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Item 7. Management’s Discussion and Analysis

2025-03-27 compared with 2024-03-19 · 592 added, 600 removed, 68 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated

financial statements and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”).

Our consolidated

financial statements have been prepared and, unless otherwise stated, the information derived therefrom as presented in this discussion

and analysis is presented, in accordance with accounting principles generally accepted in the United States (GAAP).

In addition to historical

information, the following discussion contains forward-looking statements based upon our current views, expectations and assumptions

that are subject to risks and uncertainties.

Actual results may differ substantially from those expressed or implied by any forward-looking

statements due to a number of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere

in this Annual Report.

used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow”

“we,” “us” and “our” refer to Harrow, Inc.

and its consolidated subsidiaries, including Imprimis

RxNJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, Harrow IP, LLC and Harrow Eye, LLC.

are a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical

products for the U.S.

Harrow helps U.S.

eyecare professionals preserve the gift of sight by making its comprehensive portfolio

of prescription and non-prescription pharmaceutical products accessible and affordable to millions of Americans each year.

We own commercial

rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in North

America, all of which are marketed under the Harrow name .

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

ophthalmology-focused pharmaceutical-compounding businesses.

In addition, we have a non-controlling

equity interest in Melt Pharmaceuticals, Inc.

(“Melt”), and two other companies that began as subsidiaries of Harrow and

were subsequently carved-out of our corporate structure and deconsolidated from our financial statements.

Affecting Our Performance

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

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

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

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

We believe we have

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

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

See “Liquidity and Capital Resources” below.

following describes certain developments in 2023 and 2024 to date that are important to understand our financial condition and results

of operations.

See the notes to our consolidated financial statements included in this Annual Report for additional information about

each of these developments.

- Canadian Out-License

February 2024, we entered into a license and supply agreement with Apotex Inc.

Under the terms of the agreement,

Apotex licensed exclusive rights and marketing authorizations of the following products in the Canadian market from Harrow:

(cyclosporine ophthalmic emulsion) 0.1% and Cationorm PLUS.

Apotex was also granted a license for products Apotex will pursue approval

for in Canada:

VEVYE (cyclosporine ophthalmic solution) 0.1%, IHEEZO (chloroprocaine hydrochloride ophthalmic gel) 3%, and ZERVIATE (cetirizine

ophthalmic solution) 0.24% (with VERKAZIA and Cationorm Plus, collectively, the “Apotex Products”).

In exchange, Apotex will

make payments to Harrow for milestones related to manufacturing arrangements, regulatory and commercial achievements, in addition to

royalties on net sales of the Apotex Products.

January 2024, we launched VEVYE (cyclosporine ophthalmic solution) 0.1%, the first and only water-free cyclosporine dissolved in a semifluorinated

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and

analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements

and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”).

Our consolidated financial statements

have been prepared and, unless otherwise stated, the information derived therefrom as presented in this discussion and analysis is presented,

in accordance with accounting principles generally accepted in the U.S.

In addition to historical information, the following

discussion contains forward-looking statements based upon our current views, expectations and assumptions that are subject to risks and

uncertainties.

Actual results may differ substantially from those expressed or implied by any forward-looking statements due to a number

of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere in this Annual Report.

As used in this discussion

and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow” “we,” “us”

and “our” refer to Harrow, Inc.

and its consolidated subsidiaries, including Imprimis RxNJ, LLC, Imprimis NJOF, LLC, ImprimisRx,

LLC, Harrow IP, LLC and Harrow Eye, LLC.

We are a leading eyecare pharmaceutical

company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical products for the 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.

We own commercial rights to one of the largest

portfolios of branded ophthalmic pharmaceutical products in North America, all of which are marketed under the Harrow name.

and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses.

Factors Affecting Our Performance

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

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

avoid or mitigate any potential regulatory-related restrictions, optimize pricing and obtain reimbursement options for our drug

products, and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets

that we have not yet made commercially available.

We believe we have built a tangible and intangible infrastructure that will allow

us to scale revenues efficiently in the near and long-term.

All of these activities will require significant costs and other

resources, which we may not have or be able to obtain from operations or other sources.

See “Liquidity and Capital

Resources” below.

Recent Developments

The following describes certain

developments in 2024 and 2025 to date that are important to understand our financial condition, results of operations, and expectations.

See the notes

to our consolidated financial statements included in this Annual Report for additional information about certain developments.

Access for All

March 2025, we announced a patient access program called VEVYE Access for All.

The program is designed to increase patient access

to VEVYE at an out-of-pocket cost of $59 or below and, in many cases, reduce the need for prior authorizations, step edits, and other

treatment obstacles facing dry eye patients and their prescribers.

recently initiated a 360-degree review of opportunities to offer ImprimisRx customers a Harrow-owned FDA-approved product

alternative to a compounded formulation.

We call this initiative Project Beagle.

In that vein, we began implementing a continuity of

care program to transition approximately 25,000 ImprimisRx patients from our Klarity-C (0.1% cyclosporine) compounded formulation to

VEVYE (0.1% cyclosporine), and we expect to discontinue compounding Klarity-C by June 30, 2025.

We are also discontinuing

another related compounded formulation called Klarity PF.

Klarity PF is primarily purchased by a concentrated group of customers

who we expect to accept our FRESHKOTE product as an alternative.

As we work through Project Beagle, we will continue to

review opportunities to reduce the size of our compounded formulary, improve and simplify our compounding capabilities, and

transition other ImprimisRx customers from compounded formulations to Harrow’s FDA-approved products.

Cybersecurity Incident

2024, we became aware of a cybersecurity incident that involved unauthorized access of an employee’s email account.

unauthorized access the threat actor was able to fraudulently divert Company funds to its bank account.

We detected the incident in a

timeframe management believes minimized any financial, operational or reputational risk to the Company, and at no point was our ability

to generate revenues disrupted.

TRIESENCE Re-Launch,

Oaktree Second Amendment and Draw

October 2024, we announced the re-launch of TRIESENCE following the successful manufacturing of three process performance

qualification batches of the product.

In March 2025, we announced TRIESENCE was granted temporary pass-through reimbursement status

to be made effective April 1, 2025.

In connection with the re-launch, during October 2024 we made a one-time payment of $37,000,000

to Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”) pursuant to terms of an asset

purchase agreement between Novartis and the Company.

Also, during October 2024, we entered into the Second Amendment (the

“Second Amendment”) to the Credit Agreement and Guaranty originally entered into on March 27, 2023, as amended by that

certain First Amendment to Credit Agreement and Guaranty and Consent, dated as of July 18, 2023 (as amended, the “Oaktree

Loan”), with the lenders from time to time party thereto and Oaktree Fund Administration, LLC, as administrative agent for the

lenders (together “Oaktree”).

Upon satisfaction of certain conditions to funding, the Company drew down the principal

amount of $30,000,000 (the “$30,000,000 Draw”) under a pre-existing commitment under the Oaktree Loan to partially fund

the one-time payment to Novartis.

Second Amendment, the Company and Oaktree agreed to certain changes to the Oaktree Loan in connection with the Company’s draw under

the Oaktree Loan.

Pursuant to the amendment, Oaktree agreed to waive any make-whole costs associated with the $30,000,000 Draw in the

event of early repayment of the debt under the Oaktree Loan if paid before March 31, 2025.

In addition, Oaktree agreed to exclude the

$30,000,000 Draw from the calculation of the Total Leverage Ratio as defined in the Oaktree Loan.

No other material changes to the Oaktree

Loan were provided in the Second Amendment.

entry into the Second Amendment and the funding of the Novartis milestone payment, the Company has drawn down a total principal loan

amount of $107,500,000 under the Oaktree Loan and no additional principal loan amount remains available to the Company under the Oaktree

Apotex - Canadian Out-License

2024, we entered into a license and supply agreement with Apotex Inc.

Under the terms of the agreement, Apotex

licensed exclusive rights and marketing authorizations of the following products in the Canadian market from Harrow:

VERKAZIA (cyclosporine

ophthalmic emulsion) 0.1% and Cationorm PLUS.

Apotex was also granted a license for products Apotex will pursue approval for in Canada:

VEVYE (cyclosporine ophthalmic solution) 0.1%, IHEEZO (chloroprocaine hydrochloride ophthalmic gel) 3%, and ZERVIATE (cetirizine ophthalmic

solution) 0.24% (with VERKAZIA and Cationorm Plus, collectively, the “Apotex Products”).

In exchange for these licenses,

Harrow will earn amounts related to manufacturing, regulatory and commercial achievement milestones, in addition to royalties on net

sales of the Apotex Products.

IHEEZO Reimbursement

2024, we met with the Centers for Medicare & Medicaid Services (“CMS”) to request clarification related to its anesthesia

billing policy which has historically not allowed for the separate billing of anesthesia services in the physician’s office.

the meeting we requested that CMS clarify that J-Code 2403, IHEEZO’s permanent J-Code, is appropriate to be billed for the anesthesia

product itself (i.e., IHEEZO in our case) in the physician office setting.

In March 2024, we received communication from a representative

at CMS that the inclusion of J-Code 2403 in CMS’s April 2024 quarterly drug pricing file of the average sales prices (ASP) of some

Medicare Part B-covered drugs and biologicals confirms that IHEEZO is separately payable in the physician office setting.

2024, we made a request to CMS to consider increasing the Medically Unlikely Edits (“MUE”) for IHEEZO’s J-Code from

This request was made because the limitation of one MUE only allowed a single IHEEZO administration (equal to one single-use

vial) to be used and billed, while many ophthalmologists perform bilateral ocular procedures, which would require two vials of IHEEZO

On March 20, 2024, we received communication from the National Correct Coding Initiative (NCCI) program of CMS stating that

CMS decided to increase the MUE for IHEEZO’s J-Code (J2403) from 1 to 2.

The MUE edit was made effective on July 1, 2024.

2024, we launched VEVYE (cyclosporine ophthalmic solution) 0.1%, the first and only water-free cyclosporine dissolved in a semifluorinated

alkane approved to treat both the signs and symptoms of dry eye disease in the U.S.

1 unchanged sentence

Apollo Care and PARx Solutions to enhance our market and patient access program for VEVYE.

Loan Settlement

December 2023, we terminated the Loan and Security Agreement (the “Loan Agreement”), dated as of September 1, 2021, as amended,

by and between us, as lender, and Melt, as borrower, which provided for a senior secured term loan with an initial aggregate principal

amount of $13,500,000 bearing interest at 12.50% per annum.

As of the date of termination, approximately $18,400,000 remained outstanding

under the Loan Agreement.

Pursuant to the terms of a Settlement and Payoff Agreement, dated as of December 28, 2023, by and between us

and Melt (the “Settlement Agreement”), we received 2,260,000 shares of Melt’s Series B-1 Preferred Stock and 74,256

shares of Melt’s Series B Preferred Stock in consideration for the full payment of all amounts outstanding under the 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 us with rights consistent with other holders of preferred stock of Melt.

Reimbursement, Launch and Studies

February 2023, we announced that the Centers for Medicare & Medicaid Services (“CMS”) had issued a permanent, product

specific J-code for IHEEZO (J2403) which became effective under the Healthcare Procedure Coding System (HCPCS) on April 1, 2023, which

physicians can use for reimbursement purposes of that product.

New drugs approved by the U.S.

Food and Drug Administration (“FDA”)

that are used in surgeries performed in hospital outpatient departments or ambulatory surgical centers may receive a transitional pass-through

reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant” cost criterion.

status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B, which

consists of Medicare reimbursement for a drug based on a defined formula for calculating the minimum fee that a manufacturer may charge

for the drug.

Under current regulations of CMS, pass-through status applies for a period of three years;

which is measured from the date

Medicare makes its first pass-through payment for the product.

Following the three-year period, the product would be incorporated into

the cataract bundled payment system, which could significantly reduce the pricing for that product.

Temporary pass-through reimbursement

for IHEEZO was awarded by CMS and made effective in April 2023.

are also working to ensure our continued access to the Medicare market for the ambulatory surgery center (ASC), hospital and outpatient

department (HOPD), and in-office use market for IHEEZO.

In this regard, we are designing and intend to execute, during 2024, clinical

studies to build data sets that could be presented to Centers for Medicare & Medicaid Services (CMS) to extend our temporary pass-through

period for IHEEZO in ASCs and HOPDs.

We also met with CMS in January 2024 to request clarification related to its anesthesia billing

policy which has historically not allowed for the separate billing of anesthesia services in the physician’s office.

meeting we requested that CMS clarify that J-Code 2403, IHEEZO’s permanent J-Code, is appropriate to be billed for the anesthesia

product itself (i.e., IHEEZO in our case) in the physician office setting.

As of the date of this Annual Report, we had not received

feedback from CMS following our meeting in January 2024.

the beginning of April 2023, we initiated a regional and targeted launch of IHEEZO (chloroprocaine HCL ophthalmic gel) 3%.

2023, our full commercial launch of IHEEZO occurred, with the product being highlighted by our commercial team at the ASCRS (American

Society of Cataract and Refractive Surgery) Annual Meeting.

we invested in an in-vivo (in human) study to compare the effects of IHEEZO with povidone-iodine (PVI) compared to a low-viscosity tetracaine

ophthalmic solution with PVI.

The primary intent of the study is to show that IHEEZO does not act as a “barrier” to PVI,

which had otherwise been shown with other ocular anesthetic gels.

Findings from the study are positive and showed that IHEEZO demonstrated

a similar barrier risk to tetracaine (e.g., a non-gel anesthetic).

of VEVYE TM U.S.

and Canadian Commercial Rights

July 2023, we acquired commercial rights of VEVYE for the U.S.

and Canadian markets (the “VEVYE Acquisition”).

is dispensed topically in a unique ten microliter per one drop and is labeled for twice-daily (BID) dosing, is the first and only cyclosporine-based

product indicated for the treatment of both signs and symptoms of dry eye disease (DED).

VEVYE was approved on May 30, 2023 by the FDA.

We acquired the commercial rights to VEVYE by entering into a license agreement with Novaliq GmbH (“Novaliq”).

As consideration,

we 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.

In February 2024, we agreed to license rights for VEVYE in Canada to Apotex.

of Certain U.S.

and Canadian Commercial Rights to Santen and Eyevance Products

July 2023, we 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, we acquired the exclusive commercial rights to assets associated with the following ophthalmic products

(collectively, the “Santen Products”), in the U.S.:

FLAREX® (fluorometholone acetate ophthalmic suspension) 0.1%, NATACYN®

(natamycin ophthalmic suspension) 5%, TOBRADEX® ST (tobramycin and dexamethasone ophthalmic suspension) 0.3%/0.05%, ZERVIATE®

(cetirizine ophthalmic solution) 0.24%, and FRESHKOTE®.

VERKAZIA ® (cyclosporine ophthalmic emulsion)

0.1%, and in Canada:

Cationorm PLUS.

transactions pursuant to the Santen Agreements are referred to in this Annual Report as the “Santen Products Acquisition.”

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

In addition, the Santen Agreements provide for

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

on net sales of VERKAZIA and high-single digit royalty payments on net sales of Cationorm PLUS.

Under the Santen Agreements, we also

assumed certain obligations associated with other third parties that require royalties on sales of FRESHKOTE and ZERVIATE.

following the closing and subject to certain conditions, prior to the transfer of the Santen Product NDAs and other marketing authorizations

to us, Santen continued to sell the Santen Products on our behalf and transfer the net profit from the sale of the Santen Products to

In October 2023, we completed the transfer of the U.S.

NDAs and rights of the Santen Products.

The Canadian marketing authorizations

of VERKAZIA and Cationorm PLUS will be transferred to Apotex during 2024.

Stock Offering

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

We sold 3,887,324 shares of our common stock in the Offering, resulting in us receiving aggregate net proceeds of $64,520,000, after

deducting underwriting discounts and commissions and other offering expenses of $4,480,000.

Credit and Guaranty Agreement

March 27, 2023, we 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 loan to us with a principal amount of up to

Results of Operations

The following period-to-period

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

Comparison of Years Ended December 31, 2024

Our revenues include amounts

recorded from sales of branded products to wholesalers through a third-party logistics facility, sales of proprietary compounded formulations,

and revenues received from royalty payments owed to us pursuant to out-license and like arrangements.

The following presents our revenues:

For the Years Ended

IHEEZO net sales

VEVYE net sales

Other branded products net sales

Other revenues, net

(11,832,000 )

Upon entering into the Oaktree Loan, we drew a principal amount of $65,000,000 from the Oaktree Loan and used the net proceeds

to repay all amounts owed by us pursuant to the BR Loan (as defined below).

No remaining amounts are due under the BR Loan, and no exit

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

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

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

July 18, 2023, we 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 we made other changes related to the Santen Products

Upon satisfaction of certain conditions to funding, we drew down a principal amount of $12,500,000 (the “Loan Increase”)

on August 1, 2023 to fund the initial one-time payment associated with the Santen Products Acquisition and for other working capital

and general corporate purposes.

No other material changes to the Oaktree Loan were provided in the Oaktree Amendment.

Following entry

into the Oaktree Amendment and the funding of the Loan Increase upon closing of the Santen Products Acquisition, we have drawn down a

total principal loan amount of $77,500,000 under the Oaktree Loan and an additional Tranche B loan amount of up to $35,000,000 remains

available to us upon the commercialization of TRIESENCE, provided, that if Tranche B is not drawn by the Company on or before March 27,

2024, the amount available under Tranche B will decrease to $30,000,000.

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

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.

The Oaktree Loan requires interest-only payments through its term (there is no amortization of the principal amount or

excess cash flow sweeps during the term of the Oaktree Loan).

of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX and TRIESENCE

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

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

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

(the “NVS 5 Acquisition”):

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

with cataract surgery.

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

with cataract surgery.

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

caused by susceptible strains of organisms.

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

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

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

for visualization during vitrectomy.

closed the NVS 5 Acquisition on January 20, 2023.

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

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

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

for a period that lasted approximately nine months, and prior to the transfer of the NVS 5 Products new drug applications (the “NDAs”)

to us, Novartis continued to sell the NVS 5 Products on our behalf and transferred the net profit from the sale of the NVS 5 Products

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

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

April 28, 2023, we transferred the NDAs for ILEVRO, NEVANAC and MAXIDEX.

In July 2023, we transferred the NDA for VIGAMOX, and the

NDA for TRIESENCE was transferred in November 2023.

The milestone payment due upon commercial availability for TRIESENCE decreased

from $45,000,000 to $37,000,000 on January 20, 2024.

We expect Novartis to produce a performance process qualification

(“PPQ”) batch during April 2024.

If this PPQ batch is successful, our manufacturing partners will need to complete two

additional, consecutive and successful PPQ batches (an aggregate of three PPQ batches) of TRIESENCE before the product can be

released for commercial use.

We believe it is possible TRIESENCE could be re-launched before the end of 2024 if these PPQ batches

are successful, at which point the $37,000,000 milestone payment will become due to Novartis.

– Senior Notes Offering

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

Riley Securities, Inc., as representative of the several underwriters

named therein, pursuant to which we agreed to sell $35,000,000 aggregate principal amount of 11.875% Senior Notes due 2027 (the “2027

Notes”) plus up to an additional $5,250,000 aggregate principal amount of 2027 Notes pursuant to an option granted to the underwriters

to purchase additional 2027 Notes.

In January 2023, the underwriters exercised their option to purchase the additional $5,250,000 aggregate

principal amount of 2027 Notes.

Riley Loan and Security Agreement – Paid

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

Riley Commercial Capital, LLC, as

administrative agent for the lenders from time to time party thereto.

The proceeds of the BR Loan were used to finance the NVS 5 Acquisition.

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

of 10.875% per annum.

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

material subsidiaries.

In January 2023, the Company drew $59,750,000 of the BR Loan simultaneously with the consummation of the NVS 5

Acquisition, and subsequently paid back the BR Loan in March 2023 at the time of closing the Oaktree Loan.

No remaining amounts are due

under the BR Loan, and no exit or prepayment fees were paid as a result of the payoff of the BR Loan .

of Operations

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

of Years Ended December 31, 2023 and 2022

revenues include amounts recorded from sales of proprietary compounded formulations, sales of branded products to wholesalers through

a third-party logistics facility, commissions from third parties and revenues received from royalty payments owed to us pursuant to out-license

arrangements.

following presents our revenues for the years ended December 31, 2023 and 2022:

For the Years Ended December 31,

Product sales, net

Branded revenue, net

ImprimisRx revenue, net

Total revenues, net

$ 199,614,000

Commission revenues

Transfer of acquired product sales/profit

Total revenues

$ 130,193,000

increase in revenues between periods was related to an increase in sales of our branded ophthalmology products, as well as an increase

in the transfer of acquired products sales and profits related to the NVS 5 Acquisition and Santen Products Acquisition.

This increase

in 2023 was offset slightly by a decrease in commissions attributable to sales of DEXYCU® (which agreement terminated January 1,

2023) and a decrease in sales from our non-ophthalmology compounded products as a result of our sale of those assets in the fourth quarter

During the year ended December 31, 2023, revenues, including transfer of acquired product sales and profits, from branded products

totaled $50,258,000, as compared to $2,716,000 in the prior year.

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

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

the write-off of obsolete inventory, amortization of acquired product NDAs, and other related expenses.

following presents our cost of sales for the years ended December 31, 2023 and 2022:

The increase in revenues

from product sales between the years ended December 31, 2024 and 2023 was largely attributed to increased sales and marketing

efforts, new product launches (e.g.

VEVYE) and the closing of certain product acquisitions that occurred in 2023.

The decrease in

other revenues between the years ended December 31, 2024 and 2023 was the result of profit transfers from acquired products during

2023, and upon transfer of those product New Drug Applications (“NDAs”) we stopped recording a profit transfer and began

booking revenues from the sale of those products.

Cost of Sales

Our cost of sales includes direct

and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging,

storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation, the write-off of obsolete

inventory, amortization of acquired product NDAs, and other related expenses.

The following presents our cost

of sales for the years ended December 31, 2024 and 2023:

For the Years Ended December 31,

Cost of sales

increase in our cost of sales was largely attributable to the amortization of acquired product NDAs which totaled $9,314,000 for the

year ended December 31, 2023, compared to $1,364,000 during the prior year, offset by lesser increases in expenses associated with unit

volumes sold and increased direct and indirect costs associated with production of our products.

Profit and Margin

The increase in cost of sales

associated with our branded products between the years ended December 31, 2024 and 2023 was largely attributable to the increase in products

sold and amortization of acquired product NDAs which totaled $10,093,000 for the year ended December 31, 2024, compared to $9,314,000

during the prior year.

For the Years Ended December 31,

decrease in gross margin between the years ended December 31, 2023 and 2022 was primarily attributable to amortization of acquired NDAs

from the NVS 5 Acquisition, beginning in January 2023.

General and Administrative Expenses

selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate facility

expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs associated with

our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations.

following presents our selling, general and administrative expenses for the years ended December 31, 2023 and 2022:

Cost of sales

The increase in our ImprimisRx

cost of sales between the years ended December 31, 2024 and 2023 was largely attributable to expenses associated with the increase in

unit volumes sold.

Gross Profit and Margin

For the Years Ended December 31,

The increase in Branded gross

margin between the years ended December 31, 2024 and 2023 was primarily attributable to an increase in overall sales which reduced the

net impact of our fixed expenses in cost of sales, such as NDA license amortization.

For the Years Ended December 31,

The increase in ImprimisRx gross margin between the

years ended December 31, 2024 and 2023 was primarily attributable to an increase in sales of products during 2024 with lower gross margin

profiles as compared to 2023.

Selling, General and Administrative Expenses

Our selling, general and

administrative (“SG&A”) expenses include personnel costs, including wages and stock-based compensation, corporate

facility expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs

associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy

products and formulations.

The following presents our

SG&A expenses for the years ended December 31, 2024 and 2023:

For the Years Ended December 31,

Selling, general and administrative

increase in selling, general and administrative expenses between periods was primarily attributable to an increase in stock-based

compensation expense, including new expenses associated with performance stock units (“PSUs”) granted in April 2023 of

$7,722,000 for the year ended December 31, 2023, compared to the prior year.

Other areas of increased expenses included $3,257,000

related to new regulatory costs and enhancements and a $6,844,000 increase in expenses related to the addition of new employees in

sales, marketing and other departments to support current and expected growth, including the transition of the Santen Products, and

the commercial launch of IHEEZO in April 2023 and VEVYE in December 2023.

and Development Expenses

$ 129,064,000

The increase in SG&A

expenses between periods was primarily attributable to the addition of new employees in sales, marketing and other departments to

support current and expected growth, including the commercial launch of VEVYE, which when combined contributed to a $32,743,000

increase in SG&A during the year ended December 31, 2024 compared to the prior year.

In addition, stock-based compensation

expense increased by $1,863,000 during the year ended December 31, 2024 compared to the prior year.

Regulatory enhancements and

costs to support the transition of recent product acquisitions also caused SG&A to be higher for the year ended December 31,

2024 compared to 2023.

Research and Development Expenses

research and development (“R&D”) expenses primarily included personnel costs, including wages and stock-based compensation,

1 unchanged sentence

acquired in-process R&D and other costs related to the clinical development of our assets.

following presents our R&D expenses for the years ended December 31, 2023 and 2022:

The following presents our R&D

expenses for the years ended December 31, 2024 and 2023:

For the Years Ended December 31,

Research and development

increase in R&D expenses between periods was primarily attributable to increased activity related to product acquisitions, product

launches, clinical and medical support.

and Disposal of Long-Lived Assets

the year ended December 31, 2023, we recorded a charge of $548,000, of which, $380,000 was related to the impairment of licenses, trademarks,

patents and patent applications and $168,000 was related to equipment that was no longer in service.

expense, net was $21,324,000 during the year ended December 31, 2023, compared to $7,244,000 during the year ended December 31, 2022.

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

in Losses of Unconsolidated Entities

the years ended December 31, 2023 and 2022, we recorded a loss of $0 and $11,133,000, respectively, for our share of losses based on

our ownership of Melt and Surface.

Gain (Loss) from Eton

recorded a gain of $3,092,000 related to the change in fair market value of our investment in Eton’s common stock for the year

ended December 31, 2023.

We recorded a loss of $2,914,000 related to our investment in Eton’s common stock for the year ended December

on Sale of Non-Ophthalmology Assets

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

LLC of $5,259,000.

on Early Extinguishment of Debt

the year ended December 31, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of the BR Loan.

Income (Expense), net

the year ended December 31, 2023 we recorded other expense, net of $444,000 related primarily to transition services and write-off of

inventories associated with the divestment of our non-ophthalmology business, and a charge related to equipment that was no longer in

During the year ended December 31, 2022, we recorded other income, net of $102,000 related to the transition services provided

as part of our non-ophthalmology related compounding product line.

the years ended December 31, 2023 and 2022, we recorded income tax expense of $701,000 and $75,000, respectively.

following table presents our net loss for the years ended December 31, 2023 and 2022:

The increase in R&D expenses

between the years ended December 31, 2024 and 2023 was primarily attributable to activity related to our expanded branded product portfolio,

technical transfer activities associated with the production of certain products related to our product acquisitions that occurred in

2023, product development efforts, product launches, and clinical and medical support.

In addition, during the fourth quarter of 2024,

we recorded $2,000,000 of one-time R&D costs associated with the product development of TRIESENCE.

Impairment and Disposal of Long-Lived Assets

During the year ended December

31, 2024, we recognized an impairment loss of $253,000 related to intellectual property that we expect to no longer utilize in future

revenue generating products and compounded formulations.

During the year ended December 31, 2023, we recorded a charge of $548,000, of

which, $380,000 was related to the impairment of licenses, trademarks, patents and patent applications and $168,000 was related to equipment

that was no longer in service.

Interest Expense, net

Interest expense, net was $22,786,000

during the year ended December 31, 2024, compared to $21,324,000 during the year ended December 31, 2023.

The increase was primarily

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

Investment Gain (Loss) from Eton

During the year ended December

31, 2024, we recorded a loss of $(3,171,000) related to the change in fair market value of Eton’s common stock at the time of its

sale, including trading expenses and commissions of approximately $436,000, compared to a gain of $3,092,000 during the year ended December

Loss on Early Extinguishment of Debt

During the year ended December

31, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of a loan.

There were no extinguishments

of debt during the year ended December 31, 2024.

Other Income (Expense), net

During the year ended December

31, 2024 we recorded other expense, net of $(185,000) related primarily to income from the sublease of office space in Nashville, offset

by a loss associated with the cybersecurity incident.

During the year ended December 31, 2023 we recorded other expense, net of

$(444,000) related primarily to transition services and write-off of inventories associated with the divestment of our non-ophthalmology

business, and a charge related to equipment that was no longer in service.

During the years ended December

31, 2024 and 2023, we recorded income tax expense of $161,000 and $701,000, respectively.

The following table presents

our net loss for the years ended December 31, 2024 and 2023:

For the Years Ended December 31,

2 unchanged sentences

Net loss per share, basic and diluted

and Capital Resources

cash on hand at December 31, 2023 was $74,085,000, compared to $96,270,000 at December 31, 2022.

of the date of this Annual Report, we believe that cash and cash equivalents of $74,085,000 at December 31, 2023 will be sufficient to

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

In addition, we may consider the sale

of certain assets including, but not limited to, part of, or all of, our investments in Eton, Surface, and Melt.

However, we may pursue

acquisitions of products, drug candidates or other strategic transactions that involve large expenditures or we may experience growth

more rapidly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated

and could require us to seek additional financing to support our operations.

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

includes developing and commercializing products, drug candidates, compounded formulations and technologies, integrating and developing

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

drug products, drug candidates, and/or assets or technologies, pharmacies, outsourcing facilities, drug company and manufacturers, and

otherwise fund our operations.

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

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

following provides detailed information about our net cash flows for the years ended December 31, 2023 and 2022:

Liquidity and Capital Resources

Our cash on hand at December

31, 2024 was $47,247,000, compared to $74,085,000 at December 31, 2023.

As of the date of this Annual

Report, we believe that cash and cash equivalents of $47,247,000 at December 31, 2024 will be sufficient to sustain our planned level

of operations and capital expenditures for at least the next 12 months.

Management expects to refinance the Oaktree Loan during 2025.

Management believes it is probable that we will be able to refinance the Oaktree Loan;

however, there can be no assurance that we will

obtain the refinancing on terms acceptable to us, or at all - see the subheading Sources of Capital below for additional discussion

regarding the Oaktree Loan and refinancing plans.

In addition, we may consider the sale of certain assets including, but not limited

to, part of, or all of, our investments in Surface and Melt and any of our consolidated subsidiaries.

However, we may pursue acquisitions

of products, drug candidates or other strategic transactions that involve large expenditures or we may experience growth more rapidly

or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and

could require us to seek additional financing to support our operations.

We expect to use our current

cash position and funds generated from our operations and any financing to pursue our business plan, which includes developing and commercializing

products, drug candidates, compounded formulations and technologies, integrating and developing our operations, pursuing potential future

strategic transactions as opportunities arise, including potential acquisitions of additional drug products, drug candidates, and/or

assets or technologies, pharmacies, outsourcing facilities, drug company and manufacturers, and otherwise fund our operations.

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

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

Net Cash Flows

The following provides detailed information about

our net cash flows for the years ended December 31, 2024 and 2023:

For the Years Ended

1 unchanged sentence

Operating activities

$ (22,202,000 )

Investing activities

(33,164,000 )

(152,553,000 )

Financing activities

1 unchanged sentence

(26,838,000 )

(22,185,000 )

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

cash provided by operating activities was $3,840,000 in 2023, compared to $1,705,000 in the prior year.

Operating cash flow improved

despite the increased net loss due to increased non-cash charges in 2023 compared to the prior year.

Notably an increase in amortization

expense of intangible assets to $10,082,000 for the year ended December 31, 2023 compared to $1,578,000 in 2022, an increase in amortization

of debt issuance costs and debt discounts to $4,097,000 for the year ended December 31, 2023 compared to $782,000 in 2022, an increase

in expense related to stock-based compensation to $15,696,000 for the year ended December 31, 2023 compared to $7,974,000 in 2022, as

well as $5,465,000 related to loss on extinguishment of our B.

Riley senior debt.

cash used in investing activities in 2023 and 2022 was $(152,553,000) and $(1,743,000), respectively.

Cash used in investing activities

in 2023 was primarily associated with the NVS 5 Acquisition, Santen Products Acquisition and VEVYE Acquisition.

Cash used in investing

activities during the 2022 period was primarily associated with equipment and software purchases and upgrades along with investments

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

cash provided by financing activities in 2023 and 2022 was $126,528,000 and $54,141,000, respectively.

Cash provided by financing activities

during the year ended December 31, 2023 was primarily related to proceeds received from the sale of the 2027 Notes, the Oaktree Loan

and Oaktree Amendment, and the Offering, offset by payment of payroll taxes upon vesting of PSUs in exchange for shares withheld from

Net cash provided by financing activities during the year ended December 31, 2022 was

primarily related to net proceeds from the sale of the 2027 Notes and sale of common stock.

principal sources of cash consist of cash provided by operating activities, and in 2023 and 2022, proceeds from the sale of the 2027

Notes, the Offering and the Oaktree Loan and Oaktree Amendment.

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

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

may acquire new products, product candidates and/or businesses and, as a result, we may need significant additional capital to support

our business plan and fund our proposed business operations.

We may receive additional proceeds from the exercise of stock purchase warrants

that are currently outstanding.

We may also seek additional financing from a variety of sources, including other equity or debt financings,

funding from corporate partnerships or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity

or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly

issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing

stockholders.

If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to

relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms

that are not favorable to us.

If we raise funds by incurring additional debt, we may be required to pay significant interest expenses

and our leverage relative to our earnings or to our equity capitalization may increase.

Obtaining commercial loans, assuming they would

be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial

and operating covenants.

Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including

investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.

We may also be required to

recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely

impact our financial results.

may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions

in the pharmaceuticals and pharmacy industries, or our operating history,.

In addition, the fact that we have a limited history of profitability

could further impact the availability or cost to us of future financings.

As a result, sufficient funds may not be available when needed

from any source or, if available, such funds may not be available on terms that are acceptable to us.

If we are unable to raise funds

to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities,

we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations

to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or

planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced

to discontinue our operations entirely.

Accounting Policies

rely on the use of estimates and make assumptions that impact our financial condition and results.

These estimates and assumptions are

based on historical results and trends as well as our forecasts of how results and trends might change in the future.

Although we believe

that the estimates we use are reasonable, actual results could differ materially from these estimates.

believe that the accounting policies described below are critical to understanding our business, results of operations and financial

condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial statements.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that

are highly uncertain at the time the estimate is made, and any changes in the assumptions used in making the accounting estimates that

are reasonably likely to occur could materially impact our consolidated financial statements.

Recognition and Deferred Revenue

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

We have 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.

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

Revenue from our pharmacy services

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

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

Sales taxes are

not included in revenue.

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

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.

the performance obligations in the contract:

Obligations for fulfillment of our 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.

We have elected to

treat its shipping and handling activities as a fulfillment cost.

the transaction price:

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

We utilize the services of a third-party professional services

firm to estimate rebates and chargebacks associated with sales of our 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

the transaction price to the performance obligations in the contract:

Because there is only one performance obligation for product

sales, no allocation is necessary.

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

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.

have entered into an agreement whereby it is paid a fee calculated based on sales we generate from a pharmaceutical product that is owned

by a third party.

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

by us and no consequential continuing involvement on our part to recognize the associated revenue.

From Transfer of Acquired Product Sales and Profits

entered into agreements whereby we 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 us.

The revenue we recognized from the transfer

of net profit was recognized at the time profit from the product sales were calculated by the Sellers and confirmed by us, typically

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

our part to recognize the associated revenue.

Operating Activities

Net cash used in operating activities

was $(22,202,000) in 2024, compared to cash provided by of $3,840,000 in the prior year.

The decrease in net cash provided by operating

activities between the periods was mainly attributed to changes in our working capital balances including accounts payable, prepaid expenses,

inventories and most notably, accounts receivable.

Our accounts receivable balance between periods increased significantly due to an

increase in our branded product sales, which have a longer revenue cycle compared to our ImprimisRx product sales.

In addition, during

2024, we extended additional terms to our largest distributor to allow for downstream and end users (e.g.

hospitals, clinics and ambulatory

surgery centers) of certain of our branded products additional time to pay for our branded products.

Investing Activities

Net cash used in investing activities

in 2024 and 2023 was $33,164,000 and $152,553,000, respectively.

Cash used in investing activities in 2024 was primarily due to the milestone

payment of $37,000,000 related to TRIESENCE offset by cash received from the sale of our investment in Eton for $5,510,000.

in investing activities in 2023 was primarily associated with the product acquisitions.

Financing Activities

Net cash provided by financing

activities in 2024 and 2023 was $28,528,000 and $126,528,000, respectively.

Cash provided by financing activities during the year ended

December 31, 2024 was primarily due to additional borrowings under our long-term debt facility with Oaktree of $29,780,000, net of issuance

costs, and proceeds from the exercise of stock options, offset by the payment of taxes associated with the vesting and exercise of share-based

Cash provided by financing activities during the year ended December 31, 2023 was primarily related to proceeds received from

the issuance of the Oaktree Loan and Oaktree Amendment, issuance of unsecured debt and sale of our equity, offset by payment of payroll

taxes upon vesting of PSUs in exchange for shares withheld from employees.

Sources of Capital

During the year ended December

31, 2024, our principal sources of cash came from proceeds from the Oaktree Amendment.

In future periods, including the year ending December

31, 2025, we expect cash to be provided from our operating activities, but our forecasts may not be accurate and our plans may change.

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

In January 2026 the Oaktree

Loan matures which totals $107,500,000 principal amount outstanding at December 31, 2024.

The maturity of this debt obligation could

raise substantial doubt about our ability to continue as a going concern.

We are currently in discussions with our current senior

secured lender, Oaktree, and other potential lenders about refinancing the Oaktree Loan.

Management expects to move into more

definitive discussions and negotiations with Oaktree and potential lenders in the summer and fall of 2025.

Management believes it is

probable that we will be able to refinance its Oaktree Loan based on our collateral strength and expected cash flows from operations;

however, there can be no assurance that we will obtain the refinancing

on terms acceptable to us, or at all.

If we are unable to successfully refinance the Oaktree Loan, we do not expect to have the

ability to repay the Oaktree Loan in full.

We believe that one of the other alternatives available to us is the sale of one or more

of our assets.

There can be no assurance that any sale could be completed on a timely basis or on terms acceptable to us.

We may acquire new products,

product candidates and/or businesses and, as a result, we may need significant additional capital to support our business plan and fund

our proposed business operations.

We may receive additional proceeds from the exercise of stock purchase warrants that are currently

We may also seek additional financing from a variety of sources, including other equity or debt financings, funding from

corporate partnerships or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity or convertible

debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity

or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders.

If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to relinquish potentially

valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms that are not favorable

If we raise funds by incurring additional debt, we may be required to pay significant interest expenses and our leverage relative

to our earnings or to our equity capitalization may increase.

Obtaining commercial loans, assuming they would be available, would increase

our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial and operating covenants.

Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees,

legal fees, accounting fees, printing and distribution expenses and other costs.

We may also be required to recognize non-cash expenses

in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial

We may be unable to obtain financing

when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and

pharmacy industries, or our operating history.

In addition, the fact that we have a limited history of profitability could further impact

the availability or cost to us of future financings.

As a result, sufficient funds may not be available when needed from any source or,

if available, such funds may not be available on terms that are acceptable to us.

If we are unable to raise funds to satisfy our capital

needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be

able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending

to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments

in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations

Critical Accounting Policies and Estimates

We rely on the use of estimates

and make assumptions that impact our financial condition and results.

These estimates and assumptions are based on historical results

and trends as well as our forecasts of how results and trends might change in the future.

Although we believe that the estimates we use

are reasonable, actual results could differ materially from these estimates.

We believe that the accounting

policies described below are critical to understanding our business, results of operations and financial condition because they involve

the use of more significant judgments and estimates in the preparation of our consolidated financial statements.

An accounting policy

is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain

at the time the estimate is made, and any changes in the assumptions used in making the accounting estimates that are reasonably likely

to occur could materially impact our consolidated financial statements.

Revenue Recognition and Deferred Revenue

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

We have three primary streams

(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 transfer

of acquired product sales and profits, and (3) revenue recognized from intellectual property licenses.

Product Revenues

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

Revenue from our pharmacy services includes:

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

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

Sales taxes are not included

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

Identify the contract(s) with a customer:

A contract is deemed

to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order

from a customer.

For branded products, orders are received through our 3PL partner, and the customer takes title of the products via

formal purchase orders placed and fulfilled.

Identify the performance obligations in the contract:

for fulfillment of our 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.

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

Determine the transaction price:

The transaction price is based

on an amount that reflects the consideration to which we expect to be entitled, net of accruals for estimated rebates, wholesaler

chargebacks, discounts, copay assistance and other deductions (collectively, sales deductions) and an estimate for returns and replacements

established at the time of sale.

We utilize the services of a third-party professional services firm to estimate rebates and chargebacks

associated with sales of our branded products.

The transfer of promised goods is satisfied within a year, and therefore there are

no significant financing components.

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

Allocate the transaction price to the performance obligations in

the contract:

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

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

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.

Variable Consideration

Sales of branded pharmaceutical

products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and

cash discounts.

Estimates for these elements of variable consideration require significant judgment.

Chargebacks, primarily from distributors

and wholesalers, result from arrangements with indirect customers establishing prices for products which the indirect customer purchases

through a wholesaler.

Alternatively, we may pre-authorize wholesalers to offer specified contract pricing to other indirect customers.

Under either arrangement, we provide a chargeback credit to the wholesaler for any difference between the contracted price with the indirect

customer and the wholesaler’s invoice price, typically Wholesale Acquisition Cost (“WAC”).

Prior period chargebacks

claimed by wholesalers are analyzed to determine the actual net price per package (“NPP”) for each product.

This calculation

is performed by product by wholesaler.

NPPs can be affected by several factors such as:

in customer mix

in negotiated terms with customers

in the volume of off-contract purchases

As necessary, NPPs are adjusted

based on anticipated changes in the factors above.

The difference between NPP and

WAC is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated

balance sheets, at the time revenue is recognized from the product sale.

We continually monitor chargeback activity and adjust NPPs

when we believe that actual selling prices will differ from current NPPs.

Government Rebates

Government rebates reserve consists

of estimated payments due to governmental agencies for utilization of our products by beneficiaries under such governmental programs.

The two largest government programs are Medicaid and Medicare.

We participate in the Medicaid

Drug Rebate Program and pay rebates to the states related on Medicaid beneficiary utilization of our products.

Medicaid rebates

are billed within 60-90 days of the end of the quarter in which the product was dispensed to a Medicaid beneficiary.

Medicaid rebate

amounts per product unit are established by law, based on the Average Manufacturer Price (“AMP”), which is reported on a

monthly and quarterly basis, and, in the case of branded products, best price, which is reported on a quarterly basis.

Medicaid reserves

are based on expected claims from state Medicaid programs.

Estimates for expected claims are driven by patient usage, sales mix, calculated

AMP or best price, as well as inventory in the distribution channel that will be subject to a Medicaid rebate.

As a result of the delay

between selling the products, dispensing the products and rebate billing, the Medicaid rebate reserve includes both an estimate of outstanding

claims for end-customer sales that have occurred but for which the related claim has not been billed, as well as an estimate for future

claims that will be made when inventory in the distribution channel is sold through to plan participants.

Many of the Company’s

branded products are also covered under Medicare.

We participate in the Coverage Gap Discount Program in order for its branded products

to be covered by Medicare Part D and must provide a rebate for any products sold under NDAs dispensed to Medicare Part D beneficiaries

while the beneficiaries are in the Coverage Gap phase of the benefit.

This applies to all products sold under NDAs.

Estimates for these

discounts are based on historical experience with Medicare rebates for products.

Medicare rebates are billed quarterly for drugs dispensed

to Medicare beneficiaries in the prior quarter, which is typically 120 days after the product is shipped.

As a result of the delay between

selling the products, dispensing the products and rebate billing, Medicare rebate reserve includes both an estimate of outstanding claims

for end-customer sales that have occurred but for which the related claim has not been billed, as well as an estimate for future claims

that will be made when inventory in the distribution channel is sold through to Medicare Part D participants.

To evaluate the adequacy of the

government rebate reserves, reserves are reviewed on a quarterly basis against actual claims data to ensure the liability is fairly stated.

We continually monitor the government rebate reserve and adjust estimates if it is expected that actual government rebates may differ

from established accruals.

Accruals for government rebates are recorded as a reduction to gross revenues in the consolidated statements

of operations and as an increase to accrued government rebates in the consolidated balance sheets.

A returns policy is in place

that allows customers to return product within a specified period prior to and after the expiration date.

Generally, product may be returned

for a period beginning six months prior to its expiration date to up to one year after its expiration date.

returns are settled through the issuance of a credit to the customer.

The estimate for returns is based upon historical experience with

actual returns.

While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator

of future returns.

We continually monitor estimates for returns and adjust when it is expected that actual product returns may differ

from the established accruals.

Accruals for returns are recorded as a reduction to gross revenues in the consolidated statements of operations

and as an increase to the return goods reserve in the consolidated balance sheets.

Administrative Fees and Other Rebates

Administrative fees or rebates

are offered to wholesalers, group purchasing organizations, and indirect customers.

Fees and rebates are accrued, by product by wholesaler,

at the time of sale based on contracted rates and NPPs.

To evaluate the adequacy of the administrative fee accruals, on-hand inventory

counts are obtained from the wholesalers.

We continually monitor administrative fee activity and adjust accruals when it is expected

that actual administrative fees may differ from the accruals.

Accruals for administrative fees and other rebates are recorded as a reduction

in both gross revenues in the consolidated statements of operations and accounts receivable or accrued expenses in the consolidated balance

who meet certain eligibility requirements may receive co-payment assistance funded by us.

We record contra-revenue for co-payment assistance

based on actual program participation and estimates of program redemption using data provided by third-party administrators.

liability is recorded on unredeemed co-payment assistance related to products for which control has been transferred to the customer.

Prompt Payment Discounts

discounts may be granted to customers for prompt payment.

The reserve for prompt payment discounts is based on invoices outstanding.

Based on past experience, it is assumed that all available discounts will be taken.

Accruals for prompt payment discounts are recorded

as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance

Revenues From Transfer of Acquired Product Sales and Profits

into agreements whereby we 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 us.

The revenue we recognized from the transfer of

net profit was recognized at the time profit from the product sales were calculated by the Sellers and confirmed by us, typically on

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

part to recognize the associated revenue.

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

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sheets, at the time the revenue is recognized.

Property License Revenues

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

with the right to access our intellectual property.

Intellectual Property License Revenues

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

the right to access our intellectual property.

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

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

Issuance Costs and Debt Discount

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, we 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 the accompany Note 13 to our consolidated financial statements).

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 we have 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 subheading “Goodwill and Intangible Assets” below).

If costs are not capitalized they are expensed

part of the process of preparing our consolidated financial statements, we 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.

We must assess

the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe 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 we establish 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.

account 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.

Our practice is to

recognize interest and/or penalties related to income tax matters in income tax expense.

We had an accrual for interest or penalties

of $40,000 and $0 in the consolidated balance sheets at December 31, 2023 and 2022, respectively, and have recognized interest and/or

penalties in the consolidated statements of operations for the years ended December 31, 2023 and 2022 of $40,000 and $0, respectively.

We are subject to taxation in the United States, California, New Jersey,

Tennessee and various other states.

Our 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.

in Melt Pharmaceuticals, Inc.

– Related Party

own 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).

We analyze our investment in Melt and related agreements on a regular basis to evaluate

its position of variable interests in Melt.

We have determined that we do not have the ability to control Melt, however we have the ability

to exercise significant influence over the operating and financial decisions of Melt and uses the equity method of accounting for this

Under this method, we recognize 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, we reduced the carrying value of our investment in Melt to $0 as a result of recording our 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 to our consolidated

financials statements), we owned 100% of Melt’s indebtedness.

Following the reduction of the carrying value of our common stock

investment in Melt to $0, we began recording 100% of the equity method losses of Melt, based on its ownership of Melt’s total indebtedness.

In addition, we treated interest paid in kind on the Melt Loan Agreement as an in-substance capital contribution and reduced our investment

in Melt accordingly, rather than recording interest income.

a quarterly basis, we assess whether there are any indicators that the carrying value of our equity method investments may be other than

temporarily impaired.

Indicators include financial condition, operating performance, and near-term prospects of the investee.

extent indicators suggest that a loss in value may have occurred, we 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, we 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 to our consolidated financial statements) was settled in exchange for Melt preferred stock (see

the Note 5 to our consolidated financial statements for loan settlement disclosure).

We reduced the Melt Loan Agreement and subsequent

preferred stock investment in Melt to $0 as a result of recording our share of equity losses of Melt.

We have no other investments in

Melt and no other requirements to advance funds to Melt.

following table summarizes our investments in Melt as of December 31, 2023:

Share of Equity

Method Losses

Net Carrying value

$ (5,810,000 )

Preferred stock

(18,397,000 )

$ (24,207,000 )

following table summarizes our investments in Melt as of December 31, 2022:

Share of Equity

Method Losses

Capital Contributions

Carrying value

$ (5,810,000 )

(13,500,000 )

$ (19,310,000 )

$ (2,484,000 )

December 31, 2023 and 2022, we recorded $89,000 and $139,000, respectively, due from Melt for reimbursable expenses and amounts due under

a Management Services Agreement, which are included in prepaid expenses and other current assets in the accompanying consolidated balance

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

and Intangible Assets

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, we capitalize 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, we amortize 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.

are an indefinite-lived intangible asset and are assessed for impairment based on future projected cash flows as further described below.

review our 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:

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

adverse economic and industry trends;

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

that a reporting unit will be sold or otherwise disposed.

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

We compare 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 we then perform 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.

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.

a result of its assessment in 2023, we concluded that goodwill is not impaired as of December 31, 2023.

of Other Long-Lived Assets

As part of the process of preparing

our consolidated financial statements, we 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.

We must assess the likelihood that the deferred

tax assets will be recovered from future taxable income and, to the extent we believe 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

we establish 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.

We account for income taxes under

the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740,

Income Taxes .

As of December 31, 2024 and 2023, there was $2,858,000 and $2,822,000, respectively, of unrecognized tax benefits

included in the consolidated balance sheets that would, if recognized, affect the effective tax rate.

Our practice is to recognize interest

and/or penalties related to income tax matters in income tax expense.

We had an accrual for interest or penalties of $69,000 and $40,000

in the consolidated balance sheets at December 31, 2024 and 2023, respectively, and have recognized interest and/or penalties in the

consolidated statements of operations for the years ended December 31, 2024 and 2023 of $69,000 and $40,000, respectively.

We are subject

to taxation in the U.S., California, New Jersey, Tennessee, and various other states.

Our 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.

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,

we capitalize 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, we amortize 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 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.

We review our 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 our business relative to expected operating

significant adverse economic and industry trends;

significant decline in our market capitalization for an extended period

of time relative to net book value;

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

The goodwill impairment test

consists of a two-step process as follows:

We compare 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 we then perform 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.

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 our assessments

in 2024 and 2023, we concluded that goodwill is not impaired as of December 31, 2024 and 2023.

Impairment of Other Long-Lived Assets

long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are

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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.

a result of its assessment in 2023, we recorded an impairment charge of $380,000 related to the impairment of certain licenses, trademarks,

patents and patent applications (see the Note 11 to our consolidated financial statements).

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.

We use the Black-Scholes-Merton option pricing model and Monte Carlo simulation model to estimate the fair value

of stock-based awards.

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 2024 and 2023, we recorded an impairment charge of $253,000 and $380,000, respectively, related to the impairment of certain licenses,

trademarks, patents and patent applications (see Note 11 to our consolidated financial statements).

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.

We use 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.

Sheet Arrangements

our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of

structured finance, special purpose entities or variable interest entities.

We have no off-balance sheet arrangements that have or are

reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses,

results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements and supplementary data required by this item are included in this Annual Report beginning on page F-1 immediately

following the signature page hereto and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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.

Off-Balance Sheet Arrangements

We do not have any off-balance

sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis