 14, 2022).

List of Subsidiaries

18 unchanged sentences

XBRL Taxonomy Extension Presentation Linkbase Document

cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 has been formatted in

cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 has been formatted in Inline

contract or compensatory plan or arrangement.

24 unchanged sentences

Lawrence Van Horn

Martin Makary

to Consolidated Financial Statements

6 unchanged sentences

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and Board of Directors

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheets of Harrow Health, Inc.

and subsidiaries (the “Company”) as of

December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for

each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the

“consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present

fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of

its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting

principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion

on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting

Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control over financial reporting.

To the Stockholders and Board of Directors

Harrow Health, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance

sheets of Harrow Health, Inc.

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated

statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022,

and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,

2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in

conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that

was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication

of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we

are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts

or disclosures to which it relates.

for Investments in Melt Pharmaceuticals, Inc.

Audit Matter Description

described in Notes 2 and 4 to the consolidated financial statements, the Company has investments in Melt Pharmaceuticals, Inc.

which it records under the equity method of accounting.

The structure and related agreements between the Company and Melt need to be

evaluated for consolidation, including determining whether Melt is a variable interest entity (“VIE”), and if so, whether

the Company is the primary beneficiary.

This assessment was performed at the formation of Melt and upon the occurrence of reconsideration

This determination requires significant judgment by management.

of December 31, 2021, the carrying value of the Company’s investments in Melt was $11.1 million.

identified the accounting for the Company’s investments in Melt, including the primary beneficiary assessment upon the occurrence

of reconsideration events, as a critical audit matter given the complex nature of the relevant accounting guidance, as well as the significant

judgment required by management.

This required a high degree of auditor judgment and an increased extent of audit effort due to the nature

and complexity of the agreements between the Company and Melt.

the Critical Audit Matter Was Addressed in the Audit

audit procedures related to the accounting determination for the investments in Melt, including the primary beneficiary assessment upon

the occurrence of reconsideration events, included obtaining an understanding of management’s assessment of the accounting treatment

of the investments through examination of the related agreements and evaluation of management’s analysis of the significant terms

and characteristics of the investments, the relevant accounting guidance and conclusions.

We evaluated management’s conclusions

regarding the accounting for the investments in Melt and considered whether management appropriately determined if Melt is a variable

interest entity, and if so, appropriately determined the primary beneficiary by considering contractual arrangements of Melt to evaluate

if the Company has the power to direct activities and the obligation to absorb losses of Melt or the right to receive benefits from Melt

that could be significant to the variable interest.

also evaluated evidence obtained in other areas of the audit to determine if there were additional reconsideration events that had not

been identified by the Company, including, among others, reading board minutes of Melt and reading and analyzing all relevant provisions

of the agreements between the Company and Melt.

We further assessed the completeness and accuracy of management’s classification

and disclosure of the Company’s investments in Melt.

KMJ Corbin & Company LLP

have served as the Company’s auditor since 2007.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is

a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Product Sales Deductions – Branded Products

Critical Audit Matter Description

As described in Note 3 to the consolidated financial

statements, revenues from branded product sales are recognized net of accruals for estimated rebates, wholesaler chargebacks, discounts

and other deductions (collectively, “sales deductions”), which are established at the time of sale.

Management’s estimate

of sales deductions for branded products is based on the inventory levels in the distribution channel as provided by wholesalers, as well

as the actual average selling price for each product which is impacted by changes in customer mix, changes in negotiated terms with customers,

and changes in the volume of purchases.

In addition, management utilizes the services of a third-party professional services firm to estimate

rebates and chargebacks associated with sales of its branded products.

We identified the estimates of accruals for sales

deductions as a critical audit matter given the limited sales history of the Company’s branded products and the significant judgment

required by management with respect to the measurement uncertainty, as the calculation of the sales deductions includes assumptions such

as average selling price, purchasing trends of wholesalers and historical branded product sales used to predict future sales.

This required

a high degree of auditor judgment and an increased extent of audit effort in applying the procedures related to management’s assumptions.

How the Critical Audit Matter Was Addressed in

To test management’s estimated branded product

sales deductions, we obtained management’s calculations for the respective estimates and performed the following procedures, among

We tested management’s estimation process for determining accruals for product sales deductions by developing an independent

expectation of the estimated accrual rates, including comparison of rates used in management’s analysis to external industry data,

historical actual information, and executed third-party contracts.

We evaluated management’s historic ability to accurately estimate

the sales deduction accruals by retrospectively comparing historically recorded accruals to the actual amounts that were ultimately claimed

by the wholesalers.

In addition, we assessed subsequent events to determine whether there was any new information that would require adjustment

to the accruals.

/s/ KMJ Corbin & Company LLP

We have served as the Company’s auditor since 2007.

Irvine, California

March 23, 2023

BALANCE SHEETS

thousands, except share data)

and cash equivalents, including restricted cash of $ 200 at December 31, 2020

in Eton Pharmaceuticals

receivable, net

expenses and other current assets

HARROW HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

Current assets

plant and equipment, net

software development costs, net

lease right-of-use assets

in Surface Pharmaceuticals

in Melt Pharmaceuticals

AND STOCKHOLDERS’ EQUITY

payable and accrued expenses

payroll and related liabilities

revenue and customer deposits

portion of loans payable, net of unamortized debt discount

portion of operating lease obligations

portion of finance lease obligations

Cash and cash equivalents

Investment in Eton Pharmaceuticals

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Capitalized software costs, net

Deferred financing costs

Operating lease right-of-use assets, net

Intangible assets, net

Investment in Melt Pharmaceuticals

$ 157,378,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

lease liabilities, net of current portion

lease obligations, net of current portion

expenses, net of current portion

payable, net of current portion and unamortized debt discount

and contingencies

STOCKHOLDERS’

stock, $ 0.001 par value, 50,000,000 shares authorized, 26,902,763 and 25,749,875 shares issued and outstanding at December 31, 2021

and December 31, 2020, respectively

paid-in capital

HARROW HEALTH STOCKHOLDERS’ EQUITY

Noncontrolling

Accounts payable and accrued expenses

Accrued payroll and related liabilities

Deferred revenue and customer deposits

Current portion of operating lease obligations

Current portion of finance lease obligations

Total current liabilities

Operating lease obligations, net of current portion

Finance lease obligations, net of current portion

Notes payable, net of unamortized debt discount

TOTAL LIABILITIES

Commitments and contingencies

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

accompanying notes are an integral part of these consolidated financial statements

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 29,901,530 and 26,902,763

shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated deficit

( 109,493,000 )

( 95,407,000 )

TOTAL HARROW HEALTH STOCKHOLDERS’ EQUITY

Noncontrolling interests

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 157,378,000

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

HARROW HEALTH, INC.

STATEMENTS OF OPERATIONS

thousands, except for share and per share data)

the Years Ended

general and administrative

and development

of long-lived assets

Product sales, net

Other revenues

Total revenues

Cost of sales

( 25,383,000 )

( 18,214,000 )

Operating expenses:

from operations

income (expense):

in losses of unconsolidated entities

(loss) gain from investment in Eton Pharmaceuticals, net

on early extinguishment of debt

on forgiveness of PPP loan

income (expense), net

other expense, net

before income tax provision

tax provision, net

net loss including noncontrolling interests

loss attributable to noncontrolling interests

loss attributable to Harrow Health, Inc.

dividends and accretion of preferred stock issuance costs

loss attributable to common stockholders

and diluted net loss per share of common stock

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

accompanying notes are an integral part of these consolidated financial statements

STATEMENTS OF STOCKHOLDERS’ EQUITY

the years ended December 31, 2021 and 2020

thousands, except for share data)

Selling, general and administrative

Research and development

Impairment of long-lived assets

Total operating expenses

Income from operations

Other income (expense):

Interest expense, net

( 7,244,000 )

( 5,436,000 )

Equity in losses of unconsolidated entities

( 11,133,000 )

( 5,334,000 )

Investment loss from Eton Pharmaceuticals

( 2,914,000 )

( 10,126,000 )

Loss on early extinguishment of debt

Gain on forgiveness of PPP loan

Gain on sale of non-ophthalmology assets

Other income, net

Total other expense, net

( 15,930,000 )

( 19,488,000 )

Loss before income tax provision

( 14,011,000 )

( 17,874,000 )

Income tax provision

( 14,086,000 )

( 18,007,000 )

Preferred dividends and accretion of preferred stock issuance costs

Net loss attributable to common stockholders

$ ( 14,086,000 )

$ ( 18,479,000 )

Basic and diluted net loss per share of common stock

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

The accompanying notes are

an integral part of these consolidated financial statements

HARROW HEALTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2022 and 2021

Preferred Stock

Harrow Health, Inc.

Noncontrolling

1 unchanged sentence

Stockholders’

at December 31, 2019

of common stock in connection with:

of employee stock-based options

of warrants , Shares

withheld related to net share settlement of equity awards

withheld related to net share settlement of equity awards , shares

of preferred shares, net of discounts and issuance costs

of preferred shares, net of discounts and issuance costs, shares

of preferred shares

of preferred shares, shares

of preferred dividends

payment for services provided

compensation expense

at December 31, 2020

of common stock in connection with:

of employee stock-based options

withheld related to net share settlement of equity awards

of preferred shares, net of discounts and issuance costs

of preferred shares

of preferred dividends

compensation expense

at December 31, 2021

accompanying notes are an integral part of these consolidated financial statements

Balance at December 31, 2020

$ 104,557,000

$ ( 77,400,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of employee stock-based options

Exercise of warrants

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

( 3,228,000 )

Issuance of preferred shares, net of discounts and issuance costs

Redemption of preferred shares

( 11,000,000 )

Payment of preferred dividends

Stock-based compensation expense

( 18,007,000 )

Balance at December 31, 2021

$ 106,666,000

$ ( 95,407,000 )

$ ( 355,000 )

Beginning balance

$ 106,666,000

$ ( 95,407,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of consultant stock-based options

Exercise of employee stock-based options

Exercise of warrants

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

Issuance of common shares from public offering, net of offering costs

Stock-based compensation expense

( 14,086,000 )

Balance at December 31, 2022

$ 137,058,000

$ ( 109,493,000 )

$ ( 355,000 )

Ending balance

$ 137,058,000

$ ( 109,493,000 )

$ ( 355,000 )

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

HARROW HEALTH, INC.

STATEMENTS OF CASH FLOWS

the Years Ended

FLOWS FROM OPERATING ACTIVITIES

loss (including noncontrolling interests)

to reconcile net loss to net cash provided by (used in) operating

and amortization

of intangible assets

of operating lease right-of-use assets

for bad debt expense

paid-in-kind on SWK Loan

of debt issuance costs and discount

on forgiveness of PPP loan

loss (gain) from investment in Eton

in losses of unconsolidated entities

on sale and disposal of equipment

on early extinguishment of loan

of long-lived assets

based payment of consulting services

in assets and liabilities:

expenses and other current assets

payable and accrued expenses

payroll and related liabilities

revenue and customer deposits

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

FLOWS FROM INVESTING ACTIVITIES

proceeds from sale of investment in Eton Pharmaceuticals

of note receivable, Melt Pharmaceuticals

from sale and disposal of assets

in patent and trademark assets

of product NDAs and patents

of property, plant and equipment and capitalized software development costs

CASH USED IN INVESTING ACTIVITIES

FLOWS FROM FINANCING ACTIVITIES

on finance lease obligations

For the Years Ended

CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 14,086,000 )

$ ( 18,007,000 )

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

Depreciation and amortization of property, plant and equipment

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Provision for bad debt expense

Amortization of debt issuance costs and discount

Gain on forgiveness of PPP loan

( 1,967,000 )

Investment loss from Eton Pharmaceuticals

Equity in losses of unconsolidated entities

Loss on disposal of equipment

Loss on early extinguishment of loan

Impairment of long-lived assets

Stock-based compensation

Gain on sale of non-ophthalmology assets

( 5,259,000 )

Changes in assets and liabilities:

Accounts receivable

( 1,860,000 )

( 1,831,000 )

( 2,324,000 )

Prepaid expenses and other current assets

( 4,256,000 )

Accounts payable and accrued expenses

Accrued payroll and related liabilities

Deferred revenue and customer deposits

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Net proceeds from sale of investments

Issuance of note receivable, Melt Pharmaceuticals

( 12,592,000 )

Proceeds from sale of non-ophthalmology assets

Proceeds from sale of property, plant and equipment

Investment in patent and trademark assets

Purchase of licenses, product NDAs and patents

( 5,000,000 )

( 14,050,000 )

Purchases of property, plant and equipment

( 2,597,000 )

( 1,786,000 )

NET CASH USED IN INVESTING ACTIVITIES

( 1,743,000 )

( 18,686,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on finance lease obligations

Proceeds from 8.625% notes payable, net of costs

and exit fee payments on SWK loan

proceeds from PPP loan payable

from SWK debt, net of costs

of taxes upon vesting of RSUs

from exercise of stock options

of preferred stock, net of discount and issuance costs

of preferred stock

of preferred stock dividends

CASH PROVIDED BY FINANCING ACTIVITIES

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year

CASH EQUIVALENTS AND RESTRICTED CASH, end of year

RECONCILIATION

OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

and cash equivalents

CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR

DISCLOSURE OF CASH FLOW INFORMATION:

paid for income taxes

paid for interest

DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

of property, plant and equipment included in accounts payable and accrued expenses

reduction in right-of-use assets and lease obligations due to modifications

accounts receivable transferred to note receivable

accompanying notes are an integral part of these consolidated financial statements

Proceeds from 11.875% notes payable, net of costs

Principal and exit fee payments on SWK loan

( 15,961,000 )

Proceeds from common stock, net of offering costs

Payment of taxes upon vesting of RSUs

( 3,228,000 )

Proceeds from exercise of stock options

Sale of preferred stock, net of discount and issuance costs

Repayment of preferred stock

( 11,000,000 )

Payment of preferred stock dividends

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of year

CASH AND CASH EQUIVALENTS, end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING

Purchase of property, plant and equipment included in

accounts payable and accrued expenses

Purchase of intangible asset included in accounts payable and accrued expenses

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

Net reduction in right-of-use assets and lease obligations due to modification

Melt accounts receivable transferred to note receivable

The accompanying notes are

an integral part of these consolidated financial statements

TO THE CONSOLIDATED FINANCIAL STATEMENTS

the Years Ended December 31, 2022 and 2021

dollar amounts are expressed in thousands, except share and per share data)

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

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

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

its subsidiaries and deconsolidated companies.

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

businesses, ImprimisRx.

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

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.

(“Surface”) and Melt Pharmaceuticals, Inc.

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

In 2020, Harrow created Visionology, Inc.

(“Visionology”), which recently launched an online eye health platform business.

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

of December 31, 2021, the Company suspended the majority of operational efforts related to its subsidiaries Stowe Pharmaceuticals, Inc.

(“Stowe”), Radley Pharmaceuticals, Inc.

(“Radley”) and Mayfield Pharmaceuticals, Inc.

to allocate resources in other areas of the Company’s business.

The suspension of these operations did not have a material impact

on the financial results of the Company.

both companies that began as subsidiaries of Harrow.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The accompanying consolidated financial statements include the accounts of the Company and its

wholly-owned subsidiaries, as well as Mayfield and Stowe, subsidiaries of which the Company owned 79 % and 70 % of their equity interests,

respectively, as of December 31, 2020.

The remaining 21 % of Mayfield was owned by Elle Pharmaceutical, LLC (“Elle”), TGV-Health,

LLC and its affiliated entities (collectively “TGV”) or other consultants.

Mayfield was organized to develop women’s

health-focused drug candidates.

The remaining 30 % of Stowe was owned by TGV.

Stowe was organized to develop ophthalmic drug candidates.

During 2021, the Company gained control of 100% of the equity interests in Stowe and Mayfield.

The Company controls 100 % of the equity

interests in Visionology.

All inter-company accounts and transactions have been eliminated in consolidation.

Company consolidates entities in which it

has a controlling financial interest.

The Company assesses control under the Variable Interest Entity (“VIE”) model to

determine whether the Company is the primary beneficiary of that entity’s operations.

If an entity is not deemed to be a VIE,

we consolidate entities in which we hold and/or

control, directly or indirectly, more than 50% of the voting rights.

wholly owned and majority-owned subsidiaries.

consolidates entities in which it has a controlling financial interest.

The Company assesses control under the variable interest entity

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

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

that the Company deems to be a VIE.

All intercompany accounts and transactions have been eliminated in consolidation.

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Significant estimates made by management are, among others, allowance

for doubtful accounts and contractual adjustments, renewal periods and discount rates for leases, realizability of inventories, recoverability

of investments, realizability of deferred taxes, fair value of intangible assets, recoverability of long-lived assets and goodwill,

fair value of loans payable, and valuation of stock-based transactions with employees and non-employees.

Actual results could differ

from those estimates.

for doubtful accounts, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government

rebates, returns and other allowances, renewal periods and discount rates for leases, realizability of inventories, recoverability of

investments, realizability of deferred taxes, goodwill and intangible assets, recoverability of long-lived assets and goodwill, fair

value of loans payable, and valuation of stock-based transactions with employees and non-employees.

Actual results could differ from

those estimates.

Uncertainties and Liquidity

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of operations.

Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocatio n decisions and assesses

performance based on financial information presented as operating segments.

Management has identified two

operating segments as reportable segments for periods covered by this Annual Report on Form 10-K.

See Note 18 for more information

regarding the Company’s reportable segments.

Noncontrolling

Company recognizes any noncontrolling interest as a separate line item in equity in the consolidated financial statements.

A noncontrolling

interest represents the portion of equity ownership in a less-than-wholly-owned subsidiary not attributable to the Company.

noncontrolling interest represents the portion of equity ownership in a less-than-wholly-owned subsidiary not attributable to the

any interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling interest;

however, there are

other factors, such as decision-making rights, that are considered as well .

The Company includes the amount of net loss attributable

to noncontrolling interests in consolidated net loss on the face of the consolidated statements of operations.

other factors that are considered as well, such as decision-making rights .

When applicable, and in prior periods, the

Company includes the amount of net loss attributable to noncontrolling interests in consolidated net loss on the face of the

consolidated statements of operations.

Company provides in the consolidated statements of stockholders’ equity a reconciliation at the beginning and the end of the period

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income or loss;

with owners acting in their capacity as owners, showing separately contributions from and distributions to owners;

with owners acting in their capacity as owners, showing separately contributions from and

distributions to owners;

component of other income or loss

noncontrolling interests in the consolidated balance sheets as of December 31, 2022 and 2021, relate to consolidated subsidiaries that

the Company owns a controlling stake in, but not 100 % of the equity interests, and that no longer have active operations, assets and

related financial activity.

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 business.

Recognition and Deferred Revenue

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to which the Company expects to be entitled in exchange for those goods or services (see Note 3).

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

personnel costs, packaging, storage, royalties, shipping and handling costs and the write-off of obsolete inventory.

of sales includes direct and indirect costs to manufacture formulations

and other products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling

costs, depreciation and amortization of certain intangible assets and the write-off of obsolete inventory.

and Development

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expense in the accompanying consolidated statements of operations.

At December 31, 2022, the Company recorded deferred financing costs of $ 1,950,000 related to the B.

Riley Loan and

Security Agreement, which will be recorded as a debt issuance cost and net of the related BR Loan in January 2023 (see Notes 13 and 20).

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

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Corporation (“FDIC”) provides basic deposit coverage with limits up to $ 250,000 per owner.

From time to time the Company has

cash deposits in excess of FDIC limits.

in Eton Pharmaceuticals, Inc.

In various accounts the Company

has cash deposits in excess of FDIC limits.

Investment in Eton Pharmaceuticals, Inc.

– Related Party

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(“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) gain from its Eton common stock position of $ ( 8,720 )

and $ 3,255 ,

during the years ended December 31, 2021, respectively, related to the change in fair market value of its investment in Eton during the

measurement period.

Recognition and Measurement of Financial Assets

and Financial Liabilities , the Company recorded an unrealized investment loss from its Eton common stock position of $( 2,914,000 ) and

$( 8,720,000 ), during the years ended December 31, 2022 and 2021, respectively, related to the change in fair market value of its investment

in Eton during the measurement period.

the year ended December 31, 2021, the Company sold 1,518,000 shares of its Eton common stock through an underwritten

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The gross proceeds to the Company

from the Eton Stock Sale were $ 10,626 , before deducting underwriting discounts and commissions and other offering expenses payable by

the Company of $ 799 .

During the year ended December 31, 2021, the Company recorded a realized loss of $ 1,406 related to the Eton Stock

Following the Eton Stock Sale and as of December 31, 2021, the Company owns 1,982,000 shares of Eton common stock, which

represents less than 10 % of the equity interests of Eton.

At December 31, 2021, the fair market value of Eton’s common stock was

$ 4.29 per share.

As of December 31, 2021, the fair market value of the Company’s investment in Eton was $ 8,503 .

from the Eton Stock Sale were $ 10,626,000 , before deducting underwriting discounts and commissions and other offering expenses payable

by the Company of $ 799,000 .

During the year ended December 31, 2021, the Company recorded a realized loss of $ 1,406,000 related

to the Eton Stock Sale.

Following the Eton Stock Sale and as of December 31, 2022, the Company owns 1,982,000 shares

of Eton common stock, which represents less than 10 % of the equity interests of Eton.

At December 31, 2022, the fair market

value of Eton’s common stock was $ 2.82 per share.

As of December 31, 2022 and 2021, the fair market value of the Company’s

investment in Eton was $ 5,589,000 and $ 8,503,000 , respectively.

receivable are stated net of allowances for doubtful accounts and contractual adjustments.

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– Related Party

Company owns 3,500,000

shares of common stock (which is approximately

of the equity interests as of December 31, 2021) of Melt.

The Company analyzes its investment in Melt and related agreements on a regular

basis to evaluate its position of variable interests in Melt.

The Company has determined that it does not have the ability to control

Melt, however it has the ability to exercise significant influence over the operating and financial decisions of Melt, and uses the equity

method of accounting for this investment.

Under this method, the Company recognizes earnings and losses in Melt in its consolidated financial

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

The Company’s share of earnings and losses are

based on the Company’s ownership interest of Melt.

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

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

The Company has determined that it does not have the ability to control Melt, however it has the ability to exercise significant

influence over the operating and financial decisions of Melt and uses the equity method of accounting for this investment.

method, the Company recognizes earnings and losses in Melt in its consolidated financial statements and adjusts the carrying amount of

its investment in Melt accordingly.

Any intra-entity profits and losses are eliminated.

During the year ended December

31, 2021, the Company reduced its common stock investment in Melt to $ 0

as a result of the Company recording its share

of equity losses in Melt since its deconsolidation in 2019.

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

(see Note 4), the Company owned 100 %

of the debt owed by Melt.

Following the reduction

of the carrying value of the Company’s common stock investment in Melt to $ 0 ,

the Company began recording 100% of the equity method losses of Melt, based on its ownership of total debt owed by Melt in accordance

with ASC 323.

In addition, the Company treats interest paid in kind on the Melt Loan Agreement as an in-substance capital contribution

and reduces its investment in Melt accordingly, rather than recording interest income.

The Company has no other requirements to advance

funds to Melt.

During the year ended December 31, 2021, the

Company reduced the carrying value of its common stock investment in Melt to $ 0 as a result of the Company recording its share of equity

losses in Melt since its deconsolidation in 2019.

As of December 31, 2022 and 2021, and at the time of entering into the Melt Loan Agreement

(see Note 5), the Company owned 100 % of Melt’s indebtedness.

Following the reduction of the carrying value of the Company’s

common stock investment in Melt to $ 0 , the Company began recording 100 % of the equity method losses of Melt, based on its ownership of

Melt’s total indebtedness.

In addition, the Company treats interest paid in kind on the Melt Loan Agreement as an in-substance

capital contribution and reduces its investment in Melt accordingly, rather than recording interest income.

The Company has no other

requirements to advance funds to Melt.

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

OF INVESTMENT

of Equity Method

In-substance Capital

Contributions

SCHEDULE OF INVESTMENT

Share of Equity

Method Losses

Capital Contributions

Carrying value

$ ( 5,810,000 )

( 13,500,000 )

( 2,484,000 )

$ ( 19,310,000 )

$ ( 2,484,000 )

following table summarizes the Company’s investments in Melt as of December 31, 2021:

December 31, 2021 and 2020, the Company recorded $ 48 and $ 851 , respectively, due from Melt for reimbursable expenses and amounts due

under a Management Services Agreement between the Company and Melt (the “Melt MSA”), which are included in prepaid expenses

and other current assets in the accompanying consolidated balance sheets.

Share of Equity

Method Losses

Capital Contributions

Carrying value

$ ( 5,810,000 )

( 2,367,000 )

$ ( 8,177,000 )

$ ( 576,000 )

December 31, 2022 and 2021, the Company recorded $ 139,000 and $ 48,000 , respectively, due from Melt for reimbursable expenses and

amounts due under a Management Services Agreement between the Company and Melt (the “Melt MSA”), which are included in prepaid

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

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

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– Related Party

Company owns 3,500,000

common shares (which is approximately 20 %

of the equity interests following the close of a round of financing completed by Surface in July 2021) of Surface and uses the equity

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

over the operating and financial decisions of Surface.

Under this method, the Company recognizes earnings and losses in Surface in its

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

The Company’s share

of earnings and losses are based on the Company’s ownership interest in Surface.

Any intra-entity profits and losses are

During the year ended December 31, 2021 the Company reduced its common stock investment in Surface to $ 0

as a result of the Company recording its share

of equity losses of Surface.

The Company has no other investments in Surface.

following table summarizes the Company’s investment in Surface as of December 31, 2021:

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

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

has determined that the Company has the ability to exercise significant influence over the operating and financial decisions of Surface.

Under this method, the Company recognizes earnings and losses in Surface in its consolidated financial statements and adjusts the carrying

amount of its investment in Surface accordingly.

The Company’s share of earnings and losses are based on the Company’s ownership

interest of Surface.

Any intra-entity profits and losses are eliminated.

During the year ended December 31, 2021, the Company reduced

its common stock investment in Surface to $ 0 as a result of the Company recording its share of equity losses of Surface.

has no other investments in Surface.

following table summarizes the Company’s investment in Surface as of December 31, 2022 and 2021:

SCHEDULE OF INVESTMENT

following table summarizes the Company’s investments in Surface as of December 31, 2020:

Share of Equity Method Losses

Carrying value

$ ( 5,320,000 )

Note 6 for more information and related party disclosure regarding Surface.

of Equity Method Investments and Note Receivable

of Equity Method Investment and Note Receivable

a quarterly basis, management assesses whether there are any indicators that the carrying value of the Company’s equity method

investments and note receivable from Melt may be other than temporarily impaired.

Indicators include financial condition, operating

performance, and near-term prospects of the investee.

To the extent indicators suggest that a loss in value may have occurred, the Company

will evaluate both quantitative and qualitative factors to determine if the loss in value is other than temporary.

If a potential loss

in value is determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of

the equity method investments and note receivable.

At December 31, 2021 and 2020, no indicators of impairment existed.

investments and note receivable may be other than temporarily impaired.

Indicators include financial condition, operating performance,

and near-term prospects of the investee.

To the extent indicators suggest that a loss in value may have occurred, the Company will evaluate

both quantitative and qualitative factors to determine if the loss in value is other than temporary.

If a potential loss in value is

determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of the equity

method investments and note receivable.

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

Plant and Equipment

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over three to five years .

Software Development Costs

Software Costs

Company capitalizes certain costs related to the development of internal-use software.

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Internal-use software

is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two

When internal-use software that was previously

capitalized is abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense.

Fully amortized capitalized

internal-use software costs are removed from their respective accounts.

Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent

consideration at their fair values on the acquisition date.

The purchase price allocation process requires management to make significant

estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration payments and pre-acquisition

contingencies.

Examples of critical estimates in valuing certain of the intangible assets the Company has acquired or may acquire in

the future include but are not limited to:

expected cash flows from product sales, support agreements, consulting contracts, other customer

contracts, and acquired developed technologies and patents;

rates utilized in valuation estimates.

Unanticipated

events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Additionally,

any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes

from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets, will be recognized in

earnings in the period of the estimated fair value change.

A change in fair value of the acquisition-related contingent consideration

or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated

financial position, statements of operations or cash flows in the period of the change in the estimate.

is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years .

When internal-use

software that was previously capitalized is abandoned, the cost less the accumulated amortization, if any, is recorded as amortization

Fully amortized capitalized internal-use software costs are removed from their respective accounts.

and Intangible Assets

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straight-line method.

Trademarks are an indefinite life intangible asset and are assessed for impairment based on future projected cash

Trademarks are an indefinite-lived intangible asset and are assessed for impairment based on future projected cash

flows as further described below.

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

● significant

underperformance of the Company’s business relative to expected operating results;

● significant

adverse economic and industry trends;

● significant

decline in the Company’s market capitalization for an extended period of time relative

to net book value;

● expectations

that a reporting unit will be sold or otherwise disposed.

significant adverse economic and industry trends;

significant decline in the Company’s market capitalization for an extended period of time relative to net book value;

expectations that a reporting unit will be sold or otherwise disposed.

goodwill impairment test consists of a two-step process as follows:

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

the inception of a contract the Company determines if the arrangement is, or contains, a lease.

Operating lease right-of-use (“ROU”)

assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation

to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on

the present value of lease payments over the lease term.

Rent expense is recognized on a straight-line basis over the lease term.

Company has made certain accounting policy elections whereby it (i) does not recognize ROU assets or lease liabilities for short-term

leases (those with original terms of 12-months of less) and (ii) combines lease and non-lease elements of its operating leases.

December 31, 2022, the Company did not have any finance leases.

Value Measurements

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would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

The Company’s financial instruments include

cash and cash equivalents, restricted cash, investment in Eton, accounts receivable, accounts payable and accrued expenses, accrued payroll

and related liabilities, deferred revenue and customer deposits and the Notes.

The carrying amount of these financial instruments, except

for the investment in Eton and the Notes (see Note 13), approximates fair value due to the short-term maturities of these instruments.

The Company’s restricted cash which is comprised of short-term investments are carried at amortized cost, which approximates fair

December 31, 2021 and 2020, the Company measured its investment in Eton at fair value on a recurring basis.

The Company’s

investment in Eton is classified as Level 1 as the fair value is determined using quoted market prices in active markets for the same

As of December 31, 2021 and 2020, the fair market value of the Company’s investment in Eton was $ 8,503

and $ 28,455 ,

respectively.

December 31, 2021, the carrying value and fair value of the Notes were $ 71,654 and $ 78,810 , respectively.

The Notes are classified

as Level 1 instruments as the fair value is determined using quoted market prices in active markets for the same securities.

December 31, 2022 and 2021, the Company measured its investment in Eton on a recurring basis.

The Company’s investment in Eton

is classified as Level 1 as the fair value is determined using quoted market prices in active markets for the same securities.

December 31, 2022 and 2021, the fair market value of the Company’s investment in Eton was $ 5,589,000 and $ 8,503,000 , respectively.

Company carries the 2026 Notes at face value, including the unamortized premium, less unamortized debt issuance costs, and the 2027 Notes

are carried at face value less unamortized debt issuance costs on the consolidated balance sheets and presents fair value for disclosure

purposes only.

The 2026 Notes and 2027 Notes are classified as Level 1 instruments as the fair value is determined using quoted market

prices in active markets for the same securities.

following table presents the estimated fair values and the carrying values:

OF ESTIMATED FAIR VALUE

Carrying Value

Company’s other financial instruments include cash and cash equivalents, accounts receivable, accounts payable

and accrued expenses, accrued payroll and related liabilities, deferred revenue and customer deposits and operating and finance lease

The carrying amount of these financial instruments, except for operating and finance lease liabilities, approximates fair

value due to the short-term maturities of these instruments.

Based on borrowing rates currently available to the Company, the carrying

values of the operating and finance lease liabilities approximate their respective fair values.

stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”)

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outstanding during the period.

and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the

Common stock equivalents (using the treasury stock or “if converted” method) from stock options, unvested

restricted stock units (“RSUs”) and warrants were 5,646,594 and 5,411,929 at

December 31, 2021 and 2020, respectively, and are excluded in the calculation of diluted net income per share for the periods

presented, because the effect is anti-dilutive for that time period.

Included in the basic and diluted net income (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 December 31, 2021 and 2020 was 267,761 and 200,463 ,

respectively.

following table shows the computation of basic net loss per share of common stock for the years ended December 31, 2021 and 2020 (in

000’s, except share and per share amounts):

and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the period.

Common stock equivalents (using the treasury stock or “if converted” method) from stock options, unvested restricted stock

units (“RSUs”) and warrants were 5,089,420 and 5,646,594 at December 31, 2022 and 2021, respectively, and are excluded in

the calculation of diluted net income per share for the periods presented, because the effect is anti-dilutive for that time period.

Included in the basic and diluted net income (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 December 31, 2022

and 2021 was 319,859 and 267,761 , respectively.

following table shows the computation of basic net loss per share of common stock for the years ended December 31, 2022 and 2021:

OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

the Year Ended December 31,

– net loss attributable to Harrow Health, Inc.

For the Years Ended December 31,

Numerator – net loss attributable to Harrow Health, Inc.

common stockholders

– weighted average number of shares outstanding, basic and diluted

loss per share, basic and diluted

Adopted Accounting Pronouncements

December 2019, the FASB issued ASU 2019-12, Income Taxes:

Simplifying the Accounting for Income Taxes , which simplifies the accounting

for income taxes.

This guidance became effective for the Company on January 1, 2021 on a prospective basis.

Adoption of this ASU did

not have a material impact on the Company’s consolidated financial statements.

$ ( 14,086,000 )

$ ( 18,479,000 )

Denominator – weighted average number of shares outstanding, basic

Net loss per share, basic and diluted

Accounting Pronouncements Not Yet Adopted

June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

This ASU replaces the incurred

loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of

a broader range of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including

trade receivables.

In addition, new disclosures are required.

The ASU, as subsequently amended, is effective for the Company for fiscal

years beginning after December 15, 2022, as the Company was a smaller reporting company as of November 15, 2019, the determination date.

The Company plans to adopt ASU 2016-13 on January 1, 2023 and has evaluated the effect that this guidance will have on its consolidated

financial statements.

Based on the composition of the Company’s accounts receivable and other financial assets, including current

market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the

Company’s consolidated financial statements.

March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage

Disclosures , which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting

standard that introduced the current expected credit losses (“CECL”) model.

The amendments eliminate the accounting guidance

for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings

and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require disclosure of current-period

gross write offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

For entities,

such as the Company, that have not yet adopted the CECL accounting model in ASU 2016-13, the effective date for the amendments in ASU

2022-02 is the same as the effective date in ASU 2016-13 (i.e., fiscal years beginning after December 15, 2022 including interim periods

within those fiscal years).

The Company plans to adopt ASU 2022-02 on January 1, 2023.

The Company has evaluated the effect of this guidance

and does not expect it to have a material impact on its consolidated financial statements.

Reclassifications

4 unchanged sentences

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

has 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.

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

Revenue from our pharmacy services division

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

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

Sales taxes are

not included in revenue.

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

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

pharmacy services includes:

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

discounts paid back to the client, (ii) the price paid to the Company by individuals, and (iii) customer copayments made directly to

the pharmacy network.

Sales taxes are not included in revenue.

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

the contract(s) with a customer :

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

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

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

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

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

the performance obligations in the contract :

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

the product the customer is wishing to receive.

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

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 as follows:

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

always be considered a fulfillment activity and not treated as a separate performance obligation.

If the customer takes control of

the goods before shipment, entities must make an accounting policy election to treat shipping and handling activities as either a

fulfillment cost or as a separate performance obligation.

The Company has elected to treat its shipping and handling activities as

a fulfillment cost.

the transaction price :

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

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

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

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

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

The Company utilizes the services of a

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

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

There is no non-cash consideration

related to product sales.

the transaction price to the performance obligations in the contract :

The transaction price associated with the product(s) being

ordered is allocated according to the pre-determined amounts.

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 :

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.

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

Estimated returns and allowances and other adjustments are

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

The Company will defer any revenues received for a product that has not been delivered or

is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered and no refund

will be required.

the year ended December 31, 2020, the Company entered into an agreement whereby it is paid a fee calculated based on sales the Company

generates from a pharmaceutical product that is owned by a third party.

The revenue earned from this arrangement is recognized at the

time a customer has ordered the pharmaceutical product and it has shipped from the third party (or one of its distributors or affiliates),

at which point there is no future performance obligation required by the Company and no consequential continuing involvement on the Company’s

Revenue from products is recognized upon transfer of control

of a product to a customer.

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

occurs at delivery.

Company has entered into an agreement whereby it is paid a fee calculated based on sales the Company generates from a pharmaceutical

product that is owned by a third party.

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

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

From Transfer of Acquired Product Profit

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

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

During a temporary,

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

the sale of the products to the Company.

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

time profit from the product sales was calculated by the Seller and confirmed by the Company, typically on a monthly basis, at which

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

part to recognize the associated revenue.

of Profit Revenues

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

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

During a temporary, six month transition period, the Seller will continue to manufacture and market these products and transfer

the net profit from the sale of the products to the Company.

The revenue recognized by the Company from the transfer of net profit is

recognized at the time profit from the products sales has been calculated by the Seller and confirmed by the Company, typically on a

monthly basis, at which point there is no future performance obligation required by the Company and no consequential continuing involvement

on the Company in part to recognize the associated revenue.

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

made to customers related to the products.

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

net profit transferred.

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

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

Property License Revenues

Company currently holds five intellectual property license and related agreements in which the Company has promised to grant a license

or sale which provides a customer with the right to access the Company’s 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 of time the performance obligation is met.

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

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

License arrangements may consist of non-refundable

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

15 unchanged sentences

disaggregated by revenue source for the years ended December 31, 2022 and 2021, consists of the following:

OF DISAGGREGATED REVENUE

the Year Ended December 31,

SCHEDULE OF DISAGGREGATED REVENUE

For the Years Ended December 31,

Product sales, net

Transfer of profit

Total revenues

revenue and customer deposits at December 31, 2022 and 2021, were $ 113,000 and $ 16,000 , respectively.

All deferred revenue and customer deposit

amounts at December 31, 2020 were recognized as revenue during the year ended December 31, 2021.

All deferred revenue and customer

deposit amounts at December 31, 2021 were recognized as revenue during the year ended December 31, 2022.

RECENT PRODUCT ACQUISITIONS, LICENSES AND DIVESTITURES

of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX, and TRIESENCE

December 2022, the Company entered into an Asset Purchase Agreement (the “Fab 5 APA”) 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”):

ILEVRO, NEVANAC, VIGAMOX, MAXIDEX, and TRIESENCE.

Subsequent to December 31, 2022, the Company

closed the Fab 5 Acquisition in January 2023 (see Note 20).

the terms of the Fab 5 APA, the Company made a one-time payment of $ 130,000,000 at closing in January 2023, 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 Fab 5 APA and various ancillary

agreements, immediately following the closing and subject to certain conditions, for a period that the Company expects to last approximately

six months, and prior to the transfer of the Fab 5 Products new drug applications (the “NDAs”) to the Company, Novartis will

continue to sell the Fab 5 Products on the Company’s behalf and transfer the net profit from the sale of the Fab 5 Products to

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

and to assist with technology transfer of the Fab 5 Products manufacturing to other third-party manufacturers, if needed.

of Non-Ophthalmic Assets

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”).

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”).

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.

Under the terms of the RPC Agreement, the Buyer paid Imprimis an aggregate cash amount of $ 6,000,000 in October

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 “Contingent Amount”).

During the year ended December 31, 2022, no amount related to the Contingent

Amount was recognized by the Company.

The Company will recognize a gain related to the Contingent Amount if/when the contingency (in

this case, revenue thresholds for 2023) become likely and reasonably estimated.

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

on going services associated with the RPC Assets, such as procuring and dispensing prescription orders, providing accounting and billing

services and collecting accounts receivable.

The Company expects Imprimis to provide transition services to the Buyer for up to six to

nine months following the effective date of the RPC Agreement.

The Company collected and will continue to collect cash on behalf of the

Buyer for revenue generated by sales of RPC Assets from October 2022 through the transition period and the Company is obligated to transfer

cash generated by such sales to the Buyer.

The Company’s consolidated balance sheet as of December 31, 2022 reflected $ 579,000

of cash collected on behalf of the Buyer and a receivable within accounts receivable of $ 128,000 for cash to be collected on behalf of

the Buyer for sales of RPC Assets sold through December 31, 2022.

amount due from the Buyer for reimbursement of services performed under the transition services agreement was $ 254,000 as of December 31, 2022.

Such amount was netted

against the amounts collected on behalf of the Buyer and was unpaid within accrued expenses on the consolidated balance sheet as of

December 31, 2022.

The combined total of $ 453,000 was recorded within accrued expenses on the consolidated balance sheet as of December

31, 2022 and represents a payable to the Buyer.

The Company recorded income from the transition services agreement of $ 102,000 which

is presented in other income on the consolidated statement of operations for the year ended December 31, 2022.

Company determined that the disposal of the related net assets does not qualify for reporting as discontinued operations because it does

not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results.

the year ended December 31, 2022, the Company recognized a net gain on the sale of the non-ophthalmology related compounding assets as

OF NET GAIN ON SALE OF ASSETS

Gross consideration

Closing and transaction costs

Book value of assets transferred:

Customer relations intangible asset

Gain on sale of non-ophthalmology assets

of IOPIDINE, MAXITROL and MOXEZA

December 2021, the Company 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,

including the NDAs, to assets associated with ophthalmic products Moxeza, Iopidine 1% and 0.5%, and Maxitrol eyedrops suspension (collectively

the “NVS Products”) in the United States of America (“U.S.”) .

The Company 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 (the “ NVS NDAs”) to the Company, NVS sold the NVS

Products on the Company’s behalf and transferred the net profit from the sale of the NVS

Products to the Company.

NVS has agreed to supply certain NVS Products to the Company

for a period of time after the NVS NDAs are transferred to the Company and to assist with

technology transfer of the NVS Products manufacturing to other third-party manufacturers,

Company accounted for this transaction as an asset acquisition, as the Company only acquired the rights and related intellectual property

for the NVS Products and the cost was allocated to the acquired patents and NDAs based on their relative fair values.

and Supply Agreement for IHEEZO

July 2021, the Company 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

(“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 year ended December 31, 2022, $ 10,000,000 was paid or accrued

under the Sintetica Agreement following the FDA approval of the United States NDA for IHEEZO, and was capitalized as an intangible asset.

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

and Purchase of MAQ-100

August 2021, the Company 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 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 December 31, 2022, no amounts have been paid or accrued under the Wakamoto agreement.

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.

INVESTMENT IN MELT PHARMACEUTICALS, INC.

6 unchanged sentences

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

January and March 2019, the Company entered into the Melt Series A Preferred Stock Agreement, see also Note 2, under the subheading Investment

in Melt Pharmaceuticals, Inc .

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

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

amount of $ 10 .

As of December 31, 2021 and 2020, the Company was due $ 48

respectively, from Melt for reimbursable expenses and amounts due under the Melt MSA.

Melt did not make any payments to the Company during

the year ended December 31, 2021.

The Company’s Chief Executive Officer, Mark L.

Baum, was previously a member of the Melt board

of directors until his resignation in November 2021.

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

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

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

the year ended December 31, 2022, the Company recorded $ 91,000 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.

of December 31, 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 year ended December 31, 2022.

Company’s Chief Executive Officer, Mark L.

Baum, was previously a member of the Melt board of directors until his resignation

during the year ended December 31, 2021.

Following Mr.

Baum’s departure, the Company no longer has any representation

on Melt’s board of directors.

Baum’s departure, the Company did not have any representation on

Melt’s board of directors until January 2023, when Mr.

Baum re-joined the Melt

board of directors.

At the time Mr.

Baum re-joined, the Melt board of directors consists of five total board members, including Mr.

Baum, who is the only representative of the Company on Melt’s board of directors.

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

OF CONDENSED INCOME STATEMENT

the Year Ended December 31,

from operations

For the Years Ended December 31,

Revenues, net

Loss from operations

$ ( 14,446,000 )

$ ( 6,655,000 )

unaudited condensed balance sheet information of Melt is summarized below:

OF CONDENSED BALANCE SHEET

preferred stock and stockholders’ (deficit) equity

liabilities and stockholders’ equity

Current assets

Non-current assets

Total liabilities

Total preferred stock and stockholders’ deficit

( 18,294,000 )

( 4,454,000 )

Total liabilities and stockholders’ equity

Note Receivable

September 2021, the Company entered into a loan and security agreement in the principal amount of $ 13,500 (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 %)

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

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.

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

6 unchanged sentences

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

by three percent ( 3 %) per annum.

by 3 % per annum.

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

1 unchanged sentence

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

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

prior to the effective date of the note receivable (see Note 2).

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 December 31, 2022 and 2021, aggregate principal and accrued interest payable to the

Company pursuant to the Melt Loan Agreement amounted to $ 15,984,000 and $ 14,076,000 , respectively.

In accordance with ASC 328, Investments

– Equity Method and Joint Ventures , the carrying amount of the notes receivable has been reduced by the Company’s allocated

share of Melt’s losses based on its ownership of total debt owed by Melt (see Note 2).

INVESTMENT IN SURFACE OPHTHALMICS, INC.

5 unchanged sentences

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 December 31, 2021, the Company owned 3,500,000 shares of Surface common stock (approximately 30 % of the issued and outstanding equity

A Company director, Richard L.

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

Baum, are directors of

Lindstrom is a principal of Flying L Partners, an affiliate of a funding investor who purchased the Surface Series A Preferred

of December 31, 2022, the Company owned 3,500,000 shares of Surface common stock.

Company directors Richard L.

Lindstrom, Perry

Sternberg and Mark L.

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

Lindstrom is a

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

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

OF CONDENSED INCOME STATEMENT

the Years Ended December 31,

from operations

For the Years Ended December 31,

Revenues, net

Loss from operations

$ ( 6,719,000 )

$ ( 6,579,000 )

$ ( 10,143,000 )

unaudited condensed balance sheet information of Surface is summarized below:

OF CONDENSED BALANCE SHEET

stockholders’ equity

liabilities and stockholders’ equity

RESTRICTED CASH

restricted cash at December 31, 2020 consisted of funds in a money market account and held as collateral for additional security for

the Company’s New Jersey facility lease.

All restrictions on this cash were released during the year ended December 31, 2021.

December 31, 2020, the restricted cash was recorded at amortized cost, which approximates fair value.

Current assets

Non-current assets

Total liabilities

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

3 unchanged sentences

OF INVENTORIES

Raw materials

Work in progress

Finished goods

Total inventories

PREPAID EXPENSES AND OTHER CURRENT ASSETS

expenses and other current assets consisted of the following:

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

prepaid expenses

due from Melt

and other current assets

prepaid expenses and other current assets

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid insurance

Prepaid computer software related expenses

Other prepaid expenses

Receivable due from Melt

Deposits and other current assets

Total prepaid expenses and other current assets

PROPERTY, PLANT AND EQUIPMENT

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

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

plant and equipment, net:

and equipment

and pharmacy equipment

plant and equipment, gross

depreciation and amortization

OF PROPERTY,PLANT AND EQUIPMENT

Property, plant and equipment, net:

Computer hardware

Furniture and equipment

Lab and pharmacy equipment

Leasehold improvements

Property, plant and equipment,

Accumulated depreciation and amortization

( 9,061,000 )

( 7,833,000 )

plant and equipment, net

the years ended December 31, 2021 and 2020, the Company disposed of property, plant and equipment with a net book value of $ 41

and a write down of equipment of

$ 150 and $ 105 ,

respectively, related to the discontinued use of certain lab equipment and computer software and hardware and is included in other expense,

net in of the consolidated statements of operations.

The Company purchased $ 753 of lab and pharmacy equipment from Eton during the

year ended December 31, 2021.

The Company recorded depreciation and amortization expense of $ 1,580

during the years ended December 31, 2021 and

the years ended December 31, 2022 and 2021, the Company disposed of property, plant and equipment with a net book value of $ 99,000 and

$ 41,000 , respectively, and during the year ended December 31, 2021 the Company recorded an impairment charge of $ 150,000 related to the

discontinued use of certain lab equipment, which is included in other expense, net in the consolidated statements of operations.

Company recorded depreciation and amortization expense of $ 1,253,000 and $ 1,580,000 during the years ended December 31, 2022 and 2021,

respectively.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

software development costs at December 31, 2021 and 2020 consisted of the following:

the year ended December 31, 2021, the Company purchased lab and pharmacy equipment at a cost of $ 753,000 from Eton.

CAPITALIZED SOFTWARE COSTS

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

OF FINITE LIVED INTANGIBLE ASSETS

internal-use software development costs

third-party software license for internal-use

gross capitalized software for internal-use

internal-use software in process

finite lived intangible assets net

Company recorded amortization expense of $ 137

related to capitalized software development

costs during the years ended December 31, 2021 and

2020, respectively.

Capitalized software costs

Capitalized internal-use software development costs

Acquired third-party software license for internal-use

Total gross capitalized software for internal-use

Accumulated amortization

Capitalized internal-use software in process

Total finite lived intangible

Company recorded amortization expense of $ 224,000 and $ 137,000 during the years ended December 31, 2022 and 2021, respectively.

INTANGIBLE ASSETS AND GOODWILL

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

SCHEDULE OF INTANGIBLE ASSETS

relationships

Non-competition

pharmacy licenses

OF INTANGIBLE ASSETS

7 - 19 years Indefinite

$ ( 161,000 )

Acquired NDAs

( 1,363,000 )

Customer relationships

Non-competition clause

State pharmacy licenses

$ ( 2,368,000 )

$ ( 626,000 )

the year ended December 31, 2022, the Company recorded a net reduction to customer relationships intangible assets of $ 626,000

related to customer relationships that were associated with the non-ophthalmology assets sold by the Company.

The amount was

reflected net of the gross proceeds received related to the sale of the Company’s non-ophthalmology assets (see Note

Company’s intangible assets at December 31, 2021 consisted of the following:

Acquired NDAs

Customer relationships

Non-competition clause

State pharmacy licenses

$ ( 730,000 )

the year ended December 31, 2021, the Company recorded impairment charges of $ 99,000 related to patent filings and trademarks that were

abandoned and/or were associated with products the Company was no longer actively selling.

the year ended December 31, 2021, the Company 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

exclusive commercial rights, including the New Drug Applications (“NDAs”), to assets associated with ophthalmic products

Moxeza, Iopidine 1% and 0.5%, and Maxitrol eyedrops suspension (collectively the “ NVS Products”) in the United States of

America(“U.S.”).

The Company made a one-time payment of $ 14,050

to NVS for the U.S.

rights to the NVS Products and their related intellectual property.

The Company accounted for this transaction as an asset acquisition,

as the Company only acquired the rights and related intellectual property for the NVS Products and the cost was allocated to the

acquired patents and NDAs based on their relative fair values.

The Company’s intangible assets at December

31, 2021 consisted of the following:

relationships

Non-competition

pharmacy licenses

the year ended December 31, 2021, the Company recorded impairment charges of $ 99 related to trademarks that were abandoned and/or were

associated with products the Company was no longer actively selling.

Note 4 related to intangible assets acquired and divested during the years ended December 31, 2022 and 2021.

expense for intangible assets for the years ended December 31, 2022 and 2021 were as follows:

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

the Year Ended December 31,

relationships

of intangible assets

OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

For the Years Ended December 31,

Acquired NDAs

Customer relationships

Amortization of intangible

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

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

ending December 31,

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Years ending December 31,

Intangible assets

were no changes in the carrying value of the Company’s goodwill during the years ended December 31, 2022 and 2021.

1 unchanged sentence

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

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

accrued expenses

interest (see Note 13)

exit fee for note payable (see Note 13)

accounts payable and accrued expenses

Current portion

total accrued expenses

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable

Accrued insurance premium

Accrued IHEEZO milestone payments (see Note 4)

Accrued RPC transition payments (see Note 4)

Accrued litigation settlements

Accrued interest (see Note 13)

Total accounts payable and accrued expenses

Note 20 related to debt transactions that occurred subsequent to December 31, 2022.

Senior Notes Due 2027

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

2021 issued an additional $ 5,000 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 after deducting underwriting discounts and commissions

and expenses of $ 3,091 .

In June 2021, in a further issuance of the April Notes, the Company sold an additional $ 20,000 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 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 after deducting underwriting discounts and commissions and expenses

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

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.

The 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.

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

December 2022, the Company closed an offering of $ 35,000,000 aggregate principal amount of 11.875% senior notes due in December 2027

(the “2027 Notes”).

The 2027 Notes were sold to investors at a par value of $ 25.00 per 2027 Note, and the offering resulted

in net proceeds to the Company of approximately $ 31,738,000 after deducting underwriting discounts and commissions and expenses

of $ 3,626,000 .

2027 Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other

existing and future senior unsecured and unsubordinated indebtedness.

The 2027 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 2027 Notes bear interest at the rate of 11.875 % per annum.

on the 2027 Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on January

The 2027 Notes will mature on December 31, 2027 .

any time prior to December 31, 2024, the Company may, at its option, redeem the 2027 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 2027 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 2027 Notes for cash in whole or

in part at any time at its option (i) on or after December 31, 2024 and prior to December 31, 2025, at a price equal to $25.50 per note,

plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after December 31, 2025 and prior to December

31, 2026, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iii)

on or after December 31, 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 $ 5,132 for the year ended December 31, 2021, and included amortization of debt issuance costs and

discount of $ 581 for the year ended December 31, 2021.

In addition, the Company is required to redeem the 2027 Notes, for cash, in whole but not

in part, at the price of $25.50 per note , plus accrued and unpaid interest to, but excluding, the date of redemption, upon occurrence

of certain events including (i) a failure by the Company to complete the Fab 5 Acquisition), subject to certain exceptions, within 180

calendar days after December 20, 2022, or (ii) the occurrence of a Material Change, as defined in the Second Supplemental Indenture.

Senior Notes Due 2026

April 2021, the Company closed an offering of $ 50,000,000 aggregate principal amount of 8.625% senior notes due in 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 “ 2026 Notes”), at a price of $ 25.75 per June Note, with interest of $ 278,000 on the June Notes being

accrued from April 20, 2021 as of the date of issuance.

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

deducting underwriting discounts and commissions and expenses of $ 1,158,000 and a premium on note issuance of $ 322,000 .

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).

2026 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 2026 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 2026 Notes bear interest at a rate of 8.625 % per annum.

Interest on the 2026 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 2026 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 2026 Notes using the

effective interest rate method.

to February 1, 2026, the Company may, at its option, redeem the 2026 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 2026 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 2026 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 2026 Notes.

expense related to the 2026 Notes and 2027 Notes totaled $ 7,378,000 and $ 5,132,000 for the years ended December 31, 2022 and

2021, respectively, and included amortization of debt issuance costs and discount of $ 782,000 , and $ 581,000 for the years ended

December 31, 2022 and 2021, respectively.

Riley Loan and Security Agreement

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

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

The BR Loan provided for a loan facility of up to $ 100,000,000

to the Company with a maturity date of December 14, 2025 (the “Maturity Date”), at an interest rate of 10.875 % per annum.

BR Loan is secured by an intellectual property security agreement entered into in connection with the BR Loan, and by all assets of the

Company and its material subsidiaries.

The outstanding balance of the BR Loan is due in full on the Maturity Date.

The BR Loan provides

for voluntary prepayment subject to a prepayment fee of $ 0 if no Loan had been funded or the prepayment or repayment occurs (other than

as a result of acceleration of the BR Loan) on or prior to the date that is 90 days following the Effective Date and up to 3.00 % of the

amount of the Loan based on other payment dates.

BR Loan also provides for mandatory and customary prepayments, along with customary representations and warranties, covenants and events

The covenants set forth in the BR Loan included certain affirmative and negative operational and financial covenants, including,

among other things, restrictions on the Company’s ability to incur certain liens, make fundamental changes to its business or engage

in transactions with affiliates.

amounts were outstanding under the BR Loan as of December 31, 2022.

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 (see Note 20).

Senior Note – Paid in April 2021

July 2017, the Company and several of its wholly owned subsidiaries entered into a term loan and security agreement in the principal

amount of $ 16,000 (the “SWK Loan Agreement” or “SWK Loan”) with SWK Funding LLC and its partners (collectively,

“SWK”), as lender and collateral agent.

amount of $ 16,000,000 (the

“SWK Loan Agreement” or “SWK Loan”) with SWK Funding LLC and its partners (collectively, “SWK”),

as lender and collateral agent.

The SWK Loan Agreement was fully funded at closing with a five-year term;

such term could be reduced to four years if certain revenue requirements were not achieved.

The SWK Loan was secured by substantially

all of the Company’s assets, including its intellectual property rights.

The SWK Loan was subsequently amended in May 2019 and

again in April 2020.

The SWK Loan bore an interest rate equal to the three-month London Inter-Bank Offered Rate (subject to a minimum

of 2.00 %), plus an applicable margin of 10.00 % (the “Margin Rate”);

provided that, if, two days prior to a payment date,

the Company provided SWK evidence that the Company has achieved a leverage ratio as of such date of less than 4.00:1:00, the Margin Rate

shall equal 9.00%;

and if the Company had achieved a leverage ratio as of such date of less than 3.00:1:00, the Margin Rate shall equal

The leverage ratio means, as of any date of determination, the ratio of:

(a) indebtedness as of such date to (b) EBITDA (as defined

in the SWK Loan), of the Company for the immediately preceding 12 month period, adding-back (i) actual litigation expenses for the immediately

however, such term could be

reduced to four years if certain revenue requirements were not achieved.

The SWK Loan was secured by substantially all of the Company’s

assets, including its intellectual property rights.

The SWK Loan was subsequently amended in May 2019 and again in April 2020.

Loan bore an interest rate equal to the three-month London Inter-Bank Offered Rate (subject to a minimum of 2.00 % ),

plus an applicable margin of 10.00 % (the

“Margin Rate”);

provided that, if, two days prior to a payment date, the Company provided SWK evidence that the Company

has achieved a leverage ratio as of such date of less than 4.00:1:00, the Margin Rate shall equal 9.00%;

and if the Company had achieved

a leverage ratio as of such date of less than 3.00:1:00, the Margin Rate shall equal 7.00% .

leverage ratio means, as of any date of determination, the ratio of:

(a) indebtedness as of such date to (b) EBITDA (as defined in the

SWK Loan), of the Company for the immediately preceding 12 month period, adding-back (i) actual litigation expenses for the immediately

preceding 12 month period, minus (ii) actual litigation expenses for the immediately preceding 3 month period multiplied by 4.

3 unchanged sentences

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

interest payment of $ 358 due May 14, 2020 was paid in-kind by increasing the principal amount of the term loans by an amount equal

to the interest accrued as of such date.

expense related to the SWK Loan Agreement, as amended, amounted to $ 647 for the year ended December 31, 2021, and $ 1,767 for the year

ended December 31, 2020, and included amortization of debt issuance costs and discounts of $ 96 for the year ended December 31, 2021,

and $ 354 for the year ended December 31, 2020.

April 2021, the Company paid $ 15,540 related to all outstanding obligations to SWK under the SWK Loan, including outstanding principal,

accrued interest, accrued exit fee and related expenses and recorded a loss from early extinguishment of $ 756 related to the SWK Loan

during the year ended December 31, 2021.

interest payment of $ 358,000 due May 14, 2020 was paid in-kind by increasing the principal amount of the term loans by an amount

equal to the interest accrued as of such date.

expense related to the SWK Loan Agreement, as amended, amounted to $ 647,000 for the year ended December 31, 2021, and included amortization

of debt issuance costs and discounts of $ 96,000 for the year ended December 31, 2021.

April 2021, the Company paid $ 15,540,000 related to all outstanding obligations to SWK under the SWK Loan, including outstanding

principal, accrued interest, accrued exit fee and related expenses and recorded a loss from early extinguishment of $ 756,000 related

to the SWK Loan during the year ended December 31, 2021.

Protection Program Loan – Forgiven in March 2021

April 2020, the Company 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 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.

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.

4 unchanged sentences

of the PPP Loan for the loan balance of $ 1,967,000 in the accompanying consolidated statement of operations for the year ended December

December 31, 2021, future minimum payments under the Company’s Notes were as follows:

SUMMARY OF FUTURE MINIMUM PAYMENTS

minimum payments

December 31, 2022, future minimum payments under the Company’s debt were as follows (excluding debt transactions that occurred

subsequent to December 31, 2022):

OF FUTURE MINIMUM PAYMENTS UNDER NOTES PAYABLES

Total minimum payments

amount representing interest payments

payable, gross

( 41,773,000 )

Notes payable, gross

unamortized discount, net of premium

payable, net of unamortized discount

( 5,826,000 )

Notes payable, net of unamortized discount

$ 104,174,000

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

These lease agreements have remaining

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

operating lease for 10,200 square feet of office space in San Diego, California that expired

in December 2021 ;

operating lease for 5,789

feet of office space in Carlsbad, California, which commenced in January 2022 and will expire

in July 2027 .

Since the commencement date of this lease occurred after December 31, 2021,

right-of-use assets and operating lease liabilities associated with it are not included in

our consolidated balance sheet at December 31, 2021 ;

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

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

of the original lease and added 1,400 of additional square footage to the lease and another

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

8,900 square feet of space;

operating lease for 5,500 square feet of office space in Nashville, Tennessee, that expires

in December 2024 , with an option to extend the term for two additional five-year periods .

the year ended December 31, 2021, the Company terminated its operating lease for 10,200 square feet of office space in San Diego, California,

that had an expiration date in December 2021 .

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

operating lease for 5,789 square feet of office space in Carlsbad, California, which commenced in January 2022 that expires in March 2025, with an option to extend the term through March 2028 .

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 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

expires in June 2027 .

December 31, 2022 and 2021, the weighted-average discount rate and the weighted-average remaining lease term for the operating leases

held by the Company were 6.3 % and 6.3 % and 14.6 and 11.2 years, respectively.

held by the Company were 6.6 %

years, respectively.

the years ended December 31, 2022 and 2021, cash paid for amounts included for the operating lease liabilities was $ 925,000 and

respectively, and the Company recorded operating lease expense of $ 912 and $ 1,066 , respectively, included in selling, general and administrative

$ 1,000,000 , respectively, and the Company recorded operating lease expense of $ 1,117,000 and $ 912,000 , respectively, included in

selling, general and administrative expenses.

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

OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

minimum lease payments

Operating Leases

Total minimum lease payments

amount representing interest payments

operating lease liabilities

( 3,446,000 )

Total operating lease liabilities

current portion, operating lease liabilities

lease liabilities, net of current portion

Company has a finance lease for equipment which requires monthly payments of $ 1 through January 2024.

lease payments under the finance lease as of December 31, 2021 were as follows :

OF FUTURE LEASE PAYMENT UNDER FINANCE LEASE

minimum lease payments

amount representing interest payments

value of future minimum lease payments

current portion, finance lease obligation

lease obligation, net of current portion

December 31, 2021 and 2020, the weighted-average discount rate and the weighted-average remaining lease term for the finance lease held

by the Company were 6.36 % and 6.36 % and 2.08 and 3.08 years, respectively.

the years ended December 31, 2021 and 2020:

● amortization

expense related to the equipment held under the finance lease obligations was $ 8 and $ 8 ,

respectively;

paid and expense recognized for interest expense related to the finance lease obligation

was $ 1 and $ 2 , respectively.

Operating lease liabilities, net of current portion

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

December 31, 2021 and 2020, the Company had 5,000,000 shares of preferred stock, $ 0.001 par value, authorized and no shares of preferred

stock issued and outstanding.

December 31, 2022 and 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.

B Cumulative Preferred Stock – Redeemed in June 2021

May 2021, the Company sold 440,000 shares of the Company’s Series B Cumulative Preferred Stock, par value $ 0.001 per share and

liquidation preference of $ 25.00 per share (the “Series B Preferred Stock”), for net proceeds of approximately $ 10,655 .

Series B Preferred Stock was not convertible into our common stock, had no voting rights , except as required by Delaware law, and was

redeemable by the Company at any time.

Holders of Series B Preferred Stock were entitled to cumulative cash dividends at the rate of

9.50 % of the $ 25.00 liquidation preference per year;

provided, however, that for each thirty (30) day period following May 5, 2021, the

dividend rate increased at various rates, except as otherwise limited by applicable law.

Dividends were payable quarterly in arrears,

on or about the 15th of January, April, July and October, beginning on or about July 15, 2021.

May 2021, the Company sold 440,000 shares of the Company’s Series B Cumulative Preferred Stock, par value $ 0.001 per

share and liquidation preference of $ 25.00 per share (the “Series B Preferred Stock”), for net proceeds of approximately

$ 10,655,000 .

The Series B Preferred Stock was not convertible into our common stock, had no voting rights , except as required by

Delaware law, and was redeemable by the Company at any time.

Holders of Series B Preferred Stock were entitled to cumulative cash dividends

at the rate of 9.50 % of the $ 25.00 liquidation preference per year;

provided, however, that for each thirty (30) day period

following May 5, 2021, the dividend rate increased at various rates, except as otherwise limited by applicable law.

Dividends were payable

quarterly in arrears, on or about the 15th of January, April, July and October, beginning on or about July 15, 2021.

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

1 unchanged sentence

of Series B Preferred Stock outstanding was equal to $ 25.00 per share, plus accrued and unpaid dividends, which in aggregate totaled

During the year ended December 31, 2021, the Company recorded preferred stock cash dividends and deemed dividends equal to $ 472 .

$ 11,127,000 .

During the year ended December 31, 2021, the Company recorded preferred stock cash dividends and deemed dividends equal

to $ 472,000 .

each of December 31, 2022 and 2021, the Company had 50,000,000 shares of common stock, $ 0.001 par value, authorized.

1 unchanged sentence

the year ended December 31, 2022:

Company issued 311,369 shares of its common stock upon the cashless exercise of warrants

to purchase 406,539 shares of common stock with exercise prices between $ 1.79 and $ 3.75 per

Company issued 25,480 shares of its common stock and received net proceeds of $ 65 upon the

exercise of options to purchase 25,480 shares of common stock with exercise prices between

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 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 ;

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 of $ 2.08 per

Company issued 4,054 shares of common stock to a consultant 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 ;

Company issued 15,625 shares of common stock to a consultant and received net proceeds

of $ 55,000 upon the exercise of options to purchase 15,625 shares of common stock

at an exercise price of $ 3.50 per share ;

Company issued 132,100 shares of common stock and received net proceeds of $ 587,000 upon

the exercise of options to purchase 132,100 shares of common stock with exercise

prices between $ 1.70 to $ 8.40 per share ;

RSUs granted at various dates to employees of the Company vested, and the Company issued

110,621 shares of common stock to the employees, net of 74,379 shares of common stock withheld

for payroll tax withholdings totaling $ 581,000 ;

● 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 .

During the Year Ended December 31, 2021

the year ended December 31, 2021:

Company issued 311,369 shares of its common stock upon the cashless exercise of

warrants to purchase 406,539 shares of common stock with exercise prices between

$ 1.79 and $ 3.75 per share;

Company issued 25,480 shares of its common stock and received net proceeds of $ 65,000

upon the exercise of options to purchase 25,480 shares of common stock with exercise

prices between $ 1.70 and $ 4.29 per share;

Company issued 715,871 shares of its common stock to Mark L.

Baum, its Chief Executive Officer,

upon the vesting of 1,050,000 performance-based restricted stock units.

The Company withheld

334,129 shares of common stock to Mr.

Baum valued at $ 2,760 for payroll tax purposes;

Baum, its Chief Executive

Officer, upon the vesting of 1,050,000 performance-based restricted stock units.

The Company withheld 334,129 shares of common stock to Mr.

Baum valued at $ 2,760,000 for

payroll tax purposes;

Company issued 100,168 shares of common stock to Andrew R.

Boll, its Chief Financial Officer,

upon the vesting of 157,500 performance-based restricted stock units.

The Company withheld

57,332 shares of common stock to Mr.

Boll valued at $ 468 for payroll tax purposes;

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.

During the Year Ended December 31, 2020

the year ended December 31, 2020:

Company issued 30,000 shares of its restricted common stock, with an initial fair value of

$ 167 , as consideration for commission expenses incurred during the year ended December 31,

2019 and the year ended December 31, 2020;

Company issued 4,161 shares of its common stock upon the cashless exercise of options to

purchase 16,750 shares of common stock, with exercise prices ranging from $ 1.70 to $ 4.05

per share, net of 3,564 shares of common stock withheld for payroll tax withholdings;

Company issued 2,998 shares of its common stock upon the exercise of options to purchase

2,998 shares of common stock, with exercise prices ranging from $ 3.04 to $ 3.20 per share,

and paid $ 8 related to payroll tax withholdings;

Company issued 185,785 shares of its common stock underlying RSUs held by directors that

The RSUs had previously vested, including 26,721 RSUs during the year ended December

31, 2020, but the issuance and delivery of the shares were deferred until the director resigned;

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 resignation of a director.

Boll, its Chief Financial

Officer, upon the vesting of 157,500 performance-based restricted stock units.

The Company withheld 57,332 shares of common stock to Mr.

Boll valued at $ 468,000 for

payroll tax purposes;

● 67,297 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

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The 2007 Plan reached its term in September 2017, and we can no longer issue additional awards under this

however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity

or are otherwise cancelled/forfeited.

plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or

are otherwise cancelled/forfeited.

On June 13, 2017, the Company’s Board of Directors and stockholders adopted the Company’s

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with the 2007 Plan, the “Plans”).

As of December 31, 2021, the 2017 Plan provides for the issuance of a maximum of 6,000,000

shares of the Company’s common stock.

purposes of the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered

valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development

and financial success.

Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section

422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted stock units and restricted stock.

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

The Company had 2,399,649

shares available for future issuances under

the 2017 Plan at December 31, 2021.

As of December 31, 2021, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares

of the Company’s common stock.

The purpose of the Plans are to attract and retain directors, officers, consultants, advisors and

employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such

persons in the Company’s development and financial success.

Under the Plans, the Company is authorized to issue incentive stock

options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted

stock units and restricted stock.

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

The Company had 2,057,155 shares available for future issuances under the 2017 Plan at December 31, 2022.

summary of stock option activity under the Plan for the year ended December 31, 2022 is as follows:

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

OF STOCK OPTION PLAN ACTIVITY

Number of shares

Weighted Avg.

Exercise Price

Remaining Contractual Life

Weighted Avg.

Contractual Life

Intrinsic Value

outstanding - January 1, 2021

cancelled/forfeit

outstanding - December 31, 2021

vested and expected to vest

Options outstanding – January 1, 2022

Options granted

Options exercised

Options cancelled/forfeited

Options outstanding – December 31, 2022

Options exercisable

Options vested and expected to vest

aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would

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

Vesting terms for options granted

to employees and consultants during the year ended December 31, 2021 generally included one of the following vesting schedules:

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;

and 100% of the

shares subject to the option vest on a quarterly basis in equal installments 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 .

Vesting terms for

options granted to employees and consultants during the year ended December 31, 2022 generally included one of the following vesting

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 ;

100% of the shares subject to the option vest on a quarterly basis in equal installments 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.

July 31, 2015, the Company granted to its Chief Executive Officer, Mark Baum, an option (the “Baum Performance Option”) to

purchase 600,000 shares of the Company’s common stock at an exercise price of $ 7.87 per share under the 2007 Plan subject to the

satisfaction of certain market-based vesting criteria.

The market-based vesting criteria are separated into five tranches and require

that the Company achieve and maintain certain average stock price targets ranging from $ 9 per share to $ 15 per share during the five

year period following the grant date.

On June 4, 2020, the Company amended the Baum Performance Option, to extend the vesting and contractual

term by 5 years.

The Company treated this amendment as a modification to the Baum Performance Option for accounting purposes.

value of the modification was $ 1,876 using a Monte Carlo simulation model with a five-year life, 70 % volatility and a risk-free interest

rate of 0.40 %.

purchase 600,000 shares of the Company’s common stock at an exercise price of $ 7.87 per share under the 2007 Plan

subject to the satisfaction of certain market-based vesting criteria.

The market-based vesting criteria are separated into five tranches

and require that the Company achieve and maintain certain average stock price targets ranging from $ 9 per share to $ 15 per

share during the five year period following the grant date.

On June 4, 2020, the Company amended the Baum Performance Option, to extend

the vesting and contractual term by 5 years.

The Company treated this amendment as a modification to the Baum Performance Option

for accounting purposes.

The fair value of the modification was $ 1,876,000 using a Monte Carlo simulation model with a five-year

life, 70 % volatility and a risk-free interest rate of 0.40 % .

the exception of the Baum Performance Option, the fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton

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used for valuing options granted to employees:

SCHEDULE OF FAIR VALUE ASSUMPTIONS

Weighted-average

fair value of options granted

terms (in years)

interest rate

OF FAIR VALUE ASSUMPTIONS

Weighted-average fair value of options granted

Expected terms (in years)

Expected volatility

Risk-free interest rate

1.54 – 3.70 %

0.39 – 0.45 %

Dividend yield

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

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

of Exercise Prices

of December 31, 2021, there was approximately $ 1,397 of total unrecognized compensation expense related to unvested stock options granted

under the Plan.

OF STOCK OPTION OUTSTANDING AND EXERCISABLE

Options Outstanding

Options Exercisable

Exercise Prices

Life in Years

$ 1.47 - $ 2.23

$ 2.40 - $ 3.50

$ 4.08 - $ 6.30

$ 6.75 - $ 7.30

$ 7.37 - $ 7.79

$ 7.89 - $ 8.98

$ 1.47 - $ 12.38

of December 31, 2022, there was approximately $ 1,560,000 of total unrecognized compensation expense related to unvested stock options

granted under the Plan.

That expense is expected to be recognized over the weighted-average remaining vesting period of 4.88 years.

The stock-based

compensation for all stock options was $ 1,636 and $ 1,579 during the years ended December 31, 2021 and 2020, respectively.

The stock-based compensation for all stock options was $ 1,130,000 and $ 1,636,000 during the years ended December 31, 2022 and 2021, respectively.

Stock Units/Performance Stock Units

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During the Year Ended December 31, 2022

the year ended December 31, 2020, 161,000 RSUs with a fair market value of $ 1,025 were issued to certain employees;

the RSUs vest in

full on the third anniversary of the grant date.

the year ended December 31, 2020, the Company’s board of directors were granted 90,524 RSUs with a fair market value $ 511 which

vest on a quarterly basis, over a one-year term in equal installments, subject to the director’s continued service at the vesting

date, but the issuance and delivery of these shares are deferred until the director resigns.

the year ended December 31, 2022, the Company’s board of directors were granted 65,615 RSUs with a fair market value

of $ 500,000 , which vest in equal quarterly installments over one year.

summary of the Company’s RSU activity and related information for the year ended December 31, 2022 is as follows:

Average Grant

Date Fair Value

unvested - January 1, 2020

cancelled/forfeited

unvested at December 31, 2020

OF RESTRICTED STOCK UNITS ACTIVITY

Number of RSUs

Weighted Average

Grant Date Fair Value

RSUs unvested – January 1, 2022

RSUs cancelled/forfeit

RSUs unvested at December 31, 2022

of December 31, 2022, the total unrecognized compensation expense related to unvested RSUs was approximately $ 4,205,000 which is expected

to be recognized over a weighted-average period of 0.60 years, based on estimated vesting schedules.

The stock-based compensation for

RSUs was $ 6,844,000 and $ 4,022,000 during the years ended December 31, 2022 and 2021, respectively.

During the Year Ended December 31, 2021

the year ended December 31, 2021, 300,000 RSUs with a fair market value of $ 2,670,000 were issued to certain employees;

the RSUs vest in

full on the third anniversary of the grant date.

the year ended December 31, 2021, the Company’s board of directors were granted 38,576 RSUs with a fair market value of $ 400 , which

vest in equal quarterly installments over one year.

the year ended December 31, 2021, the Company granted 1,567,913 performance stock units (“PSUs”) to members of its senior

management including Mark Baum, Chief Executive Officer, Andrew Boll, Chief Financial Officer, and John Saharek, President of ImprimisRx

, which are subject to the satisfaction of certain market-based and continued service conditions (the “2021 PSUs”).

PSUs are separated into four tranches and require that the Company achieve and maintain certain levels of total stockholder returns (“TSR”)

ranging from 50% to 175% per share during the five-year period following the grant date.

TSR is based on the aggregate of:

(i) the percent

increase of the closing price of the Company’s common stock from July 22, 2021;

and (ii) any dividends or like stockholder distributions

as specified in the table below.

With certain limited exceptions, in addition to reaching the TSR targets, the employee must be employed

with the Company on the second anniversary of the grant date in order for the 2021 PSUs to vest.

the RSUs vest in full on the third anniversary of the grant date.

the year ended December 31, 2021, the Company’s board of directors were granted 38,576 RSUs with a fair market value

of $ 400,000 , which vest in equal quarterly installments over one year.

the year ended December 31, 2021, the Company granted 1,567,913 performance stock units (“PSUs”) to members of

its senior management including Mark Baum, Chief Executive Officer, Andrew Boll, Chief Financial Officer, and John Saharek, President

of ImprimisRx , which are subject to the satisfaction of certain market-based and continued service conditions (the “2021 PSUs”).

The 2021 PSUs are separated into four tranches and require that the Company achieve and maintain certain levels of total stockholder

returns (“TSR”) ranging from 50% to 175% per share during the five-year period following the grant date.

TSR is based on

the aggregate of:

(i) the percent increase of the closing price of the Company’s common stock from July 22, 2021;

dividends or like stockholder distributions as specified in the table below.

With certain limited exceptions, in addition to reaching

the TSR targets, the employee must be employed with the Company on the second anniversary of the grant date in order for the 2021 PSUs

OF SHARE BASED COMPENSATION PERFORMANCE STOCK UNITS AWARD ACTIVITY

Number of Shares

Target Share Price*

assumes that no dividends or like distributions are made to shareholders of the Company.

50% or greater

100% or greater

150% or greater

175% or greater

* Target Share Price assumes

that no dividends or like distributions are made to shareholders of the Company.

If such distributions are made, the Target Share

Price would decrease accordingly, to the benefit of the employee, to account for the dividend/distribution as a part of TSR.

fair value of the 2021 PSUs was $ 10,113

using a Monte Carlo Simulation with a five-year

volatility and a risk free interest rate of 0.72 %.

Price would decrease accordingly, to the benefit of the employee, to account for the dividend/distribution as a part of

fair value of the 2021 PSUs was $ 10,113,000 using a Monte Carlo Simulation with a five-year life, 75 % volatility

and a risk free interest rate of 0.72 % .

The fair value amount is being amortized over a two-year derived service period.

summary of the Company’s RSU activity and related information for the year ended December 31, 2021 is as follows:

SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY

Weighted Average Grant Date

unvested - January 1, 2021

Number of RSUs

Weighted Average

Grant Date Fair Value

RSUs unvested - January 1, 2021

( 1,274,797 )

cancelled/forfeit

unvested at December 31, 2021

of December 31, 2021, the total unrecognized compensation expense related to unvested RSUs was approximately $ 10,550 which is expected

to be recognized over a weighted-average period of 1.48 years, based on estimated vesting schedules.

The stock-based compensation for

RSUs was $ 4,022 and $ 1,167 during the years ended December 31, 2021 and 2020, respectively.

RSUs cancelled/forfeit

RSUs unvested at December 31, 2021

Stock-Based Transactions

Company recognized $ 87 and $ 26 in stock-based compensation expense related to subsidiary stock options during the years ended December

31, 2021 and 2020, respectively.

Company recognized $ 0 and $ 87,000 in stock-based compensation expense related to subsidiary stock options during the years

ended December 31, 2022 and 2021, respectively.

Company recorded stock-based compensation (including issuance of common stock for services and accrual for stock-based compensation)

related to equity instruments granted to employees, directors and consultants as follows:

SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

the Year Ended December 31,

– selling, general and administrative

time to time, the Company issues warrants to purchase shares of the Company’s common stock to investors, lenders (see Note 13),

underwriters and other non-employees for services rendered or to be rendered in the future.

OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

For the Year Ended December 31,

Employees – selling, general and administrative

Employees – R&D

Directors – selling, general and administrative

Consultants – selling, general and administrative

Stock-based compensation

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

and other non-employees for services rendered or to be rendered in the future.

summary of warrant activity during the year ended December 31, 2022 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

of Shares Subject to Warrants Outstanding

OF WARRANTS ACTIVITY

Number of Shares Subject to Warrants Outstanding

Weighted Avg.

Exercise Price

outstanding - January 1, 2021

outstanding and exercisable - December 31, 2021

average remaining contractual life of the outstanding warrants in years - December 31, 2021

warrants outstanding as of December 31, 2021 are included in the following table:

SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

Outstanding and Exercisable

warrants (see Note 13)

Warrants outstanding - January 1, 2022

Warrants outstanding - December 31, 2022

Company is subject to taxation in the United States, California, Florida, Georgia, Illinois, New Jersey, New York, Tennessee and Wisconsin.

The Company’s income tax provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 are summarized below:

SCHEDULE OF PROVISION FOR INCOME TAXES

in valuation allowance

tax provision (benefit)

The Company’s income tax provision consists of the following for the years ended December 31, 2022 and 2021 are summarized below:

OF PROVISION FOR INCOME TAXES

Total current

$ ( 425,000 )

( 1,944,000 )

Change in valuation allowance

( 1,182,000 )

Total deferred

Income tax provision

reconciliation of income taxes computed by applying the statutory U.S.

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to the income tax provision is as follows:

SCHEDULE OF INCOME TAX RECONCILIATION

OF INCOME TAX RECONCILIATION

federal statutory tax rate

tax benefit, net

stock-based compensation

off of NOLs due to previous change in ownership

off of credits due to previous change in ownership

of valuation allowance for write off of NOLs and credits due to previous change in ownership

income tax rate

State tax benefit, net

Employee stock-based compensation

Excess Employee Remuneration

W/O of IRC Sec 382 Limited NOLs

W/O of IRC Sec 383 Limited Credits

Reduction of VA for IRC Sec 382 and 383 W/O

Valuation allowance

Effective income tax rate

tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities

2 unchanged sentences

tax assets are as follows:

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

tax assets (liabilities):

and amortization

and development credits

stock compensation

Difference in Melt

Difference in Surface

Difference in Eton

License Agreement

stock purchase identifiable intangibles

Basis difference in Melt loan

lease liabilities

lease right-of-use assets

deferred tax assets, net

deferred tax liabilities

OF DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets (liabilities):

Depreciation and amortization

Research and development credits

Deferred stock compensation

Basis Difference in Eton

( 1,684,000 )

( 2,511,000 )

Sintetica License Agreement

Sparcs License Agreement

Novartis License Agreement

Basis difference in Melt Loan Value

Park stock purchase identifiable intangibles

Limitation Under 163(j)

Section 174 Capital Expenses

ASC 842 Lease Liability

ASC 842 ROU Asset

( 2,263,000 )

( 1,753,000 )

Total deferred tax assets, net

Valuation allowance

( 17,022,000 )

( 18,204,000 )

Net deferred tax liabilities

of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

1 unchanged sentence

deferred tax assets have been fully offset by a valuation allowance.

The valuation allowance increased by approximately $ 2,369

and increased by approximately $ 633

during 2021 and 2020, respectively.

of December 31, 2021, the Company had federal and state net operating loss carryforwards of approximately $ 34,400 and $ 53,200 , respectively,

which will begin to expire in 2027 , unless previously utilized, and will begin to expire for state purposes in 2026.

In addition, the

Company has federal net operating loss carryforward of $3,900 generated after 2017 that can be carried over indefinitely and may be used

to offset up to 80% of federal taxable income .

of December 31, 2021 the Company had federal and state research and development credit carryforwards of approximately $ 47 and $ 54 , respectively,

which will begin to expire in 2026 , unless previously utilized.

For state purposes, the state research and development credit carryforwards

can be carried over indefinitely.

The valuation allowance decreased by approximately $ 1,182,000 and

increased by approximately $ 2,369,000 during 2022 and 2021, respectively.

of December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $ 23,900,000 and $ 45,000,000 ,

respectively, which will begin to expire in 2027 , unless previously utilized, and will begin to expire for state purposes in 2026.

addition, the Company has federal net operating loss carryforward of $3,900,000 generated after 2017 that can be carried over indefinitely

and may be used to offset up to 80% of federal taxable income .

of December 31, 2022 the Company had federal and state research and development credit carryforwards of approximately $ 47,000 and $ 54,000 ,

respectively, which will begin to expire in 2026 , unless previously utilized.

For state purposes, the state research and development

credit carryforwards can be carried over indefinitely.

of the net operating losses and research and development carryforwards may be subject to a substantial annual limitation due to ownership

10 unchanged sentences

in such an ownership change, or could result in an ownership change in the future upon subsequent disposition.

of December 31, 2021, the Company determined that it had net operating loss carryforwards of approximately $ 12,600

and state net operating loss carryforwards

of approximately $ 9,400

restricted under IRC Section 382 of the Internal

Revenue Code related to a 2011 change in ownership.

Section 382 of the Internal Revenue Code limits the utilization of net operating

losses when ownership changes, as defined by that section, occur.

Due to the Section 382 limitation, and the length of time available

to fully utilize the net operating loss carryforwards, the Company removed these NOLs from deferred tax assets with a corresponding reduction

of the valuation allowance.

Similarly, under IRC Section 383 which limits the utilization of credits when ownership changes occur, the

Company removed approximately $ 300

of federal credit and $ 300

of state credits from deferred tax assets with

a corresponding reduction of valuation allowance.

Company did not have any unrecognized tax benefits as of December 31, 2021 and 2020, all of which is offset by a full valuation allowance.

of December 31, 2022, the Company determined that it had net operating loss carryforwards of approximately $ 12,500,000 and state net

operating loss carryforwards of approximately $ 9,400 ,000 restricted under IRC Section 382 of the Internal Revenue Code related to a 2011

change in ownership.

Section 382 of the Internal Revenue Code limits the utilization of net operating losses when ownership changes,

as defined by that section, occur.

Due to the Section 382 limitation, and the length of time available to fully utilize the net operating

loss carryforwards, the Company removed these NOLs from deferred tax assets with a corresponding reduction of the valuation allowance.

Similarly, under IRC Section 383 which limits the utilization of credits when ownership changes occur, the Company removed approximately

$ 300,000 of federal credit and $ 300,000 of state credits from deferred tax assets with a corresponding reduction of valuation allowance.

Company did not have any unrecognized tax benefits as of December 31, 2022 and 2021.

These unrecognized tax benefits, if recognized, would not affect the effective tax rate.

3 unchanged sentences

OF UNRECOGNIZED TAX BENEFITS

at January 1, 2021

for tax positions related to current year

Additions/(reductions)

for tax positions related to prior years

at December 31, 2021

unrecognized tax benefits as of December 31, 2021

Fed & State Tax

Balance at January 1, 2022

Additions for tax positions related to current year

Additions/(reductions) for tax positions related to prior years

Balance at December 31, 2022

Total unrecognized tax benefits as of December 31, 2022

Tax Cuts and Jobs Act of 2017 (TCJA) included changes to the treatment of research and development expenses under IRC Section 174.

Formerly, a company could deduct research and development expenses under IRC Section 174 as incurred.

Effective for tax years

beginning after December 31, 2021, research and development expenses under IRC Section 174 are required to be capitalized, with an

amortization period of five years for costs incurred un the US and 15

years for costs incurred in a non-US jurisdiction.

The Company has incurred approximately $ 2,191,000

of US research and development costs during the year ended December 31, 2022.

EMPLOYEE SAVINGS PLAN

3 unchanged sentences

subject to annual limits.

The Company contributed approximately $ 282 and $ 272 to the plan during the years ended December 31, 2021 and

2020, respectively.

The Company contributed approximately $ 397,000 and $ 282,000 to the plan during the years ended December 31,

2022 and 2021, respectively.

COMMITMENTS AND CONTINGENCIES

the ordinary course of business, the Company is involved in various legal proceedings, government investigations and other matters that

are complex in nature and have outcomes that are difficult to predict.

What changed 10-K

Item 9A. Controls and Procedures