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Item 1. Financial Statements

2023-05-11 compared with 2022-11-14 · 807 added, 618 removed, 541 unchanged (72% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

6 unchanged sentences

Capitalized software costs, net

Operating lease right-of-use assets

Deferred financing costs

Deferred tax asset

Operating lease right-of-use assets, net

Intangible assets, net

Investment in Melt Pharmaceuticals

$ 217,498,000

$ 157,378,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

4 unchanged sentences

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

Loans payable, net of current portion and unamortized debt discount

Accrued expenses, net of current portion

Notes payable, net of unamortized debt discount

TOTAL LIABILITIES

1 unchanged sentence

STOCKHOLDERS’ EQUITY

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

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 30,056,370 and 29,901,530 shares issued and outstanding at March

31, 2023 and December 31, 2022, respectively

Additional paid-in capital

6 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 217,498,000

$ 157,378,000

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

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

September 30,

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Product sales, net

4 unchanged sentences

( 5,963,000 )

( 19,218,000 )

( 13,134,000 )

Operating expenses:

2 unchanged sentences

Total operating expenses

(Loss) income from operations

( 3,717,000 )

Income from operations

Other (expense) income:

2 unchanged sentences

( 1,792,000 )

( 5,386,000 )

( 3,512,000 )

Equity in losses of unconsolidated entities

( 2,886,000 )

( 9,036,000 )

( 2,967,000 )

Investment loss from Eton Pharmaceuticals

( 1,031,000 )

( 2,220,000 )

( 4,341,000 )

Investment gain from Eton Pharmaceuticals

Loss on extinguishment of debt

( 5,465,000 )

Loss on early extinguishment of debt

Gain on forgiveness of PPP loan

Other expense, net

Other income, net

Total other expense, net

1 unchanged sentence

( 4,539,000 )

( 18,763,000 )

( 13,958,000 )

Loss before income taxes

1 unchanged sentence

( 2,438,000 )

( 15,066,000 )

( 10,589,000 )

( 6,464,000 )

( 8,328,000 )

( 15,141,000 )

( 10,589,000 )

Preferred dividends and accretion of preferred stock issuance costs

Net loss attributable to common stockholders

$ ( 6,464,000 )

$ ( 8,328,000 )

Income tax benefit

( 6,643,000 )

2 unchanged sentences

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

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

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

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

Preferred Stock

For the Three Months Ended March 31, 2023 and 2022

Harrow Health, Inc.

Noncontrolling

4 unchanged sentences

$ ( 95,407,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of warrants

Exercise of employee stock-based options

Vesting of RSUs

Shares withheld related to net share settlement of

equity awards

( 3,228,000 )

Issuance of preferred shares, net of discount and issuance costs

Redemption of preferred shares

( 11,000,000 )

Payment of preferred dividends

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

2 unchanged sentences

( 2,438,000 )

Balance at September 30, 2021

Balance at March 31, 2022

$ 107,909,000

6 unchanged sentences

Issuance of common stock in connection with:

Exercise of consultant stock-based options

Exercise of employee stock-based options

Vesting of RSUs

Shares withheld related to net share settlement of

equity awards

Stock-based compensation expense

( 15,141,000 )

Balance at September 30, 2022

$ 111,738,000

$ ( 110,548,000 )

$ ( 355,000 )

Preferred Stock

Harrow Health, Inc.

Noncontrolling

Stockholders’

Balance at June 30, 2021

$ 102,837,000

$ ( 79,661,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of employee stock-based options

Stock-based compensation expense

( 8,328,000 )

Balance at September 30, 2021

$ 104,551,000

$ ( 87,989,000 )

$ ( 355,000 )

Balance at June 30, 2022

$ 109,806,000

$ ( 104,084,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of consultant stock-based options

Exercise of employee stock-based options

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

2 unchanged sentences

( 6,643,000 )

Balance at September 30, 2022

Balance at March 31, 2023

$ 137,989,000

4 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

$ ( 2,438,000 )

Adjustments to reconcile net loss to net cash provided by operating

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

Depreciation and amortization of property, plant and equipment

2 unchanged sentences

Provision for bad debt expense

Amortization of debt issuance costs and discount

Gain on forgiveness of PPP loan

Amortization of debt issuance costs and debt discount

Investment gain from investment in Eton

( 2,042,000 )

Investment loss from investment in Eton

Equity in losses of unconsolidated entities

Interest paid-in-kind from note receivable

Loss on early extinguishment of loan

Loss on extinguishment of debt

Stock-based compensation

Deferred taxes

Changes in assets and liabilities:

6 unchanged sentences

Accrued payroll and related liabilities

( 1,111,000 )

( 1,141,000 )

Deferred revenue and customer deposits

NET CASH PROVIDED BY OPERATING ACTIVITIES

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

( 8,214,000 )

CASH FLOWS FROM INVESTING ACTIVITIES

Net proceeds on sale of investments

Investment in patent and trademark assets

Issuance of note receivable, Melt Pharmaceuticals

Purchase of product NDAs and patents

( 130,474,000 )

Purchases of property, plant and equipment

( 1,719,000 )

( 1,649,000 )

NET CASH USED IN INVESTING ACTIVITIES

( 130,970,000 )

( 4,489,000 )

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Net proceeds from 11.875% notes payable, net of costs

Principal and exit fee payments on SWK loan

( 15,961,000 )

Payment of taxes upon vesting of RSUs

( 3,228,000 )

Net proceeds from Oaktree loan, net of costs

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

Proceeds from exercise of stock options

Sale of preferred stock, net of discount and issuance costs

Redemption of preferred stock

Net proceeds from B Riley senior secured note, net of costs

Repayment of B.

Riley senior secured note

( 59,750,000 )

Payment of preferred stock dividends

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents

Restricted cash

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

( 77,022,000 )

CASH AND CASH EQUIVALENTS, beginning of period

CASH AND CASH EQUIVALENTS, end of period

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of common stock upon vesting of RSUs

Purchase of intangible asset included in accounts payable and accrued expenses

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

accrued expenses

Insurance premium financed

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

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

Melt accounts receivable to note receivable

Accrual of exit fee related to Oaktree Loan

Reclassification of derferred financing costs

Income taxes owed for exercise of stock options

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three and Nine months ended September, 2022 and 2021

the Three Months Ended March 31, 2023 and 2022

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

Operating results for the three and nine months ended September

Operating results for the three months ended March 31,

2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.

10 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

following represents an update for the three and nine months ended September 30, 2022 to the significant accounting policies described

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

following represents an update for the three months ended March 31, 2023 to the significant accounting policies described in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2022.

Uncertainties and Liquidity

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of operations.

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

Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables.

The Company considers historical collection rates, the current financial status of its customers, macroeconomic factors, and other industry-specific

factors when evaluating for current expected credit losses.

Forward-looking information is also considered in the evaluation of current

expected credit losses.

However, because of the short time to the expected receipt of accounts receivable, the Company believes that

the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of

such financial instruments, including its trade receivables.

determine the provision for credit losses for accounts receivable, the Company has disaggregated its accounts receivable by class of

customer at the business component level, as the Company determined that the risk profile of its customers is consistent based on

the type and industry in which they operate, mainly in the life sciences industry.

Each business component is analyzed for estimated

credit losses individually.

In doing so, the Company establishes a historical loss matrix, based on the previous collections of

accounts receivable by the age of such receivables, and evaluates the current and forecasted financial position of its customers, as

Further, the Company considers macroeconomic factors and the status of the life sciences industry to estimate if there

are current expected credit losses within its trade receivables based on the trends of the Company’s expectation of the future

status of such economic and industry-specific factors.

Also, specific allowance amounts are established based on review of

outstanding invoices to record the appropriate provision for customers that have a higher probability of default.

accounts receivable balance on the Company’s condensed consolidated balance sheet as of March 31, 2023 was $ 12,111,000 , net of

$ 82,000 of allowances.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized

cost basis of accounts receivable to present the net amount expected to be collected at March 31, 2023:

OF ACCOUNTS RECEIVABLE ALLOWANCE OF CREDIT LOSS

Balance at January 1, 2023

Change in expected credit losses

Write-offs, net of recoveries

Balance at March 31, 2023

Combinations and Asset Acquisitions

Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as

a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the

gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

If the screen is met,

the transaction is accounted for as an asset acquisition.

If the screen is not met, further determination is required as to whether

the Company has acquired inputs, process, and output, which would meet the requirements of a business.

If determined to be a

business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in Financial

Account Standards Board (“FASB”).

Accounting Standards Codification (“ASC”) 805, Business Combinations , requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities

assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point.

Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including any contingent

assets and liabilities, and any non-controlling interest in the acquiree based on the fair value estimates as of the date of

In accordance with ASC 805 – Business Combinations , the

Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over

the fair value of the identified net assets acquired.

consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a

particular event or events.

The obligation for such contingent consideration payments are recorded at fair value on the acquisition

The contingent consideration obligations are then evaluated each reporting period.

Changes in the fair value of contingent

consideration, other than changes due to payments, would be recognized as a gain or loss and recorded in the condensed consolidated

statement of operations.

determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50 Business Combinations – Related

Issues , which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on

the cost of the acquired assets on a relative fair value basis, which includes transaction costs in addition to consideration given.

No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from

the assets’ carrying amounts on the acquiring entity’s financial statements.

Consideration transferred that is non-cash will

be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of

the assets acquired, and liabilities assumed, whichever is more reliably measurable.

Goodwill is not recognized in an asset acquisition

and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based

on relative fair values.

Value Measurements

value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.

establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of

unobservable inputs by requiring that the most observable inputs be used when available.

The established fair value hierarchy prioritizes

the use of inputs used in valuation methodologies into the following three levels:

Applies to assets

or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets.

A quoted price

in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

Applies to assets

or liabilities for which there are significant other observable inputs other than Level 1 prices, such as quoted prices for similar

assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by

observable market data.

Applies to assets

or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about

the assumptions that market participants would use in pricing an asset or liability.

For example, Level 3 inputs would relate to

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

March 31, 2023 and December 31, 2022, 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.

As of March 31, 2023 and December 31, 2022, the fair market value of the Company’s investment in Eton was

$ 7,631,000 and

$ 5,589,000 ,

respectively.

The Company carries the 2026 Notes at face value,

including the unamortized premium, less unamortized debt issuance costs, the 2027 Notes are carried at face value less unamortized debt

issuance costs, and the Oaktree Loan is carried at face value less the original issue discount and unamortized debt issuance costs on

the condensed 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:

SCHEDULE 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 liabilities.

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.

and Diluted Net Loss per Common Share

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

number of common shares outstanding during the period.

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

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

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

Common equivalent shares (using the treasury stock method)

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

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

the shares are deferred until the director resigns.

The number of shares underlying vested RSUs at September 30, 2022 and 2021 was 303,454

and 258,117 , respectively.

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

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

average number of common shares outstanding during the period.

Diluted net loss per common share is computed by dividing the net

loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such

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

Common equivalent shares

(using the treasury stock method) from stock options, unvested RSUs and warrants was 4,750,340

and 5,546,200

at March 31, 2023 and 2022, respectively, and are excluded in the calculation of diluted net loss per common share for the periods

presented, because the effect is anti-dilutive.

Included in the basic and diluted net loss per share calculation were RSUs awarded

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

The number of

unissued shares underlying vested RSUs at March 31, 2023 and 2022 was 336,264

and 277,405 ,

respectively.

following table shows the computation of basic and diluted net loss per share of common stock for the three months ended March 31,

2023 and 2022:

SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

For the Three Months Ended

For the Nine Months Ended

September 30,

Numerator – net loss attributable to common stockholders

$ ( 6,464,000 )

$ ( 8,328,000 )

Numerator – net loss

$ ( 6,643,000 )

$ ( 2,438,000 )

Denominator – weighted average number of shares outstanding, basic and

Denominator – weighted average

number of shares outstanding, basic and diluted

Net loss per share, basic and diluted

The Company calculates its quarterly tax provision

pursuant to the guidelines in ASC 740-270, Income Taxes .

Generally, ASC 740-270 requires companies to estimate the annual effective

tax rate for current year ordinary income.

The estimated annual effective tax rate represents the best estimate of the tax provision

in relation to the best estimate of pre-tax ordinary income or loss.

The estimated annual effective tax rate is then applied to year-to-date

ordinary income or loss to calculate the year-to-date interim tax provision and is adjusted for discrete items that occur within the

Company’s effective tax rate was 4.16 % and 0 % for the three months ended March 31, 2023 and 2022, respectively.

The Company’s

effective tax rate for the three months ended March 31, 2023 and 2022 differed from the U.S.

federal statutory tax rate of 21 % due to

state taxes, permanent book-tax differences related to Internal Revenue Code Section 162(m) excess officer compensation limitation and share-based compensation

and the change in valuation allowance.

of March 31, 2023 and December 31, 2022, there were no

unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax

in Eton Pharmaceuticals, Inc .

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

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

In accordance with the Accounting

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

Recognition and Measurement of Financial

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

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

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

As of September 30, 2022, the fair market

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

of March 31, 2023, the Company owned 1,982,000

shares of Eton common stock, which represented less than 10 %

of the equity and voting interests of Eton.

At March 31, 2023, the fair market value of Eton’s common stock was $ 3.85

In accordance with the ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of

Financial Assets and Financial Liabilities , the Company recorded an unrealized investment gain from its Eton common stock

position of $ 2,042,000

and $ 139,000

during the three months ended March 31, 2023 and 2022, respectively, related to the change in fair market value of its investment in

Eton during the measurement period.

As of March 31, 2023 and December 31, 2022, the fair market value of the Company’s

investment in Eton was $ 7,631,000

and $ 5,589,000 ,

respectively.

in Melt Pharmaceuticals, Inc.

– Related Party

Company owns 3,500,000 shares of common stock of Melt (representing approximately 46 % of the equity interests as of September 30, 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 condensed consolidated financial statements and adjusts the carrying

amount of its investment in Melt accordingly.

Company owns 3,500,000

shares of common stock of Melt which represented approximately 46 %

of the equity and voting interests of Melt as of March 31, 2023.

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 condensed consolidated financial statements and adjusts the carrying amount of its investment in Melt

Any intra-entity profits and losses are eliminated.

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

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

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 September 30, 2022:

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 March 31, 2023, 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

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 March 31, 2023:

SCHEDULE OF INVESTMENT

1 unchanged sentence

Method Losses

Contributions

Capital Contributions

Carrying value

$ ( 5,810,000 )

6 unchanged sentences

– Related Party

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

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.

Company has no other investments in Surface.

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

Company owns 3,500,000

common shares of Surface, which represented approximately 20 %

of Surface’s equity and voting interests as of March 31, 2023, 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

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

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.

The Company has no other investments in

following table summarizes the Company’s investment in Surface as of March 31, 2023:

SCHEDULE OF INVESTMENT

4 unchanged sentences

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

of Equity Method Investments 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 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 September 30, 2022 and December 31, 2021, no indicators of impairment existed.

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

from Contracts with Customers .

The Company has 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.

Adopted Accounting Pronouncements

June 2016, FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments .

This ASU replaces the incurred

loss impairment methodology in current 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 the fiscal years beginning after December 15, 2022.

The Company adopted ASU 2016-13 on January 1, 2023.

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 did not have a material impact on the Company’s condensed

consolidated financial statements or disclosures.

Specifically, the Company’s estimate of expected credit losses as of March

31, 2023, using its expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit

losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

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

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.

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the performance obligations in the contract:

Obligations for fulfillment of the Company’s

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

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

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

activities would always be considered a fulfillment activity and not treated as a separate

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.

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

the transaction price:

The transaction price is based on an amount that reflects the

consideration to which the Company expects to be entitled, net of accruals for estimated

rebates, wholesaler chargebacks, discounts and other deductions (collectively, sales deductions)

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

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

chargebacks associated with sales of its branded products.

The transfer of promised goods

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

There is no non-cash consideration related to product sales.

transaction price to the performance obligations in the contract:

Given that there is only one performance obligation for

product sales, no allocation is necessary.

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

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

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

The Company utilizes the services of a

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

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

There is no non-cash consideration

related to product sales.

the transaction price to the performance obligations in the contract:

Because there is only one performance obligation for product

sales, no allocation is necessary.

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

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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

Company had entered into an agreement whereby it was 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

The revenue earned from this arrangement was recognized, at which point there was 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

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

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

During a temporary, six month

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

the products to the Company.

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

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

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

recognize the associated revenue.

On a quarterly basis, the Seller 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 condensed consolidated statements

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

During a temporary, transition

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

to the Company.

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

sales were calculated by the Seller and confirmed by the Company, typically on a monthly basis, at which point there is no future performance

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

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

customers related to the products.

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

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

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

Property License Revenues

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

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

disaggregated by revenue source for the three months ended March 31, 2023 and 2022 consists of the following:

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales, net

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Transfer of profits

License revenues

Total revenues

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

All deferred revenue

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

revenue and customer deposits at March 31, 2023 and December 31, 2022 were $ 67,000 and $ 113,000 , respectively.

All deferred revenue and

customer deposit amounts at December 31, 2022 were recognized as revenue during the three months ended March 31, 2023.

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.

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 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 the Company.

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.

assets acquired in the Fab 5 Acquisition are identifiable intangible asset groups in similar asset classes and all directly related to

the five product NDAs acquired.

The developed technology is within one major intangible asset class.

No workforce/employees were included

in the Fab 5 Acquisition and the Company is required to utilize its own business inputs/processes to transfer and commercialize the Fab

5 Products and NDAs.

As a result, the Company recognized this transaction as an asset acquisition.

Company incurred $ 558,000 in costs associated with the Fab 5 Acquisition, including the acquisition costs and the payment of $ 130,000,000

at closing, the total purchase price of the Fab 5 Acquisition was $ 130,558,000 .

At the time of the Fab 5 Acquisition and as of March

31, 2023, the contingent consideration due related to the commercial availability of TRIESENCE was not considered probable and reasonably

estimable, therefore no amount was included in the purchase price of the Fab 5 Acquisition.

At the time the contingent consideration

due related to the commercial availability of TRIESENCE becomes probable and reasonably estimable, the additional consideration, if any,

paid will be allocated to all of the assets on a pro rata basis based on their initial estimated fair values as a percent of the total

purchase price.

The Company does not consider any amounts related to TRIESENCE to be in-process research and development (IPR&D)

as considered within the scope of ASC 730, Research and Development .

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 condensed consolidated balance

sheets as of March 31, 2023 and December 31, 2022 reflected $ 226,000

and $ 579,000 , respectively, of cash collected on behalf of the Buyer and a receivable within accounts receivable of $ 116,000

and $ 128,000 , respectively, for cash to be collected on behalf of the Buyer for sales of RPC Assets sold through March 31,

2023 and December 31, 2022, respectively.

The amounts due from the Buyer for

reimbursement of services performed under the transition services agreement was $ 162,000

and $ 254,000

as of March 31, 2023 and December 31, 2022, respectively.

Such amounts were netted against the amounts collected on behalf of the

Buyer and was unpaid within accrued expenses on the condensed consolidated balance sheets as of March 31, 2023 and December 31,

The combined total of $ 307,000

and $ 453,000

was recorded within accrued expenses on the condensed consolidated balances sheets as of March 31, 2023 and December 31, 2022,

respectively, and represents a payable to the Buyer.

The Company recorded income from the transition services agreement of $ 124,000

which is presented in other income on the consolidated statement of operations for the three months ended March 31, 2023.

three months ended March 31, 2023, the Company recorded a loss on the sale of assets of $ 94,800

related to remaining unusable inventory.

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

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

the three and nine months ended September 30, 2022, the Company recorded $ 30,000 and $ 100,000 , respectively, due from Melt for reimbursable

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

condensed consolidated balance sheets.

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

was due $ 139,000 and $ 48,000 , respectively, from Melt for reimbursable expenses and amounts due under the Melt MSA.

Melt did not make

any payments to the Company during the three and nine months ended September 30, 2022.

the three months ended March 31, 2023, the Company recorded $ 59,000 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.

As of March 31, 2023, and December 31, 2022, the Company was due $ 198,000 and $ 139,000 , respectively,

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

Melt did not make any payments to the Company during the three

months ended March 31, 2023.

Company’s Chief Executive Officer, Mark L.

1 unchanged sentence

the year ended December 31, 2021.

Following Mr.

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

Baum re-joined the Melt board of directors in January 2023.

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:

SCHEDULE OF CONDENSED INCOME STATEMENT

For the Nine Months Ended

September 30,

OF CONDENSED INCOME STATEMENT

For the Three Months Ended March 31,

Revenues, net

5 unchanged sentences

unaudited condensed balance sheet information of Melt is summarized below:

SUMMARY OF CONDENSED BALANCE SHEET

September 30,

OF CONDENSED BALANCE SHEET

At December 31,

Current assets

6 unchanged sentences

Note Receivable

September 1, 2021, the Company entered into a loan and security agreement in the principal amount of $ 13,500,000

(the “Melt Loan Agreement”), as lender, with Melt, as borrower.

Amounts borrowed under the Melt Loan Agreement bear

interest at 12.50 %

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

The Melt Loan Agreement permits Melt to

pay interest only on the principal amount loaned thereunder through the term and all amounts owed 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.

September 1, 2021, the Company entered into a loan and security agreement in the principal amount of $ 13,500,000 (the “Melt Loan

Agreement”), as lender, with Melt, as borrower.

Amounts borrowed under the Melt Loan Agreement bear interest at 12.50 % per annum,

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

The Melt Loan Agreement permits Melt to pay interest

only on the principal amount loaned thereunder through the term and all amounts owed were previously due and payable on September 1,

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

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

10 unchanged sentences

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

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

MSA prior to the effective date of the note receivable.

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

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

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 March 31, 2023 and December 31, 2022, aggregate principal and accrued interest payable

to the Company pursuant to the Melt Loan Agreement amounted to $ 16,501,000 and $ 15,984,000 , 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 September 30, 2022, the Company owned 3,500,000 shares of Surface common stock.

Company directors Richard L.

Lindstrom, Perry J.

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

Lindstrom is a principal of

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

of March 31, 2023, the Company owned 3,500,000

shares of Surface common stock.

Certain Company directors, Richard L.

Lindstrom and Perry J.

Sternberg are directors of Surface.

Lindstrom is a principal of Flying L Partners, an

affiliate of an investor who purchased Surface Series A Preferred Stock.

Baum, who is the Company’s Chief Executive Officer, was previously a member of the Surface board of

directors and resigned from his position as a director of Surface during the three months ended March 31, 2023

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

SUMMARY OF CONDENSED INCOME STATEMENT

September 30,

OF CONDENSED INCOME STATEMENT

For the Three Months Ended March 31,

Revenues, net

3 unchanged sentences

$ ( 1,524,000 )

$ ( 6,859,000 )

unaudited condensed balance sheet information of Surface is summarized below:

SUMMARY OF CONDENSED BALANCE SHEET

September 30,

OF CONDENSED BALANCE SHEET

At December 31,

Current assets

3 unchanged sentences

Total liabilities and stockholders’ equity

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

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

pharmaceutical ingredients.

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

SCHEDULE OF INVENTORIES

September 30,

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

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

The composition of inventories

as of March 31, 2023 and December 31, 2022 was as follows:

OF INVENTORIES

March 31, 2023

December 31, 2022

Raw materials

3 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30,

expenses and other current assets at March 31, 2023 and December 31, 2022 consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

March 31, 2023

December 31, 2022

Prepaid insurance

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PROPERTY, PLANT AND EQUIPMENT

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

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

September 30,

plant and equipment at March 31, 2023 and December 31, 2022 consisted of the following:

OF PROPERTY, PLANT AND EQUIPMENT

March 31, 2023

December 31, 2021

Property, plant and equipment, net:

3 unchanged sentences

Leasehold improvements

Property, plant and equipment, gross

Property, plant and equipment,

Accumulated depreciation

2 unchanged sentences

plant and equipment, net

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

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

the three months ended March 31, 2023 and 2022, depreciation expense related to the property, plant and equipment was $ 225,000 and

$ 376,000 , respectively.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

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

SCHEDULE OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Capitalized internal-use software development

Acquired third-party software

license for internal-use

Total gross capitalized software

for internal-use

software development costs at March 31, 2023 and December 31, 2022 consisted of the following:

OF FINITE LIVED INTANGIBLE ASSETS

March 31, 2023

December 31, 2022

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

Capitalized software costs, net

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

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

Capitalized internal-use software in process

Total finite lived intangible

Company recorded amortization expense of $ 67,000 and $ 43,000 related to capitalized software development costs during the three months

ended March 31, 2023 and 2022, respectively.

INTANGIBLE ASSETS AND GOODWILL

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

SCHEDULE OF INTANGIBLE ASSETS

Company’s intangible assets at March 31, 2023 consisted of the following:

OF INTANGIBLE ASSETS

Carrying Value

$ ( 183,000 )

Acquired NDAs

( 3,533,000 )

Customer relationships

Non-competition clause

State pharmacy licenses

relationships

Non-competition

pharmacy licenses

$ 156,270,000

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

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

For the Three Months Ended

For the Nine Months Ended

$ ( 4,278,000 )

$ 151,992,000

expense for intangible assets for the three months ended March 31, 2023 and 2022 was as follows:

OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

Three Months Ended

Acquired NDAs

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Amortization of intangible

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

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE

future amortization expense for the Company’s intangible assets at March 31, 2023 is as follows:

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

Remainder of 2023

Intangible assets

$ 151,725,000

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30,

payable and accrued expenses at March 31, 2023 and December 31, 2022 consisted of the following:

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable

Accrued insurance premium

Accrued IHEEZO milestone payment

Other accrued expenses

Accrued IHEEZO milestone payment (see Note 16)

Accrued RPC transition payments (see Note 4)

Accrued litigation settlements

Accrued exit fee for note payable (see Note 13)

Accrued interest

Total accounts payable and accrued expenses

Current portion

( 13,794,000 )

( 13,771,000 )

Non-current total accrued expenses

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

1 unchanged sentence

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

March 2023, the Company entered into a Credit and Guaranty Agreement (the “Oaktree Loan”) with Oaktree Fund

Administration, LLC, as administrative agent for the lenders (together, “Oaktree”), providing for a senior secured term

loan facility to the Company with a principal amount of up to $ 100,000,000 .

Upon entering into the Oaktree Loan, the Company drew a principal amount of $ 65,000,000

(“Tranche A”) from the Oaktree Loan and used the net proceeds to repay all amounts owed by the Company pursuant to the

Loan and Security Agreement the Company previously entered into with B.

Riley Commercial Capital, LLC on December 14, 2022 (the

Riley Loan”) – see subheading B.

Riley Loan and Security Agreement – Paid in Full within this

The additional principal loan amount of up to $ 35,000,000

available under the Oaktree Loan (“Tranche B”) will be made available to the Company upon the commercialization of

TRIESENCE (see Note 4).

If Tranche B is not drawn by the Company on or before March 27, 2024, the additional principal loan amount available

under the Oaktree Loan is reduced to $ 30,000,000 .

Oaktree Loan is secured by nearly all of the assets, including intellectual property, of the Company and its material subsidiaries.

The Oaktree Loan which has a maturity date of January

19, 2026 , and bears interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 6.5 %

per annum (totaling 11.398 % at March 31, 2023).

Interest is payable quarterly in arrears on March 31, June 30, September 30, and

December 31, of each year.

From the proceeds, the Company paid fees and offering expenses of $ 915,000 ,

and the Oaktree Loan was issued at an original issue discount of $ 2,500,000 .

The Oaktree Loan also requires the Company to pay an exit fee equal to 3.50 %

of the aggregate principal amount owed upon any payment or prepayment in full or in part, on or after the maturity date, and

accordingly, the Company accrued $ 2,275,000 related

to the exit fee.

The original issue discount, fees and expenses (including the exit fee) totaling $ 5,690,000

have been recorded as a debt discount, which is being amortized over the term of the Oaktree Loan using the effective interest rate

The Oaktree Loan requires interest-only payments through the maturity date.

Oaktree Loan contains customary guarantees and covenants, including financial covenants related to minimum liquidity and minimum net

As of the end of the fiscal quarter ending December 31, 2024, if the Company’s Total Leverage Ratio (as defined in the

Oaktree Loan) is greater than or equal to five times, but less than seven times, the Company will be required to issue to Oaktree warrants

to purchase 375,000 shares of the Company’s common stock, and if the Total Leverage Ratio is greater than or equal to seven times,

the Company will be required to issue to Oaktree warrants to purchase an additional 375,000 shares of the Company’s common stock

(equaling 750,000 shares in aggregate).

If the Total Leverage Ratio as of the end of the fiscal quarter ending December 31, 2024 is less

than five times, no warrants will be issued to Oaktree.

Based on current projections, the Company does not expect to issue any warrants

related to the Oaktree Loan.

expense related to the Oaktree Loan totaled $ 95,000

for the three months ended March 31, 2023, and included the amortization of debt issuance costs and discount of $ 12,000 .

- 11.875% Senior Notes Due 2027

December 2022 and in January 2023, the Company closed an offering of $ 35,000,000 and $ 5,250,000 , respectively, 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 $ 36,699,000 after deducting underwriting

discounts and commissions and expenses of $ 3,551,000 .

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.

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) the occurrence of a Material Change, as defined in the Second Supplemental Indenture.

The 2027 Notes

trade on the Nasdaq Stock Market LLC under the symbol “HROWM”.

expense related to the 2027 Notes totaled $ 1,395,000 for the three months ended March 31, 2023, and included amortization of debt issuance

costs and debt discount of $ 200,000 .

Chief Executive Officer, Mark L.

Baum, Chief Financial Officer, Andrew R.

Boll along with directors Dr.

Richard Lindstrom and R.

Van Horn, in aggregate, own $ 950,000 in principal amount of the 2027 Notes.

- 8.625% Senior Notes Due 2026

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

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

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

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

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

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 .

2 unchanged sentences

initial offering price and issue date).

T he Notes are senior unsecured obligations of the

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

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

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

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

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

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

The 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 .

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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 Notes to be redeemed , plus a make-whole amount, if any, plus accrued and unpaid interest

to, but excluding, the date of redemption.

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

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

to, but excluding, the date of redemption.

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 Notes.

expense related to the Notes totaled $ 1,814,000 and $ 5,436,000 for the three and nine months ended September 30, 2022, respectively,

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

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

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

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

The 2026 Notes trade on the Nasdaq Stock Market LLC under the symbol “HROWL”.

expense related to the 2026 Notes totaled $ 1,810,000 and $ 1,810,000 for the three months ended March 31, 2023 and 2022, respectively,

and included amortization of debt issuance costs and debt discount of $ 193,000 and $ 193,000 , respectively.

Riley Loan and Security Agreement – Paid in Full

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 , at an interest rate of 10.875 % per annum.

BR Loan was 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 was due in full on the maturity date.

The BR Loan provided

for voluntary prepayment subject to no prepayment fee if no loan had been funded or the prepayment or repayment occured (other than as

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

amount of the loan based on other payment dates.

January 2023, $ 59,750,000 of principal amount was funded pursuant to the BR Loan simultaneously with the consummation of the Fab 5 Acquisition.

In March 2023, the Company repaid all amounts owed under the BR Loan, including accrued interest of $ 1,200,000 , from proceeds received in connection with the Oaktree Loan, and no exit or prepayment

fees were paid as a result of the payoff of the BR Loan.

expense related to the BR Loan totaled $ 1,565,000

for the three months ended March 31, 2023, and included amortization of debt issuance costs and debt discount of $ 356,000 .

The Company recorded $ 5,465,000

related to the write off of the remaining unamortized debt issuance costs and debt discount in connection with the early

extinguishment of debt associated with the BR Loan.

March 31, 2023, future minimum payments under the Company’s debt are as follows:

OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES

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Notes payable, net of unamortized discount

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

These lease agreements have

remaining terms between one

years and contain various clauses for renewal at the Company’s option.

operating lease for 5,789 square feet of office space in Carlsbad, California, which commenced

in January 2022 and will expire in July 2027 .

$ 168,850,000

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

These lease agreements have remaining

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

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

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

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

This includes an amendment, which was made effective July 2020,

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

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

operating lease for

square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July

5,500 square feet of office space in Nashville, Tennessee that expires November

30, 2024 , 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 .

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

operating lease for 11,552 square feet of lab and office space in Nashville, Tennessee which commenced in June 2022 and will expire

in June 2027 .

March 31, 2023, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases

held by the Company were 6.61 % and 10.72 years, respectively.

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

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

During the three and nine months ended

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

general and administrative expenses.

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

SCHEDULE OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

the three months ended March 31, 2023 and 2022, cash paid for amounts included for the operating lease liabilities was $ 306,000 and $ 166,000 ,

respectively.

During the three months ended March 31, 2023 and 2022, the Company recorded operating lease expense of $ 309,000 and $ 238,000 ,

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

lease payments under operating leases as of March 31, 2023 were as follows :

OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

Operating Leases

Remainder of 2023

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Operating lease liabilities, net of current portion

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

are due related to finance leases.

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

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

of preferred stock issued and outstanding.

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

Baum, the Company’s Chief

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

the three months ended March 31, 2023, the Company issued 33,063 shares of common stock and received proceeds of $ 148,000 upon the exercise

of options to purchase 33,063 shares of common stock with exercise prices ranging from $ 3.50 to $ 7.60 per share.

the three months ended March 31, 2023, 23,000 RSUs granted in January 2020 to Andrew R.

Boll, the Company’s Chief Financial Officer,

vested, and in January 2023, the Company issued 13,398 shares of common stock to Mr.

Boll, net of 9,602 shares of common stock withheld

for payroll tax withholdings totaling $ 142,000 .

the three months ended March 31, 2023, 88,000 RSUs granted in January 2020 to Mark L.

Baum, the Company’s Chief Executive Officer,

vested, and in January 2023, the Company issued 52,821 shares of common stock to Mr.

Baum, net of 35,179 shares of common stock withheld

for payroll tax withholdings totaling $ 519,000 .

the three months ended March 31, 2023, the Company issued 55,558 shares of common stock to Mr.

Boll, upon the cashless exercise of options to purchase 90,000 shares at an exercise price of $ 6.00 per share.

withheld from Mr.

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

Boll 25,521 shares as consideration for the cashless exercise and an additional 8,921 shares for payroll tax obligations

totaling $ 189,000 .

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

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

The Company withheld 11,941 shares as consideration for

the cashless exercise.

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

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

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

Boll, the Company’s Chief Financial

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

Boll, net of 20,605 shares of common stock

withheld for payroll tax withholdings totaling $ 162,000 .

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

Saharek, the President of ImprimisRx, vested,

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

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

for payroll tax withholdings totaling $ 204,000 .

the nine months ended September 30, 2022, 35,000 RSUs granted in February 2019 vested, and in February 2022, the Company issued 20,298

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

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

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

the nine months ended September 30, 2022, 35,693 shares of the Company’s common stock underlying RSUs issued to directors vested,

the three months ended March 31, 2023, 16,405 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.

8 unchanged sentences

with the 2007 Plan, the “Plans”).

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

shares of the Company’s common stock.

The 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.

As of March 31, 2023, the 2017 Plan provides for the issuance of a maximum of 6,000,000

shares of the Company’s

common stock.

The 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.

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

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

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

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

Exercise Price

Contractual Life

Intrinsic Value

The Company had 2,145,767

shares available for future issuances under the 2017 Plan at March 31, 2023.

summary of stock option activity under the Plans for the three months ended March 31, 2023 is as follows:

OF STOCK OPTION PLAN ACTIVITY

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

Options outstanding – January 1, 2022

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Options cancelled/forfeited

Options outstanding – September 30, 2022

Options outstanding – March 31, 2023

Options exercisable

2 unchanged sentences

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

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

the nine months ended September 30, 2022, the Company granted stock options to certain employees.

The stock options were granted with

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

price lower than the market price on March 31, 2023, based on the closing price of the Company’s common stock of $ 21.16 on that

the three months ended March 31, 2023, the Company granted stock options to certain employees.

The stock options were granted with an

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

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

Vesting terms for options granted to employees

during the three and nine months ended September 30, 2022 included the following vesting schedule:

25% of the shares subject to the option

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

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

Certain option awards provide for accelerated vesting

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

during the three months ended March 31, 2023 included the following vesting schedule:

25% of the shares subject to the option vest and

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

exercisable quarterly in equal installments thereafter over three years.

Certain option awards provide for accelerated vesting if there

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

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

13 unchanged sentences

used for valuing options granted to employees:

SCHEDULE OF FAIR VALUE ASSUMPTIONS

OF FAIR VALUE ASSUMPTIONS

Weighted-average fair value of options granted

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Dividend yield

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

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

$ 2.40 - $ 3.50

$ 4.08 - $ 6.30

$ 6.75 - $ 7.30

$ 7.37 - $ 7.79

$ 7.89 - $ 8.75

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

granted under the Plans.

following table summarizes information about stock options outstanding and exercisable at March 31, 2023:

SCHEDULE OF STOCK

OPTION OUTSTANDING AND EXERCISABLE

of Exercise Prices

Average Exercise Price

of March 31, 2023, there was approximately $ 1,441,000 of total unrecognized compensation expense related to unvested stock options granted

under the Plans.

That expense is expected to be recognized over the weighted-average remaining vesting period of 3.0 years.

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

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

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

The stock-based

compensation for all stock options was $ 341,000 and $ 272,000 during the three months ended March 31, 2023 and 2022, respectively.

intrinsic value of options exercised during the three months ended March 31, 2023 was $ 1,819,000 .

Stock Units/Performance Stock Units

2 unchanged sentences

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

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

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

31, 2023 is as follows:

OF RESTRICTED STOCK UNITS ACTIVITY

Average Grant

Date Fair Value

Number of RSUs

Weighted Average Grant Date Fair Value

RSUs unvested - January 1, 2023

RSUs cancelled/forfeited

RSUs unvested – September 30, 2022

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

RSUs unvested - March 31, 2023

of March 31, 2023, the total unrecognized compensation expense related to unvested RSUs was approximately $ 2,476,000 , which is expected

to be recognized over a weighted-average period of 0.4 years, based on estimated and actual vesting schedules of the applicable RSUs.

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

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

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

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

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

OF WARRANTS ACTIVITY

Subject to Warrants

Exercise Price

Warrants outstanding – January 1, 2022

Warrants outstanding and exercisable – September

Weighted average remaining contractual life of

the outstanding warrants in years – September 30, 2022

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

OF WARRANTS OUTSTANDING AND WARRANTS EXERCISABLE

Warrant Series

Lender warrants

Stock-Based Transactions

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

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

The stock-based compensation for RSUs during the three months ended March 31, 2023 and 2022 was $ 1,292,000 and $ 1,744,000 , respectively.

Compensation Summary

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OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Employees - selling, general and administrative

3 unchanged sentences

COMMITMENTS AND CONTINGENCIES

the ordinary course of business, the Company may face various claims brought by third parties and it may, from time to time, make claims

or take legal actions to assert its rights, including intellectual property disputes, contractual disputes and other commercial disputes.

Any of these claims could subject the Company to litigation.

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.

The Company describes legal proceedings and other matters that

are/were significant or that it believes could become significant in this footnote.

Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and

the amount of the related loss can be reasonably estimated.

The Company evaluates, on a quarterly basis, developments in legal proceedings

and other matters that could cause an increase or decrease in the amount of a liability that has been accrued previously.

Company’s legal proceedings involve various aspects of its business and a variety of claims, some of which present novel factual

allegations and/or unique legal theories.

Typically, a number of the matters pending against the Company are at early stages of the legal

process, which in complex proceedings of the sort the Company face often extend for several years.

While it is not possible to accurately

predict or determine the eventual outcomes of matters that have not concluded, an adverse determination in one or more of matter (whether

discussed in this footnote or not) currently pending may have a material adverse effect on the Company’s condensed consolidated

results of operations, financial position or cash flows.

Science, Inc.

July 2021, ImprimisRx, LLC, a subsidiary of the Company, filed a lawsuit against Ocular Science, Inc.

and OSRX, Inc.

(together, “OSRX”)

District Court for the Southern District of California, asserting claims for copyright infringement, trademark infringement, unfair competition and

false advertising (Lanham Act).

ImprimisRx is seeking damages from OSRX.

Since July 2021, the complaint has been amended and OSRX added

counterclaims alleging ImprimisRx, LLC is violating the Lanham Act with false advertising.

Both parties are seeking damages from the

Discovery is currently ongoing and trial is set to take place in the fourth quarter of 2023.

and Professional Liability

11 unchanged sentences

individual with respect to which the individual may be entitled to indemnification by the Company.

The Company also indemnifies its lessors

in connection with its facility leases for certain claims arising from the use of the facilities.

These indemnities do not provide for

any limitation of the maximum potential future payments the Company could be obligated to make.

Historically, the Company has not incurred

any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed

consolidated balance sheets.

The Company indemnifies Oaktree for

certain claims and losses associated with the Oaktree Loan.

The Company also indemnifies its lessors in connection with its facility

leases for certain claims arising from the use of the facilities.

These indemnities do not provide for any limitation of the maximum

potential future payments the Company could be obligated to make.

Historically, the Company has not incurred any payments for these obligations

and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed consolidated balance sheets.

License Agreement – Related Party

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

In addition, the Company was required to make certain milestone

In addition, the Company is required to make certain milestone

payments to Dr.

All of the above referenced milestone payments were payable at the Company’s election in cash or shares

of the Company’s restricted common stock.

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

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

Royalty expenses were

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

the same periods in 2021, respectively, and were included in accounts payable to Dr.

Lindstrom including:

(i) an initial payment of $ 50,000 upon execution of the Klarity License Agreement, (ii) a second

payment of $ 50,000 following the first $ 50,000 in net sales of the Klarity Product;

and (iii) a final payment of $ 50,000 following the

first $ 100,000 in net sales of the Klarity Product.

All of the above referenced milestone payments were payable at the Company’s

election in cash or shares of the Company’s restricted common stock.

Payments totaling $ 71,000 and $ 30,000 were made during the

three months ended March 31, 2023 and 2022, respectively.

Royalty expenses were $ 75,000 and $ 71,000 during the three months ended March

31, 2023 and 2022, respectively, and were included in accounts payable to Dr.

Asset Purchase Agreement – Related Party

10 unchanged sentences

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

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

the same periods in 2021, respectively.

The Company incurred $ 9,000 and $ 24,000 for royalty expenses related to the Lindstrom APA during

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

Asset Purchase Agreement – Related Party

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

Lindstrom, M.D.,

a member of its Board of Directors.

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

related rights from Dr.

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

(the “Presbyopia Product”).

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

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

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

Lindstrom was paid $ 0 in cash during the

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

The Company incurred $ 0

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

Purchase, License and Related Agreements

was paid $ 9,000 and $ 8,000 in cash during the three months ended March 31, 2023 and 2022, respectively.

The Company incurred $ 8,000 and

$ 7,000 for royalty expenses related to the Lindstrom APA during the three months ended March 31, 2023 and 2022, respectively.

Asset Purchase, License and Related Agreements

Company has acquired and sourced intellectual property rights related to certain proprietary innovations from certain inventors and related

7 unchanged sentences

on the completion of certain milestones, generally consisting of:

(1) a payment payable within 30 days after the issuance of the first

(i) a payment payable within 30 days after the issuance of the first

patent in the United States arising from the acquired intellectual property (if any);

(2) a payment payable within 30 days after the

(ii) a payment payable within 30 days after the

Company files the first investigational new drug application (“IND”) with the U.S.

1 unchanged sentence

for the first product arising from the acquired intellectual property (if any);

(3) for certain of the Inventors, a payment payable within

(iii) for certain of the Inventors, a payment payable within

30 days after the Company files the first new drug application with the FDA for the first product arising from the acquired intellectual

8 unchanged sentences

the Inventors.

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

as royalty expenses, respectively, and $ 285,000 and $ 778,000 during the same periods in 2021, respectively.

During the three months ended March 31, 2023 and 2022, $ 293,000 and $ 213,000 were

incurred under these agreements as royalty expenses, respectively.

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

2 unchanged sentences

(“IHEEZO”) in the U.S.

to the Sintetica Agreement, the Company agreed to pay Sintetica a per unit transfer price to supply IHEEZO, along with a per unit

royalty for units sold.

The Company is required to pay Sintetica up to $ 18,000,000

in one-time milestone payments including a $ 5,000,000

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

upon achievement of certain regulatory and commercial milestones.

Under the terms of the Sintetica Agreement, Sintetica is

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

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

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

During the three and nine months ended September

30, 2022, $ 5,000,000

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

to 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 was responsible for regulatory

filings for IHEEZO in the U.S.

As of March 31, 2023 and December 31, 2022, the Company had accrued $ 5,000,000 under the Sintetica Agreement

related to a milestone payment, which 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

3 unchanged sentences

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

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

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

In addition, the Company is required to pay Wakamoto

various one-time milestone payments totaling up to $ 2,000,000

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

upon the achievement of certain commercial milestones.

Under the terms of the Wakamoto Agreements, the Company is responsible

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

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

under the Wakamoto Agreements.

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

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

Commercial Alliance Agreement

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 March 31, 2023, no amounts have been paid or accrued under the Wakamoto agreement.

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

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

Commercial Alliance Agreement - Terminated

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

7 unchanged sentences

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

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

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

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

Company recorded $ 1,044,000

and $ 3,576,000 ,

respectively, and $ 900,000

and $ 2,212,000

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

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

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

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

to which Eyepoint and the Company agreed (a) that the Company will continue to support the sale of Dexycu through the fourth quarter

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

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

along with ancillary letter agreements, effective January 1, 2023.

the three months ended March 31, 2022, the Company recorded $ 1,320,000 in commission revenues related to the Dexycu Agreement.

and Marketing Agreements

8 unchanged sentences

certain future levels by the end of their terms.

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

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

same periods in 2021, respectively.

CONCENTRATIONS

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

30 2022 and 2021, respectively.

These products collectively accounted for 34 %

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

during the same periods in 2021, respectively.

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

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

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

Commission expenses of $ 130,000 and $ 1,047,000

were incurred under these agreements during the three months ended March 31, 2023 and 2022, respectively.

SEGMENTS AND CONCENTRATIONS

Company operates its business on the basis of a single reportable segment, which is the business of discovery,

development, and commercialization of innovative ophthalmic therapies .

The Company’s chief operating decision-maker is the

Chief Executive Officer, who evaluates the Company as a single operating segment.

Company has two products that each comprised more than 10% of total revenues during the three months ended March 31, 2023 and 2022.

products collectively accounted for 36 % and 32 % of revenues during the three months ended March 31, 2023 and 2022, respectively.

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

There were no customers who comprised more than

10% of the Company’s total product sales during the three months ended March 31, 2023 and 2022.

Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively accounted for 90 % and

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

71 % during the same periods in 2021, respectively.

74 % of active pharmaceutical ingredient purchases during the three months ended March 31, 2023 and 2022, respectively.

SUBSEQUENT EVENTS

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

Company has performed an evaluation of events occurring subsequent to March 31, 2023 through the filing date of this Quarterly

Report on Form 10-Q.

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

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

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

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

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

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

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

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

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

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

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

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

of Non-Ophthalmology Revenues

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

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

The closing of the RPC Agreement

was made effective on September 30, 2022;

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

in October 2022.

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

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

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

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

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

In connection with the RPC

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

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

The Company expects Imprimis to provide transition

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

Under the terms of the RPC Agreement,

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

in October 2022.

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

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

The Company determined that the

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

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

April 2023, the Company issued 62,367 shares of common stock to Mark L.

Baum, the Company’s Chief Executive Officer, upon the cashless

exercise of options to purchase 180,000 shares at an exercise price of $ 8.99 per share.

The Company withheld from Mr.

Baum 77,167 shares

as consideration for the cashless exercise and an additional 40,466 shares for payroll tax obligations totaling $ 849,000 .

April 2023, the Company issued 3,260 shares of common stock upon the exercise of options to purchase 3,260 shares of common stock at

exercise prices ranging from $ 1.70 to $ 7.52 per share.

April 2023, the Company granted 1,567,913 performance stock units to members

of its senior management including Mark L.

Baum, Chief Executive Officer, Andrew R.

Boll, Chief Financial Officer, and John P.

Chief Commercial Officer, which are subject to the satisfaction of certain market-based and continued service conditions (the “2023

The vesting of the 2023 PSUs require (i) a minimum of a two-year service period, and (ii) during a five-year term, the

achievement and maintenance of Company common stock price targets ranging between $ 25 to $ 50 , broken out into four separate tranches

as described further in the table below.

OF SHARE BASED COMPENSATION

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

What changed 10-Q

Item 1. Financial Statements