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Item 1. Financial Statements

2023-08-09 compared with 2023-05-11 · 759 added, 585 removed, 763 unchanged (64% of the section changed)

Financial Statements

HARROW HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

Current assets

25 unchanged sentences

STOCKHOLDERS’ EQUITY

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

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 30,276,938 and 29,901,530

shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

8 unchanged sentences

$ 157,378,000

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

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

The accompanying notes are

an integral part of these unaudited condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Six Months Ended

Product sales, net

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( 6,534,000 )

( 18,271,000 )

( 12,497,000 )

Operating expenses:

7 unchanged sentences

( 1,794,000 )

( 10,451,000 )

( 3,586,000 )

Equity in losses of unconsolidated entities

( 2,646,000 )

Investment gain from Eton Pharmaceuticals

( 5,532,000 )

Investment (loss) gain from Eton Pharmaceuticals

( 3,449,000 )

( 3,310,000 )

Loss on extinguishment of debt

( 5,465,000 )

Other income, net

Other expense, net

Total other expense, net

1 unchanged sentence

( 7,889,000 )

( 14,737,000 )

( 12,428,000 )

Loss before income taxes

1 unchanged sentence

( 6,199,000 )

Income tax benefit

( 11,175,000 )

( 8,637,000 )

Income tax benefit (expense)

Net loss attributable to Harrow Health, Inc.

$ ( 4,229,000 )

$ ( 6,239,000 )

$ ( 10,872,000 )

$ ( 8,677,000 )

Basic and diluted net loss per share of common stock

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

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

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2023 and 2022

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

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

the periods ended June 30, 2023 and 2022

Harrow Health, Inc.

Noncontrolling

Stockholders’

Noncontrolling

Stockholders’

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( 8,677,000 )

Balance at March 31, 2022

Balance at June 30, 2022

$ 109,806,000

6 unchanged sentences

Issuance of common stock in connection with:

Exercise of consultant stock-based options

Exercise of employee stock-based options

1 unchanged sentence

Shares withheld related to net share settlement of equity awards

( 1,698,000 )

Stock-based compensation expense

2 unchanged sentences

( 10,872,000 )

Balance at June 30, 2023

$ 142,742,000

$ ( 120,365,000 )

$ ( 355,000 )

Harrow Health, Inc.

Stockholders’

Noncontrolling

Stockholders’

Balance at March 31, 2022

2 unchanged sentences

$ ( 355,000 )

Issuance of common stock in connection with:

Exercise of employee stock-based options

Vesting of RSUs

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

( 6,239,000 )

Balance at June 30, 2022

$ 109,806,000

$ ( 104,084,000 )

$ ( 355,000 )

Balance at March 31, 2023

$ 137,989,000

$ ( 116,136,000 )

$ ( 355,000 )

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

( 4,229,000 )

Balance at June 30, 2023

$ 142,742,000

$ ( 120,365,000 )

$ ( 355,000 )

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

HARROW HEALTH, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

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

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment and software development costs

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Provision for bad debt expense

Provision for credit losses

Amortization of debt issuance costs and debt discount

Investment gain from investment in Eton

Investment (gain) loss from investment in Eton Pharmaceuticals

( 1,328,000 )

2 unchanged sentences

Stock-based compensation

Deferred taxes

Deferred income 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

9 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on finance lease obligations

Net proceeds from 11.875% notes payable, net of costs

Net proceeds from Oaktree loan, net of costs

Proceeds from 11.875% notes payable, net of costs

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

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

Proceeds from B.

Riley senior secured note, net of costs

Repayment of B.

1 unchanged sentence

( 59,750,000 )

Payments on finance lease obligations

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

NET CHANGE IN CASH, CASH EQUIVALENTS

( 73,516,000 )

CASH AND CASH EQUIVALENTS, beginning of period

CASH AND CASH EQUIVALENTS, end of period

CASH, CASH EQUIVALENTS, beginning of period

CASH, CASH EQUIVALENTS, end of period

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes

Cash paid for interest

3 unchanged sentences

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

Reclassification of deferred financing costs

Income taxes owed for exercise of options

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three Months Ended March 31, 2023 and 2022

the Three and Six Months Ended June 30, 2023 and 2022

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

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

requires, the “Company” or “Harrow”) is a leading eyecare pharmaceutical company engaged in the discovery, development,

and commercialization of innovative ophthalmic pharmaceutical products for the U.S.

Harrow helps U.S.

eyecare professionals preserve

the gift of sight by making its comprehensive portfolio of prescription and non-prescription pharmaceutical products accessible and affordable

to millions of Americans each year.

The Company own commercial rights to one of the largest portfolios of branded ophthalmic pharmaceutical

products in the U.S.

that are marketed under its Harrow name.

The Company also owns and operates ImprimisRx, one of the nation’s

leading ophthalmology-focused pharmaceutical-compounding businesses.

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

(“Surface”) and Melt Pharmaceuticals, Inc.

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

Operating results for the three months ended March 31,

Operating results for the three and six months ended June

30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.

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The Company assesses control under the variable interest entity

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

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

that the Company deems to be a VIE.

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

The Company consolidates (i) entities

in which it holds and/or controls, directly or indirectly, more than 50% of the voting rights , and (ii) VIEs for which the Company is

deemed to be the primary beneficiary.

All intercompany accounts and transactions have been eliminated in consolidation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

following represents an update for the three and six months ended June 30, 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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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.

management considers historical collection rates, the current financial status of the Company’s 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,

management 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.

customer at the business component level, as management determined that risk profile of the Company’s customers is consistent based

on the type and industry in which they operate, mainly in the pharmaceuticals 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

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 available.

Further, the Company considers macroeconomic factors and the status of the pharmaceuticals 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 June 30, 2023 was $ 18,258,000 , net of $ 75,000

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:

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 June 30, 2023:

OF ACCOUNTS RECEIVABLE ALLOWANCE OF CREDIT LOSS

2 unchanged sentences

Write-offs, net of recoveries

Balance at March 31, 2023

Balance at June 30, 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.

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 Accounting Standards Board (“FASB”).

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 acquisition.

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

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.

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.

the cost to the acquiring entity or 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

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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.

the assets acquired, and liabilities assumed, whichever is more clearly evident and 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

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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;

Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active

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.

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.

June 30, 2023 and December 31, 2022, the Company measured its investment in Eton Pharmaceuticals, Inc.

(“Eton”) on a recurring

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 June 30, 2023 and December 31, 2022, the fair market value of the Company’s investment

in Eton was $ 6,917,000 and $ 5,589,000 , respectively.

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 (as defined in Note 13) is carried at

face value less the original issue discount and unamortized debt issuance costs on the condensed consolidated balance sheets and the

Company 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.

The Oaktree Loan is classified as a Level 2 instrument and its fair value is determined through an income approach

that considers collateral coverage, yield calibration, yield analysis and any adjustments to implied yield associated with the Company’s

fundamental measures.

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

SCHEDULE OF ESTIMATED FAIR VALUE

June 30, 2023

December 31, 2022

Carrying Value

1 unchanged sentence

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.

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

The carrying amount

of these financial instruments, except for operating lease liabilities, approximates fair value due to the short-term maturities of these

Based on borrowing rates currently available to the Company, the carrying value of the operating 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 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:

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

Common equivalent

shares (using the treasury stock method) from stock options, unvested RSUs, unvested PSUs and warrants were 6,131,026 and 5,646,672 at

June 30, 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 shares underlying

vested RSUs at June 30, 2023 and 2022 was 234,027 and 287,049 , respectively.

following table shows the computation of basic net loss per share of common stock for the three and six months ended June 30, 2023 and

SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

For the Three Months Ended

For the Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Numerator – net loss

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$ ( 6,239,000 )

Denominator – weighted average

number of shares outstanding, basic and diluted

$ ( 10,872,000 )

$ ( 8,677,000 )

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.

Company’s effective tax rate was ( 2.71 ) % and 0.46 % for the six months ended June 30, 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

effective tax rate for the six months ended June 30, 2023 and 2022 differs from the U.S.

federal statutory tax rate of 21 % due to state

taxes, permanent book-tax differences related to Internal Revenue Code of 1986, as amended (“IRC”), Section 162(m) excess

officer compensation limitation and share-based compensation and the change in valuation allowance.

of June 30, 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 rate.

in Eton Pharmaceuticals, Inc.

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.

of June 30, 2023, the Company owned 1,982,000 shares of Eton common stock, which represents less than 10 % of the equity interests of

At June 30, 2023, the fair market value of Eton’s common stock was $ 3.49 per share.

In accordance with ASC 321, Investments

— Equity Securities , the Company recorded unrealized holding gains and (losses) from its Eton common stock position of

$ ( 714,000 ) and $ 1,328,000 during the three and six months ended June 30, 2023, respectively, and $ ( 3,449,000 ) and $ ( 3,310,000 )

during the same periods in 2022, respectively, related to the change in fair market value of its investment in Eton during the

measurement period.

As of June 30, 2023, the fair market value of the Company’s investment in Eton was $ 6,917,000 .

in Melt Pharmaceuticals, Inc.

– Related Party

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

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

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.

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 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:

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 June 30, 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 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 June 30, 2023:

SCHEDULE OF INVESTMENT

Share of Equity

Method Losses

Capital Contributions

Share of Equity Method

In-substance Capital

Contributions

Carrying value

$ ( 5,810,000 )

Note receivable

( 13,500,000 )

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– Related Party

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:

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

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

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

Under this method, the Company recognizes earnings and losses in Surface in its condensed 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 and no other requirements to advance funds to Surface.

following table summarizes the Company’s investment in Surface as of June 30, 2023:

SCHEDULE OF INVESTMENT

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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.

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 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

composition of the Company’s accounts receivable, investment portfolio, 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 consolidated

financial statements or disclosures.

Specifically, the Company’s estimate of expected credit losses as of June 30, 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, Revenue 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.

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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 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.

Obligations for fulfillment of the Company’s

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

For shipping and handling activities under ASC 606, if the customer takes control of the

goods after shipment, shipping and handling activities would always be considered a fulfillment

activity and not treated as a separate performance obligation.

If the customer takes control

of the goods before shipment, entities must make an accounting policy election to treat shipping

and handling activities as either a fulfillment cost or as a separate performance obligation.

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

the transaction price:

The transaction price is based on 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 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.

the transaction price to the performance obligations in the contract:

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From Transfer of Acquired Product Profit

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, 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.

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

from another pharmaceutical company (the “Seller”).

During a temporary, 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 revenue.

On a quarterly basis, the Seller

invoices the Company for all credits and reimbursements (“Chargebacks”) made to customers related to the products.

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

The estimate is recorded as a reduction

in revenues in the Company’s condensed consolidated statements of operations and accounts receivable in the condensed consolidated

balance sheets, at the time the revenue is recognized.

Property License Revenues

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

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

disaggregated by revenue source for the three and six months ended June 30, 2023 and 2022 consisted of the following:

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

For the Six Months Ended

Product sales, net

Commission revenues

Transfer of profits

Transfer of acquired product profit

Total revenues

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

revenue and customer deposits at June 30, 2023 and December 31, 2022 were $ 132,000 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.

customer deposit amounts at December 31, 2022 were recognized as revenue during the six months ended June 30, 2023.

RECENT PRODUCT ACQUISITIONS, LICENSES AND DIVESTITURES

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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 .

at closing, the total purchase price of the Fab 5 Acquisition was $ 130,558,000 and was accounted for as an asset acquisition.

time of the Fab 5 Acquisition and as of June 30, 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.

October 2022, wholly-owned subsidiaries of the Company (collectively, “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”).

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.

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 “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

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

services and collecting accounts receivable.

Imprimis provided transition services to the Buyer for approximately nine months following

the effective date of the RPC Agreement and expects to wind down transition services in subsequent periods.

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 sheet as of June 30, 2023 reflected $ 74,000 of cash collected on behalf of the Buyer and a receivable within accounts receivable

of $ 59,000 for cash to be collected on behalf of the Buyer for sales of RPC Assets sold through June 30, 2023.

amount due from the Buyer for reimbursement of services performed under the transition services agreement was $ 27,000 as of June 30,

Such amount was netted against the amounts collected on behalf of the Buyer and was unpaid within accrued expenses on the condensed

consolidated balance sheet as of June 30, 2023.

The combined total of $ 106,000 was recorded within accrued expenses on the condensed

consolidated balance sheet as of June 30, 2023, and represents a payable to the Buyer.

The Company recorded a loss from the transition

services agreement and disposition and sale of certain related assets and unusable inventory of $ 203,000 and $ 171,000 during the three

and six months ended June 30, 2023, respectively, which is presented in other expense, net on the condensed consolidated statement of

Note 18 for additional information regarding recent product acquisitions and licenses.

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 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.

During the three and six months ended June 30,

2023 and 2022, the Company recorded $ 30,000 and $ 89,000 and $ 40,000 and $ 70,000 , respectively, due from Melt for reimbursable expenses

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

consolidated balance sheets.

In addition, during the three and six months ended June 30, 2023, the Company advanced Melt $ 500,000 , which

amount was repaid to the Company by Melt subsequent to June 30, 2023.

As of June 30, 2023 and December 31, 2022, the Company was due

$ 728,000 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 and six months ended June 30, 2023.

Company’s Chief Executive Officer, Mark L.

9 unchanged sentences

OF CONDENSED INCOME STATEMENT

For the Three Months Ended March 31,

For the Six Months Ended

Revenues, net

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( 18,294,000 )

Total liabilities and stockholders’ equity

Total liabilities and stockholders’ deficit

Note Receivable

21 unchanged sentences

by 3 % per annum.

The Melt Loan Agreement is currently in default due to non-payment on June 1, 2023 and the Company and Melt are involved

in ongoing discussions to resolve the default.

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

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the effective date of the note receivable.

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

As of June 30, 2023 and December 31, 2022, aggregate principal and accrued interest payable

to the Company pursuant to the Melt Loan Agreement amounted to $ 17,066,000 and $ 15,984,000 , respectively.

In accordance with ASC 323,

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

Investments – Equity Method and Joint Ventures , the carrying amount of the note 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).

6 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 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

of June 30, 2023, the Company owned 3,500,000 shares of Surface common stock.

Sternberg, a director of the Company, is a director

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 on March 31, 2023.

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

OF CONDENSED INCOME STATEMENT

For the Three Months Ended March 31,

the Six Months Ended

Revenues, net

3 unchanged sentences

$ ( 3,144,000 )

$ ( 3,526,000 )

unaudited condensed balance sheet information of Surface is summarized below:

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Total liabilities

Total preferred stock and stockholders’ deficit

Total preferred stock and stockholders’ equity

Total liabilities and stockholders’ equity

2 unchanged sentences

The composition of inventories

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

as of June 30, 2023 and December 31, 2022 was as follows:

OF INVENTORIES

March 31, 2023

June 30, 2023

December 31, 2022

4 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

expenses and other current assets at June 30, 2023 and December 31, 2022 consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

March 31, 2023

June 30, 2023

December 31, 2022

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PROPERTY, PLANT AND EQUIPMENT

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

plant and equipment at June 30, 2023 and December 31, 2022 consisted of the following:

OF PROPERTY, PLANT AND EQUIPMENT

March 31, 2023

June 30, 2023

December 31, 2022

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plant and equipment, net

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

the three and six months ended June 30, 2023, depreciation related to the property, plant and equipment was $ 228,000 and $ 453,000 , respectively,

compared to $ 381,000 and $ 757,000 during the same periods in 2022, respectively.

CAPITALIZED SOFTWARE COSTS

software costs at June 30, 2023 and December 31, 2022 consisted of the following:

OF FINITE LIVED INTANGIBLE ASSETS

March 31, 2023

June 30, 2023

December 31, 2022

Capitalized software costs

Capitalized internal-use software development costs

2 unchanged sentences

Accumulated amortization

( 1,029,000 )

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.

Company recorded amortization expense of $ 170,000 and $ 237,000 related to capitalized software costs during the three and six months

ended June 30, 2023, respectively, and $ 43,000 and $ 86,000 during the same periods in 2022, respectively.

INTANGIBLE ASSETS AND GOODWILL

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

Company’s intangible assets at June 30, 2023 consisted of the following:

OF INTANGIBLE ASSETS

1 unchanged sentence

$ ( 204,000 )

Acquired NDAs

( 6,338,000 )

relationships

Non-competition

pharmacy licenses

Customer relationships

Non-competition clause

State pharmacy licenses

$ 157,269,000

1 unchanged sentence

$ 150,148,000

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

expense for intangible assets for the three and six months ended June 30, 2023 and 2022 was as follows:

OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

Three Months Ended

For the Three Months Ended

For the Six Months Ended

Acquired NDAs

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Amortization of intangible

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

future amortization expense for the Company’s intangible assets at June 30, 2023 is as follows:

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

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$ 149,881,000

were no changes to the carrying value of the Company’s goodwill during the three and six months ended June 30, 2023 and 2022.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

payable and accrued expenses at June 30, 2023 and December 31, 2022 consisted of the following:

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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Accrued insurance premium

Accrued IHEEZO milestone payment (see Note 16)

Accrued RPC transition payments (see Note 4)

Accrued IHEEZO milestone payments

Accrued litigation settlements

Accrued RPC transition payments (see Note 4)

Accrued interest (see Note 13)

Accrued exit fee for note payable (see Note 13)

Accrued interest

Total accounts payable and accrued expenses

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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 .

March 2023, the Company entered into a Credit Agreement and Guaranty (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

(“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.

$ 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 .

Riley Loan and Security Agreement – Paid in Full within this footnote.

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.

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

available under Tranche B decreases 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 has a maturity date of January 19, 2026 and carries an interest rate equal to the Secured Overnight Financing Rate (SOFR)

plus 6.5 % per annum (totaling 11.77 % at June 30, 2023).

From proceeds, the Company paid fees, offering expenses, and the Oaktree Loan

was issued at an original issue discount of $ 3,415,000 , in aggregate.

The Oaktree Loan also carries an exit fee equal to 3.50 % of the

aggregate principal amount owed and the Company accrued $ 2,275,000 related to the exit fee.

The original issue discount, fees and expenses

(including the exit fee) are being amortized over the term of the Oaktree Loan using the effective interest rate method.

Loan requires quarterly interest-only payments with all of the unpaid principal, interest and fees due on the maturity date, January

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

8 unchanged sentences

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 .

expense related to the Oaktree Loan totaled $ 2,570,000 and $ 2,665,000 for the three and six months ended June 30, 2023, respectively,

and included the amortization of debt issuance costs and discount of $ 514,000 and $ 526,000 , respectively.

Note 18 for additional information and an amendment made to the Oaktree Loan subsequent to June 30, 2023.

- 11.875% Senior Notes Due 2027

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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 .

of certain events including 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 $ 1,371,000 and $ 2,766,000 for the three and six months ended June 30, 2023, respectively, and

included amortization of debt issuance costs and debt discount of $ 176,000 and $ 376,000 , respectively.

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.

Boll along with director R.

Lawrence Van Horn and former director

Richard Lindstrom, in the aggregate, own $ 950,000 in principal amount of the 2027 Notes.

- 8.625% Senior Notes Due 2026

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initial offering price and issue date).

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 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 %

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 .

costs were recorded as a debt discount and are being amortized as interest expense, net of the amortization of the premium on note issuance,

over the term of the 2026 Notes using the effective interest rate method.

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

as interest expense, net of the amortization of the premium on note issuance, over the term of the 2026 Notes using the effective interest

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

6 unchanged sentences

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.

expense related to the 2026 Notes totaled $ 1,812,000 and $ 3,622,000 and $ 1,812,000 and $ 3,622,000 for the three and six months ended

June 30, 2023 and 2022, respectively, and included amortization of debt issuance costs and discount of $ 195,000 and $ 388,000 and $ 195,000

and $ 388,000 for three and six months ended June 30, 2023 and 2022, respectively.

Riley Loan and Security Agreement – Paid in Full

2 unchanged sentences

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.

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

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

2 unchanged sentences

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.

for voluntary prepayment subject to no prepayment fee if no loan amount had been funded or the prepayment or repayment occurred (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 BR 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:

(see Note 4).

In March 2023, the Company repaid all amounts owed under the BR Loan, in connection with the Oaktree Loan, and no exit

or prepayment fees were paid as a result of the payoff of the BR Loan pursuant to a side letter agreement among the parties.

expense related to the BR Loan totaled $ 1,565,000 for the six months ended June 30, 2023, and included amortization of debt issuance

costs and debt discount of $ 356,000 .

The Company recorded a loss of $ 5,465,000 related to the early extinguishment of debt associated

with the BR Loan.

summary of the Company’s debt is described as follows:

OF LONG TERM DEBT

8.625% Senior Notes due April 2026

11.875% Senior Notes due December 2027

Oaktree Loan due January 2026

Notes payable gross

Unamortized debt issuance costs

( 10,538,000 )

( 5,826,000 )

Notes payable net

$ 169,712,000

$ 104,174,000

the three and six months ended June 30, 2023 the total effective interest rate of the Company’s debt was 10.71 %, and 10.81 %, respectively,

and 8.88 % and 8.94 % for the same periods in the prior year, respectively.

June 30, 2023, future minimum payments under the Company’s debt were as follows:

OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES

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( 60,000,000 )

Notes payable, gross

unamortized discount, net of premium

Notes payable, gross principal amount due

unamortized debt issuance costs, net of premium

( 10,538,000 )

4 unchanged sentences

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

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.

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

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

in January 2022 and will expire in March 2025 .

operating lease for 35,326 square feet of lab, warehouse and office space in Ledgewood, New

Jersey that expires in July 2027 , with an option to extend the term for two additional five-year

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

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

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

and added 8,900 square feet of space.

operating lease for 5,500 square feet of office space in Nashville, Tennessee, which commended

in January 2020 and will expire in December 2024 , with an option to extend the term for two

additional five-year periods.

operating lease for 11,552 square feet of lab and office space in Nashville, Tennessee which

commenced in June 2022 and will expire in June 2027 .

June 30, 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 10.59 years, respectively.

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 :

the three and six months ended June 30, 2023, cash paid for amounts included for the operating lease liabilities was $ 306,000 and $ 611,000 ,

respectively, and $ 207,000 and $ 373,000 during the same periods in 2022, respectively.

During the three and six months ended June 30,

2023 and 2022, the Company recorded operating lease expense of $ 308,000 and $ 617,000 and $ 262,000 and $ 500,000 , respectively, which is

included in selling, general and administrative expenses.

lease payments under operating leases as of June 30, 2023 were as follows :

OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES

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( 3,186,000 )

Total operating lease liabilities

current portion, operating lease liabilities

Operating lease liabilities, net of current portion

Total operating lease obligations

current portion, operating lease obligations

Operating lease obligations, net of current portion

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

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

the six months ended June 30, 2023, the Company issued 131,760 shares of its common stock underlying RSUs held by a director that ceased

providing services to the Company.

The RSUs had previously vested, including 13,123 RSUs during the six months ended June 30, 2023, but

the issuance and delivery of the shares were deferred until the director terminated all service to the Company.

the six months ended June 30, 2023, the Company issued 59,504 shares of common stock and received proceeds of $ 337,000 upon the exercise

of options to purchase 59,504 shares of common stock with exercise prices ranging from $ 1.70 to $ 8.50 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.

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

totaling $ 189,000 .

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.

the six months ended June 30, 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

Baum 77,167 shares as consideration for the cashless exercise and an additional 40,466 shares for payroll tax obligations totaling

the six months ended June 30, 2023, the Company issued 55,558 shares of common stock to Andrew R.

Boll, the Company’s Chief Financial

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

The Company withheld

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

the six months ended June 30, 2023, upon vesting of 23,000 RSUs granted in January 2020 to Andrew R.

Boll, the Company’s Chief

Financial Officer, 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 six months ended June 30, 2023, upon vesting of 88,000 RSUs granted in January 2020 to Mark L.

Baum, the Company’s Chief Executive

Officer, 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 six months ended June 30, 2023, 32,810 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 ceased providing services to the Company.

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

7 unchanged sentences

with the 2007 Plan, the “Plans”).

As of 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.

As of June 30, 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 IRC of 1986, as amended, non-qualified stock options, restricted stock units, performance

stock units and restricted stock.

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

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:

The Company had 529,117 shares available for future issuances under the 2017 Plan at June 30, 2023.

summary of stock option activity under the Plans for the six months ended June 30, 2023 is as follows:

OF STOCK OPTION PLAN ACTIVITY

7 unchanged sentences

Options cancelled/forfeited

Options outstanding – March 31, 2023

Options outstanding – June 30, 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 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 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.

price lower than the market price on June 30, 2023, based on the closing price of the Company’s common stock of $ 19.04 on that

the six months ended June 30, 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 six months ended June 30, 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.

19 unchanged sentences

3.64 - 3.94 %

1.54 - 2.78 %

Dividend yield

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

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

Options Outstanding

Options Exercisable

Range of Exercise Prices

Number Outstanding

Weighted Average Remaining Contractual Life in Years

$ 1.47 - $ 1.73

$ 2.40 - $ 2.60

$ 4.08 - $ 5.72

$ 6.75 - $ 7.26

$ 7.37 - $ 7.79

$ 7.87 - $ 25.86

$ 1.47 - $ 25.86

of June 30, 2023, there was approximately $ 1,464,000 of total unrecognized compensation expense related to unvested stock options granted

under the Plans.

1 unchanged sentence

The stock-based

compensation for all stock options was $ 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

awards are granted subject to certain vesting requirements and other restrictions, including performance and market-based vesting criteria.

The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s common stock on the

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

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

31, 2023 is as follows:

OF RESTRICTED STOCK UNITS ACTIVITY

Number of RSUs

compensation for all stock options was $ 122,000 and $ 463,000 during the three and six months ended June 30, 2023, respectively, and $ 258,000

and $ 530,000 during the same periods in 2022, respectively.

intrinsic value of options exercised during the six months ended June 30, 2023 was $ 4,377,000 .

awards are granted subject to certain vesting requirements and other restrictions, including time-based performance and market-based

vesting criteria.

The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s

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

the six months ended June 30, 2023, the Company’s board of directors were granted 41,301 time-vesting RSUs with a fair market value

of $ 800,000 , which vest in equal quarterly installments over one year.

April 2023, the Company granted an aggregate of 1,567,913 PSUs to members of its senior management including Mark Baum, Chief Executive

Officer, Andrew Boll, Chief Financial Officer, and John Saharek, Chief Commercial Officer, which are subject to the satisfaction of certain

market-based and continued service conditions (the “2023 PSUs”).

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 PERFORMANCE STOCK UNITS

Number of Shares

Target Share Price*

* Target Share Price assumes

that no dividends or like distributions are made to stockholders of the Company.

If such distributions are made, the Target Share

Price would decrease accordingly, to the benefit of the employee, to account for the dividend/distribution as a part of the Target

aggregate fair value of the 2023 PSUs was $ 29,106,000 using a Monte Carlo Simulation with a five-year life, 65 % volatility and a risk

free interest rate of 10.34 %.

This amount is being amortized over a two-year derived service period.

summary of the Company’s RSU and PSU activity and related information for the six months ended June 30, 2023 is as follows:

OF RESTRICTED STOCK UNITS AND PERFORMANCE STOCK UNITS ACTIVITY

Number of Shares

Weighted Average Grant Date Fair Value

RSUs unvested - January 1, 2023

RSUs and PSUs unvested - January 1, 2023

RSUs cancelled/forfeited

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 months ended March 31, 2023 and 2022 was $ 1,292,000 and $ 1,744,000 , respectively.

RSUs and PSUs unvested - June 30, 2023

of June 30, 2023, the total unrecognized compensation expense related to unvested RSUs and unvested PSUs was approximately $ 27,192,000 ,

which is expected to be recognized over a weighted-average period of 0.89 years, based on estimated and actual vesting schedules of the

applicable RSUs and PSUs.

The stock-based compensation for RSUs and PSUs during the three and six months ended June 30, 2023 was $ 5,290,000

and $ 6,582,000 , respectively, and $ 1,735,000 and $ 3,479,000 during the same periods in 2022, respectively.

Compensation Summary

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OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES DIRECTORS CONSULTANTS

Three Months Ended March 31,

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

For the Three Months Ended

For the Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Employees - selling, general and administrative

Employees - R&D

Employees – research and development

Directors - selling, general and administrative

Consultants - R&D

Consultants - selling, general and administrative

COMMITMENTS AND CONTINGENCIES

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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

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

(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.

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(together, “OSRX”)

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

false advertising (Lanham Act).

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.

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 other.

Trial is set to take place in the fourth quarter of 2023.

and Professional Liability

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Company entered into a license agreement in April 2017, as amended in April 2018 (the “Klarity License Agreement”), with

Lindstrom, M.D., a member of its Board of Directors.

Pursuant to the terms of the Klarity License Agreement, the Company licensed

certain intellectual property and related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license the topical ophthalmic

solution Klarity designed to protect and rehabilitate the ocular surface (the “Klarity Product”).

Lindstrom, M.D., a former member of its Board of Directors.

Pursuant to the terms of the Klarity License Agreement, the Company

licensed certain intellectual property and related rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license the topical

ophthalmic solution Klarity designed to protect and rehabilitate the ocular surface (the “Klarity Product”).

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

11 unchanged sentences

Payments totaling $ 75,000 and $ 146,000 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.

three and six months ended June 30, 2023, respectively, compared to $ 92,000 and $ 122,000 during the same periods in 2022, respectively.

Royalty expenses were $ 74,000 and $ 149,000 during the three and six months ended June 30, 2023, respectively, compared to $ 106,000 and

$ 177,000 during the same periods in 2022, respectively, and were included in accounts payable to Dr.

Asset Purchase Agreement – Related Party

December 2019, the Company entered into an asset purchase agreement (the “Lindstrom APA”) with Dr.

Lindstrom, a member of

its Board of Directors.

Pursuant to the terms of the Lindstrom APA, the Company acquired certain intellectual property and related rights

Lindstrom, a former member

of its Board of Directors.

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

rights from Dr.

Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic injectable product (the “Lindstrom Product”).

5 unchanged sentences

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

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.

was paid $ 8,000 and $ 17,000 in cash during the three and six months ended June 30, 2023, respectively, and $ 7,000 and $ 15,000 during

the same periods in 2022, respectively.

The Company incurred $ 9,000 and $ 17,000 for royalty expenses related to the Lindstrom APA during

the three and six months ended June 30, 2023, respectively, and $ 8,000 and $ 15,000 during the same periods in 2022, respectively.

Asset Purchase, License and Related Agreements

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on the completion of certain milestones, generally consisting of:

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

(1) 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);

(ii) a payment payable within 30 days after the

(2) 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);

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

(3) 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 months ended March 31, 2023 and 2022, $ 293,000 and $ 213,000 were

incurred under these agreements as royalty expenses, respectively.

During the three and six months ended June 30, 2023, $ 192,000 and $ 485,000 were incurred under these agreements as royalty

expenses, respectively, and $ 297,000 and $ 510,000 during the same periods in 2022, respectively.

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

9 unchanged sentences

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

As of June 30, 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.

4 unchanged sentences

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

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

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

In addition, the Company is required to pay Wakamoto various one-time

milestone payments totaling up to $ 2,000,000 upon the achievement of certain regulatory milestones and up to $ 6,200,000 upon the achievement

of certain commercial milestones.

Under the terms of the Agreements, the Company will be responsible for regulatory filings and fees

for MAQ-100 in the U.S.

Through 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.

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.

the terms of the Agreements, the Company will be responsible for regulatory filings and fees for MAQ-100 in the U.S.

June 30, 2023, no amounts have been paid or accrued under the Wakamoto Agreements.

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

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

Commercial Alliance Agreement - Terminated

4 unchanged sentences

following ocular surgery in the United States.

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

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

Under the terms of the Dexycu

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

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

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

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

Under the terms of the

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

to a mutual termination agreement entered into on October 7, 2022, the Dexycu Agreement terminated on January 1, 2023.

Following 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

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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.

the three and six months ended June 30, 2022, the Company recorded $ 1,212,000 and $ 2,532,000 , respectively, 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 $ 130,000 and $ 1,047,000

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

Commission expenses of $ 0 and $ 130,000 were incurred under these agreements

for commission expenses during the three and six months ended June 30, 2023, respectively, and $ 1,100,000 and $ 2,147,000 during the same

periods in 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

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

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 four products that each accounted for more than 10% of total revenues during the three months ended June 30, 2023 and three

products that each accounted for more that 10% of total revenues during the six months ended June 30, 2023.

The Company had two products

that each accounted for more than 10% of total revenues during the three and six months ended June 30, 2022.

These products collectively

accounted for 48 %

of revenues during the three and six months ended June 30, 2023, respectively, and 32 %

during the same periods in 2022, respectively.

of June 30, 2023 and December 31, 2022, accounts receivable from a single customer accounted for 49 % and 0 % of total accounts receivable,

respectively.

For the three and six months ended June 30, 2023, revenues from a single customer accounted for 27 % and 16 % of total revenues,

respectively.

For the three and six months ended June 30, 2022 no customer exceeded 10% of total revenues.

The Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively

accounted for 80 % and 85 % of active pharmaceutical ingredient purchases during the three and six months ended June 30, 2023,

respectively, and 72 % and 73 % during the same periods in 2022, respectively.

SUBSEQUENT EVENTS

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.

Company has performed an evaluation of events occurring subsequent to June 30, 2023 through the filing date of this Quarterly Report.

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

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

August 2023, the Company issued 63 shares of common stock and received proceeds of $ 1,000 upon the exercise of options to purchase 63

shares of common stock with exercise price of $ 6.85 per share.

of Performance Stock Units

as of July 18, 2023, the Company settled 1,567,913 outstanding PSUs as a result of the achievement of the total stockholder returns (“TSR”)

targets set forth in equity incentive awards previously issued to members of the Company’s management team in 2021 (the “2021

The 2021 Awards were separated into four tranches and required that the Company achieve and maintain certain levels of

TSR ranging from 50 % to 175 % per share during the five-year period following the grant date.

TSR was based on the aggregate of:

percent increase of the closing price of the Company’s common stock from July 22, 2021;

and (ii) any dividends or like stockholder

distributions as specified in the PSU agreements.

In connection with the settlement of the 2021 Awards, an aggregate of 616,984 shares

of the Company’s common stock were withheld by Harrow for payroll tax obligations totaling $ 11,272,000 .

of VEVYE TM U.S.

and Canadian Commercial Rights

July 2023, the Company acquired commercial rights of VEVYE (cyclosporine ophthalmic solution) 0.1%, an ophthalmic drug product, for

and Canadian markets (the “VEVYE Acquisition”).

The Company acquired the commercial rights to VEVYE by entering

into a license agreement with Novaliq GmbH (“Novaliq”).

As consideration, the Company has made initial payments to

Novaliq totaling $ 8,000,000

and will pay low double-digit royalties on net sales of VEVYE along with potential commercial milestone payments.

of Certain U.S.

and Canadian Commercial Rights to Santen and Eyevance Products

July 2023, the Company entered into an Asset Purchase Agreement with Eyevance Pharmaceuticals, LLC and a License Agreement with Santen

(collectively, the “Santen Agreements”), each a subsidiary of Santen Pharmaceuticals Co., Ltd.

(collectively, “Santen”).

Pursuant to the Santen Agreements, the Company acquired the exclusive commercial rights to assets associated with the following ophthalmic

products (collectively, the “Santen Products”):

(fluorometholone acetate ophthalmic suspension) 0.1%, a corticosteroid prepared as a sterile topical ophthalmic suspension indicated

for use in the treatment of steroid-responsive inflammatory conditions of the palpebral and bulbar conjunctiva, cornea, and anterior

segment of the eye.

(natamycin ophthalmic suspension) 5%, a sterile, antifungal drug for the treatment of fungal blepharitis, conjunctivitis, and keratitis

caused by susceptible organisms, including Fusarium solani keratitis.

ST (tobramycin and dexamethasone ophthalmic suspension) 0.3%/0.05%, a topical antibiotic and corticosteroid combination for steroid-responsive

inflammatory ocular conditions for which a corticosteroid is indicated and where superficial bacterial ocular infection or a risk

of bacterial ocular infection exists.

(cetirizine ophthalmic solution) 0.24%, a histamine-1 (H1) receptor antagonist indicated for treatment of ocular itching associated

with allergic conjunctivitis.

a preservative-free formulation for temporary relief of symptoms of dry eye.

(cyclosporine ophthalmic emulsion) 0.1%, an orphan designated drug that is a calcineurin inhibitor immunosuppressant indicated for

the treatment of vernal keratoconjunctivitis.

PLUS, a preservative-free formulation for dry eye or allergy relief.

transactions pursuant to the Santen Agreements are referred to in these footnotes as the “Santen Products Acquisition.”

the terms of the Santen Agreements, the Company made an initial one-time payment of $ 8,000,000 .

In addition, the agreements provide for

various one-time milestone payments associated with certain manufacturing-related events as well as low-double digit royalty payments

on net sales of Verkazia and high-single digit royalty payments on net sales of Cationorm Plus.

Under the Santen Agreements, the Company

also assumed certain obligations associated with other third parties that require mid-single digit royalties on sales of Freshkote and

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

four months, and prior to the transfer of the Santen Product NDAs and other marketing authorizations to the Company, Santen will continue

to sell the Santen Products on the Company’s behalf and transfer the net profit from the sale of the Santen Products to the Company.

Credit Agreement Amendment

July 2023, the Company entered into the First Amendment to Credit Agreement and Guaranty and Consent (the “Oaktree Amendment”)

to the Oaktree Loan (see Note 13).

Under the Oaktree Amendment, the overall credit facility size was increased from $ 100,000,000 to $ 112,500,000 ,

and the Company made other changes related to the Santen Products Acquisition.

Upon satisfaction of certain conditions to funding, the

Company drew down a principal amount of $ 12,500,000 (the “Loan Increase”) to fund the initial one-time payment associated

with the Santen Products Acquisition and for other working capital and general corporate purposes.

No other material changes to the Oaktree

Loan were provided in the Oaktree Amendment.

Following entry into the Oaktree Amendment and the funding of the Loan Increase upon closing

of the Santen Products Acquisition, the Company has drawn down a total principal loan amount of $ 77,500,000 under the Oaktree Loan and

an additional principal loan amount of up to $ 35,000,000 remains available to the Company upon the commercialization of TRIESENCE.

Stock Offering

July 2023, the Company closed a public offering of shares of its common stock at an offering price of $ 17.75 per share (the “Offering”).

The Company sold 3,887,324 shares of its common stock in the Offering, resulting in the Company receiving aggregate gross proceeds of

$ 69,000,000 , before commissions and other offering expenses.

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