HARROW, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”), our principal executive officer, and our Chief Financial Officer (“CFO”), our principal financial and accounting officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this Annual Report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In connection with that evaluation, our CEO and CFO concluded that, as of December 31, 2023, our disclosure controls and procedures were effective. For the purpose of this review, disclosure controls and procedures means controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer, principal financial officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management, under the supervision and with the participation of our CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations. Based on such evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023. This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, in accordance with applicable SEC rules that permit us to provide only management’s report in the annual report. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the year ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. 67 Inherent Limitations on Effectiveness of Controls Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to the information set forth under the captions “Election of Directors,” “Executive Officers,” “Corporate Governance,” “Corporate Governance — Delinquent Section 16(a) Reports,” and “Corporate Governance — Code of Business Conduct and Ethics” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth under the captions “Executive Compensation” and “Director Compensation” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the information set forth under the captions “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Executive Compensation — Securities Authorized for Issuance Under Equity Compensation Plans” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the information set forth under the captions “Corporate Governance — Transactions with Related Persons” and “Corporate Governance — Director Independence” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to the information set forth under the caption “Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders. 68 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) List of the following documents filed as part of the report: (1) See the index to our consolidated financial statements on page F-1 for a list of the financial statements being filed in this Annual Report. (2) All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. (3) See Item 15(b) below for all exhibits being filed or incorporated by reference herein. (b) Exhibits: EXHIBIT INDEX Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of September 17, 2007, by and among Imprimis Pharmaceuticals, Inc., Transdel Pharmaceuticals Holdings, Inc. and Trans-Pharma Acquisition Corp. Incorporation (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on September 21, 2007). 3.1 Amended and Restated Certificate of Incorporation, as amended (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on September 29, 2023). 3.2 Amended and Restated Bylaws of Harrow, Inc. (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on September 29, 2023). 4.1* Description of the Company’s Securities 4.2 Indenture dated April 20, 2021, between Harrow, Inc. and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on April 20, 2021). 4.3 First Supplemental Indenture dated April 20, 2021 between Harrow, Inc. and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on April 20, 2021). 4.4 Form of 8.625% Senior Note due 2026 (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on April 20, 2021). 4.5 Second Supplemental Indenture dated December 20, 2022 between Harrow, Inc. and U.S. Bank Trust Company, National Association (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on December 20, 2022). 4.6 Form of 11.875% Senior Note due 2027 (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on December 20, 2022). 10.1 Form of Directors and Officers Indemnification Agreement (incorporated herein by reference to Exhibit 10.8 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on September 21, 2007) 10.2# Imprimis Pharmaceuticals, Inc. Amended and Restated 2007 Stock Incentive and Awards Plan (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on May 8, 2013) 69 10.3# Amendment No. 1 to Imprimis Pharmaceuticals, Inc. Amended and Restated 2007 Incentive Stock and Awards Plan (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on November 6, 2013) 10.4# Form of Incentive Stock Option Agreement (incorporated herein by reference to Exhibit 10.12 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on September 21, 2007) 10.5# Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.13 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on September 21, 2007) 10.6# Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on May 8, 2013) 10.7# Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016) 10.8# Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016) 10.9# Employment Agreement, dated as of April 25, 2016, by and between Imprimis Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2016) 10.10 License Agreement dated April 1, 2017 between Imprimis Pharmaceuticals, Inc. and Richard L. Lindstrom, M.D. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on April 6, 2017) 10.11# Consulting Agreement dated May 1, 2017 between Eton Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 10, 2017) 10.12# Consulting Agreement dated May 1, 2017 between Eton Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 10, 2017) 10.13# Consulting Agreement dated May 1, 2017 between Eton Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 10, 2017) 10.14# Consulting Agreement dated October 27, 2017 between Surface Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.53 to the Annual Report on Form 10-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on March 8, 2017) 10.15# Consulting Agreement dated October 27, 2017 between Surface Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.54 to the Annual Report on Form 10-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on March 8, 2017) 10.16# Consulting Agreement dated October 27, 2017 between Surface Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.55 to the Annual Report on Form 10-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on March 8, 2017) 70 10.17 Asset Purchase and License Agreement dated September 28, 2017 between Imprimis Pharmaceuticals, Inc. and Surface Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on May 15, 2018) 10.18 Amended and Restated Asset Purchase and License Agreement dated April 10, 2018 between Imprimis Pharmaceuticals, Inc. and Surface Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on May 15, 2018) 10.19 Amended and Restated License Agreement dated April 10, 2018 between Imprimis Pharmaceuticals, Inc. and Richard L. Lindstrom, M.D. (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 6, 2018) 10.20 Consulting Agreement dated March 1, 2018 between Surface Pharmaceuticals, Inc. and Richard L. Lindstrom, M.D. (incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 6, 2018) 10.21# Consulting Agreement dated May 1, 2018 between Melt Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on November 13, 2018) 10.22# Consulting Agreement dated May 1, 2018 between Melt Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on November 13, 2018) 10.23# Consulting Agreement dated May 1, 2018 between Melt Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on November 13, 2018) 10.24 Asset Purchase Agreement dated December 11, 2018 between Harrow, Inc. (fka Imprimis Pharmaceuticals, Inc.) and Melt Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on February 5, 2019) 10.25# Consulting Agreement dated June 3, 2019 between Mayfield Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on August 14, 2019) 10.26# Consulting Agreement dated June 3, 2019 between Mayfield Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on August 14, 2019) 10.27# Consulting Agreement dated June 3, 2019 between Mayfield Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on August 14, 2019) 10.28# Consulting Agreement dated February 13, 2020 between Stowe Pharmaceuticals, Inc. and Mark L. Baum (incorporated herein by reference to Exhibit 10.64#* to the Annual Report on Form 10-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 13, 2020). 10.29# Consulting Agreement dated February 13, 2020 between Stowe Pharmaceuticals, Inc. and Andrew R. Boll (incorporated herein by reference to Exhibit 10.65#* to the Annual Report on Form 10-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 13, 2020). 10.30# Consulting Agreement dated February 13, 2020 between Stowe Pharmaceuticals, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.66#* to the Annual Report on Form 10-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 13, 2020). 10.31 Commercial Alliance Agreement between Eyepoint Pharmaceuticals, Inc. and ImprimisRx, LLC dated August 1, 2020 (incorporated herein by reference to Exhibit 10.1*# to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on November 9, 2020). 10.32 Expansion Term Letter Agreement dated December 6, 2021 between Eyepoint Pharmaceuticals, Inc. and ImprimisRx, LLC (incorporated herein by reference to Exhibit 10.50 to the Annual Report on Form 10-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 10, 2022) 71 10.33 Mutual Termination Agreement dated October 7, 2022 between ImprimisRx and EyePoint Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on November 14, 2022) 10.34 License and Supply Agreement dated July 25, 2021 between Harrow, Inc. and Sintetica, S.A. (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on August 10, 2021) 10.35# Harrow, Inc. 2017 Incentive Stock and Awards Plan (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-8 of Imprimis Pharmaceuticals, Inc. filed with the Securities and Exchange Commission on August 25, 2017) 10.36# First Amendment to the Harrow, Inc. 2017 Incentive Stock and Awards Plan (incorporated herein by reference to Appendix A to Harrow, Inc.’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 23, 2021) 10.37 Loan and Security Agreement dated September 1, 2021 among Harrow, Inc. and Melt Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on September 2, 2021) 10.38 First Amendment to Loan and Security Agreement dated April 8, 2022 between Harrow, Inc. and Melt Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on November 14, 2022) 10.39 Second Amendment to Loan and Security Agreement dated September 21, 2022 between Harrow, Inc. and Melt Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on November 14, 2022) 10.40 Asset Purchase Agreement dated December 17, 2021 between Harrow, Inc. and Novartis Technology, LLC and Novartis Ophthalmics AG (incorporated herein by reference to Exhibit 10.51 to the Annual Report on Form 10-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 10, 2022). 10.41 Asset Purchase Agreement dated December 13, 2022 between Harrow, Inc. and Novartis Technology, LLC and Novartis Innovative Therapies AG (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on December 14, 2022). 10.42 Loan and Security Agreement dated December 14, 2022 between Harrow, Inc. and B. Riley Commercial Capital LLC (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on May 11, 2023). 10.43 Credit and Guaranty Agreement dated March 27, 2023 between Harrow, Inc. and Oaktree Fund Administration, LLC (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on May 11, 2023). 10.44 First Amendment to Credit Agreement and Guaranty dated July 18, 2023 to the Credit Agreement and Guaranty dated March 27, 2023 between Harrow, Inc. and Oaktree Fund Administration, LLC (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on August 9, 2023). 10.45 Second Amendment to License and Supply Agreement dated August 4, 2023 between Harrow IP, LLC and Sintetica S.A (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Harrow, Inc. filed with the Securities and Exchange Commission on November 13, 2023). 72 10.46* Third Amendment to License and Supply Agreement dated February 6, 2024 between Harrow IP, LLC and Sintetica S.A 21.1* List of Subsidiaries 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on the signature page to this Annual Report) 31.1* Certification of Mark L. Baum, Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Andrew R. Boll, Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, Chief Executive Officer. 32.2** Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Andrew R. Boll, Chief Financial Officer. 97* Harrow, Inc. Policy Regarding the Mandatory Recovery of Compensation. 101.INS* XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 has been formatted in Inline XBRL # Management contract or compensatory plan or arrangement. * Filed herewith. ** Furnished herewith. + Confidential treatment has been granted with respect to portions of this exhibit pursuant to Rule 24b-2 of the Exchange Act and these confidential portions have been redacted from the filing that is incorporated herein by reference. A complete copy of this exhibit, including the redacted terms, has been separately filed with the Securities and Exchange Commission. ITEM 16. FORM 10-K SUMMARY None. 73 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HARROW, INC. By: /s/ Mark L. Baum Mark L. Baum Chief Executive Officer (Principal Executive Officer) Date: March 19, 2024 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark L. Baum and Andrew R. Boll, and each of them individually, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to any or all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents or any of them the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Mark L. Baum Chief Executive Officer and Chairman of the Board March 19, 2024 Mark L. Baum (Principal Executive Officer) /s/ Andrew R. Boll Chief Financial Officer and Corporate Secretary March 19, 2024 Andrew R. Boll (Principal Accounting and Financial Officer) /s/ Adrienne L. Graves Director March 19, 2024 Adrienne L. Graves /s/ Teresa F. Sparks Director March 19, 2024 Teresa F. Sparks /s/ Lauren P. Silvernail Director March 19, 2024 Lauren P. Silvernail /s/ Perry J. Sternberg Director March 19, 2024 Perry J. Sternberg /s/ Martin Makary Director March 19, 2024 Martin Makary 74 FINANCIAL STATEMENTS Harrow, Inc. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID No. 170 ) F-2 Consolidated Balance Sheets at December 31, 2023 and 2022 F-4 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-7 Notes to the Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Harrow, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Harrow, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F- 2 Product Sales Deductions – Branded Products Critical Audit Matter Description As described in Note 3 to the consolidated financial statements, revenues from branded product sales are recognized net of accruals for estimated rebates, wholesaler chargebacks, discounts, copay assistance and other deductions (collectively, “sales deductions”), which are established at the time of sale. Management’s estimate of sales deductions for branded products is based on the inventory levels in the distribution channel as provided by wholesalers, as well as the actual average selling price for each product which is impacted by changes in customer mix, changes in negotiated terms with customers, and changes in the volume of purchases. In addition, management utilizes the services of a third-party professional services firm to estimate rebates and chargebacks associated with sales of its branded products. We identified the estimates of accruals for sales deductions as a critical audit matter given the limited sales history of the Company’s branded products and the significant judgment required by management with respect to the measurement uncertainty, as the calculation of the sales deductions includes assumptions such as average selling price, purchasing trends of wholesalers and historical branded product sales used to predict future sales. This required a high degree of auditor judgment and an increased extent of audit effort in applying the procedures related to management’s assumptions. How the Critical Audit Matter Was Addressed in the Audit To test management’s estimated branded product sales deductions, we obtained management’s calculations for the respective estimates and performed the following procedures, among others. We tested management’s estimation process for determining accruals for product sales deductions by developing an independent expectation of the estimated accrual rates, including comparison of rates used in management’s analysis to external industry data, historical actual information, and executed third-party contracts. We evaluated management’s historic ability to accurately estimate the sales deduction accruals by retrospectively comparing historically recorded accruals to the actual amounts that were ultimately claimed by the wholesalers. In addition, we assessed subsequent events to determine whether there was any new information that would require adjustment to the accruals. /s/ KMJ Corbin & Company LLP We have served as the Company’s auditor since 2007. Irvine, California March 19, 2024 F- 3 HARROW, INC. CONSOLIDATED BALANCE SHEETS December 31, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 74,085,000 $ 96,270,000 Investment in Eton Pharmaceuticals 8,681,000 5,589,000 Accounts receivable, net 36,261,000 6,249,000 Inventories 10,867,000 6,541,000 Prepaid expenses and other current assets 9,588,000 3,611,000 Total current assets 139,482,000 118,260,000 Property, plant and equipment, net 3,521,000 3,486,000 Capitalized software costs, net 2,138,000 2,112,000 Deferred financing costs - 1,950,000 Operating lease right-of-use assets, net 6,785,000 7,513,000 Intangible assets, net 159,906,000 23,725,000 Goodwill 332,000 332,000 TOTAL ASSETS $ 312,164,000 $ 157,378,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities - Accounts payable and accrued expenses $ 24,581,000 $ 13,771,000 Accrued rebates and copay assistance 18,432,000 - Accrued payroll and related liabilities 5,450,000 4,025,000 Deferred revenue and customer deposits 75,000 113,000 Current portion of operating lease obligations 806,000 723,000 Total current liabilities 49,344,000 18,632,000 Operating lease obligations, net of current portion 6,524,000 7,332,000 Accrued expenses, net of current portion 2,713,000 - Notes payable, net of unamortized debt discount and issuance costs 183,172,000 104,174,000 TOTAL LIABILITIES 241,753,000 130,138,000 Commitments and contingencies - - STOCKHOLDERS’ EQUITY Common stock, $ 0.001 par value, 50,000,000 shares authorized, 35,168,260 and 29,901,530 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively 35,000 30,000 Additional paid-in capital 204,635,000 137,058,000 Accumulated deficit ( 133,904,000 ) ( 109,493,000 ) TOTAL HARROW, INC. STOCKHOLDERS’ EQUITY 70,766,000 27,595,000 Noncontrolling interests ( 355,000 ) ( 355,000 ) TOTAL STOCKHOLDERS’ EQUITY 70,411,000 27,240,000 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 312,164,000 $ 157,378,000 The accompanying notes are an integral part of these consolidated financial statements F- 4 HARROW, INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2023 2022 For the Years Ended December 31, 2023 2022 Revenues: Product sales, net $ 117,447,000 $ 83,524,000 Other revenues 12,746,000 5,071,000 Total revenues 130,193,000 88,595,000 Cost of sales ( 39,640,000 ) ( 25,383,000 ) Gross profit 90,553,000 63,212,000 Operating expenses: Selling, general and administrative 83,090,000 58,243,000 Research and development 6,652,000 3,050,000 Impairment of intangible assets 380,000 - Total operating expenses 90,122,000 61,293,000 Income from operations 431,000 1,919,000 Other (expense) income: Interest expense, net ( 21,324,000 ) ( 7,244,000 ) Equity in losses of unconsolidated entities - ( 11,133,000 ) Investment gain (loss) from Eton Pharmaceuticals 3,092,000 ( 2,914,000 ) Loss on extinguishment of debt ( 5,465,000 ) - Gain on sale of non-ophthalmology assets - 5,259,000 Other (expense) income, net ( 444,000 ) 102,000 Total other expense, net ( 24,141,000 ) ( 15,930,000 ) Loss before income tax provision ( 23,710,000 ) ( 14,011,000 ) Income tax provision ( 701,000 ) ( 75,000 ) Net loss attributable to Harrow, Inc. $ ( 24,411,000 ) $ ( 14,086,000 ) Basic and diluted net loss per share of common stock $ ( 0.75 ) $ ( 0.51 ) Weighted average number of shares of common stock outstanding, basic and diluted 32,616,777 27,460,968 The accompanying notes are an integral part of these consolidated financial statements F- 5 HARROW, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Years Ended December 31, 2023 and 2022 Total Total Common Stock Additional Harrow, Inc. Noncontrolling Total Par Paid-in Accumulated Stockholders’ Interest Stockholders’ Shares Value Capital Deficit Equity Equity Equity Balance at December 31, 2021 26,902,763 $ 27,000 $ 106,666,000 $ ( 95,407,000 ) $ 11,286,000 $ ( 355,000 ) $ 10,931,000 Issuance of common stock in connection with: Exercise of consultant stock-based options 19,679 - 55,000 - 55,000 - 55,000 Exercise of employee stock-based options 221,086 1,000 586,000 - 587,000 - 587,000 Exercise of warrants 306,347 - - - - - - Vesting of RSUs 185,000 1,000 ( 1,000 ) - - - - Shares withheld related to net share settlement of equity awards ( 109,771 ) ( 1,000 ) ( 875,000 ) - ( 876,000 ) - ( 876,000 ) Issuance of common shares from public offering, net of offering costs 2,376,426 2,000 22,653,000 - 22,655,000 - 22,655,000 Stock-based compensation expense - - 7,974,000 - 7,974,000 - 7,974,000 Net loss - - - ( 14,086,000 ) ( 14,086,000 ) - ( 14,086,000 ) Balance at December 31, 2022 29,901,530 $ 30,000 $ 137,058,000 $ ( 109,493,000 ) $ 27,595,000 $ ( 355,000 ) $ 27,240,000 Balance 29,901,530 $ 30,000 $ 137,058,000 $ ( 109,493,000 ) $ 27,595,000 $ ( 355,000 ) $ 27,240,000 Issuance of common stock in connection with: Public offering, net of offering costs 3,887,324 4,000 64,516,000 - 64,520,000 - 64,520,000 Exercise of consultant stock-based options 10,000 - 85,000 - 85,000 - 85,000 Exercise of employee stock-based options 235,975 - 294,000 - 294,000 - 294,000 Vesting of RSUs and PSUs 1,847,876 2,000 ( 2,000 ) - - - - Shares withheld related to net share settlement of equity awards ( 714,445 ) ( 1,000 ) ( 13,012,000 ) - ( 13,013,000 ) - ( 13,013,000 ) Stock-based compensation expense - - 15,696,000 - 15,696,000 - 15,696,000 Net loss - - - ( 24,411,000 ) ( 24,411,000 ) - ( 24,411,000 ) Balance at December 31, 2023 35,168,260 $ 35,000 $ 204,635,000 $ ( 133,904,000 ) $ 70,766,000 $ ( 355,000 ) $ 70,411,000 Balance 35,168,260 $ 35,000 $ 204,635,000 $ ( 133,904,000 ) $ 70,766,000 $ ( 355,000 ) $ 70,411,000 The accompanying notes are an integral part of these consolidated financial statements F- 6 HARROW, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 2023 2022 For the Years Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 24,411,000 ) $ ( 14,086,000 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment and software development costs 1,530,000 1,477,000 Amortization of intangible assets 10,082,000 1,578,000 Amortization of operating lease right-of-use assets 728,000 610,000 Provision for credit losses 332,000 81,000 Amortization of debt issuance costs and debt discount 4,097,000 782,000 Investment (gain) loss from investment in Eton ( 3,092,000 ) 2,914,000 Equity in losses of unconsolidated entities - 11,133,000 Loss on disposal of equipment 168,000 69,000 Impairment of intangible assets 380,000 - Loss on extinguishment of debt 5,465,000 - Stock-based compensation 15,696,000 7,974,000 Gain on sale of non-ophthalmology assets - ( 5,259,000 ) Changes in assets and liabilities: Accounts receivable ( 30,344,000 ) ( 1,860,000 ) Inventories ( 4,326,000 ) ( 2,324,000 ) Prepaid expenses and other current assets ( 5,647,000 ) ( 3,350,000 ) Accounts payable, accrued expenses, accrued rebates and copay assistance 31,795,000 933,000 Accrued payroll and related liabilities 1,425,000 936,000 Deferred revenue and customer deposits ( 38,000 ) 97,000 NET CASH PROVIDED BY OPERATING ACTIVITIES 3,840,000 1,705,000 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of non-ophthalmology assets - 6,000,000 Investment in patent and trademark assets ( 18,000 ) ( 176,000 ) Proceeds from sale of property, plant and equipment - 30,000 Purchase of product NDAs, marketing authorizations and patents ( 151,075,000 ) ( 5,000,000 ) Purchases of property, plant and equipment ( 1,460,000 ) ( 2,597,000 ) NET CASH USED IN INVESTING ACTIVITIES ( 152,553,000 ) ( 1,743,000 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from 11.875% notes payable, net of costs 4,961,000 31,738,000 Proceeds from Oaktree Loan, net of costs 73,552,000 - Payment of payroll taxes upon vesting of PSUs, RSUs and exercise of stock options ( 13,013,000 ) ( 876,000 ) Proceeds from exercise of stock options 379,000 642,000 Proceeds from B Riley senior secured note, net of costs 55,879,000 - Repayment of B. Riley senior secured note ( 59,750,000 ) - Proceeds from public offering of common stock, net of offering costs 64,520,000 22,655,000 Payments on finance lease obligations - ( 18,000 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 126,528,000 54,141,000 NET CHANGE IN CASH AND CASH EQUIVALENTS ( 22,185,000 ) 54,103,000 CASH AND CASH EQUIVALENTS, beginning of year 96,270,000 42,167,000 CASH AND CASH EQUIVALENTS, end of year $ 74,085,000 $ 96,270,000 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ - $ 75,000 Cash paid for interest $ 18,887,000 $ 6,480,000 SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Reclassification of deferred financing costs $ 1,950,000 $ - Accrual of exit fee related to Oaktree Loan $ 2,713,000 $ - Insurance premium financed $ 873,000 $ 906,000 Purchase of intangible asset included in accounts payable and accrued expenses $ - $ 5,000,000 Purchase of property, plant and equipment included in accounts payable and accrued expenses $ 299,000 $ 123,000 Right-of-use assets obtained in exchange for new operating lease obligations $ - $ 2,188,000 The accompanying notes are an integral part of these consolidated financial statements F- 7 HARROW, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2023 and 2022 NOTE 1. ORGANIZATION Harrow, Inc. (together with its consolidated subsidiaries, unless the context indicates or otherwise 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. market. 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 owns 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. The Company owns non-controlling equity interests in Surface Ophthalmics, Inc. (“Surface”) and Melt Pharmaceuticals, Inc. (“Melt”), both companies that began as subsidiaries of Harrow. Harrow also owns royalty rights in various drug candidates being developed by Surface and Melt. Effective September 29, 2023, the Company changed its corporate name from Harrow Health, Inc. to Harrow, Inc. pursuant to a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Harrow has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. Harrow consolidates entities in which it has a controlling financial interest. The Company assesses control under the variable interest entity (“VIE”) model to determine whether the Company is the primary beneficiary of that entity. 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. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management are, among others, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, renewal periods and discount rates for leases, realizability of inventories, recoverability of investments, realizability of deferred tax assets, recoverability of long-lived assets and goodwill, valuations and purchase price allocations related to business combinations and asset acquisitions, fair value of loans payable, and valuation of stock-based transactions with employees and non-employees. Actual results could differ from those estimates. Risks, Uncertainties and Liquidity The Company is subject to certain regulatory standards, approvals, guidelines and inspections which could impact the Company’s ability to make, dispense, and sell certain products. If the Company was required to cease compounding and selling certain products as a result of regulatory guidelines or inspections, this may have a material impact on the Company’s financial condition, liquidity and results of operations. F- 8 Credit Losses The Company estimates and records a provision for its expected credit losses related to its 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 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. To 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 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 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 at December 31, 2023 and 2022 are net of allowances for credit losses of $ 371,000 and $ 73,000 , respectively. 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 December 31, 2023 and 2022: SCHEDULE OF ACCOUNTS RECEIVABLE ALLOWANCE OF CREDIT LOSS Balance at January 1, 2023 $ 73,000 Change in expected credit losses 332,000 Write-offs, net of recoveries ( 34,000 ) Balance at December 31, 2023 $ 371,000 Business Combinations and Asset Acquisitions The 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 Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). 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. The 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 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 consolidated statement of operations. F- 9 If 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 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 the assets’ carrying amounts on the acquiring entity’s financial statements. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired, and liabilities assumed, whichever is more clearly evident and more reliably measurable. The obligation for contingent consideration payments is recorded when probable and reasonably estimable. Contingent consideration recognized is included in the initial cost of the assets acquired and any subsequent changes in the recorded amount of contingent consideration are recognized as an adjustment to the cost basis of the acquired assets and allocated to the acquired assets based on the relative fair value at the date of acquisition. 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. Noncontrolling Interests The Company recognizes any noncontrolling interest as a separate line item in equity in the consolidated financial statements. A noncontrolling interest represents the portion of equity ownership in a less-than-wholly-owned subsidiary not attributable to the Company. Generally, any interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling interest; however, there are other factors that are considered as well, such as decision-making rights. When applicable, and in prior periods, the Company includes the amount of net loss attributable to noncontrolling interests in consolidated net loss on the face of the consolidated statements of operations. The Company provides in the consolidated statements of stockholders’ equity a reconciliation at the beginning and the end of the period of the carrying amount of total equity, equity attributable to the parent, and equity attributable to the noncontrolling interests that separately discloses: 1. net income or loss; 2. transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners; and 3. each component of other income or loss. The noncontrolling interests in the consolidated balance sheets as of December 31, 2023 and 2022, relate to consolidated subsidiaries that the Company owns a controlling interest in, but not 100% of the equity interests, and that no longer have active operations, assets and related financial activity. Revenue Recognition and Deferred Revenue The Company recognizes revenue at the time of transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services (see Note 3). Cost of Sales Cost of sales includes direct and indirect costs to manufacture formulations and other products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, depreciation and amortization of certain intangible assets and the write-off of obsolete inventory. Research and Development Research and development (“R&D”) expenses consist of expenses incurred in performing research and development activities, including salaries and benefits, other overhead expenses, and costs related to clinical trials, contract services and outsourced contracts. We expense all costs related to R&D as they are incurred. F- 10 Upfront and milestone payments related to the acquisition and licensing of technology for drug and product candidates that are not yet approved by the FDA are considered acquisition of in process R&D and expensed as R&D in the period in which the expense occurs. Debt Issuance Costs and Debt Discount Debt issuance costs and the debt discount are recorded net of notes payable in the consolidated balance sheets. Amortization of debt issuance costs and the debt discount is calculated using the effective interest method over the term of the related debt and is recorded in interest expense in the accompanying consolidated statements of operations. At December 31, 2022, the Company recorded deferred financing costs of $ 1,950,000 related to the B. Riley Loan and Security Agreement (the “BR Loan”), which was recorded as a debt issuance cost and net of the related BR Loan when it funded in January 2023 (see Note 13). Intellectual Property The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where we have identified an alternative future use for the acquired rights. Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain (see “Goodwill and Intangible Assets” below). If costs are not capitalized they are expensed as incurred. Income Taxes As part of the process of preparing the Company’s consolidated financial statements, the Company must estimate the actual current tax assets and liabilities and assess permanent and temporary differences that result from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not more likely than not, a valuation allowance must be established which reduces the amount of deferred tax assets recorded on the consolidated balance sheets. To the extent the Company establishes a valuation allowance or increase or decrease this allowance in a period, the impact will be included in income tax expense in the consolidated statements of operations. The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes . As of December 31, 2023 and 2022, there was $ 2,853,000 and $ 0 , respectively, of unrecognized tax benefits included in the consolidated balance sheets that would, if recognized, affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties in its consolidated balance sheets at December 31, 2023 and 2022, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2023 and 2022. The Company is subject to taxation in the United States, California, New Jersey, Tennessee, and various other states. The Company’s tax years since 2000 may be subject to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses. Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition. F- 11 Concentrations of Credit Risk The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $ 250,000 per owner. The Company believes the majority of its cash deposits are covered under FDIC limits, however there are various accounts in which the Company has deposits in excess of FDIC limits. Investment in Eton Pharmaceuticals, Inc. The Company’s investment in Eton Pharmaceuticals, Inc. (“Eton”) consists of common stock with a readily determinable fair value which is carried at fair value with changes in fair value recognized in earnings. In accordance with ASC 321, Investments — Equity Securities , the Company recorded an unrealized holding gain/(loss) from its Eton common stock position of $ 3,092,000 and $ ( 2,914,000 ) , during the years ended December 31, 2023 and 2022, respectively, related to the change in fair market value of its investment in Eton during the measurement period. As of December 31, 2023 and 2022, the Company owned 1,982,000 shares of Eton common stock, which represents less than 10 % of the equity interests of Eton. At December 31, 2023 and 2022, the fair market value of Eton’s common stock was $ 4.38 and $ 2.82 per share, respectively. As of December 31, 2023 and 2022, the fair market value of the Company’s investment in Eton was $ 8,681,000 and $ 5,589,000 , respectively. Accounts Receivable Accounts receivable are stated net of allowances for credit losses and contractual adjustments. The accounts receivable balance primarily includes amounts due from customers the Company has invoiced or from third-party providers (e.g., insurance companies and governmental agencies), but for which payment has not been received. Our gross product revenues are subject to a variety of contractual deductions, which generally are estimated and recorded in the same period that the revenues are recognized. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Accounts receivable at December 31, 2023 are presented net of allowances for credit losses of $ 371,000 and $ 14,875,000 for contractual adjustments (in aggregate $ 15,146,000 ) and at December 31, 2022, net of allowances for credit losses of $ 73,000 and $ 706,000 for contractual adjustments (in aggregate $ 779,000 ). Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The Company evaluates the carrying value of inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared with historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories. The Company also regularly evaluates its inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses. Investment in Melt Pharmaceuticals, Inc. – Related Party The Company owns 3,500,000 shares of common stock and 2,334,256 shares of preferred stock of Melt (representing in aggregate approximately 47 % of the equity interests as of December 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 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 investment in Melt to $ 0 as a result of the Company recording its share of equity losses in Melt since its deconsolidation in 2019. As of December 31, 2022, and 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 treated interest paid in kind on the Melt Loan Agreement as an in-substance capital contribution and reduced its investment in Melt accordingly, rather than recording interest income. F- 12 On a quarterly basis, management assesses whether there are any indicators that the carrying value of the Company’s equity method investments may be other than temporarily impaired. Indicators include financial condition, operating performance, and near-term prospects of the investee. To the extent indicators suggest that a loss in value may have occurred, the Company will evaluate both quantitative and qualitative factors to determine if the loss in value is other than temporary. If a potential loss in value is determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of the equity method investments. During the year ended December 31, 2023, the Melt Loan Agreement (as defined in Note 5) was settled in exchange for Melt preferred stock (see Note 5 for loan settlement disclosure). The Company reduced the Melt Loan Agreement and subsequent preferred stock investment in Melt to $ 0 as a result of the Company recording its share of equity losses of Melt. The Company has no other investments in Melt and no other requirements to advance funds to Melt. The following table summarizes the Company’s investments in Melt as of December 31, 2023: SCHEDULE OF INVESTMENT Cost Basis Share of Equity Method Losses Net Carrying value Common stock $ 5,810,000 $ ( 5,810,000 ) $ - Preferred stock 18,397,000 ( 18,397,000 ) - $ 24,207,000 $ ( 24,207,000 ) $ - The following table summarizes the Company’s investments in Melt as of December 31, 2022: Cost Basis Share of Equity Method Losses Paid-in-Kind Interest In-substance Capital Contributions Net Carrying value Common stock $ 5,810,000 $ ( 5,810,000 ) $ - $ - $ - Loan 13,500,000 ( 13,500,000 ) 2,484,000 ( 2,484,000 ) - $ 19,310,000 $ ( 19,310,000 ) $ 2,484,000 $ ( 2,484,000 ) $ - At December 31, 2023 and 2022, the Company recorded $ 89,000 and $ 139,000 , respectively, due from Melt for reimbursable expenses and amounts due under a Management Services Agreement between the Company and Melt (the “Melt MSA”), which are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. See Note 5 for more information and related party disclosure regarding Melt. Investment in Surface Ophthalmics, Inc. – Related Party The Company owns 3,500,000 common shares of Surface (representing approximately 20 % of Surface’s equity interests following the closing of a round of financing completed by Surface in July 2021) and uses the equity method of accounting for this investment, as management has determined that the Company has the ability to exercise significant influence over the operating and financial decisions of Surface. Under this method, the Company recognizes earnings and losses in Surface in its consolidated financial statements and adjusts the carrying amount of its investment in Surface accordingly. The Company’s share of earnings and losses are based on the Company’s ownership interest of Surface. Any intra-entity profits and losses are eliminated. During the year ended December 31, 2021, the Company reduced its common stock investment in Surface to $ 0 as a result of the Company recording its share of equity losses of Surface. The Company has no other investments in Surface and no other requirements to advance funds to Surface. F- 13 The following table summarizes the Company’s investment in Surface as of December 31, 2023 and 2022: SCHEDULE OF INVESTMENT Cost Basis Share of Equity Method Losses Net Carrying value Common stock $ 5,320,000 $ ( 5,320,000 ) $ - See Note 6 for more information and related party disclosure regarding Surface. Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements and finance lease equipment are amortized over the estimated useful life or remaining lease term, whichever is shorter. Computer hardware and furniture and equipment are depreciated over three to five years . Capitalized Software Costs The Company capitalizes certain costs related to the development of internal-use software. Costs incurred during the application development phase are capitalized only when the Company believes it is probable the development will result in new or additional functionality. The types of costs capitalized during the application development phase include consulting fees for third-party developers working on these projects. Costs related to the preliminary project stage and post-implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over the estimated useful life of the asset, which ranges from two to five years . When internal-use software that was previously capitalized is abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense. Fully amortized capitalized internal-use software costs are removed from their respective accounts. Goodwill and Intangible Assets Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain. At that time, the Company capitalizes third-party legal costs and filing fees associated with obtaining and prosecuting claims related to its patents and trademarks. Once the patents have been issued, the Company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life, generally 20 years, using the straight-line method. Acquired product rights, including new drug applications (“NDAs”), are amortized over their estimated useful lives, generally 4 - 15 years, based on a straight-line method. Trademarks are an indefinite-lived intangible asset and are assessed for impairment based on future projected cash flows as further described below. The Company reviews its goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year and when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following: ● significant underperformance of the Company’s business relative to expected operating results; ● significant adverse economic and industry trends; ● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and ● expectations that a reporting unit will be sold or otherwise disposed. F- 14 The goodwill impairment test consists of a two-step process as follows: Step 1. The Company compares the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying amount of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and the Company then performs the second step of the impairment test to measure the impairment loss. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required. Step 2. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. As a result of its assessment in 2023, the Company concluded that goodwill is not impaired as of December 31, 2023. Impairment of Other Long-Lived Assets Other long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value of the asset is based on the discounted value of its estimated future cash flows. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. As a result of its assessment in 2023, the Company recorded an impairment charge of $ 380,000 related to the impairment of certain licenses, trademarks, patents and patent applications (see Note 11). Leases At the inception of a contract the Company determines if the arrangement is, or contains, a lease. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. The Company has made certain accounting policy elections whereby it (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months of less) and (ii) combines lease and non-lease elements of its operating leases as a single lease component. As of December 31, 2023 and 2022, the Company did not have any finance leases. Fair Value Measurements Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels: ● Level 1: 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. F- 15 ● Level 2: 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 for substantially the full term of the assets or liabilities. ● Level 3: 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. At December 31, 2023 and 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 December 31, 2023 and 2022, the fair market value of the Company’s investment in Eton was $ 8,681,000 and $ 5,589,000 , respectively. The Company’s 2026 Notes (as defined in Note 13) are carried at face value, including the unamortized premium, less unamortized debt issuance costs, the 2027 Notes (as described in Note 13) 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 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. The following table presents the estimated fair values and the carrying values: SCHEDULE OF ESTIMATED FAIR VALUE December 31, 2023 2022 Carrying Value Fair Value Carrying Value Fair Value 2026 Notes $ 73,218,000 $ 70,260,000 $ 72,436,000 $ 71,550,000 2027 Notes $ 37,413,000 $ 40,363,000 $ 31,738,000 $ 35,112,000 Oaktree Loan $ 72,541,000 $ 76,627,000 $ - $ - The 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 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 instruments. Based on borrowing rates currently available to the Company, the carrying values of the operating lease liabilities approximate their respective fair values. Stock-Based Compensation All stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”), performance stock units (“PSUs) and restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values. The Company uses the Black-Scholes-Merton option pricing model and Monte Carlo simulation model to estimate the fair value of stock-based awards. The estimated fair value is determined at the date of grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. Basic and Diluted Net Loss per Common Share Basic net loss per common share is computed by dividing net loss attributable to Harrow, Inc. for the year by the weighted average number of common shares outstanding during the year. Diluted net loss per share is computed by dividing the net loss attributable to Harrow, Inc. for the year by the weighted average number of common and common equivalent shares, such as stock options, RSUs, PSUs, and warrants, outstanding during the year. F- 16 Common stock equivalents (using the treasury stock or “if converted” method) from stock options, unvested RSUs, and unvested PSUs were 4,642,259 and 5,089,420 at December 31, 2023 and 2022, respectively, and are excluded in the calculation of diluted net loss per share for the periods presented, because the effect is anti-dilutive for that time period. 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 December 31, 2023 and 2022 was 215,539 and 319,859 , respectively. The following table shows the computation of basic and diluted net loss per share of common stock for the years ended December 31, 2023 and 2022: SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE For the Years Ended December 31, 2023 2022 Numerator – net loss attributable to Harrow, Inc. $ ( 24,411,000 ) $ ( 14,086,000 ) Denominator – weighted average number of shares outstanding, basic and diluted 32,616,777 27,460,968 Net loss per share, basic and diluted $ ( 0.75 ) $ ( 0.51 ) Recently Adopted Accounting Pronouncements In September 2016, FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments . This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade receivables. In addition, new disclosures are required. The ASU, as subsequently amended, is effective for the Company for the fiscal years beginning after December 15, 2022. The Company adopted ASU 2016-13 on January 1, 2023. Based on the 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 January 1, 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. Accounting Guidance Issued but Not Adopted at December 31, 2023 In August 2023, FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement , which applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) and requires joint ventures to initially measure all contributions received upon formation at fair value. The new guidance does not impact accounting by the venturers. The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis. Joint ventures formed prior to the effective date may elect to apply the new guidance retrospectively back to their original formation date. The Company will apply the guidance in ASU 2023-05 prospectively to any future arrangements meeting the definition of a joint venture. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . This ASU modifies the disclosure or presentation requirements of a variety of topics in the codification by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date for the Company for each amendment will be determined based on the effective date of the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K. If the SEC has not removed the applicable requirement by June 30, 2027, then the related amendment in ASU 2023-06 will be removed from the codification and will not become effective. Early adoption of this ASU is prohibited. The Company does not expect the amendments in this ASU to have a material impact on the disclosures or presentation in its consolidated financial statements. F- 17 In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures , which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company in our annual reporting for fiscal 2024 and for interim period reporting beginning in fiscal 2025 on a retrospective basis, with all required disclosures to be made for all prior periods presented in the consolidated financial statements. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements. In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , which enhances the disclosures required for income taxes in the Company’s annual consolidated financial statements. Notably, this ASU requires entities to disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for the Company in its annual reporting for fiscal 2025 on a prospective basis. Early adoption and retrospective reporting are permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements. Reclassifications Certain prior period items and amounts have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the current period. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations, or cash flows as previously reported. NOTE 3. REVENUES The Company accounts for contracts with customers in accordance with ASC 606, Revenues from Contracts with Customers . The Company has three primary streams of revenue (four in 2022): (1) product revenues, including 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 in 2022, (3) revenue recognized from transfer of acquired product sales and profits, and (4) revenue recognized from intellectual property licenses. Product Revenues The Company sells prescription medications directly through its pharmacy, outsourcing facility and 3PL partner. Revenue from the Company’s pharmacy services includes: (i) the portion of the price the client pays directly to the Company, net of any volume-related or other discounts paid back to the client, (ii) the price paid to the Company by individuals, and (iii) customer copayments made directly to the pharmacy network. Sales taxes are not included in revenue. Following the core principles of ASC 606, the Company has identified the following: 1. Identify the contract(s) with a customer: A contract is deemed to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order from a customer. For branded products, orders are received through the Company’s 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled. 2. Identify 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. 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. 3. Determine 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, copay assistance 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. 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. F- 18 4. Allocate the transaction price to the performance obligations in the contract: Because there is only one performance obligation for product sales, no allocation is necessary. 5. Recognize revenue when (or as) the entity satisfies a performance obligation: Revenue from products is recognized upon transfer of control of a product to a customer. This generally occurs upon shipment unless contractual terms with a customer state that transfer of control occurs at delivery. Commission Revenues The Company has entered into an agreement whereby it is paid a fee calculated based on sales the Company generates from a pharmaceutical product that is owned by a third party. The revenue earned from this arrangement is recognized, at which point there is no future performance obligation required by the Company and no consequential continuing involvement on the Company’s part to recognize the associated revenue. Revenues From Transfer of Acquired Product Sales and Profits The Company has entered into agreements whereby it purchased the exclusive commercial rights to assets associated with certain ophthalmic products from other pharmaceutical companies (the “Sellers”). During a temporary, transition period, the Sellers continue to manufacture and market these products and transfer the net profit from the sale of the products to the Company. The revenue recognized by the Company from the transfer of net profit was recognized at the time profit from the product sales were calculated by the Sellers 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 Sellers invoice 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 sales and profit transferred. The estimated Chargebacks are recorded as a reduction in revenues from transfer of acquired product sales and profits in the Company’s consolidated statements of operations, and recorded as a reduction to accounts receivable in the consolidated balance sheets, at the time the revenue is recognized. Intellectual Property License Revenues The Company currently holds five intellectual property licenses and related agreements pursuant to which the Company has agreed to license or sell to a customer with the right to access the Company’s intellectual property. License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple-element arrangements, the revenue of which is recognized at the point in time that the performance obligation is met. Non-refundable fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on the part of the Company are recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverables are delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications for such compounded drug preparations. The Company defers recognition of non-refundable fees if it has continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee and that are separate and independent of the Company’s performance under the other elements of the arrangement. In addition, if the Company’s continued involvement is required, through research and development services that are related to its proprietary know-how and expertise of the delivered technology or can only be performed by the Company, then such non-refundable fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term. F- 19 Revenue disaggregated by revenue source for the years ended December 31, 2023 and 2022, consists of the following: SCHEDULE OF DISAGGREGATED REVENUE For the Years Ended December 31, 2023 2022 Product sales, net $ 117,447,000 $ 83,524,000 Commissions - 3,866,000 Transfer of acquired product sales/profits 12,746,000 1,205,000 Total revenues $ 130,193,000 $ 88,595,000 Deferred revenue and customer deposits at December 31, 2023 and 2022, were $ 75,000 and $ 113,000 , respectively. All deferred revenue and customer deposit amounts at December 31, 2022 were recognized as revenue during the year ended December 31, 2023. NOTE 4. RECENT PRODUCT ACQUISITIONS, LICENSES AND DIVESTITURES Acquisition of VEVYE TM U.S. and Canadian Commercial Rights In July 2023, the Company acquired commercial rights of VEVYE (cyclosporine ophthalmic solution) 0.1 %, an ophthalmic drug product, for the U.S. 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 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. The Company accounted for the VEVYE Acquisition as an acquisition of assets and capitalized the initial payments of $ 8,000,000 and costs of $ 70,000 associated with the transaction. Acquisition of Certain U.S. and Canadian Commercial Rights to Santen and Eyevance Products In July 2023, the Company entered into an Asset Purchase Agreement with Eyevance Pharmaceuticals, LLC and a License Agreement with Santen S.A.S. (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”): FLAREX, NATACYN, ZERVIATE, VERKAZIA and FRESHKOTE in the U.S., and VERKAZIA and CATIONORM PLUS in Canada. The transactions pursuant to the Santen Agreements are referred to in these notes as the “Santen Products Acquisition.” Under the terms of the Santen Agreements, the Company made an initial one-time payment of $ 8,000,000 . In addition, the Santen Agreements provide for various one-time contingent 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 ZERVIATE. Immediately following the closing and subject to certain conditions, prior to the transfer of the Santen Products NDAs and other marketing authorizations to the Company, Santen continued 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. In October 2023, we completed the transfer of the U.S. NDAs and rights of the Santen Products. The assets acquired in the Santen Products Acquisition are identifiable intangible asset groups in similar asset classes and all directly related to the product NDAs and marketing authorizations acquired. The developed technology is within one major intangible asset class. No workforce/employees were included in the Santen Products Acquisition and the Company is required to utilize its own business inputs/processes to transfer and commercialize the Santen Products. F- 20 The Company incurred $ 139,000 in costs associated with the Santen Products Acquisition, and including such acquisition costs, the payment of $ 8,000,000 at closing and a near term milestone of $ 500,000 . The total purchase price of the Santen Products Acquisition was $ 8,639,000 and was accounted for as an asset acquisition. At the time of the Santen Products Acquisition and as of December 31, 2023, the remaining contingent consideration due was not considered probable and reasonably estimable and therefore, no amount was included in the purchase price of the Santen Products Acquisition. At the time the contingent consideration due 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. Acquisition of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX, and TRIESENCE In December 2022, the Company entered into an Asset Purchase Agreement (the “NVS 5 APA”) with Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”), pursuant to which the Company agreed to purchase from Novartis the exclusive commercial rights to assets associated with the following ophthalmic products (collectively the “NVS 5 Products”) in the U.S. (the “NVS 5 Acquisition”): ILEVRO, NEVANAC, VIGAMOX, MAXIDEX, and TRIESENCE. Under the terms of the NVS 5 APA, the Company made a one-time payment of $ 130,000,000 at closing in January 2023, with up to another $ 45,000,000 due in a milestone payment related to the timing of the commercial availability of TRIESENCE. The milestone payment due upon commercial availability for TRIESENCE decreased from $ 45,000,000 to $ 37,000,000 on January 20, 2024. Pursuant to the NVS 5 APA and various ancillary agreements, immediately following the closing and subject to certain conditions and prior to the transfer of the NVS 5 Products NDAs to the Company, Novartis continued to sell the NVS 5 Products on the Company’s behalf and transfer the net profit from the sale of the NVS 5 Products to the Company. Novartis has agreed to supply certain NVS 5 Products to the Company for a period of time after the NDAs are transferred and to assist with technology transfer of the NVS 5 Products manufacturing to other third-party manufacturers, if needed. The assets acquired in the NVS 5 Acquisition are identifiable intangible asset groups in similar asset classes and all directly related to the five product NDAs acquired. The developed technology is within one major intangible asset class. No workforce/employees were included in the NVS 5 Acquisition and the Company is required to utilize its own business inputs/processes to transfer and commercialize the NVS 5 Products and NDAs. The Company incurred $ 558,000 in costs associated with the NVS 5 Acquisition and including such acquisition costs and the payment of $ 130,000,000 at closing. The total purchase price of the NVS 5 Acquisition was $ 130,558,000 and was accounted for as an asset acquisition. At the time of the NVS 5 Acquisition and as of December 31, 2023, the contingent consideration due related to the commercial availability of TRIESENCE was not considered probable and reasonably estimable and, therefore, no amount was included in the purchase price of the NVS 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 . Divestiture of Non-Ophthalmic Assets In 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 nine 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 estimable. The Company is currently engaged in discussions with RPC related to the contingent payment amount, if any. F- 21 In connection with the RPC Agreement, Imprimis entered into a separate transition services agreement (the “RPC TSA”) 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 consolidated balance sheet as of December 31, 2023 includes accounts receivable of $ 49,000 for cash to be collected on behalf of the Buyer for sales of RPC Assets through December 31, 2023. There were no amounts due from the Buyer for reimbursement of services performed under the RPC TSA as of December 31, 2023. The receivable amount of $ 49,000 along with $ 8,000 of payments received from accounts receivable but not yet paid were recorded within accounts payable and accrued expenses on the consolidated balance sheet as of December 31, 2023, and represents a payable to the Buyer of $ 57,000 . The Company recorded a loss from the RPC TSA and disposition and sale of certain related assets and unusable inventory of $ 330,000 during the year ended December 31, 2023, which is presented in other expense, net on the consolidated statements of operations. The Company determined that the disposal of the related net assets does not qualify for reporting as discontinued operations because it does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results. During the year ended December 31, 2022, the Company recognized a net gain on the sale of the non-ophthalmology related compounding assets as follows: SCHEDULE OF NET GAIN ON SALE OF ASSETS Gross consideration $ 6,000,000 Closing and transaction costs 55,000 Net proceeds 5,945,000 Book value of assets transferred: Customer relations intangible asset 686,000 Gain on sale of non-ophthalmology assets $ 5,259,000 License and Supply Agreement for IHEEZO In July 2021, the Company entered into a License and Supply Agreement (the “Sintetica Agreement”) with Sintetica S.A. (“Sintetica”), pursuant to which Sintetica granted the Company the exclusive license and marketing rights to its patented ophthalmic drug candidate (“IHEEZO”) in the U.S. and Canada. Pursuant to the Sintetica Agreement, the Company agreed to pay Sintetica a per unit transfer price to supply IHEEZO, along with a per unit royalty for units sold. The Company is required to pay Sintetica up to $ 18,000,000 in one-time milestone payments including a $ 5,000,000 payment (the “Upfront Payment”) due within 30 days of signing the Sintetica Agreement and the balance of payments due upon achievement of certain regulatory and commercial milestones. Under the terms of the Sintetica Agreement, Sintetica is responsible for regulatory filings for IHEEZO in the U.S. The Upfront Payment along with an additional milestone payment of $ 3,117,000 was paid and recorded as R&D expenses during the year ended December 31, 2021. During the year ended December 31, 2022, $ 10,000,000 was paid or accrued under the Sintetica Agreement following the FDA approval of the United States NDA for IHEEZO, and was capitalized as an intangible asset. In August 2023, the Company amended the Sintetica Agreement to allow for early payment of commercial related milestones associated with sales of IHEEZO in exchange for a $ 550,000 reduction in all of the remaining milestone amounts due. The Company then paid Sintetica $ 4,450,000 . As of December 31, 2023, no milestone amounts are due under the Sintetica Agreement. Subject to certain limitations, the Sintetica Agreement has a ten-year term, and allows for a ten-year extension if certain sales thresholds are met. F- 22 NOTE 5. INVESTMENT IN MELT PHARMACEUTICALS, INC. AND AGREEMENTS – RELATED PARTY TRANSACTIONS In December 2018, the Company entered into an asset purchase agreement with Melt (the “Melt APA”). Pursuant to the terms of the Melt APA, Melt was assigned certain intellectual property and related rights from the Company to develop, formulate, make, sell, and sub-license certain Company conscious sedation and analgesia related formulations (collectively, the “Melt Products”). Under the terms of the Melt APA, Melt is required to make mid-single digit royalty payments to the Company on net sales of the Melt Products while any patent rights remain outstanding, as well as other conditions. In February 2019, the Company entered into the Melt MSA, whereby the Company provided to Melt certain administrative services and support, including bookkeeping, web services and human resources related activities, and Melt was required to pay the Company a monthly amount of $ 10,000 . The Melt MSA was terminated effective July 1, 2023. During the year ended December 31, 2023, and 2022, the Company recorded $ 89,000 and $ 91,000 , 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 consolidated balance sheets. As of December 31, 2023 and 2022, the Company was due $ 228,000 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 year ended December 31, 2022. The Company made a cash advance to Melt of $ 500,000 and Melt repaid the $ 500,000 cash advance during the year ended December 31, 2023. During the year ended December 31, 2023, Melt sold 2,421,904 shares of its Series B Preferred Stock and raised over $ 20,586,000 in gross proceeds from third party investors. The Company’s Chief Executive Officer, Mark L. Baum, was previously a member of the Melt board of directors until his resignation during the year ended December 31, 2021. Mr. Baum re-joined the Melt board of directors in January 2023. At the time Mr. Baum re-joined, the Melt board of directors consisted of five members, including Mr. Baum, who is the only representative of the Company on Melt’s board of directors. Melt Note Receivable – Settled and Terminated in 2023 On September 1, 2021, the Company entered into a loan and security agreement in the principal amount of $ 13,500,000 (the “Melt Loan Agreement”), as lender, with Melt, as borrower. Amounts borrowed under the Melt Loan Agreement bore interest at 12.50 % per annum, which interest could have been paid in-kind at the option of Melt until the maturity date. The Melt Loan Agreement permitted Melt to pay interest only on the principal amount loaned thereunder through the term and all amounts owed were previously due and payable on September 1, 2022. In April 2022, the Company entered into a First Amendment and in September 2022, a Second Amendment (together, the “Amendments”) to the Melt Loan Agreement. The Amendments (i) extended the maturity date of the Melt Loan Agreement to September 1, 2023, which could have been extended further to September 1, 2026 upon Melt completing a qualifying financing of a minimum amount of $ 10,000,000 from third-party investors, (ii) added conditions related to minimum cash amounts following a qualifying financing, and (iii) clarified the definition of material adverse effects. Melt could have elected to prepay all, but not less than all, of the amounts owed prior to the maturity date at any time without penalty. The net funds received by Melt excluded $ 908,000 owed to the Company for reimbursable expenses and amounts due under the Melt MSA prior to the effective date of the note receivable. In connection with the Melt Loan Agreement, the Company and Melt entered into a Right of First Refusal Agreement providing the Company with the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to any of Melt’s drug candidates for a period of five years following the effective date of the Melt Loan Agreement. On December 28, 2023, the Company terminated the Melt Loan Agreement. As of the date of termination, approximately $ 18,395,000 remained outstanding under the Melt Loan Agreement. Pursuant to the terms of a Settlement and Payoff Agreement, dated as of December 28, 2023, by and between the Company and Melt (the “Settlement Agreement”), the Company received 2,260,000 shares of Melt’s Series B-1 Preferred Stock and 74,256 shares of Melt’s Series B Preferred Stock (which both series have similar rights and preferences) in consideration for the full payment of all amounts outstanding under the Melt Loan Agreement. The Settlement Agreement contains customary representations, warranties and releases of the parties and requires the parties to enter into a registration rights agreement providing the Company with rights consistent with other holders of preferred stock of Melt. The Company concluded the Settlement Agreement is in substance a funding of the Company’s share of prior unrecorded losses and, therefore, those suspended losses must be recognized first against the value of the new preferred stock investments. This resulted in reducing the carrying value of the Company’s investment in Melt, including the carrying value of the Preferred Stock received, to zero (the consideration received in the form of an equivalent fair value of Melt’s Preferred Stock to settle the full outstanding note receivable balance of $ 18,400,000 is essentially offset by an equal amount of the funding of prior unrecorded losses). Accordingly, this settlement transaction had no quantitative effect on either the Company’s consolidated balance sheet or consolidated statement of operations for the year ended December 31, 2023. F- 23 In accordance with ASC 323, Investments – Equity Method and Joint Ventures , the carrying amount of the note receivable and other investments in Melt have been reduced by the Company’s allocated share of Melt’s losses based on its ownership of Melt and its total indebtedness (see Note 2). The unaudited condensed results of operations information of Melt is summarized below: SCHEDULE OF CONDENSED INCOME STATEMENT For the Years Ended December 31, 2023 2022 Revenues, net $ - $ - Loss from operations $ ( 7,581,000 ) $ ( 12,443,000 ) Net loss $ ( 11,271,000 ) $ ( 14,446,000 ) The unaudited condensed balance sheet information of Melt is summarized below: SCHEDULE OF CONDENSED BALANCE SHEET December 31, 2023 2022 Current assets $ 13,404,000 $ 655,000 Non-current assets - 107,000 Total assets $ 13,404,000 $ 762,000 Total liabilities $ 3,922,000 $ 19,056,000 Total preferred stock and stockholders’ equity (deficit) 9,482,000 ( 18,294,000 ) Total liabilities and stockholders’ equity $ 13,404,000 $ 762,000 NOTE 6. INVESTMENT IN SURFACE OPHTHALMICS, INC. AND AGREEMENTS - RELATED PARTY TRANSACTIONS The Company entered into an asset purchase and license agreement with Surface in 2017 and amended it in April 2018 (the “Surface License Agreements”). Pursuant to the terms of the Surface License Agreements, the Company assigned and licensed to Surface certain intellectual property and related rights associated with Surface’s drug candidates (collectively, the “Surface Products”). Surface is required to make mid-single digit royalty payments to the Company on net sales of the Surface Products while any patent rights remain outstanding. As of December 31, 2023, the Company owned 3,500,000 shares of Surface common stock. Adrienne Graves and Perry J. Sternberg, directors of the Company, also are directors of Surface. Mark L. 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. 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 requirements to advance funds to Surface and no obligations to fund its future operating losses, if any. Therefore, the Company’s future financial results will not be negatively affected by Surface’s ongoing operations. F- 24 NOTE 7. INVENTORIES Inventories are comprised of finished compounded formulations, over-the-counter and prescription retail pharmacy products, branded pharmaceutical products, including those held at the Company’s 3PL partner, related laboratory supplies and active pharmaceutical ingredients. The composition of inventories as of December 31, 2023 and 2022 was as follows: SCHEDULE OF INVENTORIES December 31, 2023 2022 Raw materials $ 5,477,000 $ 3,707,000 Work in progress 54,000 38,000 Finished goods 5,336,000 2,796,000 Total inventories $ 10,867,000 $ 6,541,000 NOTE 8. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets at December 31, 2023 and 2022 consisted of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2023 2022 Prepaid insurance $ 1,241,000 $ 858,000 Prepaid computer software related expenses 1,613,000 1,165,000 Other prepaid expenses 906,000 937,000 Receivable due from Melt 228,000 139,000 Prepaid PDUFA fees 3,438,000 394,000 Deferred Oaktree commitment fee (see Note 13) 409,000 - Deposits and other current assets 1,753,000 118,000 Total prepaid expenses and other current assets $ 9,588,000 $ 3,611,000 NOTE 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net at December 31, 2023 and 2022 consisted of the following: SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT December 31, 2023 2022 Property, plant and equipment, net: Computer hardware $ 1,322,000 $ 979,000 Furniture and equipment 936,000 860,000 Lab and pharmacy equipment 4,564,000 4,259,000 Leasehold improvements 6,771,000 6,449,000 Property, plant and equipment, gross 13,593,000 12,547,000 Accumulated depreciation and amortization ( 10,072,000 ) ( 9,061,000 ) Property, plant and equipment, net $ 3,521,000 $ 3,486,000 During the years ended December 31, 2023 and 2022, the Company disposed of property, plant and equipment with a net book value of $ 168,000 and $ 69,000 , respectively, related to the discontinued use of certain lab equipment, which is included in other expense, net in the consolidated statements of operations. The Company recorded depreciation and amortization expense of $ 1,055,000 and $ 1,253,000 during the years ended December 31, 2023 and 2022, respectively. F- 25 NOTE 10. CAPITALIZED SOFTWARE COSTS Capitalized software costs at December 31, 2023 and 2022 consisted of the following: SCHEDULE OF CAPITALIZED SOFTWARE COSTS December 31, 2023 2022 Capitalized software costs Capitalized internal-use software development costs $ 2,780,000 $ 1,413,000 Acquired third-party software license for internal-use 159,000 159,000 Total gross capitalized software for internal-use 2,939,000 1,572,000 Accumulated amortization ( 1,268,000 ) ( 793,000 ) Capitalized internal-use software in process 467,000 1,333,000 Total capitalized software costs net $ 2,138,000 $ 2,112,000 The Company recorded amortization expense of $ 475,000 and $ 224,000 during the years ended December 31, 2023 and 2022, respectively. NOTE 11. INTANGIBLE ASSETS AND GOODWILL The Company’s intangible assets at December 31, 2023 consisted of the following: SCHEDULE OF INTANGIBLE ASSETS Amortization Net periods Accumulated Carrying (in years) Cost amortization Impairment value Patents 7 - 19 years $ 984,000 $ ( 253,000 ) $ ( 276,000 ) $ 455,000 Licenses 7 - 20 years 100,000 ( 30,000 ) ( 22,000 ) 48,000 Trademarks Indefinite 281,000 - ( 82,000 ) 199,000 Acquired NDAs 4 - 15 years 170,353,000 ( 11,300,000 ) - 159,053,000 Customer relationships 3 - 15 years 596,000 ( 516,000 ) - 80,000 Trade name 5 years 75,000 ( 5,000 ) - 70,000 Non-competition clause 3 - 4 years 50,000 ( 50,000 ) - - State pharmacy licenses 25 years 8,000 ( 7,000 ) - 1,000 $ 172,447,000 $ ( 12,161,000 ) $ ( 380,000 ) $ 159,906,000 During the year ended December 31, 2023, the Company recorded a charge of $ 380,000 related to the impairment of certain licenses, trademarks, patents and patent applications. The Company determined that the sum of the expected undiscounted cash flows attributable to these intangible assets was less than their carrying value and that an impairment charge was required. Accordingly, the Company calculated the estimated fair value of the intangible assets based on the present value of the expected cash flows over their estimated lives. The impairment amount was calculated by deducting the present value of the expected cash flows from the carrying value. Significant estimates and assumptions used by the Company included sales and expense growth rates, and discounted projected cash flows. The estimates and assumptions used in our assessment represent a Level 3 measurement because they are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. The assumptions used in the impairment analysis are inherently subject to uncertainty and, therefore, changes in these assumptions could have a significant impact on the concluded fair value. F- 26 The Company’s intangible assets at December 31, 2022 consisted of the following: Amortization Net periods Accumulated Carrying (in years) Cost amortization Sold value Patents 7 - 19 years $ 980,000 $ ( 161,000 ) $ - $ 819,000 Licenses 20 years 100,000 ( 23,000 ) - 77,000 Trademarks Indefinite 267,000 - - 267,000 Acquired NDAs 10 years 23,720,000 ( 1,363,000 ) - 22,357,000 Customer relationships 3 - 15 years 1,519,000 ( 759,000 ) ( 626,000 ) 134,000 Trade name 5 years 75,000 ( 5,000 ) - 70,000 Non-competition clause 3 - 4 years 50,000 ( 50,000 ) - - State pharmacy licenses 25 years 8,000 ( 7,000 ) - 1,000 $ 26,719,000 $ ( 2,368,000 ) $ ( 626,000 ) $ 23,725,000 During the year ended December 31, 2022, the Company recorded a net reduction to customer relationships intangible assets of $ 626,000 related to customer relationships that were associated with the non-ophthalmology assets sold by the Company. The amount was reflected net of the gross proceeds received related to the sale of the Company’s non-ophthalmology assets (see Note 4). See Note 4 related to other intangible assets acquired and divested during the years ended December 31, 2023 and 2022. Amortization expense for intangible assets for the years ended December 31, 2023 and 2022 were as follows: SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS For the Years Ended December 31, 2023 2022 Patents $ 84,000 $ 86,000 Licenses 7,000 16,000 Acquired NDAs 9,937,000 1,363,000 Customer relationships 54,000 113,000 Amortization of intangible assets $ 10,082,000 $ 1,578,000 Estimated future amortization expense for the Company’s intangible assets at December 31, 2023 is as follows: SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE Years ending December 31, 2024 $ 13,658,000 2025 13,658,000 2026 13,658,000 2027 13,309,000 2028 12,961,000 Thereafter 92,463,000 Intangible assets $ 159,707,000 There were no changes in the carrying value of the Company’s goodwill during the years ended December 31, 2023 and 2022. NOTE 12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 2023 and 2022 consisted of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2023 2022 December 31, 2023 2022 Accounts payable $ 21,424,000 $ 6,440,000 Accrued insurance premium 873,000 575,000 Accrued IHEEZO milestone payments (see Note 4) - 5,000,000 Accrued RPC transition payments (see Note 4) 57,000 453,000 Accrued exit fee for note payable (see Note 13) 2,713,000 - Accrued litigation settlements 249,000 49,000 Accrued interest (see Note 13) 1,978,000 1,254,000 Total accounts payable and accrued expenses $ 27,294,000 $ 13,771,000 Less: current portion ( 24,581,000 ) ( 13,771,000 ) Non-current total accrued expenses $ 2,713,000 $ - F- 27 The Company financed all insurance policies for the policy terms of August 17, 2023 through August 16, 2024 and August 17, 2022 through August 16, 2023. The financing agreements have an interest rate of 7.48 % and 4.13 % per annum, respectively, and require nine monthly payments of $ 169,000 and eight monthly payments of $ 114,000 , respectively. NOTE 13. DEBT Oaktree Loan Due 2026 In 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 $ 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 “B. Riley Loan”) – see subheading B. Riley Loan and Security Agreement – Paid in Full within this Note 13. 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 will be decreased to $ 30,000,000 . While undrawn, the Company is required to pay a commitment fee related to Tranche B amount equal to 2 % per annum, payable quarterly. This fee is recorded within prepaid expenses and other current assets and is being amortized on a straight-line basis over the access period. The Oaktree Loan is secured by nearly all of the assets, including intellectual property, of the Company and its material subsidiaries. The Oaktree Loan has a maturity date of January 19, 2026 and carries an interest rate equal to the Secured Overnight Financing Rate plus 6.5 % per annum (totaling 11.83 % at December 31, 2023). From proceeds, the Company paid fees, offering expenses, and the Oaktree Loan was issued at an original issue discount, resulting in an aggregate discount of $ 3,415,000 . The Oaktree Loan also carries an exit fee equal to 3.5 % of the aggregate principal amount owed, payable at maturity, 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. The Oaktree Loan requires quarterly interest-only payments with all of the unpaid principal, interest and fees due on the maturity date, January 19, 2026. In July 2023, the Company entered into the First Amendment to the Oaktree Loan (the “Oaktree Amendment”). 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 (see Note 4). 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 made pursuant to 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. The Oaktree Loan exit fee was increased from $ 2,275,000 to $ 2,713,000 pursuant to the Oaktree Amendment. As of December 31, 2023, the Company has recorded in accrued expenses the total exit fee liability of $ 2,713,000 . The Oaktree Loan contains customary guarantees and covenants, including financial covenants related to minimum liquidity and minimum net revenues. As of December 31, 2023, the Company was in compliance with the financial covenants. As of the end of the fiscal quarter ending December 31, 2024, if the Company’s Total Leverage Ratio (as defined in the Oaktree Loan) is greater than or equal to five times, but less than seven times, the Company will be required to issue to Oaktree warrants to purchase 375,000 shares of the Company’s common stock, and if the Total Leverage Ratio is greater than or equal to seven times, the Company will be required to issue to Oaktree warrants to purchase an additional 375,000 shares of the Company’s common stock (equaling 750,000 shares in aggregate). If the Total Leverage Ratio as of the end of the fiscal quarter ending December 31, 2024 is less than five times, no warrants will be issued to Oaktree. Based on current projections, the Company does not expect to issue any warrants related to the Oaktree Loan. F- 28 Interest expense related to the Oaktree Loan totaled $ 8,804,000 for the year ended December 31, 2023, and included the amortization of debt issuance costs and discount of $ 1,680,000 and amortization of deferred commitment fees of $ 543,000 . HROWM - 11.875% Senior Notes Due 2027 In December 2022 and in January 2023, the Company closed an offering of $ 35,000,000 and $ 5,250,000 , respectively, aggregate principal amount of 11.875 % senior notes due in December 2027 (the “2027 Notes”). The 2027 Notes were sold to investors at a par value of $ 25.00 per 2027 Note, and the offering resulted in net proceeds to the Company of approximately $ 36,699,000 after deducting underwriting discounts and commissions and other offering expenses of $ 3,551,000 . The 2027 Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated indebtedness. The 2027 Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The 2027 Notes bear interest at the rate of 11.875 % per annum. Interest on the 2027 Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on January 31, 2023. The 2027 Notes will mature on December 31, 2027 . The issuance costs were recorded as a debt discount and are being amortized as interest expense over the term of the 2027 Notes using the effective interest rate method . At any time prior to December 31, 2024, the Company may, at its option, redeem the 2027 Notes, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus a make-whole amount, if any, plus accrued and unpaid interest to, but excluding, the date of redemption. The Company may redeem the 2027 Notes for cash in whole or in part at any time at its option (i) on or after December 31, 2024 and prior to December 31, 2025, at a price equal to $25.50 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, (ii) on or after December 31, 2025 and prior to December 31, 2026, at a price equal to $25.25 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, and (iii) on or after December 31, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, the Company is required to redeem the 2027 Notes, for cash, in whole but not in part, at the price of $25.50 per note, plus accrued and unpaid interest to, but excluding, the date of redemption, upon occurrence of certain events including 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.” Interest expense related to the 2027 Notes totaled $ 5,516,000 and $ 140,000 for the years ended December 31, 2023 and 2022, respectively, and included the amortization of debt issuance costs and discount of $ 736,000 and $ 0 , respectively. Our Chief Executive Officer, Mark L. Baum, Chief Financial Officer, Andrew R. Boll, and former directors R. Lawrence Van Horn and Dr. Richard Lindstrom, in the aggregate, purchased $ 950,000 in principal amount of the 2027 Notes at the time of their offering. F- 29 HROWL – 8.625% Senior Notes Due 2026 In April 2021, the Company closed an offering of $ 50,000,000 aggregate principal amount of 8.625 % senior notes due April 2026, and in May 2021 issued an additional $ 5,000,000 of such notes pursuant to the full exercise of the underwriters’ option to purchase additional notes (collectively, the “April Notes”). The April Notes were sold to investors at a par value of $ 25.00 per April Note and the offering resulted in net proceeds to the Company of approximately $ 51,909,000 after deducting underwriting discounts and commissions and other offering expenses of $ 3,091,000 . In September 2021, in a further issuance of the April Notes, the Company sold an additional $ 20,000,000 aggregate principal amount of such notes (the “September Notes,” and together with the April Notes, the “2026 Notes”), at a price of $ 25.75 per September Note, with interest of $ 278,000 on the September Notes being accrued from April 20, 2021, the date of issuance of the April Notes. The September offering resulted in net proceeds to the Company of approximately $ 19,164,000 after deducting underwriting discounts and commissions and other offering expenses of $ 1,158,000 and a premium on note issuance of $ 322,000 . The September Notes are treated as a single series with the April Notes under the indenture governing the April Notes, dated as of April 20, 2021, and have the same terms as the April Notes (other than the initial offering price and issue date). The 2026 Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of our other existing and future senior unsecured and unsubordinated indebtedness. The 2026 Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The 2026 Notes bear interest at a rate of 8.625 % per annum. Interest on the 2026 Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on July 31, 2021. The 2026 Notes will mature on April 30, 2026 . The issuance costs were recorded as a debt discount and are being amortized as interest expense, net of the amortization of the premium on note issuance, over the term of the 2026 Notes using the effective interest rate method . Prior to February 1, 2026, the Company may, at its option, redeem the 2026 Notes, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed , plus a make-whole amount, if any, plus accrued and unpaid interest to, but excluding, the date of redemption. The Company may redeem the 2026 Notes for cash in whole or in part at any time at our option on or after February 1, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Notes. The 2026 Notes trade on the Nasdaq Stock Market LLC under the symbol “HROWL”. Interest expense related to the 2026 Notes totaled $ 7,251,000 and $ 7,238,000 for the years ended December 31, 2023 and 2022, respectively, and included amortization of debt issuance costs and discount of $ 782,000 , and $ 782,000 for the years ended December 31, 2023 and 2022, respectively. B. Riley Loan and Security Agreement – Paid in Full On December 14, 2022 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “BR Loan”) with B. Riley Commercial Capital, LLC, as administrative agent for the lenders. The BR Loan provided for a loan facility of up to $ 100,000,000 to the Company with a maturity date of December 14, 2025 (the “Maturity Date”), at an interest rate of 10.875 % per annum. In January 2023, $ 59,750,000 of principal amount was funded pursuant to the BR Loan simultaneously with the consummation of the NVS 5 Acquisition (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. Interest expense related to the BR Loan totaled $ 1,565,000 for the year ended December 31, 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. A summary of the Company’s debt at December 31, 2023 and 2022 is described as follows: SCHEDULE OF LONG TERM DEBT December 31, December 31, 2023 2022 8.625% Senior Notes due April 2026 $ 75,000,000 $ 75,000,000 11.875% Senior Notes due December 2027 40,250,000 35,000,000 Oaktree Loan due January 2026 77,500,000 - Notes payable gross 192,750,000 110,000,000 Less: Unamortized debt discount and issuance costs ( 9,578,000 ) ( 5,826,000 ) Notes payable net $ 183,172,000 $ 104,174,000 F- 30 For the years ended December 31, 2023 and 2022, the total effective interest rate of the Company’s debt was 10.93 %, and 8.97 %, respectively . At December 31, 2023, future minimum payments under the Company’s debt were as follows: SCHEDULE OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES Amount 2024 $ 21,201,000 2025 20,590,000 2026 159,896,000 2027 45,030,000 Total minimum payments 246,717,000 Less: amount representing interest payments ( 53,967,000 ) Notes payable, gross 192,750,000 Less: unamortized discount, net of premium ( 9,578,000 ) Notes payable, net of unamortized discount $ 183,172,000 NOTE 14. LEASES The Company leases office and laboratory space under the non-cancelable operating leases listed below. These lease agreements have remaining terms between one to five years and contain various clauses for renewal at the Company’s option. ● An operating lease for 5,789 square feet of office space in Carlsbad, California, which commenced in January 2022 that expires in March 2025 . ● An operating lease for 38,153 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 periods. This lease was amended, effective July 2020, to extend the term of the original lease and add 1,400 of additional square footage to the lease, amended again in May 2021 to extend the term of the lease to July 2027 and add 8,900 square feet of space, and amended in May 2023 to add another 2,861 square feet of space to the existing lease, which the Company took possession of in January 2024. ● An operating lease for 5,500 square feet of office space in Nashville, Tennessee that expires in December 2024 . ● An operating lease for 11,552 square feet of lab and office space in Nashville, Tennessee which commenced in September 2022 and expires in September 2027 . At December 31, 2023 and 2022, the weighted-average discount rate and the weighted-average remaining lease term for the operating leases held by the Company were 6.6 % and 6.6 % and 10.4 years and 10.9 years, respectively. During the years ended December 31, 2023 and 2022, cash paid for amounts included for the operating lease liabilities was $ 1,231,000 and $ 925,000 , respectively, and the Company recorded operating lease expense of $ 1,232,000 and $ 1,117,000 , respectively, included in selling, general and administrative expenses. Future lease payments under operating leases as of December 31, 2023 were as follows (excluding lease transactions entered into in 2024) : SCHEDULE OF FUTURE LEASE PAYMENT UNDER OPERATING LEASES Operating Leases 2024 $ 1,261,000 2025 1,093,000 2026 1,114,000 2027 972,000 2028 657,000 Thereafter 5,173,000 Total minimum lease payments 10,270,000 Less: amount representing imputed interest payments ( 2,940,000 ) Total operating lease liabilities 7,330,000 Less: current portion, operating lease liabilities ( 806,000 ) Operating lease obligations, net of current portion $ 6,524,000 F- 31 NOTE 15. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Preferred Stock At December 31, 2023 and 2022, the Company had 5,000,000 shares of preferred stock, $ 0.001 par value, authorized and no shares of preferred stock issued and outstanding. Common Stock At each of December 31, 2023 and 2022, the Company had 50,000,000 shares of common stock, $ 0.001 par value, authorized. Issuances During the Year Ended December 31, 2023 During the year ended December 31, 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 net proceeds of $ 64,520,000 , after deducting underwriting discounts and commissions and other offering expenses of $ 4,480,000 ; ● 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 (the “PSU Agreements”) previously issued to members of the Company’s management team in 2021 (the “2021 Awards”). 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: (i) the percent increase of the closing price of the Company’s common stock from July 22, 2021; and (ii) any dividends or like stockholder distributions as specified in the PSU Agreements. In connection with the settlement of the 2021 Awards, an aggregate of 616,984 shares of the Company’s common stock was withheld by Harrow for payroll tax obligations totaling $ 11,273,000 ; ● the Company issued 168,963 shares of its common stock underlying RSUs held by directors that ceased providing services to the Company. The RSUs had previously vested, including 21,620 RSUs during the year ended December 31, 2023, but the issuance and delivery of the shares were deferred until the director ceased providing services to the Company; ● the Company issued 65,148 shares of common stock and received proceeds of $ 379,000 upon the exercise of options to purchase 65,148 shares of common stock with exercise prices ranging from $ 1.70 to $ 8.50 per share; ● 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 ; F- 32 ● 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 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 Company issued 10,222 shares of common stock to John Saharek, the Company’s Chief Commercial Officer, upon the cashless exercise of options to purchase 20,000 shares at an exercise price of $ 4.16 per share. The Company withheld from Mr. Saharek 6,485 shares as consideration for the cashless exercise and an additional 3,293 shares for payroll tax obligations totaling $ 41,000 ; ● 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 ; ● 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 ; and ● 43,023 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares were deferred until the applicable director ceased providing services to the Company. Issuances During the Year Ended December 31, 2022 During the year ended December 31, 2022: ● the Company issued 53,594 shares of common stock to Mark L. Baum, the Company’s Chief Executive Officer, upon the cashless exercise of options to purchase 125,000 shares at an exercise price of $ 2.40 per share. The Company withheld from Mr. Baum 36,014 shares as consideration for the cashless exercise and an additional 35,392 shares for payroll tax obligations totaling $ 295,000 ; ● the Company issued 306,347 shares of its common stock upon the cashless exercise of warrants to purchase 373,847 shares of common stock with an exercise price of $ 2.08 per share; ● the Company issued 4,054 shares of common stock to a consultant upon the cashless exercise of options to purchase 15,995 shares at an exercise price of $ 7.07 per share. The Company withheld 11,941 shares as consideration for the cashless exercise ; ● the Company issued 15,625 shares of common stock to a consultant and received net proceeds of $ 55,000 upon the exercise of options to purchase 15,625 shares of common stock at an exercise price of $ 3.50 per share ; ● the Company issued 132,100 shares of common stock and received net proceeds of $ 587,000 upon the exercise of options to purchase 132,100 shares of common stock with exercise prices between $ 1.70 to $ 8.40 per share ; ● 185,000 RSUs granted at various dates to employees of the Company vested, and the Company issued 110,621 shares of common stock to the employees, net of 74,379 shares of common stock withheld for payroll tax withholdings totaling $ 581,000 ; and ● 35,693 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares are deferred until the applicable director resigns . F- 33 Stock Option Plan On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended, the “2007 Plan”). The 2007 Plan reached its term in September 2017, and we can no longer issue additional awards under this plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or are otherwise cancelled/forfeited. On June 13, 2017, the Company’s Board of Directors and stockholders adopted the Company’s 2017 Incentive Stock and Awards Plan which was subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together with the 2007 Plan, the “Plans”). As of December 31, 2023, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares of the Company’s common stock. The purpose of the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted stock units and restricted stock. The Plans are administered by the Compensation Committee of the Company’s Board of Directors. The Company had 405,612 shares available for future issuances under the 2017 Plan at December 31, 2023. Stock Options A summary of stock option activity under the Plan for the year ended December 31, 2023 is as follows: SCHEDULE OF STOCK OPTION PLAN ACTIVITY Number of shares Weighted Avg. Exercise Price Weighted Avg. Remaining Contractual Life Aggregate Intrinsic Value Options outstanding – January 1, 2023 3,027,701 $ 5.90 Options granted 135,500 $ 17.81 Options exercised ( 355,148 ) $ 7.36 Options cancelled/forfeited ( 96,736 ) $ 7.49 Options outstanding – December 31, 2023 2,711,317 $ 6.25 4.00 $ 14,303,000 Options exercisable 2,432,826 $ 5.55 3.45 $ 13,760,000 Options vested and expected to vest 2,673,670 $ 6.15 3.93 $ 14,243,000 A summary of stock option activity under the Plan for the year ended December 31, 2022 is as follows: Number of shares Weighted Avg. Exercise Price Weighted Avg. Remaining Contractual Life Aggregate Intrinsic Value Options outstanding – January 1, 2022 3,039,546 $ 5.52 Options granted 351,250 $ 7.71 Options exercised ( 288,720 ) $ 3.65 Options cancelled/forfeited ( 74,375 ) $ 7.46 Options outstanding – December 31, 2022 3,027,701 $ 5.90 4.48 $ 26,822,000 Options exercisable 2,457,769 $ 5.51 3.97 $ 22,731,000 Options vested and expected to vest 3,026,942 $ 5.90 4.48 $ 26,817,000 The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on December 31, 2023 and 2022, based on the closing price of the Company’s common stock of $ 11.20 and $ 14.76 , respectively, on that date. The intrinsic value of the options exercised in 2023 and 2022 was $ 4,580,000 and $ 2,008,000 , respectively. F- 34 During the year ended December 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 10 years. Vesting terms for options granted to employees during the year ended December 31, 2023 generally included one of the following vesting schedules: 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; and 100% of the shares subject to the option vest on a quarterly basis in equal installments over three years . Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans) and in the event of certain modifications to the option award agreement. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The Company calculates expected volatility based solely on the historical volatilities of the common stock of the Company. The expected term of options granted was determined in accordance with the “simplified approach,” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and directors, the Company assigns a forfeiture factor of 10 %. These factors could change in the future, which would affect the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant. The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees: SCHEDULE OF FAIR VALUE ASSUMPTIONS 2023 2022 Weighted-average fair value of options granted $ 11.49 $ 4.72 Expected terms (in years) 6.11 6.11 Expected volatility 68 – 70 % 68 – 72 % Risk-free interest rate 3.59 – 4.80 % 1.54 – 3.70 % Dividend yield - - The following table summarizes information about stock options outstanding and exercisable at December 31, 2023: SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life in Years Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 1.47 - $ 1.73 295,852 3.95 $ 1.72 295,852 $ 1.72 $ 2.23 285,000 3.09 $ 2.23 285,000 $ 2.23 $ 2.40 - $ 2.60 24,068 3.02 $ 2.58 24,068 $ 2.58 $ 3.95 310,000 2.25 $ 3.95 310,000 $ 3.95 $ 4.49 - $ 5.72 100,225 5.47 $ 5.54 94,416 $ 5.53 $ 6.30 285,000 5.14 $ 6.30 285,000 $ 6.30 $ 6.75 - $ 7.26 103,312 8.04 $ 6.96 39,625 $ 6.96 $ 7.30 274,500 6.01 $ 7.30 274,500 $ 7.30 $ 7.37 - $ 7.79 229,187 3.99 $ 7.52 172,818 $ 7.50 $ 7.87 - $ 25.86 804,173 3.27 $ 9.59 651,547 $ 7.93 $ 1.47 - $ 25.86 2,711,317 4.00 $ 6.25 2,432,826 $ 5.55 F- 35 As of December 31, 2023, there was approximately $ 1,966,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is expected to be recognized over the weighted-average remaining vesting period of 2.77 years. The stock-based compensation for all stock options was $ 782,000 and $ 1,130,000 during the years ended December 31, 2023 and 2022, respectively. Performance Stock Units Grants During the Year Ended December 31, 2023 In 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 for ten consecutive trading days ranging between $ 25.00 to $ 50.00 per share, separated into four separate tranches as described further in the table below. SCHEDULE OF PERFORMANCE STOCK UNITS Tranche Number of Shares Target Share Price* Tranche 1 223,988 $ 25.00 Tranche 2 335,981 $ 35.00 Tranche 3 447,975 $ 45.00 Tranche 4 559,969 $ 50.00 * 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 Share Price. The 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. A summary of the Company’s PSU activity and related information for the year ended December 31, 2023 is as follows: SCHEDULE OF PERFORMANCE STOCK UNITS ACTIVITY Number of PSUs Weighted Average Grant Date Fair Value PSUs unvested – January 1, 2023 1,567,913 $ 6.45 PSUs granted 1,567,913 $ 18.56 PSUs vested ( 1,567,913 ) $ 6.45 PSUs cancelled/forfeited - $ - PSUs unvested – December 31, 2023 1,567,913 $ 18.56 Grants During the Year Ended December 31, 2022 No PSUs were issued during the year ended December 31, 2022. A summary of the Company’s PSU activity and related information for the year ended December 31, 2022 is as follows: Number of PSUs Weighted Average Grant Date Fair Value PSUs unvested – January 1, 2022 1,567,913 $ 6.45 PSUs granted - - PSUs vested - - PSUs cancelled/forfeited - - PSUs unvested – December 31, 2022 1,567,913 $ 6.45 F- 36 As of December 31, 2023, the total unrecognized compensation expense related to unvested PSUs was approximately $ 18,191,000 which is expected to be recognized over a weighted-average period of 1.26 years, based on estimated vesting schedules. The stock-based compensation for PSUs was $ 13,753,000 and $ 5,056,000 during the years ended December 31, 2023 and 2022, respectively. Restricted Stock Units RSU 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. Grants During the Year Ended December 31, 2023 During the year ended December 31, 2023, the Company’s board of directors were granted 41,301 time-based vesting RSUs with a fair market value of $ 800,000 , which vest in equal quarterly installments over one year. The Company also granted 86,873 time-based vesting RSUs with a fair market value of $ 697,000 to certain employees, which vest in full on the third anniversary of the grant date. A summary of the Company’s RSU activity and related information for the year ended December 31, 2023 is as follows: SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Number of RSUs Weighted Average Grant Date Fair Value RSUs unvested – January 1, 2023 493,806 $ 7.99 RSUs granted 128,174 $ 11.68 RSUs vested ( 175,643 ) $ 8.67 RSUs cancelled/forfeited ( 83,308 ) $ 6.84 RSUs unvested at December 31, 2023 363,029 $ 9.23 Grants During the Year Ended December 31, 2022 During the year ended December 31, 2022, the Company’s board of directors were granted 65,615 RSUs with a fair market value of $ 500,000 , which vest in equal quarterly installments over one year. A summary of the Company’s RSU activity and related information for the year ended December 31, 2022 is as follows: Number of RSUs Weighted Average Grant Date Fair Value RSUs unvested – January 1, 2022 665,288 $ 7.57 RSUs granted 65,615 $ 7.62 RSUs vested ( 237,098 ) $ 6.67 RSUs cancelled/forfeited - $ - RSUs unvested at December 31, 2022 493,806 $ 7.99 As of December 31, 2023, the total unrecognized compensation expense related to unvested RSUs was approximately $ 1,234,000 which is expected to be recognized over a weighted-average period of 0.68 years, based on estimated vesting schedules. The stock-based compensation for RSUs was $ 1,161,000 and $ 1,788,000 during the years ended December 31, 2023 and 2022, respectively. F- 37 The Company recorded total stock-based compensation (including issuance of common stock for services and accrual for stock-based compensation) related to equity instruments granted to employees, directors and consultants as follows: SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES, DIRECTORS AND CONSULTANTS 2023 2022 For the Year Ended December 31, 2023 2022 Employees – selling, general and administrative $ 13,279,000 $ 6,669,000 Employees – R&D 1,662,000 689,000 Directors – selling, general and administrative 688,000 462,000 Consultants – selling, general and administrative 67,000 154,000 Total $ 15,696,000 $ 7,974,000 NOTE 16. INCOME TAXES The Company is subject to taxation in the United States, California, New Jersey, Tennessee and various other states. The Company’s income tax provision consists of the following for the years ended December 31, 2023 and 2022 are summarized below: SCHEDULE OF PROVISION FOR INCOME TAXES 2023 2022 December 31, 2023 2022 Current: Federal $ - $ - State 701,000 75,000 Total current 701,000 75,000 Deferred: Federal - - State - - Total deferred - - Income tax provision $ 701,000 $ 75,000 A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s loss before income tax provision to the income tax provision is as follows: SCHEDULE OF INCOME TAX PROVISION 2023 2022 December 31, 2023 2022 U.S. federal statutory tax rate 21.00 % 21.00 % State tax benefit, net 0.77 % ( 2.82 )% Rate change ( 8.02 )% - % Employee stock-based compensation 19.93 % 1.34 % Excess employee remuneration ( 30.83 )% ( 28.15 )% Melt loan settlement ( 4.52 )% - % Other ( 0.43 )% ( 0.18 )% Uncertain tax positions ( 11.71 )% - % Research and development tax credit 0.53 % - % Provision-to-return true-ups 1.72 % 2.06 % Other true-ups 2.97 % - % Change in valuation allowance 5.71 % 6.22 % Effective income tax rate ( 2.88 )% ( 0.53 )% F- 38 Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2023 2022 December 31, 2023 2022 Deferred tax assets (liabilities): NOL $ 4,669,000 $ 9,401,000 Depreciation and amortization 1,637,000 2,387,000 Other 854,000 349,000 Research and development credits 220,000 90,000 Deferred stock compensation 1,059,000 945,000 Basis difference in Eton ( 583,000 ) ( 1,684,000 ) Basis difference in Melt investments 3.405,000 4,240,000 Federal benefit of state ASC740-10 reserves 88,000 - Limitation Under 163(j) 2,893,000 536,000 Section 174 capitalized expenses 1,261,000 594,000 ASC 842 lease liability 1,710,000 2,427,000 ASC 842 ROU asset ( 1,582,000 ) ( 2,263,000 ) Total deferred tax assets, net 15,631,000 17,022,000 Valuation allowance ( 15,631,000 ) ( 17,022,000 ) Net deferred tax assets $ - $ - Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by approximately $ 1,391,000 and $ 1,182,000 during 2023 and 2022, respectively. As of December 31, 2023, the Company had federal and state net operating loss carryforwards of approximately $ 8,596,000 and $ 26,134,000 , respectively, which will begin to expire in 2036 , unless previously utilized, and will begin to expire for state purposes in 2028. In addition, the Company has federal net operating loss carryforward of $4,936,000 generated after 2017 that can be carried over indefinitely and may be used to offset up to 80% of federal taxable income . As of December 31, 2023 the Company had federal and state research and development credit carryforwards of approximately $ 177,000 and $ 54,000 , respectively, which will begin to expire in 2031 , unless previously utilized. For state purposes, the state research and development credit carryforwards can be carried over indefinitely. Utilization of the net operating losses and research and development carryforwards may be subject to a substantial annual limitation due to ownership change limitations that might have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforward that can be utilized annually to offset future taxable income and tax. Respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. As of December 31, 2023, the Company determined that it had net operating loss carryforwards of approximately $ 12,500,000 and state net operating loss carryforwards of approximately $ 9,400,000 restricted under IRC Section 382 of the Internal Revenue Code related to a 2011 change in ownership. Section 382 of the Internal Revenue Code limits the utilization of net operating losses when ownership changes, as defined by that section, occur. Due to the Section 382 limitation, and the length of time available to fully utilize the net operating loss carryforwards, the Company removed these NOLs from deferred tax assets with a corresponding reduction of the valuation allowance. Similarly, under IRC Section 383 which limits the utilization of credits when ownership changes occur, the Company removed approximately $ 300,000 of federal credit and $ 300,000 of state credits from deferred tax assets with a corresponding reduction of the valuation allowance. F- 39 As of December 31, 2023, the Company had approximately $ 2,853,000 of unrecognized tax benefits of which $ 2,853,000 if fully recognized, would decrease its effective tax rate. There were interest or penalties accrued of $ 40,000 relating to unrecognized tax benefits as of December 31, 2023. A reconciliation of the change in the unrecognized tax benefits balance from January 1, 2023 to December 31, 2023 is as follows: SCHEDULE OF UNRECOGNIZED TAX BENEFITS Federal & State Tax Balance at January 1, 2023 $ - Additions for tax positions related to current year 36,000 Additions for tax positions related to prior years 2,817,000 Balance at December 31, 2023 $ 2,853,000 NOTE 17. EMPLOYEE SAVINGS PLAN The Company has established an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code, effective January 1, 2014. The plan allows participating employees to deposit into tax deferred investment accounts up to 100 % of their salary, subject to annual limits. The Company makes certain matching contributions to the plan in amounts up to 4 % of the participants’ annual cash compensation, subject to annual limits. The Company contributed approximately $ 594,000 and $ 397,000 to the plan during the years ended December 31, 2023 and 2022, respectively. NOTE 18. COMMITMENTS AND CONTINGENCIES Legal General and Other In the ordinary course of business, the Company is involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. See also Part I, Item 1A. Risk Factors . The Company describes legal proceedings and other matters that are/were significant or that it believes could become significant in this footnote. The Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of a liability that has been accrued previously. The Company’s legal proceedings involve various aspects of its business and a variety of claims, some of which present novel factual allegations and/or unique legal theories. Typically, a number of the matters pending against the Company are at early stages of the legal process, which in complex proceedings of the sort the Company face often extend for several years. While it is not possible to accurately predict or determine the eventual outcomes of matters that have not concluded, an adverse determination in one or more of matter (whether discussed in this footnote or not) currently pending may have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows. F- 40 Certain recent developments concerning the Company’s legal proceedings it believes are or were material to its business and other matters are discussed below: Ocular Science, Inc. et. al In July 2021, ImprimisRx, LLC, a subsidiary of the Company, filed a lawsuit against Ocular Science, Inc. and OSRX, Inc. (together, “OSRX”) in the U.S. District Court for the Southern District of California, asserting claims for copyright infringement, trademark infringement, unfair competition and false advertising (Lanham Act). Since July 2021, the complaint has been amended and OSRX added counterclaims alleging ImprimisRx, LLC is violating the Lanham Act with false advertising. The Court granted cross motions for summary judgement on each party’s Lanham Act claims thus leaving only ImprimisRx, LLC’s copyright infringement, trademark infringement and unfair competition claims for trial. ImprimisRx, LLC is seeking damages from OSRX. The Company expects the trial to take place in August 2024. Product and Professional Liability Product and professional liability litigation represents an inherent risk to all firms in the pharmaceutical and pharmacy industry. We utilize traditional third-party insurance policies with regard to our product and professional liability claims. Such insurance coverage at any given time reflects current market conditions, including cost and availability, when the policy is written. Indemnities In addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate indemnification agreements with each of the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. Several of the Company’s asset purchase and license agreements contain customary representations, warranties, covenants and confidentiality provisions, and also contain mutual indemnification obligations related primarily to performance under the respective agreements. The Company also indemnifies its lessors in connection with its facility leases for certain claims arising from the use of the facilities. These indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying consolidated balance sheets. Sales and Marketing Agreements The Company has entered various sales and marketing agreements with certain organizations, to provide sales and marketing representation services to ImprimisRx in select geographies in the U.S., in connection with the Company’s ophthalmic compounded formulations. Under the terms of the sales and marketing agreements, the Company is required to make commission payments generally equal to 10 % to 14 % of net sales for products above and beyond the initial existing sales amounts . In addition, the Company is required to make periodic milestone payments to certain organizations in shares of the Company’s restricted common stock if net sales in the assigned territory reach certain future levels by the end of their terms, as applicable. The Company incurred $ 196,000 and $ 4,274,000 under these agreements for commission expenses during the years ended December 31, 2023 and 2022, respectively, which are included in selling, general and administrative expenses. F- 41 Other Asset Purchase, License and Related Agreements The Company has acquired and sourced intellectual property rights related to certain proprietary innovations from certain inventors and related parties (the “Inventors”) through multiple asset purchase agreements, license agreements, strategic agreements and commission agreements. In general, these agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, the Company has acquired a right of first refusal on additional intellectual property and drug development opportunities presented by these Inventors. In consideration for the acquisition of the intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones, generally consisting of: (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); (2) a payment payable within 30 days after the Company files the first investigational new drug application (“IND”) with the U.S. Food and Drug Administration (“FDA”) for the first product arising from the acquired intellectual property (if any); (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 property (if any); and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If, following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors. At December 31, 2023 and 2022, $ 106,000 and $ 228,000 were accrued in accounts payable and accrued expenses related to these agreements. During the years ended December 31, 2023 and 2022, $ 811,000 and $ 910,000 , respectively, were incurred under these agreements as royalty expenses, which are included in selling, general and administrative expenses. Klarity License Agreement – Related Party In April 2017, the Company entered into a license agreement (the “Klarity License Agreement”) with Richard L. 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”). Under the terms of the Klarity License Agreement, the Company is required to make royalty payments to Dr. Lindstrom ranging from 3% to 6% of net sales, dependent upon the final formulation of the Klarity Product sold . In addition, the Company is required to make certain milestone payments to Dr. Lindstrom including: (i) an initial payment of $ 50,000 upon execution of the Klarity License Agreement, (ii) a second payment of $ 50,000 following the first $ 50,000 in net sales of the Klarity Product; and (iii) a final payment of $ 50,000 following the first $ 100,000 in net sales of the Klarity Product. All of the above referenced milestone payments were payable at the Company’s election in cash or shares of the Company’s restricted common stock. Dr. Lindstrom was paid $ 292,000 and $ 274,000 in cash during the years ended December 31, 2023 and 2022, respectively, and was due an additional $ 67,000 and $ 71,000 at December 31, 2023 and 2022, respectively. The Company incurred $ 287,000 and $ 315,000 for royalty expenses related to the Klarity License Agreement during the years ended December 31, 2023 and 2022, respectively, which are included in selling, general and administrative expenses. Injectable Asset Purchase Agreement – Related Party In December 2019, the Company entered into an asset purchase agreement (the “Lindstrom APA”) with Dr. 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”). Under the terms of the Lindstrom APA, the Company is required to make royalty payments to Dr. Lindstrom ranging from 2% to 3% of net sales, dependent upon the final formulation and patent protection of the Lindstrom Product sold . In addition, the Company is required to make certain milestone payments to Dr. Lindstrom including an initial payment of $ 33,000 upon execution of the Lindstrom APA. Dr. Lindstrom was paid $ 35,000 and $ 32,000 in cash during the years ended December 31, 2023 and 2022, respectively, and was due $ 6,000 and $ 9,000 at December 31, 2023 and 2022, respectively. The Company incurred $ 32,000 and $ 33,000 for royalty expenses related to the Lindstrom APA during the years ended December 31, 2023 and 2022, respectively, which are included in selling, general and administrative expenses. F- 42 Presbyopia Asset Purchase Agreement – Related Party In December 2019, the Company entered into an asset purchase agreement (the “Presbyopia APA”) with Richard L. Lindstrom, M.D., a former member of its Board of Directors. Pursuant to the terms of the Presbyopia APA, the Company acquired certain intellectual property and related rights from Dr. Lindstrom to develop, formulate, make, sell, and sub-license an ophthalmic topical product to treat presbyopia (the “Presbyopia Product”). Under the terms of the Presbyopia Product, the Company is required to make royalty payments to Dr. Lindstrom ranging from 2% to 4% of net sales, dependent upon the final formulation and patent protection of the Presbyopia Product sold . Dr. Lindstrom was paid $ 0 in cash during the years ended December 31, 2023 and 2022, and was due $ 0 at December 31, 2023 and 2022. The Company incurred $ 0 for royalty expenses related to the Presbyopia APA during the years ended December 31, 2023 and 2022. Eyepoint Commercial Alliance Agreement - Terminated In August 2020, the Company, through its wholly owned subsidiary ImprimisRx, LLC, entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc. (“Eyepoint”), pursuant to which Eyepoint granted the Company the non-exclusive right to co-promote DEXYCU ® (dexamethasone intraocular suspension) 9% for the treatment of post-operative inflammation following ocular surgery in the U.S. Pursuant to the Dexycu Agreement , Eyepoint paid 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. Pursuant to a mutual termination agreement entered into on October 7, 2022 the Dexycu Agreement terminated on January 1, 2023. During the years ended December 31, 2023 and 2022, the Company recorded $ 0 and $ 3,866,000 , respectively, in commission revenues related to the Dexycu Agreement. NOTE 19. SEGMENTS AND CONCENTRATIONS The 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. Concentrations The Company has three and two products that each comprised more than 10% of total revenues during the years ended December 31, 2023 and 2022, respectively. These products collectively accounted for 38 % and 34 % of revenues, respectively. As of December 31, 2023 and 2022, accounts receivable from a single customer accounted for 80 % and 0 % of total accounts receivable, respectively. For the years ended December 31, 2023 and 2022, revenues from a single customer accounted for 29 % and 0 % of total revenues, respectively. The Company receives its active pharmaceutical ingredients from three main suppliers. These suppliers collectively accounted for 64 % of active pharmaceutical ingredient purchases during the year ended December 31, 2023, and 61 % during the year ended December 31, 2022. NOTE 20. SUBSEQUENT EVENTS In February 2024, 45,000 RSUs granted in February 2021 to Andrew R. Boll, the Company’s Chief Financial Officer, vested, and 26,520 shares the Company’s common stock were issued to Mr. Boll, net of 18,480 shares of common stock withheld for payroll tax withholdings totaling $ 197,000 . In February 2024, 150,000 RSUs granted in February 2021 to Mark L. Baum, the Company’s Chief Executive Officer, vested, and 90,164 shares the Company’s common stock were issued to Mr. Baum, net of 59,836 shares of common stock withheld for payroll tax withholdings totaling $ 638,000 . In February 2024, 30,000 RSUs granted in February 2021 to John Saharek, the Company’s Chief Commercial Officer, vested, and 17,384 shares the Company’s common stock were issued to Mr. Saharek, net of 12,616 shares of common stock withheld for payroll tax withholdings totaling $ 135,000 . In February 2024, 50,000 RSUs granted in February 2021 to employees, vested, and 32,452 shares the Company’s common stock were issued, net of 17,548 shares of common stock withheld for payroll tax withholdings totaling $ 187,000 . In February and March 2024, the Company issued 27,862 shares of common stock and received proceeds of $ 220,000 upon the exercise of options to purchase 27,862 shares of common stock with exercise prices between $ 6.75 to $ 8.75 per share. F- 43